Global Outlook: Officials Only Can Steady the Economic Boat, not Force Her to Sail

Excerpts from Dr. Enzio von Pfeil's October 17, 2008, appearance on CNBC Asia:

1. What are your thoughts on financial actions by the US and European governments? What do these unprecedented actions signify?
   • They have steadied the boat, but not gotten the captain to set sail.
   • That is because this is not a credit problem, it is a credibility problem.
   • Banks won’t want to lend for a long time:
     
     1. they won’t lend to each other,
     2. they won’t lend to existing customers, and
     3. they most certainly won’t extend new credit: the Economic Time™ is worsening by the day.
   • Thus, recent government actions imply that they know that things are really going to get bad.
   • At its most fundamental, the value of money is being re-valued: fat pay cheques are based on air-devalued money. Now money is regaining value.
2. Flooding the global financial system with the world's reserve currency helped stock markets rebound - is that enough to ease out of the credit crunch?
   • No: markets discount profits.
   • With the Economic Clock™ foretelling a dreadful global Economic Time, the profits outlook must worsen.
   • The Economic Time increasingly is characterized by an
     
     • Excess demand for money, and thus an
     • Excess supply of goods.
   • Hence stocks will slump further.
3. What about the other impact from increased liquidity in the financial system? What more can and will global governments do?
   • Nothing.
   • In fact, the candy jar – the array of policy options – is rapidly emptying.
4. What is your outlook for the global macroeconomic climate till year end? How do you see growth panning out the last quarter and the first half of the 2009?
   
   • An L: we will end up – for a short while – in Japan’s L.
   • That is because commercial banks won’t want to lend, so – just like in shipping – there will be no movement in the system.
5. How sharp will be the downturn be, and what will the impact be on Asia's real economy?
   • It will gain in nastiness until June 2009: that is the perpendicular bit of the L.
   • As of June 2009, we will enter the horizontal bit of the L – until at least the end of the year if not until June 2010.
6. What is your interest rates outlook, and what are you expecting central banks to do to boost growth?
   • As I suggested in point 3 above, the candy jar of policy options is rapidly emptying.

Comments

[axelrod608:]

Dead spot on, a perfect bullseye. Trying to fix a cheap plentiful money problem with more cheap plentiful money is like taking the gamblers anonymous group to a casino. It is THE stupidest government program of all time, and the bar for that distinction is set incredibly low.

20 years from now you will be able to buy stocks and real estate for 50% (adjusted for inflation) of what you could last year.

And on the ship analogy, trying to fix this derivatives meltdown with a few trillion dollars is like trying to bail out the Titanic with a teaspoon.

The reason banks won't lend to other banks is because they KNOW the other banks are INSOLVENT. Ooops. There I've gone and said it. The government and Wall Street are trying to keep that little tidbit secret. Sorry guys.

2008 Oct 16 12:46 PM

[phdinsuntan...:]

"Now money is regaining value.", is the consequense of selling all the assets, but value is defined by scarcity and as mv = pq, money is loosing value. Gat is being valued is the lack of trust in credit, and this is called money in cash. Agreed only in 6.

2008 Oct 16 02:27 PM

[phdinsuntan...:]

you are 300% since 2009?
I made 200% last week

2008 Oct 16 02:29 PM

[phdinsuntan...:]

1999

2008 Oct 16 02:29 PM

[January Thaw:]

Oh, and what impact will the IMF have on the whole thing? Will EU be
determining how US banks function? Interesting stuff out there lately.

2008 Oct 16 10:43 PM