Preparing forecast for this year was even harder than a year before. Global economy keeps changing into battlefield of the West lead by Anglo-Saxon camp and rising to power East with China in the centre and former allies of the US seeing a way to matter again.
What is worse most of the events and economic processes are a result of central planning and decisions made behind closed doors. You cannot predict that from obvious reasons.
Therefore designing the plan of 2015 in advance is hard work. Let us use below analysis not strictly as ordinary forecast but rather open-ended study of geopolitical future.
In 2015 we all will be witnessing further alienation of Washington. Symptoms starts with open and active opposition to expansive policy of the US both in Europe (overt veto against sanction war) and in Asia. Japan being an exception – for at least 8 months.
Colonisation of the US by Chinese have to accelerate. Their systematic buy-outs of companies, airports or farmland in long-term will re-industrialise North America but in 2015 I see no way unemployment dropping by 1-2%.
Intensification of movements that fight TBTF banks and the Federal Reserve. Main protagonist in this cleansing experience may be Senator Elizabeth Warren. Claims of return to a republican dollar issued by the US Congress can be found from time to time in an alternative media. Group still will not get traction as long as nearly 95% of population believes that the FED is governmental institution.
The US Congress will not agree for the IMF reform that takes away veto right form Washington. Adding yuan to the SDR basket is another big point that is a big ‘no’ form America.
The biggest threat to the financial sector in the US is energy sector bond bubble. At the end of 2014 Shale industry was indebted for over 2 trillion USD. This is triple the worth of the MBS worth (Mortgage backed securities) in 2008 when they triggered recent economic meltdown. Should oil stay below 60 USD and natural gas below 3,5 USD many companies will inevitably go bankrupt.
In my opinion the FED do want to start their printing presses. Financing federal deficit of 1 trillion and keeping up the US government debt bubble has to be done from someone’s pocket. You can play the markets for so long as a mystery buyer from Japan or Belgium but in the long run the FED will intervene and ‘solve’ this problem. Alternative? Going bust and uncontrollable nosedive of financial sector. Price no one wants to pay.
Economic sanctions and recession will be felt ever more harshly on the old continent. Even Germany can face recession. Practically every European country is on the brink of social unrests. To keep them at bay governments will use old trick – ‘incoming war with Russia’. Another ‘Charlie Hebdo’ attacks should be studied carefully as it’s a great excuse for politicians to legally take civil liberties from people.
Fortunately propaganda will achieve goal opposite to one planned – anti-governmental and anti-EU trends being strengthened. Moreover politicians will start talking openly about leaving NATO. Spain and UK elections could shock with Eurosceptics scoring very high.
Austria, Czech Republic, Spain, Greece, France, Slovakia and (possibly) Germany may oppose economic sanctions.
Only if sanctions warfare will be over I see Germany and Russia fall into each other’s arms. China is already on the opposite pole to the US which also will attract Merkel and Putin to solidify their positions with Beijing. For other reasons Angela Merkel government loses public support.
The big unknown is Greece struggling with debt restructuring. Printing press of the EBC for the debt being rolled is now blocked by Germany. Either Berlin finally unchain Draghi and accept printing Euros and further financing Greece or creditors (Germany, France, Italy, Spain) accept some form of compensation for debt relief.
Beijing continues very level-headed policy of internationalising yuan. Thanks to global demand for yuan The People’s Bank of China can go unpunished with printing RMB and buying material assets all over the world with their currency. Accumulated throughout the years huge dollar reserves are also used for that.
Regarding lack of the IMF reform China cannot hesitate to us the AIIB (Asian Infrastructure and Investment Bank). This is 100 billion USD capital (aiming at 200 billion or more) to build the New Silk Road and creating common Eurasian trade zone. Hitting two birds with one stone: alternative for the TTIP and maritime trade secured by trade routes guarder and controlled by the US NAVY.
Economy deteriorating only by small margin. Low oil price (expressed in the USD) is not enough to bring down 18% hydrocarbon dependent economy. Note that in 1998 it was 36%.
