America has just celebrated the 10th anniversary of "September 11". This commemoration was made in sobriety, as the U.S. and the rest of the world are more concerned about the depression that strikes them as being by the memory of this painful event.
Indeed, by dropping the two towers of the World Trade Center in New York, the terrorists unintentionally and indirectly brought down the whole edifice of the global economy.
Thus, we can say that the "September 11" is indirectly the cause of the crises of 2008 and 2011, the most serious crisis since the great "crisis of 1929."
We will ask Mr. THIERRY TAN - promoter of the "New Vision" for the development of Africa - to explain the causes of this economic and financial crash and then tell us whether this crisis will impact our economy?
Thierry TAN: In every century is a major global crisis.
In the 20th Century was the "Great Depression of 1929" and the 21st century, these. Indeed, this time, it is not a small crisis in any country, then that stops. It is a crisis that began hitting America and has spread in Europe and the world.
That is why we speak of "global crisis".
Under these conditions, it would be nice to know what is the origin of this crisis, and second, and most importantly, what would the impact of this crisis on our economies.
I am not a historian, but to understand this crisis in the world, it would be interesting to know its origin. Without going back to the 19th century, I'm going to take two important dates;
The first date is 1971 with the abandonment of the gold-dollar parity.
Before 1971, the U.S. economy could be summed up to running the money supply depending on the amount of gold that America possessed, i.e. the gold stocks that the Americans had stored at Fort Knox.
For such quantity of gold, they put in circulation a equivalent money.
Then in 1971, President Nixon decided to separate the two entities, because it was found that the economy is growing much faster than gold production. So we abandoned this standard, the dollar-gold parity.
Therefore, since there was no standard to regulate, the money supply was freely and unrestrained.
There is then a Hyper-Inflation!
At this period, Mr. Paul Volcker - chairman of the Fed - (short for "Federal Reserve Board", the U.S. Central Bank) - said: "we should not have such inflation, because it creates many problems for Americans, including economic stagnation. "
He has taken extremely important and unpopular measures: higher cost of credit, reduced the money supply, rising interest rates, which rose to 13% or 14%, etc..
It was drastic measures, but needed to curb stagflation (a combination of inflation and economic stagnation) that struck the U.S. economy at the time!
2nd date : September 11, 2001 with the attacks on the World Trade Center in New York. Americans and even the world were shocked by the fact that terrorists have dared to bomb the United States, in their own territory. And destroy two skyscrapers that were the very symbol of American financial power.
This created a huge shock.
And President George Bush said, in these conditions, he needs to restore the confidence of Americans.
First, on military fields, by attacking Afghanistan and Iraq, to show that America is still powerful.
Secondly, on economically fields, by the so-called "deregulation", that is to say we're going to deregulate everything.
Clearly, Alan Greenspan, the new chairman of the Fed, will do exactly the opposite of what had been done by Paul Volcker, his predecessor.
Instead of letting the high interest rates, Alan Greenspan will lower interest rates.
Instead of currency restrictions, it will release new loans.
This means that, firstly, they will lower more and more the interest rates, and on the other hand, they will increase money funding.
How do they will find all this money?
Going into debt to Asian "new rich" countries and especially China and Japan.
Did you know that these countries together hold $ 2,000 billion of U.S. Treasury bills and the city of Hong Kong holds, alone, $ 139 billion of Treasury US, equivalent to 40 times the Ivorian National Budget?
This means they are the main creditors of the United States and one day, if they want to "bother" America, they just need to go claim immediate repayment of their claims, and the U.S. would be indeed very bothered, because they could not afford to repay.
This is only a hypothesis, since neither China nor Japan have any interest in doing so, because America is a great partner in financial and business matters to them. You do not kill the "goose that lays the golden egg"
In short, the policy of America from 2002 to 2007 is :
- The economic recovery in consumption, thanks to low interest rates and abundant credit.
