Time is quickly running out for the global financial system

by Michael Smith (Veshengro)

Are we rapidly approaching a moment of reckoning for the global financial system? All the signs are the we are, but I add the probably bit. Like in Carslberg being the best lager, probably. It's Danish, you know. I am not.

August is likely to be a relatively slow month, as most of Europe is on vacation, and I mean literally. Most of the EU members states have a month of vacation with factories closing down and all that.

However after that we will be moving into a "danger zone" where just about anything could happen. Historically, a financial crisis has been more likely to happen in the autumn than during any other time, and this autumn is shaping up to be somewhat extraordinary.

Much of the focus of the financial world is on whether or not the Euro is going to break up, but even if the authorities in Europe are able to keep the Euro together we are still facing massive problems.

Countries such as Greece and Spain are already experiencing depression-like conditions, and much of the rest of the globe is sliding into recession. Unemployment has already risen to record levels in some parts of Europe, major banks all over Europe are teetering on the brink of insolvency, and the flow of credit is freezing up all over the planet. If things take a really bad turn, this crisis could become much worse than the financial crisis of 2008 very quickly.

The UK, despite what the government keeps telling us all, is in a double-dip recession and negative growth, people, means not just no growth but actually a shrinking of the economy. Let's get that understood once and for all. The terms is but spin by the government.

Let me put it like this. I am no economist and don't claim to be one but I can see the writing on the wall and unless the Euro zone countries really do something then the Euro is going to be history, and this could, actually, be a good thing. At least in the long run.

The idea of the Euro as a single European currency was a problem from the start. It can only function in a federal Europe and that is a bad idea for starters. However, let us remember that in the Europe before borders a common currency did exist and trade in the days of the Hanse was conducted by its means. It was gold and silver coins, all had the same value, as they all had the same weight, and all were acceptable by any trader across Europe, as it then was, regardless of the portrait or whatever that was on the face of the coin.

That Europe of old (and the Hanse traded much further than today's EU) was not one of national borders either. There were no passports and no border controls, etc. Despite the fact that there were different countries no one really cared. And it all worked well, bar the trade wars and piracy.

However, the idea of a federal Europe is not going to work, especially not as long as the organs of this organization are no elected entity and their members and officers are accountable to no one.

Forcing sovereign states into any kind of allegiance, especially one that the citizens of those states are not happy with, can only be enforced by some kind of coercion, by some kind of force, and with the EU bodies making comments that Germany can not continue to object to not bailing out the Greek and other economies and that, in fact, they will have to pay, will not go down well with the people.

Hence it is but a matter of time before the Euro and the -zone will disintegrate and we will, as a matter of course, see the old currencies coming back. This could be a good thing in the long run but definitely could cause lots of problems in the short term.

The global financial system is extremely complex and there are so many thousands of moving parts that it is always difficult to predict anything precisely as to the when. In fact, history is littered with economists that have ended up looking rather foolish by putting a particular date on a prediction, and, as I have said, I am no economist and am not claiming to be one. But we could be starting to see storm clouds gather for this autumn.

According to recent reports from Reuters September could be the decisive month as far as the Euro and the -zone is concerned for in that very month a German court makes a ruling that could neuter the new Euro zone rescue fund, the anti-bailout Dutch vote in elections just as Greece tries to renegotiate its financial lifeline, and decisions need to be made on whether taxpayers suffer huge losses on state loans to Athens. On top of that, the Euro zone has to figure out how to help its next wobbling dominoes, Spain and Italy – or what do if one or both were to topple.

The way things look at the moment, but they have looked iffy for the EU and associated issues before, things could go belly up. But, and that's why I said “they have looked iffy before”, we must not forget the the European Union bodies have a tendency to tell member states to have their people vote in the way that they, the powers that be in Brussels, decree. We saw that when the Irish rejected the Lisbon treaty and the government in Dublin was told to continue holding referendums until the Irish would vote yes. Remember, this is democracy a la Brussels.

© 2012