From The Economist (but lifted from Boing Boing):
Thanks to massive–and unsustainable–fiscal and monetary transfusions, output will eventually stabilise. But in many ways, darker days lie ahead. Despite the scale of the slump, no conventional recovery is in sight. Growth, when it comes, will be too feeble to stop unemployment rising and idle capacity swelling. And for years most of the world’s economies will depend on their governments.
Consider what that means. Much of the rich world will see jobless rates that reach double-digits, and then stay there. Deflation–a devastating disease in debt-laden economies–could set in as record economic slack pushes down prices and wages, particularly since headline inflation has already plunged thanks to sinking fuel costs. Public debt will soar because of weak growth, prolonged stimulus spending and the growing costs of cleaning up the financial mess. The OECD’s member countries began the crisis with debt stocks, on average, at 75% of GDP; by 2010 they will reach 100%. One analysis suggests persistent weakness could push the biggest economies’ debt ratios to 140% by 2014. Continuing joblessness, years of weak investment and higher public-debt burdens, in turn, will dent economies’ underlying potential. Although there is no sign that the world economy will return to its trend rate of growth any time soon, it is already clear that this speed limit will be lower than before the crisis hit.
Scary. But interesting. I’m working on a paper about the newest UN Convention regarding letters of credit law governing international commercial transactions. Letters of credit are effectively a makeshift gold standard, by which all economies are effectively pegged to this shifting baseline based on (effectively) comparative Tradeable Capital.
The interesting thing about this is that if we’re all in effect pegged together, then the curve simply shifts. Then if 100% debt is par for the world, we just finally start seeing deflation. I see deflation already (anecdotally) starting in my neighborhood: Rent hasn’t gone up this year for me or most of my friends; and car manufacturers, social events, even the lockstep law firm salaries, etc., are all catering to the recessionista.
As a person who has had a job since I was 12 (and thus early “learned the value of a dollar”), I’ve been as frustrated as the rest of the right wingers in this country by the gigantic, glib bail-outs and absolutely-unthinking willingness to print dollars, tacking zeroes onto every number. The political process has come to such obvious fraud. The negativing purpose of the bicameral legislature is thwarted by the 17th Amendment. The market has clearly expressed its opinion — repeatedly: “We like our cars like we like our bratwurst!” — but too many voices have drowned out industry’s effective capital with cash, still hot off the presses.
What freaks me out about this is that if we attempt to end this depression like we did the last — by having a war, i.e., continuing to provoke Iran/Saudi/Pakistan — it won’t work. We don’t manufacture here anymore. If we provoke a war we’ll just go further into debt as we import weapons and even soldiers, this time.
Sometime in the next few weeks (when it gets coherent) I’ll post my working paper re letters of credit. My argument is that if we focus on domestic laws — rather than looking directly to Convention or international law, as most W. European countries have done financially — then we’ll be at a better starting point to rebuild capital. A quasi-gold standard would be an excellent start right now, if not a remedy in the long run. I’d like to see the case for focusing on developed capital at home, and trading in that capital rather than in meaningless “cash” overseas may make all the difference.