When will the depression come to an end? There are plenty of forecasts out there. Maybe the Olympics will lift the economy next summer. Perhaps the euro crisis will finally be resolved after Christmas. The emerging markets might grow fast enough to dig us all out of trouble.
All of them are way too optimistic. This will carry on until 2031.
For my new book, The Long Depression: The Slump of 2008 to 2031, I've been researching what economic historians refer to as the long depression of the 19th century. It started with an almighty crash on the Vienna stock exchange in 1873, and lasted until 1896, an epic 23 years.
Could we be witnessing another two-decade slump? Unfortunately so. The UK is already experiencing its longest depression since records began -- this downturn has already lasted longer than the slump of the 1930s. Europe is heading for a deep depression next year as the austerity regime bites. The U.S. will struggle to grow significantly. We are used to short, sharp recessions. But it is now nearly four years on from the credit crunch. And things are getting worse, not better.
We have been misled by comparisons with the 1930s -- a terrible depression, but one that was over quite quickly. The long depression of the 19th century came after an epic financial bubble, and had its roots not just in speculation, but in a currency crisis, and the arrival of a massive new industrial power -- the U.S. was disrupting the global economy then as China is now.
And today? We are going through something very similar. In truth, the developed world is facing not one crisis, but three.
There is a debt crisis. The developed world has been building up debts on a spectacularly scale over three decades. In the UK, total debts, adding up what individuals, companies and corporations owe, have reached a towering 450 percent of GDP. According to McKinsey data, global debt now stands at $158 trillion; that is up from $77 trillion in 2000. Put another way, global debt amounts to 266 percent of global GDP now, compared with 216 percent a decade ago. Debt on that scale is unsustainable.
Then there is a currency crisis. For most of the post-war period, the dollar was the anchor of the global economic system. That worked when the U.S. was the overwhelmingly dominant economy. It doesn't work anymore. The dollar is now down to 60 percent of reserves as central banks diversify away from a currency falling in value. At some point we will come up with a new core currency -- perhaps the Chinese renminbi, perhaps gold. But until we do, there will be more chaos ahead.
And finally there is the euro, perhaps the most dysfunctional monetary system ever created. Welding together the currencies of 17 very different economies, without any kind of fiscal union to compensate for the differences between them, was always a high risk experiment. We can by now surely agree that it has failed. The euro was meant to promote faster growth and greater stability. It has become instead a cause of depression and volatility. Until it is dismembered, there is little chance of the economy returning to stability.
None of those tasks can be accomplished easily. The euro will take several years to take apart, and if it falls apart, and chaotically will plunge the world into a deep depression. A replacement for the dollar will take a decade to establish itself. And only once those are achieved can we start paying our debt down to manageable levels.
The great 19th century depression lasted for more than two decades. The 21st century equivalent won't necessarily last quite so long -- but it isn't going to be over soon.
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"But we cannot rely on custom or conscious alone to interpret and enforce the rules; we need an umpire.These then are the basic role of government in a free society; to provide a means where we can modify rules, to mediate differences among us on the meaning of rules, and to enforce compliance with the rules on the part of those few who otherwise would not play the game."
For whatever reason, this part of Dr. Friedman's philosophy is never mentioned when it comes to making "free markets" work.
Given the scale of the global economy, gold may no longer be quite as serviceable: Despite new discoveries of ore, the supply is too small relative to the scale of the transactional economies it would be required to support. To put it bluntly, there may not be enough gold on the planet to allow for sufficient long term growth and stability. Instead price volatility triggered by the most minor discoveries of new supply would likely become so extreme that the "currency" itself would become a source of gross economic instability.
The problem with the renminbi is that The Middle Kingdom has, historically, never wanted that kind of level of involvement beyond its shores. Listening to the annual Party Congress, one is struck by the singular focus: What will promote stability, prosperity, security, for the Chinese people? The fate of the rest of the world is relevant only against this question. Yes, resources must be secured. Yes, military strength must be projected to ensure a continued supply of raw materials, food, resources. Yes, access to foreign markets must be maintained. But monetary hegemony? Not desirable.
