Fool’s gold

Despite the apparent surge in the sharemarket and my own belief in justifiable optimism, now is not the time to believe that we have hit the bottom of the R word (which is only about to be spoken by our fearful leaders.)   

The slight fall in the $US900-plus price of gold and the marginal decline in treasury bonds could easily lead smart companies to go hunting for short term credit to reflate the business only to find that consumer confidence is a long way behind business confidence.

The meeting between Barack and Kevin is much more than a meet-and-greet routine. It represents a global caucus for the forthcoming G20 meeting that our PM wants to turn into the equivalent of Paul Keating’s APEC legacy.  At this critical meeting, behind the scenes negotiations are going to focus on the next three financial crises that are still in the unspeakable category.

In the next few weeks, governments (read, us taxpayers) are going to be shoehorned into buying assets that are deemed between useless and worthless in mark-to-market terms, so that they can be parked in new “bad banks” that will quarantine toxic debt. 

The aim of this exercise is to reward the exemplar surviving banks (like the Australian and Canadian bankers) that have had modest bonus results through prudential behaviour by letting them run the “good-guy banks” and lock up the crises with the rest of the eyeshade brigade.

The next unspeakable event will come as households around the world contribute to long-term investment by saving three quarters of the fiscal stimulus packages, opt for voluntary simplicity, and cut up one or two of their excess credit cards.

This will lead those visionary credit agencies to become severe critics of outstanding credit debt as the lenders find that their multiples are in steady decline and their credit card failures are steeply rising.

Getting banks to lend beyond the low-risk small and medium enterprises requires massive taxpayer funded infusions that can no longer be securitised against the shaky assets hidden off the bank’s balance sheets.

Obama and Rudd are pushing for concrete, co-ordinated efforts for governments to spend more money to boost their economies along with stronger financial regulation, including consideration of the need for registration of credit-rating agencies, widely blamed for fomenting the crisis by giving strong ratings to risky securities.

The third, and more speculative, unspeakable is the possibility that the G20 will fall apart over the impact of the waterfall of stimuli in the same way that the coalition of the unwilling (Republicans, Conservatives and Liberals here) are raising fundamental issues of inter-generational debt, rising long-term inflation, and concern that there will be a substantial rise in business and high net worth tax.

US Treasury Secretary Timothy Geithner, who is pushing for Europe to match Washington’s $US787 billion package of spending and tax cuts, said there was “broad consensus globally on the need to act aggressively to restore growth to the global economy”.

So in the next week watch for these early warning signs:

• The consumer confidence graphs being released at the end of this week failing to show any significant upturn.
• The price of gold going back over $US1000.
• The G20 falling apart between the European and US views.
• The decision of the BRIC economy (Brazil, Russia, India and China) financiers to demand the total reconstruction of the world economic order and set deadlines for their continued propping up of the old world.
• Emergence of counter-inflationary breaks on lending to small and medium enterprises and margin calls on equity holders to recapitalise larger corporations.

Already we have seen the four major emerging economies at the meeting – Brazil, Russia, India and China – had earlier released their own joint communiqué, calling for a bigger role in the International Monetary Fund to reflect the changed global economy and the growing role of developing countries

Now is not the time to believe those that are calling for funds to be moved out of gold and silver into the mirage of immediate investments in short term recovery. That is pure fool’s gold.

Dr Colin Benjamin is Entrepreneurship and Strategic Thinking Consultant atMarshall Place Associates, which offers a range of strategic thinking tools that open up possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship. Contact: CEO Dr Jane Shelton. 

For more Futurist blogs, click here.