Marcus Cake

A few years ago, a global depression was forecast by HS Dent (see A technology boom through to 2010 ). In simple terms, he said that the baby boomers will retire and spend less from 2009. Gross Domestic Product (GDP) is made up of 70% consumption. A decline in spending from the baby boomers would have a significant impact on GDP and thus cause negative growth, or recession. The large numbers of baby boomers mean that negative growth could be classified as a depression.

The 2009 demographic depression will be exacerbated by a food and energy crisis, the decline of the USD dollar in value, the decline of the USD as the world’s reserve currency, a global credit crisis, the world’s central banks pursuing inconsistent policies, competing interests in the Middle East and other challenges now confront the world at a singular point.  The following two articles provide a further details. The first provides background and the second article provides an overview of the exacerbating factors. I recommend you read both articles.

Economic and Geopolitical Dangers for 2008 and 2009, Christopher Laird, marketoracle.co.uk, June 19 2008

Extract:

• A significant risk (well over 50%, meaning more likely than not) of serious world stock and financial problems over the Summer. This makes a much higher risk of a real world financial and stock meltdown exceeding a 20% drop going into the Fall.
• Friction between the US Fed and the ECB over inflation policy destabilizes the markets and make a real financial panic much more likely.
• A likelihood of political turmoil in many nations over the food situation.China is exhibit number one in vulnerability to a food and energy shortage. There is one thing above all that China fears, that is a big viral insurrection involving the 800 million disenfranchised rural peasants.
• The prospects of the world having a record grain harvest in 2008 are rapidly diminishing.
• The commodity markets will continue to drive prices up, and big investment funds will continue to pump billions into these markets, making prices shoot higher.Overall, we believe that this Summer will lead to moderate market turmoil, followed by severe market turmoil in the Fall and Winter 08 as market sentiments deteriorate. It does not help that the Royal Bank of Scotland just issued a world market crash alert this week. Nor does it help that Morgan just put out a report that there is a big risk of a financial ‘catastrophic event’ due to the ECB fighting the Fed regarding interest rates and monetary policy…

US Dollar Final Decent - Dangers 2008-2009 Part2, Christopher Laird, Marketoracle.co.uk, July 17 2008

Extract:

• As we know, the USD has become the key currency to the world economy since WW2. There are several reasons, but one was that the USD was used to stabilize the European currencies during WW2. Following that war, the US became the center of a burgeoning world consumer economy. What happens when the USD is no longer the center to the world economy? That means the end of roughly a century of US economic and currency dominance. That is our discussion.
• The implications of a serious USD breakdown to the world economy and financial system are staggering, particularly if you consider that this entire world financial system we are immersed in, from East to West, grew from/with the USD economy in a 50 year world consumer and finance bubble that has built since WW2.
• The implications of a serious USD breakdown to the world economy and financial system are staggering, particularly if you consider that this entire world financial system we are immersed in, from East to West, grew from/with the USD economy in a 50 year world consumer and finance bubble that has built since WW2.
• The new credit securities markets referred to as the shadow banking system have imploded. This was the practice of creating credit of all types and then selling it as securities to big investors.
• The last time the entire world economy had this kind of economic paralysis was in the 1930s during the Great Depression.
• There are a lot of aspects to presently emerging world stagflation. But, compared to previous Western recessions, there is now a combined Western Bank crisis and, this time, the prospect of a very shaky USD.
• The world’s economic weakness right now is only a foretaste of what is to come from a weak USD. A weak and possible collapsing USD means a weak/collapsing world economy.
• The USD is probably at a limit of stress at this moment, with interest rates at 2% and the ever present need for our trade partners to send about $700 billion a year to us to buy US bonds of all sorts. Bernanke will cut the ground from the USD if he tries any further rate cuts. Our trade partners who are basically subsidizing the USD for their own reasons will balk.
• Supposing the USD devalued by over 50 to 70% in a year’s time, after endless attempts to save a collapsing world consumer credit economy, we may see: First of all, the savings of the US would drop drastically in value … Second, our major trade partner’s economies would have to do massive readjustments … World inflation will spiral out of control, lowering standards of living … Big geopolitical turmoil as regimes combat out of control food and fuel prices … A war in the Middle East over oil … A very possible period of insurrection, riots, shortages, and chaos in large US cities … A 10 year world economic depression … Vast bank failures in the US and major Western economies … Stock markets at 10% of where they are now in 3 or 4 years … Prices of most essentials effectively 4 times higher … Big increases in energy and food prices … Gold at $3000to $5000 plus and oil at $300 … Severe world currency restrictions and foreign exchange controls … Rationing of necessities … the return of employment to local instead of outsourcing … Many new governments worldwide after revolutions during economic collapses and or wars.
• In case you think these outcomes are exaggerated, these are the things that happened after the French Revolution, the fall of the Roman Empire, The fall of the Spanish Empire, the Fall of Byzantium, the fall of the British Empire… etc. The fall of the US economic system, the world USD system, and the US as a superpower won’t be any different.