Friday, May 21, 2010

The economy is dead, long live the economy?

By Nick Sorrentino

About 2 months ago I highlighted in my video blog the troubles that were occurring in China. The economic workhorse that had taken up the yoke from a diminishing (at least temporarily) US economy is stumbling. China has overheated its economy and cracks are becoming visible. The official Chinese PPI (Producer Price Index) number is currently running at 6.8% annualized but the real number is likely much higher. The same can be said for the Chinese CPI (Consumer Price Index.) A correction or even a crash is likely in my estimation before the end of this year.

Europe is a nightmare. The ECB appears hobbled. The European Union looks like it is in danger of breaking apart. The euro itself is likely moving to parity with the dollar. For all you geopolitical conspiracy theorists out there, if the euro is brought to parity with the dollar, the accounting for a worldwide currency becomes much easier. Just flip the switch. Wild speculation to be sure, but if the euro falls in line with the dollar the temptation will be very great to consolidate the currencies. If the euro looks like it may die, the macro masters of the universe will recognize that if they wait, and the Euro zone does break up, it will be that much more difficult to standardize the regulation of the economy under the IMF in future years. Their hand may be forced.

Perhaps a worldwide currency (or at least a trans-Atlantic one) will not emerge from the current financial order. But I put the odds at 30% before all is said and done that one does. Let’s not forget Medvedev’s exhibition of a world currency coin at the G8 last July.

The world is very keen to get its hands on the reserve currency. Many see the power vested in the dollar (correctly) as the key to US dominance of the globe.

Many very powerful people now see the concept of the nation state birthed at Westphalia as an antiquated concept. The elimination of the dollar as the world reserve currency and its replacement by a broader world fiat currency is a key goal. Never again will the world allow a state to dominate the Earth like the United States does currently. The Chinese may have something to say about this however.

I am unfortunately not privy to the conversations going on in the various Fortresses of Solitude around the globe, (man would that be awesome) so maybe I’m completely off base. But I don’t think so.

Regardless the world is having another seizure. As I watch CNBC I see concern in the eyes of the fund managers trotted out. Being good poker players, if they are “telling” concern, there is likely a good bit of panic floating around in their brains. Many a whiskey sour will be poured in brokerage houses at 4:15 this afternoon that is for sure.

What we are witnessing is the simultaneous birth and death of the economic system. We know what the economy used to look like. Some look back with longing, and remember “buy and hold” and 10% commissions on mutual funds. Good times, good times. But what the economy will look like in coming years is a real question.

Will we emerge into a new world in which the masters of the central banks whip the populations of the world into submission and conformity? Or will the current system splinter into a more competitive and potentially resilient system, in which there are many more nodes of economic and political power? Or will we stumble along in a half twilight of economic truth and economic fantasy for years to come? God help us.

There is only one option for those of us who value liberty, and that is a splintered, multipolar world. To the degree power is consolidated in central governments and in central banks the freedom of the average individual diminishes proportionally. The last thing free individuals need is a planet that is to big to fail. Because it will fail eventually, and take everything that is good with it.

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About Me

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Nick Sorrentino is the Editor of The Liberty and Economics Review and CEO of a social media management company.