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The Failed Great Depression

Economics / Great Depression II Mar 11, 2012 - 11:22 AM GMT

By: Andrew_McKillop


Best Financial Markets Analysis ArticleSince 2007-2008 nearly all OECD countries, from Japan to the USA and the straight majority of European economies tasted free-fall economic conditions very similar to what the history books tell us about the 1929-1936 period. The economy went down and kept on going down. Recoveries were short, followed by more free-fall. Social and political stress rose as the economy fell - but this wasn't the case in China, India, Russia, Brazil, South Africa, Turkey, Argentina and other large and growing emerging economies, with a combined population two and a half times the population of the OECD group. In the "classic model" of economic collapse they should also have spun into recession.

The term "global economy" suddenly had a meaning.

How the 2007-2008 richworld collapse was handled, and is still being responded to was simple: this was treated as a monetary and fiscal crisis with debt and deficit strings attached. Called "Keynesian" by some, it produced keynesian results - in the richworld the economy stayed down as the deficits and the debt increased. Inside a globalized financial trading straitjacket, speculation ran wild against any economy judged as weak - starting with the PIIGS of Europe. Each time the attacked country's debt will increase even more, producing monstrous and unreal nominal or theoretical debt loads, as the daily newsfeed on Greece shows, with its bad-joke Mickey Mouse debt numbers.

Showing that firewalls and bulkheads still exist in the global finance circus, but more in the mind than on the ground, neither Japan's debt nor US sovereign debt are treated as out of control, as if they were what they are: Super Greece bankrupt states. Instead, the daily task of central bankers is to prevent interest rates rising, for the hyper-debt countries outside the "safe to attack" PIIGS, whose debt is now a plaything of bond traders from Moscow to Manchester, but with starkly gathering risk strings attached.

Much more discreet and much more real, the real background music is the tune of transferring economic power from West to East, from Euro-America to China and India in a process that started way before 2007-2008, in fact from the start of the 1990s.

Stock exchange panics and les crises boursieres of the 19th century, and early 20th century, were nearly always European origin: 1929 marked the great turning point, fully signalling the dominant new power of the US economy. Europe's stock market crises of the late 19th century played to the background tune of power moving East-West, from Europe to the US, while inside Europe the early industrial leader, the UK, lost out to Germany and France.

While the Anglosaxon power transfer from the UK to USA, from the former colonial power to its former and large colony had been peaceful, the power transfer inside Europe was the stuff of two world wars and more than 40 million dead in Europe. For the Europeans, this was a zero sum game spread over a near half-century, with today's outright winner being Germany alone. The European disease is simple to describe: Europe could not adjust peacefully, and preferred to drag everybody down with it in all out war, posing a hugely frightening question as to whether the USA's handover of economic power to China and India is going run using the UK-USA handover template, or the internal European power transfer model ? Inside Asia too, Japan's handover to China and South Korea was bloody and drawn out for decades, and today's China-India border is still the May 1963 truce line from all out war, but the chance of Sino-Indian war is vanishingly low - for economic reasons.

Europe was the main theatre for the 1948-1989 cold war, which at many times could have gone nuclear. Instead, the Soviet Union was beaten by economic attrition, heavily aided by the organized and planned collapse of oil and gas prices, by the Chernobyl disaster, and by Soviet defeat in Afghanistan in the 1980s. Today's Russia could be called a "rump empire", like the massively shunken Persian empire's rump state of Iran, but Russia is far too militarily powerful to mess around with - and is the biggest oil producer and gas exporter in the world. The Euro-American cold war, like the Euro-American war in Afghanistan, treading the same hostile plains and hostile valleys as the defeated Soviets, to the same defeat, is a stark reminder of the West's shrunken power and loss of purpose, showing that the Euro-American economic superpower started its descent - to what we do not know - from at least 20 years back in time.

Since the cold war finished, the world's population has increased by over 1.5 billion. Since that time, the GNP of China and India has increased about 16-fold, vastly outdistancing the now anemic and debt-crippled economic growth of the US, Europe and Japan, floundering in debt, disillusion and mass unemployment. Today's commodity story is China and India: their demand sets prices at least as much, and increasingly more than the US, Europe and Japan. The simplest of figures show it: when or if China and India attain the car ownership of the Old Powers, around 450 - 700 cars per thousand population, their oil demand will literally explode. Everybody knows this, but nothing happens. Chindia's import demand for coal, metals, minerals and food can only likewise explode - unless their economies collapse or an East-West war ensues. Already today however, both China and India have geostationary satellite launch-capable missiles, able to place their ample stocks of atomic weapons on any Western capital that dared to attack them: the Opium War and the Amritsar Massacre were a long way back in history, but perhaps not in the fumbling minds of war-happy Western leaders able only to oppress the Afghan people.

