孕妇梦见山:2012: A Year of Choices (1)

“Happy New Year. We enter 2012 with a great deal of hope, but our hopes are not for more bailouts, or money printing, or any of the myriad policies that investors seem to hope will save bad investments and sustain elevated valuations. Instead, our hope is that in 2012, the market will finally “clear,” in the sense that bad debt around the world will be recognized as bad and restructured; that overleveraged financials will be taken into receivership instead of forcing austerity on every corner of the global economy in order to make them flush again; that rates of return will rise enough to compensate and encourage saving – and high enough to encourage borrowers and other users of capital to allocate the funds productively. Of course, in order to restructure bad debt, someone has to accept a loss. In order for rates of return to rise, valuations must decline. In short, our hope is for events that will unchain the global economy from an irresponsible past and open the gates toward a prosperous future. Maybe that is too hopeful, but we are not entirely convinced that bailouts and ‘big bazooka’ will be as easily procured in the year ahead as a confused public has allowed in recent years.”

– John P. Hussman, Ph.D. (hussmanfunds.com)

2012 will the year that the consequences of the choices made by nations of the so-called developed world will begin to truly manifest themselves in the economic realm. We are in the closing chapters of the current Debt Supercycle, with different countries strewn out along the path, some at more advanced stages than others but all headed for a destination that will force major decisions if politically painful actions are not taken. The longer that process takes, the fewer options that are available and the more painful the outcomes. Some countries (think Greece, et al.) have a choice between dire economic circumstances and disastrous. The option for merely difficult choices was passed long ago, and the rules are such that there is no going back to where you started without a different but equally painful outcome.

This is the time of year I think about the future, and foolishly opt to make predictions. This year I have decided to be especially foolish and to think about the next five years, especially for the US. Why five? Because I think by then the consequences of our past and immediate future choices will have been realized, the “reset button” as it were will have been pushed, and the economies of the developed world will be ready to move on to a brighter future. The question is, from what level will that new upward journey begin? It will be very different for different countries, depending on the paths they choose.

Let me presage my thoughts. Most countries are being faced with dual choices, which differ according to their own particulars, but all deal with what to do about the need to deleverage, both in the public and private sectors. The end of the Debt Supercycle is a tectonic plate shift of massive global economic proportions, unlike anything the world has seen for 70-80 years. It will cause all sorts of economic earthquakes, tsunamis, and volcanoes. While the choices each country makes are their own, the consequences of their choices will have a much larger effect upon the world, as global interconnectedness has landed us in a world where isolating the impact of a problematic country is no longer possible. The need for global cooperation is most paramount at a time when politicians will be more and more restrained by the exigencies of their local problems and voter angst.

Jumping ahead and, by way of example, taking a peek at the Greek newspapers, one would not think that the current Greek crisis is at root a problem of their own making. The culprits are those nasty Germans. Political cartoons depict Germans as saying they have finally won WW2. Not exactly the climate in which Greek politicians are able to make calm decisions or explain the need to accept a great deal of pain. And the German editorials and columns are awash with the question of why Germans should work longer and harder to pay for Greek retirements and “lavish” benefits while Greeks don’t pay their own taxes.

But choices must be made to proactively deal with the problems, or have the market force a severe solution. It is not a choice between pain or no pain, but exactly which pain do we prefer and how much? And anesthetics are not available on the pain menu. This is pain that will be felt from head to toe of the various national economic bodies, worldwide.

The US, Europe (including most of Eastern Europe), Japan (a bug which will soon find that windshield!), and even (especially) China must all deal with the problems that come with deleveraging.(全球主要经济体均要面临去杠杆的问题) To fully understand the nature of the choices and their consequences, we are going to start somewhat far afield with some thoughts about choices and path dependence（去杠杆的选择和路径依赖）, then look back at history to see if we can get some clues about what deleveraging looks like (warning: it is not pretty), then examine the choices faced by specific countries and make some guesses as to outcomes, where possible.