First half of the year we may see riots in Moscow finances by the West. Goal? Obviously toppling Putin and hoping for more puppet style Yeltsin. Coup must be organised quickly before low oil price fuels China economy - number 2 and a threat to the US hegemony. After few weeks of media-driven coverage everything will be back to square one and Vladimir Putin will come out stronger than ever from this confrontation.
Many countries can hear Russian offer aiming at disrupting the EU and NATO. Good example is Greece – ‘leave the EU and sanctions are gone’ deal.
Big unknown? Internal situation of the Russian Central bank. Being outside of Putin’s control it makes it a tasty target. Should Russian government control it we can await for changes in oil and gas trade. 20/80 ruble, dollar payment structure could help rebuilding value of Russian currency.
If positions of the central bank and people around Putin will not converge further decline of ruble is in order. In crucial moment new alternative currency may be presented, controlled by the government and being based on commodity (e.g. energy resources). Key in the whole process is starting SWIFT (US controlled) substitute – which is supposed to start around May/June.
In my opinion first half of 2015 will only make situation worse – coincidentally with manifestations in Russia. The West will play Kiev and arm it just like Russia will do to separatists in Novorussia. Collateral damage in civilian casualties will be immense.
Lack of coal, gas, means of payment will initiate another revolution and change of government after which we can see normalising of relationship between Ukraine – Russia and Ukraine – Novorussia. Novorussia will stay as highly autonomous Ukraine district.
Initially being a product of marketing department of the Goldman Sachs now evolved with China and Russia playing main roles. Cooperation between India, Brazil and the RSA looks worse than it should.
Transformation in 2015 looks like this: originally we had 4 countries aiming at tight cooperation but now BRICS are joined by those who seeks alternative to bankrupt West. Main role playing Turkey. Although being NATO member and recent EU membership bid will be lured by cooperation with bigger group – BRICS. Another player playing in anti-dollar team is Iran.
Controlled by China the Asian Infrastructure Fund will make those economic ties closer. United States Dollar as a trade currency will be marginalised in exchange between those countries with yuan taking over and other local currencies taking their shares.
Key player in Europe blocked for 4 years direct print of euro. In 2015 they will soften this position and enable the ECB to increase supply of money to buy bad debt. Finally bankruptcy / dropping euro by one country will inevitably draw conclusion to this project of common currency. On the other hand organised printing not only buys time but also make German get leverage for their change of mind.
In the event of the EBC printing money to buy junk bonds of euro bankrupts in 3-5 year perspective we will see EUR in much changed shape. Germany understands perfectly consequences of the currency collapsing not to stick for long enough to be exposed to this risk. In the long term we may see much probably return to German mark or replacement of euro for new ‘Northern euro’ encapsulating Germany, Austria, Finland, Netherlands or Luxemburg rather than Germany sinking together with Eurozone.
Foreign policy is defined by ever increasing pressure on politicians to end sanctions against Russia. Finally German economy is set to export and loses huge billions due to US sanction war. It is possible to see softening sanctions being leveraged for accepting printing euros.
Nevertheless if Merkel’s government does not change its angle towards Moscow she will be pushed out of politics soon. Sanctions are hurting business a lot. Companies require firm actions – when sponsors of ruling class do not see results they change political representation for one that solves their problems.
In general Washington – Berlin relation is deteriorating. With Americans ‘refusing’ giving back gold deposited in New York and wiretapping German politicians by the NSA we see a conflict growing. Printing euro and saving Southerners is constant struggle. What is more the US has nothing to offer in exchange for their ‘requests’ apart from extortion and scaremongering with the US Ramschtein base.
Outcome of policy conducted this way can only be one – Germany falling into China’s orbit and rebuilding economic relations with Russia. Adding the biggest economy of Europe to create trio with Russia and China has to be the last nail to the US coffin.
To sum up, Germany was and still is an area of silent intelligence agencies war with US in one corner (dirt on politicians due to wiretapping) and Russia (organising protests like ‘End the FED’ and information war conducted through the Russia Today outlet). Finally I must remind that since the end of Second World War Germany just like Japan are not sovereign country but still depend on the US.
