Trust is the currency of wealth.
Stock markets this week or month could free fall. We really could be plunging into the Great Depression Mark II.
And, it is Europe’s collective of national leaders fault.
Here by regions are some history and, then signs of what may happen.
Australian Stock Market
I live in Australia.
For a long time I have held the view, and expressed the view that the true value of the Australia stock market is 4,500 points. I predicted the fall in October 2007, and shortly thereafter the bottom as 4,500.
3,700 to 3,800 was the range I gave as the ‘overshoot’ with true value of the index at 4,500.
I also have not changed this prediction over the last few years.
Right now, this prediction is stable. Unless Europe falls. And then we are in my view looking at 1,700 points. Or in an armageddon 100 points. Yes 100 points.
Normally this would be so unlikely as not to warrant discussion, but Europe is serious.
USA Stock Market
Although not published my analysis of the true value of the Dow Jones is 9,500 to 11,500. I still think this is the case.
It has been my view that both are likely to move sideways, and not up.
The Dow(n) Jones however would move up, if the USA was left to it’s nascent recovery I started seeing in October 2011 this year.
Here I see a rise. Unless Europe falls. Then black hole like 5,000 maybe down to 3,400 or so.
Armageddon — I don’t know. Perhaps not as low because South America is more significant, and so is Canada — so trade can continue. If I was selecting a range 500-700 points for 1 year.
Note that, once again, economic armageddon is not permanent. As recovery (assuming benign leadership) almost always recovers.
Assuming Europe doesn’t really mess up.
1930s USA stumbled, Europe kept it down
Europe has form here. It was the British currency decisions, and removal of gold backing in part that created the darkness of the Great Depression.
Arguably, the punitive nature of war debts in Germany (inflicted by France and Britain) — really plunged the continent into darkness.
And it was the massive debt of the foolish World War I that Europeans refused to pay (default on debt again) — that really worsened the crisis of the 1930s. It’s often forgotten that Germany, France and Britain did not pay their full war debts to the USA.
Without a European debt black-hole the free market system of the USA recovers. Quickly.
Asia
Is dependent on Europe then USA, Canada, Australia (and ultimately trade with each other). So take out the biggest slice (Europe) and the it’s like losing a third of your income before the flow-on effects. Europe is more than the E.U.
So, let’s say – blood bath on the Asian stock markets if European debt show rolls into the abyss.
Europe
Europe arguably caused the Great Depression with their own internal issues, and inability to resolve long-standing cultural rivalries.
It was the removal of the gold standard (or at least the way it was done) and those war debts — that largely caused the Depression to reoccur in the early 1930s.
Both were based on a nationalist not a ‘love thy neighbor’ sentiment. Both decisions were based on transferring the problem, and dealing with other countries in a win-lose mindset.
As I argued in 2007, this makes no money for no one. The British, of course, never learn this lesson and persevere in a zero-sum mentality. Other Europeans are hardly much better (although arguably some European responses are protective.)
Europe what I said
So in our Innovation Cities Analysis Report, I have maintained a prediction from 2009-2011 that Europe will continue to function. It will resolve the debt crisis. Europe (and the E.U.) will do the right thing.
Fire-walling the debt, defacto de-valuation, debt haircuts, banking bailouts, and other measures should work. I remained optimistic, based on believing that the common market/EEC, E.U., Euro and to some extent Lisbon, had rendered Europe as ‘pan-European’.
Either view will win — the pan-European view, or the nasty nationalistic view.
But as it seems now, this positive view may simply not work. Mainly because the Europeans won’t (once again) let it work.
European History
And as usual, the realpolitik and elitism of Europe that led to Versailles, and before that the Napoleonic Wars rears its head again.
Commerce is based on trust. And it seems once again nobody in Europe trusts each other, and each country is still too busy trying to give their rival economic powers the short end of the stick.
Did Europe learn nothing from World War I and World War II? These were economic wars, as much as political wars.
Surely leaders learnt that scorched earth and bloody mindedness does not work. It did not work in war, and it won’t work in economics either.
It seems the British, French and Germans are too busy thinking of each other’s relative position. Although, as in the 1930s, Britain’s strategy will not work — nobody can compromise to find one that will (instead of whingeing)
Austerity is a failure
Austerity has never worked. And will never work. You cannot (as corporate failures attest) cut your way out of crisis.
But because the creaking machines of state lack the intelligence, foresight and dare I say it — common sense – to really look at the problem honestly, this European buck-passing continues.
I just cannot understand why they let the same old usual suspects (who lack courage) make the same old narrow decisions.
Maybe someone will step-up, and champion the cause of a positive vision, and positive solution to the European debt crisis. But it looks doubtful anyone will have the numbers. Is it time to merge or separate European nations to stop the ridiculous voting record?
Democracy a casualty
And, as if history was forgotten, democracy is suspended and ‘technocrat’ centralists placed in charge. It seems we trust the crowd, as long as they vote for whom ‘we the elite like’.
FD Roosevelt and the Socialist experiment did not fix the USA, nor did the other ‘European’ experiments.
The longer this volatility continues the worse it gets.
And still everyone kowtows to an economic elite, emperors with no clothes. Surely it is time to look to innovation.
Europe can recover (still)
For what it’s worth, Europe can recover, with a similar dose of medicine to the USA, and a co-operative approach amongst neighbours. However, it seems resentment and bitterness, and nationalist lack of trust may win.
And it is trust which is the currency of wealth.
So Europe, don’t (again in my view) plunge us into a mess.
The probability on the first band falls, is shifting to 50%/50% in my view (from 60-70%), and the trend is down.
Europe use your much vaunted intelligence to get us out of one. Because, all you get is a decade until the next crisis. So why waste a decade or two?
Europe. Go to church (or mosque, or temple). Love thy neighbor!
I’ll say it again.
Trust is the currency of wealth.
Europe it’s history calling: Are you listening?
Keep (or start) innovating,
Christopher Hire
Christopher Hire is Executive Director of 2thinknow, innovation agency, and publisher of the Innovation Cities Index and Innovation Cities Analysis Report. He predicted the first GFC, dot-com bubble, and owns no shares right now (except through superannuation – which next week he may convert to cash).