This article is adapted from a piece which appeared in Syntagma in March.

The European Central Bank (ECB) remains obdurate about cutting its 4pc interest rate despite the Fed going to the brink of its powers in Washington.

U.S. rates are expected to be cut by a whopping 1pc to 2pc today giving America an effective zero interest rate when inflation is taken into account.

The flight from the dollar will only get worse, especially with the ECB giving a two-fingered salute to the American authorities. It’s said that the eurozone (which does not include Britain) is in no mood to help the Americans — a situation similar to 1987, when the Bundesbank let the dollar slip into freefall, spooking the markets into a catastrophic drop.

Let’s not beat about the bush, Europe is engaging in a financial war with the U.S. As long as the ECB refuses to join in the rescue package, the dollar will fall spreading even more gloom around the markets. Some very senior commentators in the UK are now discussing the potential for a collapse of the entire banking system in the West and elsewhere.

Jean-Michel Six, Chief Europe Economist at Standard and Poor’s says, “There is a monetary war going on. The ECB view is that the Fed is a victim of its own mistakes and should pay for its past crimes. Frankly, they don’t see why they should be cutting rates when inflation is accelerating.”

British inflation measured on the CPI index, which doesn’t include mortgage costs, has risen to 2.5pc this morning. However, core inflation is down to 1.2pc, indicating that, apart from headline price rises in food and energy, deflationary pressures may be the real enemy in the months ahead.

Bernard Connolly of AIG thinks the ECB is making the same mistakes that led to the Great Depression in the 1930s. “The ECB represents the 1930s element in world central banking right now. It is adding to the atmosphere of panic in the foreign exchange markets and ensuring the collapse of the credit bubble in southern Europe and Ireland will be even worse.”

How long before cries of “Cheese-eating surrender monkeys,” are heard once again?

This article is adapted from a piece which appeared in Syntagma on March 12.

The rest of the world may not know who, or what, Fannie Mae and Freddie Mac are, but Americans do. They are the financial institutions that guarantee 60 percent of the U.S. home loan market. Both are on the edge of meltdown.

The U.S. Federal Reserve Bank

They are also the leading players in a top-tier of lenders that control $11 trillion of mortgage lending. A collapse would trigger a catastrophe of unprecedented proportions across the world’s largest economy with swift knock-on effects around the globe.

What is emerging now is the greatest financial crisis since the Great Depression in the 1930s. If America’s huge mortage banks are no longer rock solid, nothing is safe anymore.

The Fed is pulling every string available to it to neutralize the toxic effects of the subprime disaster. It’s predicted to lower rates by another 75 basis points within days, and is now offering Treasury bonds in exchange for mortgage debt. By soaking up some of the poison, the central bank is temporarily providing a shoulder to lean on for jumpy bankers whose world is disintegrating around them.

Like the British mortgage bank, Northern Rock, Freddie and Fannie may have to be nationalized — or their dubious collateral underwritten by government agencies — to shore up the economy against plunging over the edge. And Bear Stearns is in serious trouble too.

All this makes the UK Chancellor of the Exchequer’s budget today rather small beer. And that’s just what we expect — taxes on beer and faux “green” measures to raise a little cash here and there.

The real action is in Washingtom, where the Fed is leading the charge against a U.S.-generated global meltdown of potentially epic proportions.

Bernard Connolly, Global Strategist at Banque AIG, believes Fed action won’t solve the problem of eroded of bank capital. “There is the risk of a very damaging credit contraction. We face the most serious global crisis since the Great Depression. But this time at least the North American central banks are doing their best to stop it spreading to the real economy. We should be thankful that we have people in charge who appreciate the gravity of the situation.”

True enough, but the “perfect storm” is gathering perfection by the hour.

This article is adapted from a piece which appeared in Syntagma on February 27.

We’re talking about the American economy, of course — now in recession, as we’ve been predicting for months — and the British and European financial positions, which are trailing some way behind the U.S., but about to implode too.

We’ve been on the case since last June when the ominous tag “credit crunch” started to be bandied about in response to falling American house prices.

As online publishers we are partially protected from the ravages faced by bricks and mortar operations. Even so, Google responded to the same data last year by dumping lots of small publishers using its AdWords/AdSense programs and its range of offshoot partnerships.

The knock-on effects lowered the earning power of a whole raft of mid-sized publishers who operate below the glass ceiling of scalability needed to challenge the giant press barons of the print media.

