Wednesday, December 14, 2011

This slump won’t end until 2031, parallels Long Depression of 1870s....


This slump won’t end until 2031, parallels Long Depression of 1870s....

In retrospect, it wasn’t hard to see that the markets were becoming dangerously unstable. Germany had just adopted a new monetary system, and Europe was being flooded with cheap German money. Greece had signed up to a monetary union with Italy and France but was struggling to hold it together.

Habsburger.net
Xylograph from a court ball in late-19th-century Vienna,

Financial markets had been deregulated. New technologies were transforming production and communications, allowing money to move across borders at lightening speed.

And a massive new industrial power was flooding the world with cheap manufactured goods, blowing apart old industries.

When it all fell apart in an almighty crash, it was only to be expected.

A prophesy for London, New York or Berlin in 2012? Not exactly. It is a description of Vienna in 1873. In that year, in one of the great crashes of all time, the Austrian markets triggered collapses across Europe, swiftly followed by an equally spectacular collapse in New York. It was the start of what economic historians call the Long Depression, a prolonged period of volatility, unemployment and slumps that lasted an epic 23 years, only coming to an end in 1896.

Is Europe infecting the globe?

A slew of bad data from China and India suggest that the euro crisis is infecting emerging economies.

I have been researching that episode for my new e-book ”The Long Depression: The Slump of 2008 to 2031.” The parallels with our own time are fascinating. German unification, and the adoption of the gold standard, had led to a boom in that country, and cheap German money had flooded Europe. Greece had just joined the Latin Currency Union, an ill-fated attempt to merge currencies across Europe. Banking had been deregulated, which was partly why so much German money was invested on the Vienna bourse. The telegraph created instant communications, allowing the European crash to spread to New York. The U.S. was industrializing, transforming the global economy as much as China has transformed the present era’s economy in the past decade.

All those factors came together to create an almighty bubble, followed by an even worse crash. The slump that followed — although it is hard to measure these things precisely — lasted more than two decades. If the slump following the crash of 2008 is anything like that one, then this one is going to last until 2031.

The Long Depression: The Slump of 2008-2031 by Matthew Lynn.

True, historical parallels are never precise. We won’t replay the Long Depression of 1873 to 1896 exactly, nor will this slump necessarily last as long. It is, however, a far more instructive episode than the Great Depression of the 1930s. And there are five key lessons we should learn from it.

First, depressions can last a very long time, and when their origins are in a debt bubble they should be measured in decades not years. For a century or more, depressions have been relatively short, sharp episodes. They are like having a tooth pulled, rather than a chronic sickness — painful, but over quite quickly. But it doesn’t have to be that way. In the U.K., for example, this is already the longest recession since records began — in the sense that output is still below its 2008 peak. It is more enduring than the depression of the 1930s. That is true of many other countries, as well. If, as seems likely, Europe, and perhaps the U.S., slips back into recession in 2012, it will be clear to everyone we are witnessing something far longer than the conventional economic textbooks allow for.

Second, this depression is structural. The Long Depression of the 19th century had its roots in financial speculation, technological change, and the arrival of a massive new player in the global economy. Our current depression likewise has its roots in three huge crises coming together at the same time. We have a debt bubble that had been building up over three decade and which burst spectacularly in 2008. The dollar is in long-term decline as a reserve currency, and as the anchor for the global monetary system, but there is still not much sign of what will replace it. And in the euro, the biggest single economic bloc has created the most dysfunctional monetary system in human history, threatening financial collapses on an unprecedented scale. Think of it as the world economy’s suffering a heart attack, then a stroke, then getting picked up by an ambulance that crashes on the way to the hospital — it is hardly surprising the patient isn’t in good shape.

Three, it’s uneven. The Long Depression of the 19th century was a sustained period of lower growth compared with what came before and what came afterward. Germany, for example, grew 4.3% annually between 1850 and 1873 and then at 4.1% between 1896 and 1913. But in the Long Depression years, it only managed a growth rate of just over 2% a year. It was similar in other countries. The markets remained volatile, with repeated booms and busts, regularly collapsing back into recession. They did grow occasionally, just as Japan has sometimes grown in what is now its second decade of slump. But the growth is never sustained.