- A policy of relocation of factories to have the cheapest products, because they say: "Why make our products in the United States, it is too expensive. Manufacturing in China is much cheaper "
Thus, Americans are urged to spend (they buy anything. The essential point is to consume, to buy a new camera, a new TV, computer, air conditioner and refrigerator). The only problem is that factories are in China.
Thus, more Americans are buying, more Chinese are rich.
To let the Americans keep on buying, the Chinese and Japanese lend them money.
This is the remake story of "Cicada and the Ant".
Except that in this case, the ant has not dropped the cicada, she lends money to the cicada, so it keeps on singing....
Question: So, Mr. Thierry TAN, faced with all these constraints, how will the Americans to make money?
Thierry TAN: They do what they can do better than anyone else: it is speculation.
They are speculating on the stock market, on real estate, but also on raw materials such as oil, precious metals, coffee, cocoa ...
In short, they are speculating on everything.
They will even play on paper, "the future", such as forward contracts.
Thus, even with little money, they can play on very high amounts, and they will be helped by banks and "golden boys" that are "traders".
To them, the bankers say, "if you do make money in your bank, you get your bonus." This premium is sometimes several million dollars per "trader".
So galvanized, these "golden boys" will do everything to get people to buy anything. Even better, they also grants them credits to buy.
Thus, the more people buy, the more they get credits and the "traders" earn money. Thus began a race bonuses where "traders" will push speculation to the extreme.
And that's the so-called "subprime".
That is to say those bankers will go to U.S. households who do not earn enough money and they will offer those loans which will be based not on the income they earn, but on their estimated property.
So they say: "It does not matter. If you cannot pay, we will give you more credit to repay your loan, because your home will be worth more in six months, and even more in a year, and even more in two years. "
Indeed, the bank believes that, at worst, it will seize and sell the house. And as in one year, the house will be worth more, so there will be no risk for the bank.
As everyone was speculating on the rise, housing prices and stock market shares have actually increased significantly for some years.
Thus, during this period, there are investment companies or banks who earn from 20 to 30% annually, while the U.S. economy has a growth of 4 to 5% per year.
You see, one side was from 20 to 30% growth and the other 4-5% only. This speculative distortion can only work for a period of three or five years. But this cannot last long.
There comes a time when the bubble will burst.
As the Internet bubble that erupted in 2001.
In this case, it is the real estate bubble that began in 2008.
Thus, once confidence down, as soon as people want to withdraw their money, the financial institutions cannot pay their claims. Because these companies have their assets in real estate or shares that were worth very large sums of time when everyone was speculating on the rise, Well, all these values tumble now.
As their assets are worthless now, these companies and the banks find themselves bankrupt.
Thus, the large bank Lehman Brothers went bankrupt on Sept. 15, 2008, followed by 40 other U.S. banks
Question: Mr. Thierry TAN, people talk a lot about subprime causing the housing crisis. But what is a subprime?
Thierry TAN: The "subprime" loan is a loan that calls "toxic", because it is given to people who normally cannot repay, because their incomes are too low.
However, if financial institutions give so easily the "subprime", this is because the credit is granted with a higher interest rate, so banks and credit agencies earn more with these "subprime" than with a conventional credit.
Question: Give credit to people with incomes too low to repay, is a risk. How these financial institutions have apprehended that risk?
Thierry TAN: Yes, there is a risk. And this risk, how do they manage?
They do what is called "securitization."
What does that mean?
This means they’ll combine these "toxic" funds which are "subprime" with other funds that are suitable and even good.
The banks make a mixture and place the package on the market.
People like to buy it, because it brings more earning than they usually buy.
Even better, these banks that sell these packages, are rated by the so-called "Rating Agencies" such as Standard and Poor's, Moody's or Fitch.
And because these banks are rated "3A" ("Triple A"), that is to say full marks, it means they offer a seemingly guarantees.
Under these conditions, people buy without restraint or reservation, because they rely on the Rating Agencies.
