Nearly every single bank in Europe is at risk of being full nationalized. Japan and other Asian countries are reporting Depression sized dropoffs in exports. China is close to having an official recession. There is growing worry in the UK that they are about to go the way of Iceland, with a complete currency collapse. People are starting to wonder if the UK as a country is bankrupt, no doubt fueled an increase in secrecy over the money supply. The most visible economist that predicted the crisis has upped his loss estimates to $3.6 trillion, meaning we’re only about one-third of the way done.
These stories are a leading edge of the third wave of the crisis. The first wave started in Fall ’07 with the beginnings of a credit crunch. The second wave really started in March ’08 with Bear Stearns but picked up speed when Lehman went bankrupt: this is when it became clear all the major institutions would fail without government support and thus take down the economy. The third wave is when governments start falling — and some countries go bankrupt — because a collapse in global trade destroys the fundamentals of economies to an extent that governments can no longer manage them. The fourth wave will be when countries start fighting amongst themselves over economic resources, and cooperation starts falling apart completely. At that point there will be trade barriers and trade/investment will be used as a foreign policy tool.
People that look only at the headline economic numbers of the United States are missing the picture. They say, “Sure, things are bad, but on their face they don’t even look as bad as the ’82 recession.” The difference is that recession was instigated by the Fed in order to break inflation, and did not see deflation nor a collapse in world trade (or the government having to guarantee $7 trillion of funds). Looking at the full global dynamics of the current crisis, it is very clear that the same factors are in play that preceded the Great Depression and the forgotten 1873-1879 Long Depression (which was originally called the Great Depression).
I don’t write this out of helplessness, far from it. In fact, the “tipping point” I referred to in the title is what I see as the point of recognition that occurs during the third wave. In the first two waves, the emphasis is on how best to help the economy and get it running again. While there are some political undertones, the debate is driven primarily by policy experts and elected officials, who tell us to remain calm and help support them get things back to normal.
However, when the third wave takes hold, there is a sharp decrease in global economic activity and the weaker nations are threatened on a fundamental level. It is no longer about getting back to “normal,” it is about just trying to stabilize and survive. Right now many people are primarily concerned when looking at their 401Ks and wondering what investments they should make to get back on their retirement track; in the middle of the third wave that’ll switch to being concerned about making it through the next year. At that point, “the economy” becomes very politicized, perhaps the overriding and near sole political concern. All hope for normalcy disappears.
The faster that we accept that we aren’t going back to “normal” (and our “normal” was anything but) the faster we can start having a political debate about how to allocate our newly limited resources. Obama’s proposed stimulus package has some of that, where it’s about a fundamental reworking of how we define our economic identity, but unfortunately it’s been billed as a solution to our ills. It definitely isn’t.
I don’t write these posts to be doom and gloom, but to warn people that I think that their livelihood will be affected by political decisions in a way that many of us can barely imagine. As such, it’s important to start getting involved politically both towards the federal government and on the community level, and think it’s wonderful that we now have a president that understands that. It’s up to all of us to not only engage him, but our fellow citizens as well, and move to an environment where we are clear headed, resolute and compassionate. Otherwise, there is a good chance that our economic crisis will morph into a political crisis, and the last wave: War.