Four, good things are still happening. It isn’t all doom and gloom. In the Long Depression, some countries were largely unscathed. New technologies and industries were being created. The telephone was invented, and the foundations of new industries based on the petrol engine and electricity were put into place. The people who got it right still made huge fortunes, and the workers in the right industries prospered. Overall, however, times were hard. And you had to position yourself carefully.

Five, it won’t be fixed easily. The parallel with the 1930s is dangerous, because it has convinced bankers and policy makers that if you can just pump up demand, everything will be OK. It won’t.

Sure, demand is important — there is no point in letting it collapse. But this won’t be over until all three structural problems get fixed. Debt needs to be paid down to manageable levels, a new reserve currency needs to be created, and the Euro needs to be put out of its misery, and utter Fraud and corruption should be rooted out, as well as fixing regional conflicts and enforcing ALL UN Resolutions... None of these are simple tasks, and none will be done quickly.

The global economy will eventually get back to normal growth. But the truth is, it is going to be a long, hard haul — and a lot of work needs to be done it get back on track....

Matthew Lynn is chief executive of Strategy Economics, a London-based consultancy. His latest book ‘The Long Depression: The Slump of 2008-2031’ is published by Endeavour Press.

War Is Bad for the Economy...

Miriam Pemberton pointed out last week:

Societies need to buy as much military insurance as they need, but to spend more than that is to squander money that could go toward improving the productivity of the economy as a whole: with more efficient transportation systems, a better educated citizenry, and so on.

This is the point that retiring Rep. Barney Frank (D-Mass.) learned back in 1999 in a House Banking Committee hearing with then-Federal Reserve Chairman Alan Greenspan. Frank asked what factors were producing our then-strong economic performance. On Greenspan’s list: “The freeing up of resources previously employed to produce military products that was brought about by the end of the Cold War.” Are you saying, Frank asked, “that dollar for dollar, military products are there as insurance … and to the extent you could put those dollars into other areas, maybe education and job trainings, maybe into transportation … that is going to have a good economic effect?” Greenspan agreed.

last year:

PhD economist Dean Baker points out that America’s massive military spending on unnecessary and unpopular wars lowers economic growth and increases unemployment:

Defense spending means that the government is pulling away resources from the uses determined by the market and instead using them to buy weapons and supplies and to pay for soldiers and other military personnel. In standard economic models, defense spending is a direct drain on the economy, reducing efficiency, slowing growth and costing jobs.

A few years ago, the Center for Economic and Policy Research commissioned Global Insight, one of the leading economic modeling firms, to project the impact of a sustained increase in defense spending equal to 1.0 percentage point of GDP. This was roughly equal to the cost of the Iraq War.

Global Insight’s model projected that after 20 years the economy would be about 0.6 percentage points smaller as a result of the additional defense spending. Slower growth would imply a loss of almost 700,000 jobs compared to a situation in which defense spending had not been increased. Construction and manufacturing were especially big job losers in the projections, losing 210,000 and 90,000 jobs, respectively.

The scenario we asked Global Insight [recognized as the most consistently accurate forecasting company in the world] to model turned out to have vastly underestimated the increase in defense spending associated with current policy. In the most recent quarter, defense spending was equal to 5.6 percent of GDP. By comparison, before the September 11th attacks, the Congressional Budget Office projected that defense spending in 2009 would be equal to just 2.4 percent of GDP. Our post-September 11th build-up was equal to 3.2 percentage points of GDP compared to the pre-attack baseline. This means that the Global Insight projections of job loss are far too low…

The projected job loss from this increase in defense spending would be close to 2 million. In other words, the standard economic models that project job loss from efforts to stem global warming also project that the increase in defense spending since 2000 will cost the economy close to 2 million jobs in the long run.

The Political Economy Research Institute at the University of Massachusetts, Amherst has also shown that non-military spending creates more jobs than military spending.

So we’re running up our debt – which will eventually decrease economic growth – and creating many fewer jobs than if we spent the money on non-military purposes.

Nobel prize winning economist Joe Stiglitz wrote in 2003:

War is widely thought to be linked to economic good times. The second world war is often said to have brought the world out of depression, and war has since enhanced its reputation as a spur to economic growth. Some even suggest that capitalism needs wars, that without them, recession would always lurk on the horizon.

Today, we know that this is nonsense. The 1990s boom showed that peace is economically far better than war. The Gulf war of 1991 demonstrated that wars can actually be bad for an economy.