Which raises an interesting question: What lies beyond the idea of a global currency? Perhaps the global economic changes are deeper and more profound than current theory can address?
1/ - what happens if a mountain of gold is found? NB also - it doesnt really have much use. The people of highland new gubea used seashels like gold - but with better transport from the coast they lost their value. ie - rarity is all
2/ curious notion - a govt that cares about the welfare of its people - very unamerican
3/ sadly we return to the disastrous CDO notion. a sliced and diced note that is based on a weighted index of currencies (kind of what central banks have long done - they are bailing in droves - but am told its still 60% of reserves globally). sad tho the $ is - folks still run to the $us when it gets scary (like now) - lesser of two evils - not much of a choice. so much trust has been destroyed wall street antics which culminated in the gfc.
- Republicans win big. Republicans can pass anything, and the economy will go up.
- Republicans don't win big. Things continue as they have been for the second half of Obama's term. Economy *falls*.
- Democrats win, despite the current economy. This means people generally do not like the Republicans. Economy rises, because the Republicans cannot continue the current approach.
- Democrats win big. If the economy makes an unlikely turnaround by next year.
I just want to be able to retire.
Last week, a federal judge in Mississippi sentenced a mother of two named Anita McLemore to three years in federal prison for lying on a government application in order to obtain food stamps.
Apparently in this country you become ineligible to eat if you have a record of criminal drug offenses. States have the option of opting out of that federal ban, but Mississippi is not one of those states. Since McLemore had four drug convictions in her past, she was ineligible to receive food stamps, so she lied about her past in order to feed her two children.
The total "cost" of her fraud was $4,367. She has paid the money back. But paying the money back was not enough for federal Judge Henry Wingate.
Wingate had the option of sentencing McLemore according to
Read more: http://www.rollingstone.com/politics/blogs/taibblog/woman-gets-jail-for-food-stamp-fraud-wall-street-fraudsters-get-bailouts-20111117#ixzz1gvsWINYd
Bravo, Muck-raker. With I could refan, but here's a fav.
Here in the states the DOW is back to very healthy levels, we have an ample tax base and in general earnings for many companies are actually excellent. Unemployment here is and has not been anywhere close to the levels seen during the first years of the Great Depression which 3 years in was over 15%..using the timeline of 1929 (3.4% unemployment) as the start. Ours started in late 2007 spiked in 2010 and now has drifted back down to 9%.
The EU will iron out its problems over the next two years, GDP looks flat to slightly negative. For now predicting a 23 year depression is a bit of a reach.
The stock market is not a good measure in these times. People must park their money somewhere, and for many, their habit has been stock. Most of Fortune 500 companies are paper lions.
Globalism is leading to a global standard of living. An average worker in China and India makes about $200 per month (40% of all workers live in these two countries). It will take a few years, but American and European workers will need to meet this standard. This will apply to almost all workers, including medical, education, government, legal, retirees, food, etc. The "Cost of Production" includes just about everything.
Reference: http://www.nytimes.com/2011/12/03/opinion/will-china-stumble-dont-bet-on-it.html?_r=1
clever cheap technology makes almost all jobs in rich countries able to outsourced off shore & the remainder can be replaced by lenient immigration
forget the fictional time line for the depression - the old days are gone even for burger flippers - a return to mercantalism is really the only hope of a wage differential for lucky citizens of countries w/ natural, accumulated wealth etc.
When it starts I'm moving to somewhere remote and deep in the ground.
Bit like now, china produces so much & so few americans can buy.
I also suspect 1929 was when hire purchase was taking off. no one could pay the piper after that. suspect you could buy repossessed radios, cars & washing machines for a song. similar now also only worse due to r/e overspending problems.
That being said, I appreciate the balls to the wall doomsday scenario as it must surely count as more lucid than the continual sophmoric "muddle through" platitudes offered by most talking heads.
sorry about the identity theft (well not true - i didnt know u were out there) - but there is an old connection w/ alfred am afraid