In addition, the largest global insurance group - AIG (American Insurance Group) - is also involved in providing guarantees to these banks.
Thus, besides the good grades awarded by the rating agencies (Standard and Poor’s and Moody's), the U.S. banks are surrounded by all sorts of guarantees and insurance.
As a result, the U.S. banks can pass these "toxic packages" to European and Asian banks who buy them thinking that there is no risk and it pays more than their normal operations.
Ultimately, everyone buys and refile those "toxic loans".
But when the problem first appears, it is panic.
Since they don’t know if the packages contain or not "toxic" credits, because they have been "securitized."
Result was a general panic.
And companies, who are asked to repay, cannot.
Because their assets, that were worth very expensive, are now without value.
And since they cannot repay, they are put out of business.
This is what happened to the U.S. investment bank Lehman Brothers and 40 other U.S. banks. The Citi Bank Group and AIG have escaped bankruptcy only through the hundreds of billions US dollars injected by the U.S. Government to save them.
And the panic spread.
Banks are no longer trusted;
Even the banks that they used to lend, they do no more. It is the "Credit Crunch"
Q: Mr. Thierry TAN, you just tell us how we went from the housing crisis, with the subprime, to the financial crisis. Now, could you explain how this financial crisis has evolved into the "economic crisis" in 2008-2009?
Thierry TAN: It's still the problem of trust.
Since they have no more confidence, they stop lending, not only to the banks but also to businesses. It is the "Credit Crunch".
And since these companies have no more credits and cash, they are forced to close or slow down their activities.
Thus, during the month of February 2009, the three largest U.S. automobile manufacturers (General Motors, Ford and Chrysler) saw their sales fall by 50% because people have no more money or credit needed to buy cars!
Thus the financial crisis in 2008 has turned into an economic crisis in 2009.
Indeed, there is a real recession. i.e. a negative growth (-6% for U.S. and -1% - 3% for Europe in February 2009).
This is the worst crisis since 1929.
All this confirms that the "September 11" is indirectly the cause of current global crises.
Indeed, without the “Sept. 11”, President George Bush would have no pretext for the war in Afghanistan and Iraq.
These wars have already cost America more than 3000 billion Dollars in 2008.
And to finance its huge military spending, the U.S. government could do either by raising taxes or by increasing debt.
George Bush chose to increase the debt of the U.S. Government.
So, the U.S. Government debt has increased 3-fold in 11 years!
Secondly, without the “Sept. 11”, George Bush would not have launched its recovery plan by the consumption (Stimulus Plan), thanks to the abundance of cheap credit, creating the illusion that Americans are getting richer and that they can spend lavishly, they just go into debt. Unfortunately, like any other illusion, this one disappears very quickly without warning.
Then, in 2009, appeared the recession and the economic crisis that first strikes the United States, before spreading to Europe and the world as a result of globalization.
We can therefore say that the "September 11" is the cause of the global crisis!
Q: Why, after a small recovery in 2010, we see another crisis in 2011? How to explain this new crisis of 2011?
Thierry TAN: To get out of this financial crisis in 2008 which turned into economic crisis of 2009, the Federal Reserve (Fed) has practiced the policy of monetary easing or quantitative easing: The QE1 which was to buy back bad debt (subprime) to banks, to give them oxygen, i.e. liquidity.
In fact, the QE1 was a failure. Of course, banks have been saved, but consumption and economy have not resumed. Indeed, the money injected by the Fed has mostly served to fuel speculation and boom in equity markets since early 2009.
But Unemployment settled permanently around 10% with a consequent reluctance to consume. So what to do?
Ben Bernanke, the new Fed chairman will again inject into the economy - through "quantitative easing 2" or QE2 - 600 billion dollars.
So Americans live in the reign of excess credit.
In the United States, "They live on credit". Starting with households and banks. And spreading now at the US Government who are left with "sovereign debt" abysmal, representing virtually 100% of their GDP (Gross Domestic Product).
