25 February 2009
The current crisis fraught with prolonged financial hardship and even civil war, The Globe and Mail, writes by referring to the economic historian Niall Ferguson. According to him the global crisis is far from over, it has only just begun.
"Projections for economic recovery next year, Ferguson called as "lying to boost public confidence". He believes the crisis will eventually provoke political conflict, albeit not on the scale of a world war, but violent all the same", the Canadian edition writes. The first swallow of future trends, Ferguson described the fact that on Monday Abu Dhabi at bargain-basement prices bought Nova Chemicals: "with financial power quickly being transferred over to the world's creditors - namely sovereign wealth funds - and away from the world's debtors".
And much of today's mess, he believes is the fault of central bankers who targeted consumer-price inflation but purposefully turned a blind eye to asset inflation. "This is a very unfair crisis. The epicentre is the United States, but the rest of the world, and particularly America's trading partners, will get hit harder than the US", Ferguson said in his interview to the newspaper. According to him the more an economy depends on the global system, the harder it hurts.
Expert predicts that Asian economies are going to be really slammed this year. But the status of America as a safe-haven for investment, strangely enough, only reinforced because of the crisis. Therefore, the US government in order to save the economy is capable to provide more means, and can do it at a lower cost than other countries", says Ferguson.
Referring to "Chimerica" - thus he calls the economic fusion of China and America - the expert pointed out: if this fusion breaks down, both sides will lose. The Chinese side is continuing to buy dollars because they have no other strategy: they want to keep, as far as possible, the US importing Chinese goods. They want to keep currencies stable. However, the crisis of globalization that destroys the global trade system, has became the biggest challenge for the Chinese administration for the past 30 years - the entire period from the beginning of reforms, Ferguson suggests.
The destruction of the global economic system - it is most likely - the expert believes: "It can be collapsed, just by inflating a housing bubble, bursting it, and watching the financial chain reaction unfold".
The crisis will cause civil wars to break out in several countries, that have been dormant.
According to Ferguson, the crisis will destabilized the situation in several countries and cause dormant civil wars. Weak regimes will resort to a more aggressive foreign policy, but the global geo-political conflict is less likely to be, he believes. For example, Russia, in his view, now can not afford a war, like Georgian. US, for its part, still possess an overwhelming domination in the military sphere.
Ferguson believes the current crisis as unprecedented: "It's a crisis of excessive debt. The savings rate is going to continue to rise. These processes have tremendous momentum, and the crisis will be deeper and more protracted". He drew attention to the psychological side of the crisis: although August, 2007, was when this crisis began, the stock markets carried on until October of that year, and consumer behaviour in the US did not change until the third quarter of 2008. "Now, you have to try to unscare the consumers before a self-perpetuating downward spiral", expert notes.
At market investments, Ferguson predicts "a global sale for the debts" of American and European assets, which creates good opportunities for the institutions and countries, which have free money. "The potential returns from buying distressed assets or from buying companies that can't roll over their debt, are double digit", he explains. Assets of potential bankrupts, he advised to buy after a while, when prices drop.
According to Ferguson's estimations, $ 2-trillion worth of debt of US Treasury is going to hit the market this year. Supply is exploding just when demand is contracting, therefore, bonds sell off in price. "There is still this inertia that prevents the dollar and the bonds of US from falling off a cliff", the specialist considers. The prospects for the Euro zone Ferguson assesses pessimistic: he believes that this year, its preservation would cost very high.
Barak Obama's administration ceded a great power to US Congress, which is fraught with protectionist measures, Ferguson said. In his view, Congressmen would not resist the tempting populist solutions like "American jobs for American workers".
Department of Monitoring,
Kavkaz Center
