Celente says Iran War’s economic fallout is catastrophic and it is impacting every country on earth.
April 1 (King World News) – Gerald Celente: PUBLISHER’S NOTE: In our 46 years of trend forecasting, never has there been a war that has affected the entire globe as has the war that Israel and the U.S. launched against Iran on 28 February.
And by the facts and details we published before the war began, we had warned of the dangers ahead. Now, one month later by the facts, bad times are getting much worse. Here is the latest list of socioeconomic and political damages inflicted across the globe as a result of the Iran War.
Governments, coping with record $100 trillion in debt amid a slowing economy, are struggling to find ways to help their citizens manage energy prices not seen in decades.
Before the Iran War, the U.K. had crafted a plan to slow its borrowing. Now the government has promised to further subsidize some households’ heating bills. China, Hungary, and Japan have capped gasoline prices. The U.S. state of Georgia has suspended its 33-cents-a-gallon gasoline tax.
New Zealand is doling out $120 a month to low- and middle-income households. Germany is ready to impose a windfall tax on fuel suppliers. China, South Korea, and Thailand have curtailed fuel exports.
The longer the energy shock continues, the more that governments will be pressured to help businesses and households survive it. At the same time, the shock of climbing energy prices will reignite inflation, forcing central banks to raise interest rates, which would almost certainly raise governments’ borrowing costs.
The U.S. government had expected a $1.9-trillion budget deficit this year, meaning it will borrow more than a quarter of what it plans to spend. Now the military wants an additional $200 billion to carry on the Iran War in the short term.
A prolonged Iranian war could drive France’s public debt to 130 percent of GDP and Germany’s to 80 percent, not because they are taking part in the hostilities but because their citizens are expecting government aid to cover the rising cost of essentials.
Already, the war has sent borrowing costs in Europe to their highest levels in more than a decade.
Europe stepped in to subsidize energy costs when they soared in 2022 after Russia invaded Ukraine, the European Union banned Russian oil imports, and Russia cut off almost all natural gas exports to the continent. The aftershocks of that debt load reverberated through the post-COVID inflation struggle and continue.
“This idea that ‘whenever there’s a shock, we’ll issue more debt and not worry’ has been the policy for the last 25 years,” Harvard University economist Kenneth Rogoff told The Wall Street Journal. “The trade-offs are going to be more stark now. It doesn’t mean you don’t do it but there’s a risk of really pushing fiscal limits.”
Government bond markets already have felt that risk, having undergone a selloff earlier this month.
However, imposing fuel price controls, which China and Japan have done, runs another kind of risk, economist Ricardo Reis at the London School of Economics pointed out in a WSJ interview.
“Experience after experience throughout history has shown [capping prices] is a bad idea,” he said. “It creates an ever-growing hole in the government’s budget.”
Japan’s price ceiling on gasoline will cost the government about $16 billion if oil stays near $100 a barrel. At $120 a barrel, the cost rises to $40 billion. South Korea plans to reimburse losses for refiners and others in the fuel supply chain by imposing an AI-related tax.
Slovenia capped prices, which drew people from other countries to cross its borders and fuel up there. To stop the practice, the country has imposed gas rationing. Hungary and Slovakia are limiting gas purchases to their own citizens.
The worst of the oil shock’s damage will fall on poorer countries.
“The debt limits – the tipping point – are probably lower for developing countries,” Raghuran Rajan, former governor of India’s central bank, said to the WSJ…
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IRAN WAR IS CRUSHING JAPAN’S SMALL-BUSINESS ECONOMY
Escalating oil prices are threatening to close thousands of small businesses in Japan, prevent wage increases, and raise prices across the board for consumers, the Financial Times reported. Japan imports 90 percent of its oil and natural gas.
The owner of a public bathhouse is closing the doors after 27 years in business. Oil prices are up, so the cost of hot water has risen, but the government limits prices that bathhouses can charge.
The country’s small businesses are fragmented and “behave more like households” and lack the unity to exert pricing power, the FT said.
“We don’t even know what the price will be at any given time,” the owner told the FT. “It’s constantly changing.”