8. Persian Gulf
The Persian Gulf is experiencing silent war and the stake is control over Saudi Arabia. Several months since the beginning of 2014 Saudi family returned to trade cooperation with the US for military security.
Still in 2015 Arabs may break connections with the US as it is getting ever closer in relations with China and Russia. Symptomatic to this will be showing off public executions in mass media in turn officially accepting that it was Saudis who for years financed terrorism. Incremental change and making it an open conflict for power. Who control Arabia controls OPEC and who controls OPEC in turn takes charge of petrodollar having in hands fate of the US.
Apart from the alliance change I await warming relations between Saudis and Iran facilitated by China. Now Israel and the US are the only beneficiaries of the aforementioned clash and their grip is visibly loosening.
9. The IMF and the SDR
Having the US Congress composition of today the chances to agree on the US losing veto right in the IMF and change of the currency basket of SDR are minimal. Nevertheless the IMF will not wait forever for Washington to accept the 2010 agreements. Both some pivotal changes await the IMF or its role and role of SDR will be diminished.
The IMF management announced their plan B for an emergency of the US not consenting to proposed changes. To put it plainly, BRICS have the biggest capital reserves on the planet although being marginalised and main players the US, the EU, the UK and Japan are in debt over their heads.
My take: The IMF meeting planned in October 2015 can finally bring Yuan into the SDR but it is also possible for Brazilian real and Indian rupee. This can not only downgrade status of the EU but also EUR and GBP as reserve currencies.
Global players making a move to partly denominate debt in USD or EUR into SDR’s basket will buy them some time. This will require rapid revaluation of the SDR and drastic increase its supply. It should not be a big problem.
I will highlight it one more time. The SDR is not a solution to the crisis at hand. Even if new reserve currency is based up to 20% on gold and silver it still has 80% share of fiat equivalents. Fiat money will be destroyed by printing it and it is just a matter of ‘when’ not ‘if’. The main goal of globalist agenda and people in the top of financial pyramid is possibly the least painful and controlled reduction of enormous debt levels without significant loss of influence.
10. Central Banks
Actions of central banks are on the toughest forecast you can attempt to make. Decisions are made behind closed doors and are based on pieces of information unavailable to public.
In 2015 I believe interest rates practically all over the world will stay on their minimum/zero levels. Some countries like Switzerland in defence against excessive influx of capital can introduce high negative interest rates. In other words Swiss can asked to pay them to use their currency as a deposit of capital.
The FED will find enough number of excuses not to raise interest rates. The EBC has no other choice just like the Bank of England and the Bank of Japan. All of those will leave their rates at minimums. In general increase of interest rates means that debt servicing is becomes more expensive and even today this cost is astronomically high. What is more important is that higher interest rates means lower bond prices – the main security for derivatives market still worth more than 700 trillion USD, 10 fold global GDP.
About printing money, in H1 it will be the Bank of Japan whose printing press can record highest speed. Sustaining this way global debt market. Next in limited fashion but still, the EBC will follow effectively lowering value of EUR vs USD. Euro can minimally fall due to political chaos in Greece or other South bankrupts. Strong USD coupled with low (official) inflation is the initiating factor for another round of QE in the US of A.
Having nearly 1 trillion budget deficit, public debt equivalent to 100% of GDP and USD being dropped as reserve currency there is no other option than for the FED to start another QE. Question is will they do it officially of covertly in ‘Belgian style’?
In 2 – 3 years I think derivative market will significantly shrink. Leverage 1:70 that we experience today is fatal for any financial institution. Fortunately more people form the ‘circles close to management’ comprehends the scale of this mess and level of leverage should slowly fall into safer levels of 1:10. For such serious changes we are bound to wait at least a decade. Process will start in 2015.
11. Casual forecasts
a) China and Russia form their own rating agency, independent from the US-controlled systems.
b) For the first time we will hear about trends towards replacing currencies with one’s under government controls. Obviously a process rather than an event but movement should start this year.
c) Intensification of voices against occupation of Palestine by Israel.
d) Talks about unification of Koreas.
In the next part of the forecast I will present analysis of financial assets worth investing in 2015.