A CRISIS IN LEADERSHIP – THE END OF FREE MARKET CAPITALISM
The
world is currently experiencing three historic events that will reshape the
geopolitical landscape of the world. We are seeing unfold:
Germany
emerged as the dominant European power dictating the terms on economic
policy.
The
Catholic Church is facing its biggest crisis in leadership for centuries.
The
beginning of global stag-inflation, and the end of American free-market
capitalism.
The
significance of the three events will have a profound impact on shaping the
world for the next decade.
Germany,
by insisting that they will only bail out Greece on their terms, against the
request of the majority of the other Eurozone members, has been able to impose
its authority on the EU. Why has Germany taken such a firm stand on
providing direct financial support for Greece?
Germany
itself is only just recovering from recession, and has budget deficits of its
own to cope with. The German people do not see why they should rescue
the spend-thrift Greeks when they have their own problems, and have made
sacrifices to correct imbalances in their own economy. Though the German
economy is already recovering from the recession, with exports up, and
unemployment falling, they cannot save the rest of Europe alone.
Germany is the one country in the EU which is now benefiting from having the
recent weaker Euro, with a strong manufacturing base, and little inflationary
pressures to take advantage of a weaker currency to expand exports. This has
been helped by those global markets which have stimulated domestic demand
following the recession by inflating their money supplies.
Germany,
having been the world’s largest exporter for many years, has accumulated
extensive investments abroad. Its strong manufacturing base and
technical expertise will allow Germany to enforce greater authority over the
direction of Europe. Because Germany is in a stronger financial
position than the rest of the EU the German economy has recovered quicker
from the recession than the other members of the EU. Yet Germany cannot
impose its will on the rest of Europe unless there is a political and
economic crisis that will force the other EU members to accept German
leadership? Only serious crises affecting the rest of the EU accept
Germany’s terms in return for economic stability and leadership.
The
crisis the EU is facing is threatening its very existence as an
institution. It is a much a crisis of leadership as it is an economic
crisis. Yet is also an opportunity for those pushing for a Federal
United States of Europe to bring about the reforms to achieve this
goal. Unless these reforms are made immediately most of the States in
the Eurozone will default and Europe will disintegrate into economic chaos
and depression. This would in turn drag the rest of the world down into
a serve economic depression.
While
most countries around the world have inflated their money supplies to
stimulate their economies to assist their recoveries from the recent economic
crisis, the Eurozone countries have not been able to achieve this under the
terms of accepting the Euro. The European Central Bank (ECB) is
prevented under its charter from increasing the money supply to inflate
individual member states economies. The Germans, still remembering the
devastation inflation created in 1923 and following WW2, are still very aware
that printing money will devalue your currency and create inflation, insist
on the ECBs independence in maintaining fiscal stability.
As
many European governments have been spending more than they earn, they have
borrowed money from the global money markets to finance their deficits.
This has created fiscal problems for those Eurozone countries which financed
domestic growth out of debt, as the cost of servicing these loans has become
unsustainable. In addition the global recession has reduced government
revenue. These governments now need to reduce expenditure to balance
their budgets, which means making some very unpopular economic and political
decisions. Lower Government expenditure is also causing further
contraction of many EU economies.
Countries
in the Eurozone such as Greece, Portugal, Ireland, Spain, Italy and even
France are now facing liquidity crisis’s, with falling government revenues,
pressure to increase government expenditure to stimulate economic growth, and
rising interest rates. Unlike countries outside the Eurozone who have
been able to print money to inflate their economies, the Eurozone countries
have had to attempt to reduce Government, and continue borrowing money on the
international capital markets to finance their deficits. It will take
years before these countries will be able to restructure their economies to
get their budgets back into balance, repay their debts, and to be able
achieve economic growth again. It is during this period of
restructuring there will be a period of social unrest, political upheaval,
and high unemployment.
These
Eurozone nations now fear the specter of national bankruptcy. If they cannot
inflate their money to repay their national debts, and are unable obtain
further credit, they will default on their loans. A number of countries in
the Eurozone will default if they can no longer obtain credit. These Eurozone
nations are looking to Germany to bail them out. Germany as the largest
and wealthiest EU nation is the only country with the reserves to fund the
debts of those Eurozone nations facing insolvency. However the scale of the
problem German cannot alone save the rest of the Eurozone - they have their
own problems with deficits exceeding what is allowed under ECB rules. Bailing
out the rest of the EU is only going to drag the Germany economy into
insolvency as well.
