Anbound Research Center is a think tank that tracks and conducts researches on economic trends. Since spring this year, the information we gathered all point to an uneasy common direction: a global economic crisis is brewing and the financial world has no effective means to counter this crisis, making this coming global economic crisis the largest ever and very likely to affect the whole world; only a few countries like the United States, Canada and India could become countries for capital hedging.
2015 is a year of uneasiness.
In China, after the continuous two five-year plans that focuses on promoting economic growth through urbanization and economic stimulus program, causing the Chinese society to accumulate a huge amount of capital; this has resulted the drastic increase of property price that caused huge government debt, as well as making entity industries to become unsustainable and at the brink of collapse. This is followed by the booming of usury loans, which are impossible to curtail, and the rising number of crime cases follow suit. Recently, huge amount of capital flew to the stock market, causing the stock market to become volatile; and to diversify the investment capital, market issues were turned into political issues.
In the Western world, Europe is in the quagmire of debts. The Greek crisis remains unresolved, and Greece can leave the Euro Zone anytime and return to Drachma. The Greek crisis also indicates that the most urbanized, non-German speaking countries, especially Southern Europe could follow Greece's footsteps, causing the complete collapse of Euro and more dangerously, making the currency to be used only in the German-speaking countries. To avoid this happening, Europe has no alternative but to save Greece, yet this creates a crisis of its own for Europe. Greece now hijacks Europe, making the latter lost its function as the stabilizer of the world's economy.
Recently, African refugees in France escaped to the United Kingdom, a non-Euro Zone country through the English Channel. This has become a political issue in the United Kingdom, but when we look at the issue from the economic perspective, the refugees understood that Europe is sinking and the only thing they can do is to escape.
I have been tracking information and conducting researches on major financial issues of the past six months of the year, and my findings indicate that the 2008 Wall Street Financial Crisis is not over; it is merely a preliminary waring for the next stage of global economic austerity. Urbanization, once being promoted by the World Bank and some international organizations as the panacea of development, has risks that were seriously ignored. Many countries, in the process of rapid urbanization, have accumulated astronomical amount of debts. The 2008 Wall Street Financial Crisis clearly shows that even Wall Street’s creativity will be insufficient to solve this problem.
It is for this reason that the currencies of emerging market countries experience devaluation, some greatly so. Indonesian Rupiah falls to its 17-year low, Brazilian Real devalued by one-third for the past one year and World Cup did not help to boost the currency at all. Malaysia’s Ringgit hits 16-year low by July this year, while Thai Baht falls to its 5-year low. Theoretically, currency devaluation is beneficial for export, yet the export of these emerging market countries is declining. Statistics from the CPB Netherlands Bureau for Economic Policy Analysis show that in May this year trade momentum is -1.3% while export momentum for emerging market countries is -2%; export momentum of developed countries fairs badly and China’s export momentum is insufficient.
The next crisis is the falling commodity prices, and needless to say the price of gold experiences sharp fall as well. In July, wheat futures price fell to the lowest in a single month in 4 years, while LME copper fell to the 6-year low. With the price slump of coals, Japan’s Sumitomo Corporation and Brazilian miner Vale S.A. sold the Isaac Plains coking-coal mine in Australia to Stanmore Coal Ltd. for mere Australian $1. Also in July, the well-known Walter Energy Inc. declared bankruptcy while Arch Coal Inc. tries to restructure its debt but was rejected by the Bank of America. There are plenty examples of falling stocks, including two of the major American oil and gas corporations Exxon Mobil and Chevron, following the falling of world oil price from last year’s highest US$115 to US$47; a survey shows approximately 70,000 oil and gas industry employees worldwide have been retrenched.
Even Puerto Rico of the South America experiences serious debt crisis. The island has more than $72 billion USD of outstanding debt; since it is an American territory Puerto Rico had hoped that it will receive capital aid from the United States but the request is rejected. In Malaysia, scandals surrounding controversial debt-ridden sovereign investment company 1Malaysia Development Berhad (1MDB) have caused serious political crisis, and in Hong Kong the DSC retail chain collapsed.
As we are facing these crises, solutions are still nowhere to be found.
Some economists and analysts suggest that these are the reactions of the rate hike of the Federal Reserve. In my opinion, the rate hike of the Federal Reserve does have some effect, but the main cause is the uncontrolled urbanizations that cause indigestible debt crisis around the world. The current situation is quite similar with the crisis in the 1870s. The Federal Reserve was still hesitant in rate hike earlier, this might be they were still considering the responsibility of the US dollar. Once they realize that the world’s situation is irreversible, the rate hike will be huge and intense.
These problems cannot be solved through the market, and they will eventually affect the government’s policies.
This year, I have repeatedly saying that global economic crisis is forming and developing, but few people accept this. This is understandable as under urbanization and nominal capital, many are optimistic on the economy of China, even the academicians who are usually critical-minded refuse to believe the world economy is coming to a serious crisis, while officials and scholars still think China as the leader of world economy. This is dangerous as China’s policies on macroeconomic regulation and control is built on the basis of blind optimism.
The truth is, the Chinese society is unprepared for the tough days ahead. Fortunately China is not Greece. If the state-owned enterprises and the government can be better managed through proper policies on macroeconomic regulation and control, there should not be major problems in the economy of China. The key of devising correct policies is to have sound judgement on the situation and financial condition, not blindly believing in good performance of the stock market last year.