Thus, the debt of the United States rose from $ 5,500 billion in 2000 to $ 15,000 billion in 2011, three times more debt in 11 years!
As a result, the rating agency Standard & Poor's downgraded the USA rating in 2011 from Triple A to Double A.
This means that Americans must now pay more interest on their debt.
They therefore find themselves in a very difficult position, with rampant unemployment of 10%, a weaker dollar, rampant inflation and recession...
They enter in the so-called "vicious circle": the recession lead to even more unemployment, less wages, thus less consumption, less purchases, less business for companies and banks.
And for the , it get less tax revenue, so more difficult to repay the "sovereign debt". And to repay its debts, the US Government is forced to raise taxes that are strangling businesses and households ... So they have new recession, new policy of austerity, and creating new crisis in 2011.
All this created a climate of distrust that causes widespread panic in all financial centers.
Between July 22, 2011 and September 12, 2011, stock markets have lost almost 25%, a loss of 7.500 billion dollars in one month and a half, the equivalent of the GDP of Germany and France combined , lost in 45 days!
In this context, the whole Europe, led by Angela Merkel and Sarkozy, are trying to save the Euro, while trying to save Greece from bankruptcy or "credit default" when speaking of a country.
Indeed if Greece falls, speculators will attack the other European countries nicknamed the PIIGS (Portugal, Ireland, Italy, Greece and Spain).
If all of these countries fall, European banks also fall because they have lent much to all those countries PIIGS,
And if the euro falls, the European Union will disappear.
So the general panic spreads.
Again, the “western cicadas” are turning to “Asian ants”, asking them to save western countries from economic disaster.
This is truly the world upside down. We are witnessing a shift in the economic and financial power which is now in Asia and not in the West.
Anyway, the Debt Crisis of the West may fear an explosion of the Euro and bank failures. To prevent this, European banks are expected to increase their capital, i.e. setting aside their own funds, 7% of the loans they grant to their customers, instead of the 2% currently. That is to say 3.5-fold increase bank reserves today.
They are banking rules known as "Basel 3", named after a Swiss town.
Banks will therefore restrict their credits.
This is called the "Credit Crunch" strangling businesses and households, causing crisis.
So what are the consequences for us, Africans?
As we know that Europe and America are drowning in their debts, it would be unrealistic for African countries to ask them for credit.
Indeed, never rely on a drowning man for help.
The drowning first seeks to save his life.
In addition, you should know this : When Africa is receiving 1 franc as aid or credit, Africa is obliged to disburse 5 francs, in the form of debt repayment.
For these reasons, it is necessary for Africa to rethink its current policy based on aid or credits, instead of trying to process its own raw materials and to create their own wealth and millions of jobs for Africans.
Q: Mr. Thierry TAN, Your analysis is clear and understandable, even by non-economists, so we would like to know if these crises could not be predicted?
Thierry TAN: Sure, we could have predicted these crises.
Indeed, long time ago, I said in my previous interviews, that as long as Western economies are based on the speculative economy, they will face multiple crises, ranging from the subprime crisis in 2008 to the Sovereign debt crisis in 2011.
That's why I'm for the real economy. Thanks to this real economy, Asian countries, such as China and “emerging countries” will come out faster than others in this crisis. Indeed, modern China has been built from industrialization, based on the principle that they must build an economy on the real, funded by savings and not by credit or loans.
We should not spend more than we earn.
This is what the West tends to forget.
They think they can live forever on credit, i.e. by going into debt.
But there always comes a moment when they must repay their debt. And to repay sovereign debts, the Western countries are forced to raise taxes, lower wages and even lay off staff. In short, they have to apply a policy of severe austerity.
All this causes the crisis.
What lesson can we draw?
The lesson is that if rich Western countries cannot live forever on credit, don’t believe that poor African countries can afford to live forever on credit.
