Tuesday, 28 August 2012
The Ghosts we are calling, again – How the world drops into a new depression
“Depression” - It is a word that seemed to be forgotten over the past decades, but it is coming back now. While everyone in the free market economy was certain that such an economic disaster that happened in the late 1920ies would never come back, we have to be aware that we are on the brink of a new global depression.
The signs for that are obvious: a worldwide constant economic downturn (especially in the Western world), increasing budget deficits, the uncertainty of the future of the European Monetary Union, a global increase of unemployment, exploding costs for water, food, and electricity, and an increasing poverty all over the world. The essential key factors for a new depression are given, and this one will probably be more severe than the one that started on the 24th of October 1929.
However, there are a number of differences between the “new depression” and the old depression that started on that so called “Black Friday” (this term was wrong per se, as it actually happened on a Thursday). Back in 1929, it was the collapse of the New York Stock Exchange that unleashed the global depression, leading to economic devastation all over the world. Our “new depression” – if you want to call it that way – started in 2008 with the bankruptcy of Lehman Brothers. Back in the late 20ies, it took the world many years to recover, with a notable help of World War II, which in fact helped the US economy to recover through a massive investment in arms production and war efforts – and in a certain way also through Franklin D. Roosevelt’s New Deal Policy. In our time, the world is still suffering from the long-term effects of the Lehman Brothers crash and the US subprime mortgage meltdown. In fact, global economy did not really recover from this macroeconomic shock.
The Lehman Brothers crash – the “big bang” for the new depression – did cause the downturns in economically vulnerable countries, specifically in Southern Europe. But even presumably “stable” countries like Iceland out of a sudden felt the full impact of the highly sensible threads between countries and private banks, which were supposed to be “too big to fall”. Lehman Brothers proved, however, that no one is too big to fall – not even the US, if it gets from bad to worse. In the contemporary crisis, more countries are facing a fiscal collapse than ever before. Global economy has reached such a dense interdependence that nearly none of the national economics remains remotely unaffected by macro- or microeconomic shocks of another actor – state, bank, or any other economic actor. And once again, nearly every national economy is closely dependent on the well-being or the non-well-being of the US economy. It was the case in 1929, and it was definitely right in September 2008.
The Great Depression not only led to a global economic crisis, in the long-term it also led to the biggest catastrophe of the 20th century: namely World War II. A logical implication, since a widespread economic crisis is nearly always followed by a massive political and humanitarian disaster with devastating consequences. But this does neither mean that the current crisis we are experiencing will automatically lead to another global war or a wide scale armed confrontation, nor that there is any automatism leading to a war in general – either on a regional or a global scale. The risk for that – however – is given, and the current security vulnerability in some regions might lead to the same deduction as it was the case in the late 1920ies and 30ies.
Ever since “9/15” (September 15, 2008: the date of the Lehman Brothers bankruptcy), the world is stuck in a permanent financial crisis, without a real recovery or at least a tailing off. The dangerous matter, however, is the fact that we have accepted the crisis as a permanent state and that we do not expect the crisis from easing off, but to deteriorate instead. Everyone seems to wait for the next evil tidings to arrive. Evidently, Europe is in particular looking at Greece for the final big crash. But rather than ending the Greek odyssey with a Greek bankruptcy and an exit of the Euro-Zone, which might possibly lead to a limitation of the full effects and possibly make the final U-turn out of the recession, some European policy makes – and above all Greece – desperately attempt to win some extra time, to prevent the opening of the Pandora’s Box. Since no one can predict the full dimension of such a “Grexit” (neither on a European, nor on a global scale), the new policy in Europe seems to be: prevent, postpone, but don’t let it happen. Anyway, Germany is not interested in another postponement of Greek obligations for austerity.
Everyone is waiting for the next big bang to arrive, the big bang that will throw out world from a global recession to the next global depression. It is most certain to happen; the question is just, when exactly. No one wants to imagine the consequences, since many people are already struggling to get along, especially when they are caught in a crisis state.
Another question remains: which day of the week will be the next one to be classified as “black”?