The Coming Global Recession and the Remaking of the World

Guidance is falling all over the world for economies, with even Germany at risk of falling into recession. The US dollar has been rising in a huge flight to safety, while the price of oil has been dropping. Growth in the world economy has ultimately been based on the BRICs and those have been based primarily on Chinese demand along with a series of new housing and equity bubbles. Those who say there is no inflation are fools: there is plenty of it, showing up in real estate and stock markets.

Meanwhile, in the developed world, all of this money has gone to the top, not to the top 10%, but to the top 3% or so (depending on how you cut the pie), with the majority going not just to the 1% but to the top .1%. Demand has been driven almost entirely by the demands of the rich: high level housing in global cities like London; and stock market appreciation vastly above any conceivable rate of productivity increase. Corporations have made their profits by engaging in oligopoly pricing, with US cable giants making almost 100% returns on “high speed internet”, for example.

The market for real-estate is nowhere close to clearing: there are many more houses, apartments and condos empty than there are homeless people; prices are rising far faster than either inflation or wages, and debt is piling up on on new home entrants, especially in the United States, where the student loan bubble has impoverished the people old folks expect to buy their houses at inflated prices.

The base of the economy, of a mass economy, is thus rotten. However, it needs to be emphasized that the majority of the economy post 08 has been based on central bank money printing: that money has been used to directly and deliberately inflate housing and stock markets. There is no “economic recovery” as the post-war world understood it, there is only print-priming, bubble pumping, oligopoly pricing and austerity driven buyout activity.

Demand for actual workers has been kept low while profits and gains from bubbles have been kept high, leading to massive cyclical gains for the rich. The late Jane Jacobs worried (a little early, but presciently) that we were moving into an old-style world. She got the details wrong, but she got the essence correct: as many have observed in the decades since, the plan is aristocracy, and the plan is succeeding. There is aristocracy by right (billionaires) and there is aristocracy by position (corporate officers), and there are important retainers and local gentry (centi-millionaires), but the well-being of the majority of the population is not a concern

What is a concern is making the system self-perpetuating: locking in high profits, making sure that the heirs of the aristocracy keep the gains, and making sure that labor never gains the ability, either politically or through economic pressure, to upset the game.

They will not succeed, due to exogenous shocks to the system they cannot control, and due to their own rather shattering incompetence, but that does not mean things will get better for ordinary people, instead what is more likely is social collapse amid climate change and a number of wars, as America loses its hegemony (by some measures China is now the world’s largest economy. Do not expect that America will go easy into that long night, nor that China will not remodel the world as it continues to rise.)

Many countries are now more tied to China that to the US for survival: their elites make their money selling commodities to China, not the US, and their ordinary people get their imported goods the same way. Again, do not expect this to not affect the world.

The US is still the dominant power, to be sure, and it will use its dominance and all its tools to hang on and make more billionaires and centi-millionaires, but its day of hegemony is over. Nor, I suspect, will China’s day (if it succeeds in overthrowing the American Raj) be long.

In the meantime, recession comes, in the midst of the ongoing depression. Buckle up, it’s going to be ugly.

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