And to believe that a magic wand, donors will clear all our debts, because we managed to reach the "completion point of HIPC"! It’s not true, since the Report of the UN General Secretary quotes that only a small portion (23%) of our debt will be removed!
In this case, we must change our behavior. We must no longer live on credit and we make use. It is therefore necessary that we will create our own wealth through the industrial development of our products.
Thus, with the only Attiéké, we can win 20 000 billion francs a year. It’s more than enough to finance our development, without resorting to debt, which is a bottomless pit!
Moreover, cassava is not the only product we have.
We have 1000 other products that we can transform.
If we do this, it is we who are about to give credit to Western countries, as do Asian countries today.
Question: Mr. Thierry TAN, the "New Vision" that you have long advocated, is it not precisely based on the real economy?
Thierry TAN: That's right, we do have the raw materials that are real, real coffee, real cocoa, real cassava...
Next, we turn them into real industries, and once transformed into actual finished products, we sell them in real markets of real multi-billion consumers, including China which alone has 1.3 billion consumers.
That's the real economy: you buy your raw materials at 2000 francs, you transform them into finished products, and then you resell them to 20,000 francs.
You really won 20000 - 2000 = 18,000 francs
This is your added value. This is your gain, your profit.
With industry, we do not speculate! These are real, tangible gains
By cons, speculation on commodities : petroleum, coffee, cocoa, oil.
Let take oil as example: July 11, 2008, it was 147 dollars a barrel, and in 2009, it was worth only 46 dollars a barrel.
Within a few months, we lost over 100 dollars a barrel.
Thus, over two thirds of its value disappeared in a few months!
It is speculated, therefore, on all raw materials.
But once converted into finished products (chocolate for cocoa and instant coffee for coffee), they are not "speculated". Better, their prices do not stop growing.
Have you ever seen a single chocolate or instant coffee down in price? Never!
At the contrary of the beans and grains which are constantly exposed to price changes. This is to say that when we remain in the raw materials, we are in the speculative economy.
Worse, they are outsiders who speculate on our core products.
Thus, when our raw materials are rising, it is the speculators who pocket the gains, but when prices going down, it is we who suffer losses, because speculators are the ones who set our earnings, by setting the course of our raw materials, depending on their will.
To better illustrate my point, I give you the example of a shopkeeper that allows customers to fix prices and pay at the cash they want. Under these conditions, our shopkeeper will go bankrupt in a week.
This is what African countries have been doing since their independence, 51 years ago. That is why they are now HIPC "Heavily Indebted Poor Countries."
So should we remain in the speculative economy with the export of raw materials which we have derived no benefit to date? Or, should we go straight to the real economy through the transformation of these raw materials that can reap maximum gains? The answer is common sense.
That's why I've always been against the speculative economy and 100% for the real economy.
And to confirm the benefits of the real economy advocated by the "New Vision", I give you, as example, Singapore.
Per capita income in Singapore was $ 400, 40 years ago, this income increased to $ 40,000 2 years ago and now, per capita income in Singapore is $ 57,500, or 2 times more than the European !
It is the same for citizens of Hong Kong. They have the same income per capita as the U.S. ($ 45,000) or $ 10,000 more than in Europe!.
And remember that these countries are tiny and have no natural resources.
They only do their work and have a clear vision to develop their economy.
So why not emulate them, we who have all the resources and even many-bodied, because of high unemployment at home.
The problem is that we refuse the "New Vision"! And we see the results: the Ivory Coast, once thriving, is currently ranked in "The 10 worst economies in the World" by the famous American business magazine Forbes, based on studies of the IMF and the World Bank.
Q: Assuming that your "New Vision" is now adopted, we would like to know if, in the context of the general panic and the loss suffered by stock markets, the global crisis would not have a negative impact on the "New vision "that you promote. In other words, will this global crisis not hinder the realization of this "New Vision" in Ivory Coast and Africa in general?