Given the power of this pincer movement, how should internet marketers and publishers ride out the troubles ahead, which may even include another dotcom crash?

Here at Syntagma we are developing two new business models which don’t depend exclusively on Google rankings and big investment in assets. We have also moved to conserve cash, now the most sought after commodity in global financial markets. Forget equities, bonds and angel lending. Asset-backing is truly out of fashion. Only cash and gold will do during the next two to five years, or maybe even longer than that. Japan took more than a decade to haul itself out of its banking crisis and the profound deflation of the 1990s.

I really don’t see how mid-sized businesses, with heavy debt, and/or lots of equity in the hands of VCs, can get through this otherwise.

The Fed’s dramatic easing of monetary policy, which still has some way to go, is barely making an impact, although the usual lags apply. In the 1990s, Japan found that zero, even negative, interest rates could not persuade its reluctant public to splash out in the shops. Longer term rates in the U.S. are already close to zero.

Ben Bernanke is apparently studying the Japanese experience of zero rates right now. Surely a sign of what’s to come.

The game now appears to be out of the hands of the authorities whatever they decide to do. Bernanke deserves credit for at least trying. His next move will surely be to throw the kitchen sink at the problem and let the Devil take the hindmost. This is no time for musings on “moral hazard”, the hazard is not inflation but deflation and slump. Massive U.S. Government loans to individual defaulters can’t be ruled out and may be just around the corner.

Compare that to the lethargic approach of the Bank of England and the European Central Bank. Still holding rates at 5.25 percent and 4 percent respectively, although the BoE has little room to manoeuvre thanks to Gordon Brown’s obsession with public-sector spending.

The first casualties could be some major institutions in America and monetary union in Europe, where the euro currency is looking very vulnerable. At least Brown got that right.

Syntagma predicts we are going to be amazed by developments in the not too distant future. The world may look a very different place when we come out of this, and it won’t necessarily be all bad news. Bubbles have to burst. Nature demands it. And the end of the eurozone would be a big plus for European freedom.

Nearly a year ago I wrote a post called These are the good times. They were and still are, uncomfortable though the ride may be.

This article is adapted from a piece which appeared in Syntagma on February 26.

The American economy is now in recession. A slew of new data clearly reveals both a marked downturn in activity, combined with a rise in inflation — something not seen since the stubborn “stagflation” period of the 1970s.

Some economists expect a robust return to growth later in the year off the backs of aggressive rate cuts by the Fed, and a financial package from the President that will see cheques delivered to taxpayers — and others on low incomes — by June.

That may not be enough, especially as it’s now emerging that the Iraq war is the principal cause of worldwide recessionary trends from two directions : the rise in the price of oil, and the low interest rates that led to reckless lending to the sub-prime market.

A new book by Nobel prizewinning economist Joseph Stiglitz powerfully demonstrates these effects. The Three Trillion Dollar War — The True Cost Of The Iraq Conflict outlines the immense downside across the globe of what must now be deemed a policy catastrophe.

In terms of the current credit crunch, which arose out of the sub-prime mortgage fiasco, many — including Syntagma — had blamed Alan Greenspan, then Chairman of the U.S. Federal Reserve Bank, for keeping rates too low for too long. Combined with steeply rising house prices this gave the banks a one-way bet for lending to the trailer-park poor.

However, it’s becoming clear that the low-rate regime was engineered to mask the terrifying cost to the American economy of the wars in the Middle East.

We can now begin to assess the extent of the disaster to American interests the war is continuing to inflict. The conflicts have led to a strengthening of Gulf, Chinese and other sovereign wealth funds, which have bought up large chunks of prime U.S. assets, including blue-chip bank stock, while, in some cases, simultaneously enjoying a bonanza from higher and higher oil prices.

In ten years, bank stocks should prove exceptionally rich investments as they recover from current adverse credit conditions. The war has given secretive foreign funds a one-way bet.

It’s hard to estimate the effect all this will have on American power and influence around the world. A war that was meant to eliminate Al Qaeda and secure the world’s oil supplies, has had precisely the opposite effect.

Joseph Stiglitz works out the numbers and they make depressing reading.

The news that stagflation is reappearing on the scene is another blow for the West’s economic stability. Stiglitz’s book is required reading for all who want to understand the future of the global economy over the next two decades and the causes of the misery to come.

This is going to be a long haul.