This GEAB issue makes it six years that the LEAP/E2020 team have shared their anticipations with their subscribers and readers of their public briefing on the development of the global systemic crisis each month. And, for the first time, in the January issue which presents a summary of our anticipations for the year to come, our team anticipates a year which will not result solely in a worsening of the world crisis but which will also be characterized by the emergence of the first constructive elements of the “world after the crisis” to use Franck Biancheri’s phrase from his book « The World Crisis: The Path to the World Afterwards »

While the pronouncement of the “euro crisis” has become a main topic in the newsrooms and while a plethora of pundits hasn’t got tired of predicting the end of the common European currency, the facts tell a different story. By the end of 2011 the euro was quoted higher than its long-term average since its inception and the official inflation rate of the euro zone has been kept under two percent. The average debt burden of the countries that make up the euro-zone is less than that of the United States or Japan. What is, then, the problem with the euro? Why doesn’t a day go by without a headline that says that the euro is doomed and that it would be only a matter of time until the European Monetary Union and the European Union, too, would blow apart?

The Origin of the Mess

When the financial crisis broke out in the United States in 2008 no commentator showed up to blame the US dollar as the cause of the housing and financial market crisis and to state that the use of a common currency for a large and highly diverse economy such as that of the United States was the root of the problem. Besides blaming the regulatory framework as being either too strict or too lose, it was mainly the monetary policy that was identified as the origin of the current financial crisis. A monetary policy of extremely low interest rates andample liquidity put in place by the US central bank since the late 1980s had produced an inflated financial sector.  The appetite of investors and lenders for high yield risky investments had gotten bigger over the decades in as much as the US central bank had acted in a way that hardened the conviction among financial market operators that there would be a reliablebailout guarantee forancial system as implicitly pledged by the American central bank.

Today’s chart from Scott Barber, updates the ECB funding to Italian banks which topped 200 billion Euro in December, matched against the Italian 10 year bond spread over Germany (which just sold negative yield 6 month bills last night):

The Reserve Bank of Australia (RBA) on Friday released a fascinating Research Discussion Paper entitled:Australia’s Prosperous 2000s: Housing and the Mining Boom, which formed part of The Australian Economy in the 2000s conference series.According to the RBA, the paper:…provides an overview of the Australian economy’s performance in the decade. Several key topics are elaborated on, including the development of Asia and implications for Australia, policy frameworks, and the opportunities and challenges facing the Australian economy, with a particular focus on the expansion of household balance sheets and the rapid growth in the mining economy.After finishing the paper, I couldn’t help but feel how incredibly fortuitous we are as a nation, whilst also feeling uneasy about our future. Why? Because Australia’s economy has become increasingly undiversified and geared towards mining. At the same time, we have become highly dependent on one major export destination – China – which is fine while the Chinese economy is firing on all cylinders, but leaves us highly vulnerable should its economic fortunes sour.For me, the most interesting (worrying?) aspects of the RBA’s paper are the following extracts, which I have supplemented, where appropriate, with additional charts from alternative sources.

Italy, deep in the midst of a national bout of soul searching over their enormously wasteful state (for example, read about Mario Monti's New Year's Eve dinner here), has had its national statistics office look into exactly how much money politicians get paid in different countries.The resulting study revealed the base salaries that each EU country's politicians earned along with a look at the perks and expenses that politicians can also claim as part of their living.Taking this data (and additional, slightly older, data from the Directorate General of the European Parliament) we've compiled a list of which EU countries pay their serving politicians the best.Now if this list is logical, as Ezra Klein has noted, it would roughly correlate with the GDP of the countries. Of course, it doesn't! And somehow we're betting you might be able to guess who comes in at number 1...(Please note: that we haven't included expenses, just base salary. Of course there are some very substantial perks at work for some of these politicians.)

Did Europe's leaders imagine that they had put the Greek patient into the recovery ward in 2011? They certainly performed a lot of surgery. In October they granted the country a hefty debt forgiveness package, imposing a 50 per cent haircut on Greek bondholders. They agreed to increase the size of the official bailout for Athens to around €170bn (£140.73bn). They also successfully averted the threat of a national referendum on the austerity measures and saw a reasonable technocrat, Lucas Papademos, installed in the prime minister's office. "Job done" did they think to themselves?Click HERE to view graphicIf so, the New Year has hit them like a bucket of cold water. A spokesman for the Athens government, Pantelis Kapsis, gave Europe's leaders the worst possible start to 2012 when he raised the prospect of Greece crashing out of the eurozone if the new rescue deal is not signed off promptly."The bailout agreement needs to be signed, otherwise we will be out of the markets, out of the euro," threatened Mr Kapsis.Worse, the threat coincided with reports that International Monetary Fund (IMF) officials have privately warned the October debt forgiveness deal is not going to be enough to put Greece on a sustainable financial path.One can sympathise with European policymakers who look like they are going to have to grapple, once more, with the nightmare of Athens' public finances. But they only have themselves to blame. The October deal was always dubious. The bondholder haircut is supposed to reduce the level of Greek debt to 120 per cent of GDP by 2020. But that figure made no sense.

If America is going to have a real recovery in jobs, and get back to anything resembling what people think of as "full" employment, some new industries are going to have to step up and do a lot more business and hiring.A couple of months ago, economist James Hamilton wondered: What could America be good at?His answer: The resource sector: Mining, energy, rare earth metals, and so on.He wrote:For over a century, the U.S. produced more oil than any other country, and even today we are still the third biggest oil producer in the world. The U.S. today is the world's leading producer of items such as lumber, corn and poultry, number 2 in coal, oranges, soybeans, and gypsum, and third in cotton and lead. Our abundant natural resources have always been an important advantage for America, and are still an important advantage today.