Thierry TAN: If we do nothing, the impact will be disastrous for our country, because the crisis will lead to lower commodity prices and so on.
By cons, if we know how to manage it, the impact of this crisis will be very positive for us.
Indeed, having recently lost $ 7,500 billions in stock in 45 days, fund holders do not want to invest heavily in the Western countries which are now too risky.
They therefore seek safer places that give them a good return and good future prospects.
For different reasons I have given (important natural resources, fertile land, lack of disasters), the Ivory Coast is the place!
Definately, I confirm that Ivory Coast is the place, but only if it adopts the "New Vision", whose broad outlines are largely explained in my previous interviews, i.e.
- Industrial processing of our raw materials (that's the real economy);
- A very liberal regulations, because too many rules automatically bring too much corruption. However, no investor wants to settle in a corrupt country.
- Little or no taxes. Because "too many taxes kill taxes." Moreover, contrary to popular belief, the countries that have lower taxes are the countries where the Government earns the most money that is to say that the budget revenue of the Government is large surplus.
I take as examples Dubai or Hong Kong which are countries "Duty-free"; i.e. without taxes (or very little). Even the VAT is excluded in Dubai or Hong Kong.
Despite its status as "Duty Free", budget revenues from Hong Kong amounted to 377 billion Hong Kong Dollars in 2010, about 20 times the Ivorian national budget.
And remember that Hong Kong has only 1000 km ², compared to 322 000 square kilometers of the Ivory Coast.
Better, if Hong Kong is very rich, its citizens are also very rich, since the per capita income in Hong Kong is the same as that of the U.S., i.e. $ 45 000 USD per year, or $ 10,000 more than the German or French people.
- With this new tax and regulatory business-oriented environment, the “New Ivory Coast” will become a "commercial Hub" to which the whole of Africa will supply, as "Shopping in Abidjan" will become very interesting, with cheaper products, because it’s “duty free”. Just like in Dubai or Hong Kong.
- Under these circumstances, investors and tourists will thus flow into the “New Ivory Coast”, creating factories, wealth, highways, schools, hospitals and jobs for millions of Ivoirians.
- Under these conditions also, the security will be provided.
Indeed, "There is no war, where there is prosperity! "
It is certain that with these advantages, the “New Ivory Coast” will attract some of the "sovereign funds" (funds belonging to rich states) which are valued at $ 12,000 billion. And these "sovereign funds" are looking for such places as the "New Ivory Coast," to invest. Even assuming that the Ivory Coast can attract only 1% of these "sovereign funds", that's still $ 120 billion, 30 times the national budget of the actual Ivory Coast!.
In addition, they are not loans but investments. That means we do not have to pay interest. This is very important, given that our "debt service", i.e. the payment of interest on the debt already represents 43% of the Ivorian national budget in 2011, double the salaries of civil servants including the army forces.
Under these conditions, should further increase our debts and consequently, increase our "Debt Service" to the point of reaching 100% of our national budget? The answer is no. Instead of debt, it is better to attract investors with the "New Vision". As with investments, there will be no refund or interest payable.
It will be all profit for the Ivory Coast.
And the third thing that strengthens my conviction, about the "New Vision" to transform our agricultural products, is that even if the global economic crisis occurs, people still need to eat.
They can stop buying cars, refrigerators, televisions, etc..But they cannot stop eating.
But what have I advocated in the "New Vision"? It is the transformation of our raw materials in food products (attiéké, for example).
And food passes through all crises, because people need to eat constantly.
If we apply the "New Vision", instead of fighting it, the Ivorian economy will derive great benefit.
Even better, the current global crisis, instead of hitting us very hard, will turn into a great "Blessing" for our country!
Finally, I would like the other African countries also benefit from the application of the "New Vision" by the Ivory Coast - and thus its economic success - to emulate and to build together a true "Union of Africa "which will be based on real socio-economic linkages, and not on political statements that fly once spoken!
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