“There is no Goldilocks scenario where the conflict ends and everything just snaps back to the way it was,” Stefan Angrick, a Japan economist at Moody’s Analytics, said to the FT.
Seiko Transport, a trucking company moving agricultural products across southern Japan, had scheduled workers’ raises of 3 to 5 percent for this month. Now the raises have been postponed.
Prime minister Sanae Takaichi has pledged government support for businesses. Last week, she set aside the equivalent of $5 billion to pay make up losses for fuel suppliers now that the government has capped gasoline prices at $4 per gallon.
Many gas stations have halted operations, saying they are unable to operate within the price cap.
The finance ministry has contacted financial institutions about possibly intervening in the oil futures market, according to an executive at one of Japan’s largest banks.
The government will take “all possible measures at all times on all fronts,” finance minister Satsuki Katayama told reporters. The yen had weakened last week to ¥158.5 to the U.S. dollar, making oil – which is bought and sold in U.S. dollars – even more costly.
TREND FORECAST:
After the war is settled, economists and many politicians will renew their calls for austerity in government spending.
Nations will look for a mix of tax increases and spending cuts, especially in social support, to reel themselves back from the brink of insolvency. Given ongoing geopolitical strife, military budgets are unlikely to be reduced.
EUROPE CONFRONTS ITS SECOND GAS CRISIS SINCE 2021
After an unexpectedly cold winter, Europe’s natural gas reserves have fallen to 30 percent, their lowest level since spring 2022. Those reserves now must be refilled amid a global energy shock and a sudden, critical shortage of liquefied natural gas (LNG) on which the continent has come to depend.
Europe began experiencing gas shortages in the fall of 2021 as Russia cut back exports to the region as a political pressure tactic. After it invaded Ukraine, Russia pared back deliveries even more sharply and the European Union sharply restricted imports of Russia’s oil.
European businesses and households lived through the resulting energy crisis on LNG from the Middle East and the U.S.
Since then, coal-fired electricity-generating plants have reopened around Europe, decommissioning of nuclear plants has been postponed, the region has boosted clean energy investment, and electric car sales are up.
However, natural gas still makes up 20 percent of the continent’s energy mix. A third of homes use it for heating.
Now Europe’s nations need to rebuild gas stocks for next winter at a time when 20 percent of the world’s LNG supplies have been shut off with Iran’s closure of the Strait of Hormuz.
The 27-country European Union (EU) imports a small proportion of its LNG from the Middle East; most comes from the U.S. However, the closure of the Strait of Hormuz has narrowed supplies globally, driving prices higher and availability lower around the world.
Natural gas prices in Europe are up about 70 percent since the Iran War began and, at one point, doubled briefly.
Europe began this winter with its gas reserves just 83 percent full, 12 percentage points less than the year before. One reason: the European Union suspended a rule requiring countries to refill their reserves to 90 percent before cold weather sets in each year.
Officials suspended the rule because prices rose during the summer due to the Middle East’s demand for gas to generate electricity for cooling. Prices for gas, as well as demand, should go down or at least stay level, buyers reasoned. Besides, Qatar’s expanded LNG gas complex would raise global supplies.
“There was a view that Europe didn’t need to completely top up its storage levels” because gas at reasonable prices would be available throughout the year, Natasha Fielding, head of gas pricing at research and advisory firm Argus Media, told The New York Times.
Now Iran’s missiles have shut down Qatar’s gas production and choked off a fifth of the world’s LNG supply.
Making matters worse, Europe is unable to expand gas storage. Most of it is in geologic formations such as played-out salt caverns and abandoned oil or gas wells. Greece and Ireland have no such formations. Building tanks above ground is not only expensive but takes a good deal of time, both to build the tanks and to line up gas supplies to fill them.
The EU is urging countries to fill their tanks in a “coordinated way” to avoid a repeat of 2022, when nations competed against each other for scarce gas supplies, bidding prices up to unheard-of levels. Germany spent $9.3 billion that summer to fill its reserve; Italy spent more than $7 billion.
High energy prices could curtail demand in Asia, leaving a larger supply available to Europe. However, those supplies would come “at a very high price,” gas analyst Ronald Pinto at Kpler told the NYT.