This is a no-brainer, if you think about it. We’ve been in Afghanistan for almost twice as long as World War II. We’ve been in Iraq for years longer than WWII. We’ve been involved in 7 or 8 wars in the last decade. And yet we’re still in a depression.....

"Another Eurozone crisis is only weeks away"? This heading presupposes that Europe has left the crisis zone, before you can go back into a crisis zone you have to leave one.

Europe is in perpetual crisis mode. Eventually, Germany will get fed up of being slam dunked and will just leave the Euro but if they continue to procrastinate they may get another cruel lesson from the markets. As we speak the Euro is heading downwards for parity with a dollar, that is in far worse shape than the Euro weighed down as it is with 15 trillion of debt but unquantifiable exposure to derivatives, and 200 Trillion $ more in unfunded liabilities of the crooked US ZOG..... That quantitative difference, will count for naught when the Euro "fails". This is a game of confidence tricks and the EU have not been able to pull off any confidence tricks while the US are the poster boys for confidence tricks....for Now.... So money is flowing across the Atlantic, as we speak there is a run on the Euro not just on European banks. Mega businesses like Siemens and BMW are hedging themselves against the breakup of the Euro. The summit has only made things dramatically worse....2012 is going to be a rough ride....

Commentary:

If wars really helped the economy, don’t you think things would have improved by now...?

This thorny present issue in the Zioconned USA and the rest of the Zioconned Western World and their lackeys Worldwide, especially in the GCC..... is often the same elsewhere in the World; one could for instance successfully compare Obama, Cameron, Merkel, Berlusconi, others...., and Sarkozy, they've been rivaling like in some competition for determining the dickhead head of executive powers that sank the country they were in charge of, the deepest and the fastest....

Now, there are major shortcomings in the revolution and vengeance approach that are projected...., as well as a number of other phenomena..., and feel the need to warn against any such illusory views. I'll try to add some insight that could hopefully bring everybody involved (that is, all Earthlings) closer to reaching some practical solution...

The way things have been functioning so far in the capitalistic countries such as the ones that we are talking about, there is an underlying, more or less unified, core backbone - a multi-layered pyramid of power from top to bottom, operating through a number of visible and invisible connections, of which the visible parts only present a truncated and in fact quite deceptive picture to the unsuspecting eye....

As we could see most clearly recently, the present moment is one where this system has been challenged deeply enough for anyone to question both its own survival and the very future of the people it was allegedly meant to supervise. Therefore, it's a moment where actual change is much more possible than it has ever been since centuries....

A major preliminary task that already met quite a few successes has consisted in exposing bare some of the previously hidden mechanisms through which this pyramid is operating - at least to the eyes of the most awake and independent-minded people. This, in turn, considerably decreased its efficiency, especially in terms of its proverbial ability to rule through secrecy and unaccounted deception....

Now, recorded history is full of episodes where some attempt to change the ruling system was only focusing on a part of it, at most, the sum of its visible parts, and any earnest observer should recognize that none of those attempts eventually brought much change at all, beyond triggering the usual rivers of blood and forcing the pyramid to make some adjustments in order for it to restore or enhance its features, including in terms of its ability to hide and to survive....

On the contrary, it eventually appeared to the careful observer that such blood-shedding changes had been all too often diverted, accompanied or even crafted by those very ruthless rulers that the process was aiming at getting rid of, in the first place....

I believe that this type of mistake should not be repeated - that one should avoid entering into anything that would trigger even more bad karma (cycle of unwanted actions/reactions). Enough is enough....with the most infamous White House Murder INC,....

What is needed here is the practical means to prevent those people from following their usual course of action. What is equally as important is to avoid one of those huge pendulum shifts that, by being actually prone to triggering the same degree of violences and excesses, show that they are none better than what they aim at replacing....

This planet needs a process that is as smooth and as safe as possible, and will obviously require a new global, legal framework and executive setup....


Incidentally, I learned the bulk of what is said here by seeing many mentors in life at work over the years.... I had felt the need to figure out clearly some of the core principles that they followed in order to reach some of their major achievements so far, one example being how to best drive for good a
country out of the hands of all those criminal rulers installed by the same pyramid over Russia - be it the communists or the oligarchs for over a Century....

In a nutshell, I strongly wish to see the same, proven methods successfully applied to a bigger scale, where it's most needed....






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