A triple dip, 2 decade long recession /depression? 15 (now 18) sobering reasons
Back in the beginning of this year, Feb 2008, if I recall, the Globe and Mail newspaper ran an absolutely shocking (well at least for me) and eye-opening picture in the newspaper—too bad I didn’t save it & I haven't been able to find it or a similar graph since. It was a graph, spanning 50 years of quarterly GDP changes in Canada. The same downward trends are also mirrored in other countries (if someone can find this picture, please email it to me)
It starts high, peaking when I was born (at 10-12 % GDP growth per year) and has been trending downward unabated ever since, down to 1-2 % even in surplus economic times. Each new boom period was weaker then the previous one and each downturn was deeper and wider then the previous one…It’s amazing that one solitary picture was able to showed me that our economic system was growing more and more anemic despite the same or increased levels of efforts by government, business and individual people in each upturn.This is explained by George Soros in the video from Columbia University -see below, where he summarizes his views on bubbles and how we got into this current global financial mess
Soros mentions several false assumptions/misconceptions that politicians, regulators, bankers and investors have held over the past several decades such as: Markets can correct excesses and that they can be left to their own devices (self regulation). Scientific American recently came to the same conclusions that neoclassical economics is based on false, long-disproved assumptions (see The Economist Has No Clothes ; Unscientific assumptions in economic theory are undermining efforts to solve environmental problems By Robert Nadeau March 2008.)
18 Sobering Reasons for a long Recession
The smaller 1) US housing bubble & 2) the soon-to-crumble commercial mortgage bubble was really propped up by a 3) larger super bubble of credit and leverage that’s been building since World War 2 and most recently on an accelerated super leg since the 1980’s..this credit bubble is also propping up several other systems-which have yet to fail catastrophically….so we have a dozen more shoes to drop in this recession 4)….watch for possibly a dozen or more US states proclaiming bankruptcy (and resulting layoffs of state government employees, professors and teachers , police, fire fighters, garbage collectors etc) and for direct attacks (read reforms or downsizing) against sacred American entitlements --5) the US old age social security/pension system and the 6)US health care system, which are both unsustainable in this recession/depression.(..what? you thought they will cut the military budget instead?)...Odd you don't hear about arms manufacturers crying for governments bailouts because banks have spotted extending credit lines to them, do you? Oh and then there's the 7) over-leveraged hedge fund bubble,8) the Credit Default Swaps bubble, 9) the consumer credit card bubble, 10) the student loan bubble and 11) the car loan bubble leading to the 12) implosion of the North American auto industry, where one automaker goes bankrupt and the other two merge into one...think of any others? 13) Letters of Credit bubble and 14) the collapse of Maritime trade see below) 15) faith in and demand for US T-Bills collapse? 16) further collapse of commodities
What seems to be recession -proof?
The US military and military spending (in the USA, China and Israel at least , not Russia), USA government deficit spending, arms trading and manufacturing, Somali pirates, SPAM the meat and the internet scourge.
What's more, I'm hard pressed to figure out what will drive America, Canada and the developed world out of this recession-except for massive government infrastructure spending (even though the US is broke), because individual consumers are all tapped out (maxed out on credit cards and home equity loans). In each previous recession, since World War 2, it was easily available and inexpensive credit that was the driver to kick-start an economy in recession or depression-which now has all but evaporated. Government bailouts sure won't work, when half of it goes to year end Christmas bonuses for banking executives
What else could salvage the US? What about Middle East Petrodollars.?..the billions of dollars that the US and other oil importers spent on oil and gas that has flowed back to the Middle East. How Ironic !!Bush's Axis of Evil saving and bailing out the USA !!!
Oil exporting countries created Sovereign Wealth Funds (SWF) worth trillions of dollars ie Abu Dhabi Investment Authority (ADIA)-worth $875 bn; Saudi Arabia Monetary Agency (SAMA) --$350 bn; Kuwait Investment Authority (KIA) -$250 bn; --in total over 20 of these SWF exist, totally non transparent and secretive. The question is where and how will this money be invested and will it benefit the US or will it bury it? Don't forget --8 of the top 10 oil exporting countries are not democracies and could be considered unfriendly to the US The key question is what will the US have to give up to get access to this pool of funds? Could the Middle East now be controlling the financial destiny of the world over the next two decades?...and was Osama Bin Laden right after all?
So the next main question on most people's minds, how long could this recession last?
The worst case scenario will be the continuing collapse of international Letters of Credit market and the resulting collapse of global maritime (ocean going) shipping trade...The Index that tracks dry goods ocean shipping volumes (production inputs such as iron ore, coal, coke, grains, minerals etc) is falling like a stone and is at an all time record low and decade low level. It's always been a good leading economic proxy indicator and until that turns around you won't see a recovery. (This current recession was predicted last year still, well in advance of any downturn, when cargo container volume fell precipitously coming into SF and LA.)
So how long is that going to be? First don't listen to economists and go with your gut.. Go back to the headlines over that past year. First everyone was reassuring us that there was no chance of going into a recession, then the experts said it will be a short and shallow slowdown, next it will last into 2009 but it will be shallow. Now they are admitting that it may be a touch deeper and more wide spread...what nonsense !! Realists like George Soros even sees a depression in the card.
I wasn't surprised that three times as many people are searching for the word depression vs recession on Goggle (although It's likely that people are searching for both depression-the mood and depression-the economic state.)
But now imagine a triple dip (or triple leg) recession stretching 10-15 years or more ?
Sound impossible? When you say depression, most people think of the Great Depression of the 1930's, but the previous one in the 19th century lasted a quarter of a century. A triple leg depression is plausible, if we consider two more wild cards that could hit the world one right after the other.
The next crisis to hit the US and the world after the current financial crisis, which may take much longer to straighten out, will be
I'm not a total pessimist but I do see obvious threats and less obvious opportunity windows for business and technology. Email me if your business, or industry or government would like to explore these opportunity scenarios together.
Above:In red, David Hathaway's predictions for the next two solar cycles and, in pink, Mausumi Dikpati's prediction for cycle 24.
I could well be wrong, but realistically I'm hard pressed to see how, if these two wild card events do come to pass, how the world won't be worse off--I welcome counter-arguments--Walter Derzko
Soros video>> https://www.youtube.com/watch?v=bLBgM_NDwG8