The Red (Team) Analysis Weekly – 6 February 2014 – The financial system… again

Editorial – The financial system… again – The 23 January Weekly selected the contraction of the Chinese PMI as one of the signals to notice. Impacts of the China PMI drop have been felt notably in Asia, but, at least so far, not so much happened in the rest of the world. Thus, which types of warning could we deliver following this contraction, added to the emergent countries currency problems, the latter having been foreseen for months? Should we follow those who do not really wonder, who do not see those signals as deserving much attention, and who just think that business will continue as usual for ever?

Alternatively, should we, as Phoenix Capital Research publishing on the rather bearish financial blog Zero Hedge, ask: “Is Anyone Really Surprised That the System is On the Brink Again?” We would then follow the same (logical) argument according to which as nothing has truly and really been done financially, and as the same cause always produces the same effect, we should be ready for another mammoth episode of the crisis, and should have been for a while. The question then would not actually be if there will be a new melting down of the system but when.

What if there were also, potentially, another way to look at the situation? In that case, the weak signals would not only be the indications we saw previously, but also the minimal reaction of so many financial markets, added to the erosion of the middle class, and to the spread of poverty that has been seen again and again throughout the last years, notably in developed countries. In this alternative hypothesis, change since 2007/2008 has actually happened, but not the change that rational economic actors believing in a relatively good and just system expected. The real evolution could have been slow and denied, it could have been one grounded in injustice legitimated by outdated ideology, in the exploitation of the many for the benefit of the few, and for the preservation of a system that indulges a specific elite that has been in power for a while and only wishes to preserve its privileges (see The Chronicles of Everstate for the material and ideological stakes and dynamics at work in elite politics).

If those changes have really fully taken place, as is most likely, then, the risks to see a meltdown that would touch the richest, at least on the short-term, might be reduced. This does not mean that the “meltdown” would not impact a large number of people, but those in power may believe they are now enough insulated and protected not to really care, financially. Yet, would they also be right not to care on other fronts? The middle class is an essential component of democracies, thus its disappearance may well send shock waves throughout our democratic regimes, as the rise of pan-European far right alliances may indicate. Prolonged economic stress, as known by Japan, or economic downturn, as could happen in some emerging countries, could be a factor favouring extreme behavior by political authorities unable to find another way to ensure their legitimacy and thus their rule. In other terms it could be an incentive towards war, all the more so that the international tension, compared with 2008, is much higher.

Detailed multidisciplinary foresight and warning analyses are more than ever needed for everyone, including the most privileged, if strategic decisions are to be taken at best, or “strange”  and potentially lethal surprises are bound to abound.

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