Worst Case Scenario (song)
Image via Wikipedia

So says a report from major French bank, Société Générale , as reported by Tellygraph reporter Ambrose Evans-Pritchard. (Trivia: typing “Evans-Pritchard” into the Wikipedia search box brought up Ambrose’s father, who was born in the Sussex village I grew up in.)

Ambrose’s article was brought to my attention by economist/historian Gary North, in an article titled “A Major European Bank Issues Investment Guidelines for a Worst-Case Scenario.” North adds: “I do not recall a headline like this in my lifetime. Not from a major international bank. Is the author exaggerating?”Read more…

North continues:

“As yet, nobody can say with any certainty whether we have in fact escaped the prospect of a global economic collapse,” said the 68-page report, headed by asset chief Daniel Fermon. It is an exploration of the dangers, not a forecast.Under the French bank’s “Bear Case” scenario (the gloomiest of three possible outcomes), the dollar would slide further and global equities would retest the March lows. Property prices would tumble again. Oil would fall back to $50 in 2010.

OK, it’s pretty bad. But if this is the worst-case scenario, I feel relieved.

Governments have already shot their fiscal bolts. Even without fresh spending, public debt would explode within two years to 105pc of GDP in the UK, 125pc in the US and the eurozone, and 270pc in Japan. Worldwide state debt would reach $45 trillion, up two-and-a-half times in a decade.

That’s where we are headed, with or without a major crisis in the next two years. Investors have shrugged it off.

The underlying debt burden is greater than it was after the Second World War, when nominal levels looked similar. Ageing populations will make it harder to erode debt through growth. “High public debt looks entirely unsustainable in the long run. We have almost reached a point of no return for government debt,” it said.

This is all true. We are way beyond the point of no return. Investors have shrugged it off.

Inflating debt away might be seen by some governments as a lesser of evils.If so, gold would go “up, and up, and up” as the only safe haven from fiat paper money.

If this is a direct quotation — up, up, and up — it’s like nothing I have seen in a bank report. It’s true.

Private debt is also crippling. Even if the US savings rate stabilises at 7pc, and all of it is used to pay down debt, it will still take nine years for households to reduce debt/income ratios to the safe levels of the 1980s.

It will not be used to pay down debt. It never is.

I have a question about this part of the Evans-Pritchard article:

In a report entitled “Worst-case debt scenario”, the bank’s asset team said state rescue packages over the last year have merely transferred private liabilities onto sagging sovereign shoulders, creating a fresh set of problems.

Where were the journalists at the time, screaming this fact, which the bankers knew, to the public?

Enhanced by Zemanta