On Global Socio-Political and Economic Outlook, And Their Impacts on "Ch-India"

The din of the Chinese and Indian 'Economic Miracle' slowing to a very painful grind is getting louder by the day. I am not one to read a piece in some popular magazine and rush to judgement, and, I do NOT follow CNBC at all - Zip, Zilch, Nil, Zero. Nada time wasted on the "World Markets Entertainment Network". It seems, however, that many smart observers and commentators are talking and paying attention to this slowdown, so I did some digging around of my own.

Europeans (across the EU), it seems can't afford to buy anything. Some folks in Germany and France may be the only exceptions. Perhaps. Being the two largest, and richest of EU economies, both either are, or may be, in a position to 'bail' out the prodigal member nations, and perhaps, to even save the 'Union'. However, French and German rivalries, and troubling politico-historical relationships keep the economic crisis across EU muddling along with a multitude of weekend retreats, conferences, and mundane confidence votes. Even the ECB decided it can 'talk' the world in to believing the incredulous. Notwithstanding Draghi's supposed 'power and influence', his rants are now perhaps more bravado than a genuine reflection of ECB's intent, willingness, and indeed its ability to save the EU. I have a hard time buying his rhetoric. The magnitude of the financial mess is beyond what the ECB, and for that matter, what even a willing Germany and France (together, or on their own) can fix, while being fair to the millions of Europeans who will bear the brunt of the financial yoke that will soon be on them one way or another.

Spain, Portugal, Greece, Italy, et al., are Sovereign nations, and to my knowledge there is no similar precedent or model for a Nation's Bankruptcy. Well, we do have some precedents - Argentina (repeat offender), and in one of more recent history, Russia (1997). But the Russian default then was on its 'Ruble' obligations, and the global players (Banks, Hedge Funds, Sovereign Wealth Funds) were very small players relative to their EU positions today, and Russian Ruble crisis was more of a 'pain-in-the-arse' than being chronic and extremely painful.

Side Note: OK, Long Term Capital Management (LTCM) did turn in to STCM, and eventually in to No-Capital-To-Manage-Management. Wall Street (with the exception of a Bear Stearns), reluctantly 'Stepped-Up', at the behest of the NY FRB, and divvied up the LTCM carcass after pumping in USD 350 million each. Bear Stearns is no more, having being absorbed by JP Morgan, in September 2009, for a ridiculous sum of $2 per share that was later 'revised' to $10, after the ex-Goldman CEO led US Treasury, and, after the US FRB led by lifelong student of the 'Great Depression', Ben Bernanke, refused to allow Bear to access the FRB liquidity window. Nevermind, that shortly after Bear was no more, the FRB opened the same liquidity floodgates to the likes of Goldman and Morgan Stanley, and other broker-dealers. LTCM indeed had very large, and in hindsight, perhaps smart European convergence positions premised on the EU becoming a reality. At over 100 times leverage though, the Russian Ruble blip on the LTCM radar, was large enough to bring severe margin calls rolling in. It was the inability to meet such calls that brought LTCM down. In the end, Wall Street banks that fueled LTCM's leverage and brought LTCM down with aggressive albeit legitimate margin calls, made off extremely well on the remaining LTCM positions they had acquired.

Returning to our storyline, how does one let Spain or Greece file for bankruptcy? Can we afford these countries defaulting on their EURO obligations? I don't think so, for the socio-political consequences would be too dire to even contemplate, not to mention that Wall Street (the global metaphor) would be unable to absorb their own losses stemming from the demise of EU countries. At the same time Wall Street is NOT, this time, in a position to orchestrate a 'rescue' for its own eventual benefit. Trust me, they have been trying hard, but the bankroll of usual suspects - US Treasury, etc., is simply not available. The Obama Administration would not permit that to happen, despite what Ben may be saying in private. QE2? For the presumed purpose of 'stimulating' the US economy? Such shenanigans are laughable at best. In my minds eye, the FRB can add as many numerical suffixes to QE (Quantitative Easing) as they'd like and it would still not make a dent.

That leaves the UK and America as the only potential fiscal/financial saviors. The UK? I was born and raised in India, and the less I say about the British generosity the better it would be for me. Yeah, selfish self interest is at work. Suffice it to say however, that British government never did anything that helped anyone else but themselves, so I'd be surprised if the Brits started writing checks for all those bad consumer bank loans, and banks' losses across the EU.

Yet, the British banks like Barclays, Standard Chartered, and HSBC would love to finance yet another retail credit boom, to fuel demand, for Americans and for the rest of the world, but you see they are rather busy at this moment dealing with the pesky issues of LIBOR Gate (the LIBOR fixing scandal) and that small matter of illegal money transfers to Iranian and Iraqi ventures, in direct violations of US money laundering laws. Clearly, the British banks had the choice to pack up and leave the US, but that would be a lot more expensive in longer term lost revenues. So they accept public humiliation and being slapped with hundreds of millions of USD in fines. Being the world capital of litigation, these and all other banks involved in the LIBOR fiasco will face lawsuits from here to eternity, in the US, not to mention the global settlement of LIBOR Gate, with an army of national regulators that these banks must obtain. It is not a bad time to be defense counsel for these banks.

Lastly, the United States of America herself. Our economy has been sputtering along for over 3 years now. The financial meltdown of 2008-2009 is the gift left behind by 8 years of Bush Administration - 2 wars, one of which entirely illegal and conducted with questionable motives, and by American Innovators (aka Job Creators) in Financial Markets. Yes, America is the smartest, richest, and most powerful country in the World for a reason.

To further dim EU's hopes, America is in the middle of a nasty Presidential Election fight between Mitt Romney (Republican Nominee to be), and the Democratic Party incumbent, President Obama. Let's put it this way - even the Grand Canyon chasm pales in comparison to the the stark policy differences between Mr. Romney and Mr. Obama. We have 71 days to go until Americans pick their next President, and the EU should not expect ANYTHING until then from America. Beyond November 6, 2012, America will either continue to repair, heal, and recover, or she will head off into the Neanderthal socio-political, and the World of Privileged Finance. Which means, friends, that the EU is on its own.

Warehouses, apparently, are rapidly filling (if not already completely filled), across China, to the gills, as demand for all things real, and all things 'fake' evaporates, as Europe and North America shut down their substantial consumption wallets - both retail and institutional spending traps are being severely tightened, if not entirely shut. The domestic momentum of consumerism in both China and in India, and the 'good life' that middle-class folks have become accustomed to, and perhaps may even see as an entitlement, will carry the crowds for some time.

But, unless European and North American economies (consumption) turn around, or the middle class across China and India make some rapid fire lifestyle adjustments, 'Ch-India' is in for a rude awakening.

Good Luck.

PS - I do not follow South America with any serious passion, yet. Japan is simply not capable of any action in this regard. Their exclusion is not inadvertent.