The cold war between the Russian soviets and capitalist Westerners was above all manageable and predictable, except at times of near-nuclear crisis. Russia is above all a western-type caucasoid majority society and culture, with a long history of relations with Europe and America. This is not the case for either China or India, nor the cold economic and financial war that is raging, ever stronger since 2008. In no way do either China or India owe the west any favours - when the west had the whip hand on them, they were demeaned, denigrated and exploited "in the name of civilization". Their economies were put down and held down. When they have the whip hand, they may return the compliment.

To be sure, the financial press - of the west - is stuffed with Asian Locomotive talk extolling the virtues of intense economic growth in emerging Asia, and other emerging countries entrained and bolstered by the world's unstoppable demand for energy, food and raw materials, industrial products, shipping, transport and heavy engineering. The industries that New Economy neoliberals, in their so-brief period of being able to grab the limelight following the west's harbinger crisis of the late 1970s, gayly called Sundown Industries: les industries crepusculaires. Exactly the industries which build and fuel the cars and airplanes they ride in, and manufacture the iPhones they babble idiot slogans into.

The lesson of keeping a tight ship was well learned and applied by China and India, although in no way can we imagine they are exempt from internally-produced economic meltdown. Sitting on either immense foreign exchange reserves, in the case of China, or large ones for India they are able to be much less than amused, and increasingly alarmed at the West's refusal to do anything about its debt-and-deficit crisis. This, through the perverting and economically degenerating power of the New Economy, is now a major business activity. Thousands of bond traders are employed each day to work their playstation gambling consoles, using the "underlying asset" of Greek, American, Italian, Spanish and other debt instruments, as well as corporate debt instruments. For the Chinese and Indians this is pure degeneracy and must stop. They have all the means - economic, financial, trade and military - to enforce this.

Much as Japan, using military force attempted to create the Asia Co-prosperity Sphere in the 1930s and until 1945, when it was hit by two atom bombs, China and India may well see themselves as forced to create a new non-Western economic alliance, of course including the Middle East and its oil resources. Above all, this new move, with sure and certain monetary handles to exclude the Toxic Moneys - the dollar, euro and yen - would seal the fate of the child-like slogan used by American and European leaders, to reassure themselves and anybody foolish enough to believe them: "China and India need us as much as we need them". Bankrupts and fraudsters issuing worthless money are needed by nobody.

They can take a look at Europe's failed single money union and walk away from it. Building a monetary union on failed economies guarantees only one result: failure. They can look at what preceded this failure - the European economic community and customs union - and see real solutions to their increasing risk of being cheated by European and American monetary decider "pulling the plug" and devaluing much faster than their present one-only stealth mode of creeping devaluation, behind a smokescreen of bluster that fools nobody.

Installing a customs union in a non-Western prosperity sphere will avoid the impossible political hurdles that make the European sovereign debt bailout game a born loser. Today's ongoing attempt by the Merkel-Sarkozy duo to patch up a lasting solution, apart from its pathetic lifelessness, demands nearly total political union - that nobody wants. To be sure, they want German cash, but they do not want the rest, and average Germans do not want to pay for Merkel-Sarkozy grandstanding. The reality of German banking integrity and liquidity is so far from the propaganda version aired, round the clock, on government friendly TV stations in Germany and France that this basic reality barrier to European political, economic and monetary union also torpedoes the child-like notions peddled by the Merkel and Sarkozy duo, which may soon pass into the history books, on Sarkozy's re-election defeat.

Moves initiated by Chindia to stop the rot in the world's finances are now overdue. The normally subdued and insipid results of G20 meetings may soon start to show this - and sharply underline the West's lost power. Power that was lost in main part due to the West's own flirt with degenerate New Economy doctrines, and its refusal to accept that non-Westerners also want prosperity and will buy the same energy and raw material commodities that are basic to economic growth.

By Andrew McKillop


Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2012 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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