Global 'Great Depression' expected
But are things really that different almost 80 years later? For instance, the popping of major asset bubbles almost defines a recession by itself. And one can argue that the 1930s collapse of the banking system is the consequence, or reflection of the real economy, rather than its cause. So saving one insolvent institution isn’t going to prevent the unraveling of the rest of the system early in the new century. And yes, the international situation is okay, but that’s just because America is the cause, rather than the recipient, of global economic problems this time around; falling stock prices abroad are saying that foreign GDP growth will soon collapse as a result of America’s troubles.
--
And what’s worse, we are only in the early stages of the crisis. Last year, 2007, was the year that the mortgage market unwound. This year, 2008, will feature the collapse of major financial institutions, starting, but not ending, with Bear Stearns. Next year, 2009, will be the year when the problems make their way to the rest of the U.S. economy, including the still-buoyant industrial sector. By 2010, the recession (or worse) will be global.
Some take comfort in the fact that we haven’t yet seen soup lines, or 25% unemployment. But soup lines are merely an unnecessary (and hopefully unrepeated) appendage of the above. And anecdotal evidence suggests that many welfare agencies are now stretched to the absolute limit, meaning that new soup lines will appear if the system is tested just a bit more. And unemployment hasn’t risen because companies have so far chosen to cut health care and pension contributions rather than lay off workers. One can easily get to the 1930s 25% unemployment with a 0% headline unemployment rate – by assuming that half the work force will be “temps” working half time without fringe benefits.
But perhaps one of the better definitions of the modern 1930s was given in a previous article on this site – a two decade pullback in the American standard of living to the 1980s (the original took American consumption back to the 1910s). Such a pullback seems inevitable from the deleveraging and loss of wealth that is now taking place. Moreover, such a retreat would last for an extended period of time. That’s because we had the best of all possible worlds (relative to the true state of the global economy) for most of the past decade and half. The next decade and half will probably see the worst of all such worlds.
Tom Au
The Daily Reckoning
March 26, 2007
posted by Tom Nadeau at 4:39 PM
0 Comments:
Post a Comment
<< Home