TREND FORECAST:
Probably the Iran War’s only positive outcome will be to remind nations that depending on oil and gas for energy is an unstable arrangement that periodically endangers their national economic security.
As a result, more governments – and, crucially, more consumers – will see domestically produced alternative energy as a justifiable, if not a necessary, investment.
American politicians will emphasize the need for energy sovereignty in their election campaigns this fall; European nations already are acting to boost domestic alternative energy production, as we report in “U.K. Requires Solar Panels, Heat Pumps on All New Homes” in this issue.
IRAN WAR IS CRUSHING JAPAN’S SMALL-BUSINESS ECONOMY
Escalating oil prices are threatening to close thousands of small businesses in Japan, prevent wage increases, and raise prices across the board for consumers, the Financial Times reported. Japan imports 90 percent of its oil and natural gas.
The owner of a public bathhouse is closing the doors after 27 years in business. Oil prices are up, so the cost of hot water has risen, but the government limits prices that bathhouses can charge.
The country’s small businesses are fragmented and “behave more like households” and lack the unity to exert pricing power, the FT said.
“We don’t even know what the price will be at any given time,” the owner told the FT. “It’s constantly changing.”
“There is no Goldilocks scenario where the conflict ends and everything just snaps back to the way it was,” Stefan Angrick, a Japan economist at Moody’s Analytics, said to the FT.
Seiko Transport, a trucking company moving agricultural products across southern Japan, had scheduled workers’ raises of 3 to 5 percent for this month. Now the raises have been postponed.
Prime minister Sanae Takaichi has pledged government support for businesses. Last week, she set aside the equivalent of $5 billion to pay make up losses for fuel suppliers now that the government has capped gasoline prices at $4 per gallon.
Many gas stations have halted operations, saying they are unable to operate within the price cap.
The finance ministry has contacted financial institutions about possibly intervening in the oil futures market, according to an executive at one of Japan’s largest banks.
The government will take “all possible measures at all times on all fronts,” finance minister Satsuki Katayama told reporters. The yen had weakened last week to ¥158.5 to the U.S. dollar, making oil – which is bought and sold in U.S. dollars – even more costly.
King World News note:
Japan is facing an extremely difficult situation, but Nixon’s attempts at price controls proved catastrophic (from Reason.com):
Price Controls Were a Disaster in the 1970s. They Would Be a Disaster Today, Too.
The idea would benefit central planners and grow the ranks of bureaucrats while making the poor even poorer.
With some pundits advocating for price controls to fight inflation, it suddenly feels like the 1970s again. This type of overbearing intervention has never worked as marketed, something President Richard Nixon discovered in 1973 when he lifted the wage and price controls he had implemented two years earlier.
Still, to those unwilling to learn from history, such controls will always seem sensible. Inflation amounts to rising prices, they say, so locking in prices is a supposed easy fix.
But treating inflation this way is like masking a symptom rather than curing the illness. Inflation can no more be controlled by fixing prices than your body weight can be controlled by programming your bathroom scale not to display pounds above some maximum number.
And just like masking your weight will not improve your diet, the misinformation conveyed by price controls will worsen the economy. Most of the time, prices are not simply set by an all-powerful seller; they’re a measurement of what consumers and sellers agree a product is worth. They tell entrepreneurs and businesses how to move resources from activities consumers want less of to those consumers value more.
But again, some are unaware of this reality. Political Scientist Todd Tucker, for example, recently wrote in The Washington Post that “there are normative reasons for not wanting pure markets to exist, because necessary products could be priced out of reach for poor and middle-class consumers.” He concludes, “To ensure that the wealthy do not bid up prices for essential items, the time is now to begin destigmatizing greater democratic control over price levels.”
Wrong. Unusually high prices mean there isn’t enough of something to go around and capping its price all but guarantees shortages. Units are quickly bought up, allocated by corruption or random chance, or moved to more lucrative underground markets. Over time, fewer goods are made because none of these methods inspire legitimate producers to invest in them. Among the many negative consequences of shortages are disproportionate harm to the poor. (you can read the full article by clicking here).
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