Tuesday, April 17, 2007

GEAB N° 14 A Chronicle of America's Very Great Depression

The (free) abstract of GEAB 14 is now available online. This issue claims that the "2007 Very Great Depression has indeed begun."

Two aspects are identified:

1. A historical reversal of global financial balances:

The report chronicles the decreasing role of the US in the field of international trade and wealth production signalling an end to a century-long tendency which began during WW1. This is supported by statistics showing the current dominant place of the EU in the external trade of oil-producing countries. In addition China has now surpassed the US as premier source of EU imports. It also notes that in March 2007, the value of European financial markets surpassed those of the US. This represents "a 'seismic tremor' for the global financial markets as it shows a displacement in the centre of gravity of the global financial sphere out of the US and towards the Old Continent."

The following US trends are identified:
  1. relentless and durable decline of the US currency
  2. decreasing share of the US in international trade and the production of global wealth
  3. geographic remoteness of the US compared to the 'Old Continent's' Eurasian economic centres
  4. impoverishment of the US consumer
  5. collapsing competitiveness related to collapsing quality of education

2. An implosion of the US society:

US income disparity is now comparable to what it was on the eve of the Great Depression. The ratio of incomes between the richest 0.01% and the poorest 90% hovered in the 170-180 range throughout the period 1950 to 1980. It soared to 880 in 2005, this being about the same level (891) as in 1928. It is thought that this disparity will produce severe social and political tensions, a hint of which are already present in the number of foreclosure evictions. The report maintains that the economic recession will grow deeper and that US society is being split into two groups, one poor and the other very rich, with the middle class in increasing danger of falling into the poor group.

Unlike the situation during the Great Depression when the US was in the ascent as an economic power, the current depression will take place in a period when US economic power is eroding. It is claimed that in April 2007, the tipping point of the global systemic crisis is already occuring and that trends will speed up and their impact intensify and become obvious to everyone.

The full report (subscription) describes four other trends that will dominate the coming quarter:

  1. The continuing contagion of other types of home loans and other sectors of the economy by the subprime crisis.
  2. The return of stagflation with US growth falling below 1% by this summer. A further sharp increase in the US deficit by mid-2007.
  3. An intensification of the geopolitical oil crisis in May 2007 with Iran and Venezuela on the frontline and Oil on the rise (USD$100) and the US Dollar suffering a further dramatic fall by summer 2007.