Global financial crisis
First, it should be clear that the $700bn bailout plan is already a failure. That's because it contains no provisions to actually fix what's wrong. The problem is not a crisis of liquidity, for which a great wad of government cash is a reasonable fix, but a crisis of confidence. Major US banks have been running at reserve ratios of 3%-5% and they all know it. They no longer consider each other credit worthy, and that's a mostly accurate perception. Nothing in the bailout bill forces banks back onto the straight and narrow, so there has been and will be no restoration of confidence.
However, bad as the US's situation is, the US is far and away not the worse off. The European system has every problem the US has, except more so, and with less governmental power to throw at it. Deutsch Bank, for instance, is carrying something on the order of $3 trillion dollars in liabilities at a reserve ratio of around 2%. It's not just too big to fail... it's too big for anyone to rescue. There are other examples in the Euro zone of similar magnitude. The ECB is forbidden from bailing anyone out in its charter, and the economic integration has deprived any member of the Euro zone countries from being able to rescue its own economy. Euro institutions move very slowly, by design, so there is no governmental power in Europe strong enough and fast enough to mount any sort of credible response.
China is also in a bad way, more or less as a mirror of what Europe and the US are facing. China has been experiencing explosive growth since the early 1980s -- better than 10% a year. Some of that represents a return to mean for China (the world's largest economy up until the early 19th century), but a good part of it is froth blown by lending vast sums to their customers in the US and Europe. There's an old saw about how if you owe the bank $1000, you have a problem... if you owe the bank $1,000,000, the bank has a problem. The crisis currently under way in the US and Europe is going to nuke their economy. I don't believe that their political institutions are strong enough to handle a major economic downturn, because they've been built up during a period of nearly endless economic expansion. I think the probability of civil war in China during the next ten years as significant. The Tibetans and the Uighurs will probably get free of China in the confusion, but under deeply unhappy circumstances.
So, here are some predictions for the next twenty years:
1) We're getting off oil, one way or another. I think we'll probably go the easy way and innovate our way off of it. If we do that, whoever leads the way will pop out of this crisis on top of the heap. If we go off the hard way, we'll be at the bottom.
2) China will descend into a serious economic downturn. Civil war is a real possibility, because the national institutions to hold the place together just aren't there, and the internal divisions are fiercer than is readily apparent in the western media.
3) Europe is likely to be much worse off than the US. Russian influence in Europe will grow because of Russian control over their energy supplies.
4) The countries that are going to be the least worse off are Japan, the US, and the UK. Japan already had their banking crisis, and are therefore less affected by the US and European crises. The UK and the US retain enough governmental power over their banks to, once they get their heads screwed on straight about what is required to fix the issues.
5) Brazil and India will see their influence grow. Brazil has natural resources up the wazoo, and is already a dominant economic power in Latin America. India and Japan are likely to be the least worse off in Asia, so the big story will be relations between India and Japan, not Japan and China.
That was longer than I expected...
However, bad as the US's situation is, the US is far and away not the worse off. The European system has every problem the US has, except more so, and with less governmental power to throw at it. Deutsch Bank, for instance, is carrying something on the order of $3 trillion dollars in liabilities at a reserve ratio of around 2%. It's not just too big to fail... it's too big for anyone to rescue. There are other examples in the Euro zone of similar magnitude. The ECB is forbidden from bailing anyone out in its charter, and the economic integration has deprived any member of the Euro zone countries from being able to rescue its own economy. Euro institutions move very slowly, by design, so there is no governmental power in Europe strong enough and fast enough to mount any sort of credible response.
China is also in a bad way, more or less as a mirror of what Europe and the US are facing. China has been experiencing explosive growth since the early 1980s -- better than 10% a year. Some of that represents a return to mean for China (the world's largest economy up until the early 19th century), but a good part of it is froth blown by lending vast sums to their customers in the US and Europe. There's an old saw about how if you owe the bank $1000, you have a problem... if you owe the bank $1,000,000, the bank has a problem. The crisis currently under way in the US and Europe is going to nuke their economy. I don't believe that their political institutions are strong enough to handle a major economic downturn, because they've been built up during a period of nearly endless economic expansion. I think the probability of civil war in China during the next ten years as significant. The Tibetans and the Uighurs will probably get free of China in the confusion, but under deeply unhappy circumstances.
So, here are some predictions for the next twenty years:
1) We're getting off oil, one way or another. I think we'll probably go the easy way and innovate our way off of it. If we do that, whoever leads the way will pop out of this crisis on top of the heap. If we go off the hard way, we'll be at the bottom.
2) China will descend into a serious economic downturn. Civil war is a real possibility, because the national institutions to hold the place together just aren't there, and the internal divisions are fiercer than is readily apparent in the western media.
3) Europe is likely to be much worse off than the US. Russian influence in Europe will grow because of Russian control over their energy supplies.
4) The countries that are going to be the least worse off are Japan, the US, and the UK. Japan already had their banking crisis, and are therefore less affected by the US and European crises. The UK and the US retain enough governmental power over their banks to, once they get their heads screwed on straight about what is required to fix the issues.
5) Brazil and India will see their influence grow. Brazil has natural resources up the wazoo, and is already a dominant economic power in Latin America. India and Japan are likely to be the least worse off in Asia, so the big story will be relations between India and Japan, not Japan and China.
That was longer than I expected...