What
can now be done to prevent a total disaster unfolding and the Euro
collapsing? This can only be achieved by imposing political and
economic reforms upon the EU that will bring about full political and
economic union under a single President who has the authority to govern the
EU as a single political entity. A new Federal Government is needed to
take over the management of the economies of the member nations in the
Eurozone. While the EU does have a President, unless individual member
states are prepared to give up their national sovereignty he remains little
more than a figure-head. Unless the EU members agree to having the
individual economies managed by a single governing authority the Euro and the
European economy are facing disintegration. If this was to happen,
Europe will break up – they will experience economic collapse and widespread
political unrest. Europe is facing the worse crisis since its creation
– it is much as a crisis of leadership as it is an economic crisis.
Interesting
the USA experienced a similar crisis following the War of Independence and it
was through the efforts of US Treasurer Alexander Hamilton in having the
Federal Government to form a new Central Bank, and take over the debts of the
individual states in return for their loyalty and sovereignty to a
centralised Federal Government, and which bought about the political unity
and prosperity for the USA.
The
Euro will emerge from this crisis as the only global currency accepted as the
world’s reserve currency. The Euro will survive this crisis and strengthen
again when an inspirational leader emerges to restore confidence. This
must happen soon, to avoid disaster. As inflationary pressures build up
around the world the Euro will be adopted by governments as the global world
reserve currency. It will be accepted as a new global currency,
replacing many countries domestic currencies.
Unlike
the Eurozone, the rest of the world has gambled by inflating their currencies
to enable them to stimulate economic growth to revive their domestic
economies. However it appears that in a desperate gamble to prevent the
collapse of the Euro the EU is now prepared to prop up insolvent member
states by creating credit and purchasing their government bonds. In the short term this is working, but as
China is now beginning to experience, it will soon create an inflationary
bubble. Inflation quickly reduces a country’s ability to maintain a
viable export sector, as rising costs lessen any benefits from a weakening
currency, destroying their production sector, and leading to speculation in
property.
Very
soon most of the world will experience an inflationary boom that will result
in rapidly rising prices in property, commodities and food. With rising
prices so will there be increasing pressure on wages and consumer
prices. In brief, prices will go up as money looses value. Global
inflation will destroy the value of most currencies, especially for those
countries holding reserves in US dollars and will find that their reserves
have become worthless. Governments will be forced to increase interest
rates to try and prevent their currencies loosing value, which will only
worsen the situation and create another more serious economic crisis.
Governments will discover that they cannot just continue to just borrow
money, print money and create credit to satisfy the consumer lusts of their
citizens.
As
money loses value, social unrest will spread. Without money people will
starve, disease will become wide-spread, as well as poverty. Already
many countries are facing the prospects of famine as the supply of food
becomes affected by drought and other natural disasters, forcing up the
prices. Those countries depended on imported food will no longer be
able to afford to fed their people, resulting in starvation. This will
be followed with political upheaval as people demand solutions.
Rising interest rates and large government deficits will result
in many countries defaulting, wiping out trillions of dollars in
savings. It will plunge the world into depression.
This
social unrest will have considerable impact politically, motivating people to
look for a strong leader such as another Napoleon or Hitler to restore order,
unity and political leadership.
Most
countries will be willing to accept the Euro as the world’s reserve currency,
and agree to submit to the economic authority under a new economic
order. It will mean the end of free-market capitalism, to be replaced
by State-controlled capitalism similar to what was practiced under Hitler by
the Nazis.
Not
only is Europe experiencing an economic and political leadership crisis at
this time, it is also facing a religious leadership crisis. The moral
authority of the Catholic Church has been largely undermined of the sex abuse
scandals and their cover-ups. Around the world daily new sex scandals
are being revealed almost daily that have been covered up by the Catholic
Church. The crisis in the Catholic Church coinciding with the economic
crisis in Europe is the precursor for bringing about some of the greatest
changes in international politics the world has ever experienced
This
leadership void in the Catholic Church and EU politics will only be filled
with a new religious leader who will be able to transform the Catholic
Church, and restore it moral authority. This leader will become
the intermediary to unite Europe and Christianity. It now appears that
the current Pope will be forced to resign, to be replaced by a new leader who
can restore moral the wounded Catholic Church, and reform the
institution. This leader will play a key role in reshaping a unified
Europe and installing his authority throughout the world to create a new
economic order.
The
coming weeks we will be seeing some of the most significant events in history
unfold.
Bruce
Porteous
bruceport@xtra.co.nz
Further
reading:
http://www.spiegel.de/international/europe/0,1518,692666,00.html
http://www.nytimes.com/2010/05/09/business/global/09ripple.html?th&emc=th
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