My framework for analysis of current economic events sees this as the end of the post-WWII geopolitical and economic regime. Like walking through a forest and seeing only trees, it is difficult to grasp the magnitude of these events. Long-term graphs are needed, and easily show that current events reflect the ending of a long cycle — and transition to a new and different one. The key word is cycle. Although Winter might be dark and long, Spring will come again. Look closely at current trends and you will see the new era emerging.
Here are two examples.
1. New foreclosures as a percent of all mortgages
One of the major drivers of US growth during the past few decades has been the post-WWII debt supercycle: the massive increase of US household debt (a term coined long ago by the folks at Bank Credit Analyst). This accelerated after the 1982 recession, again in the mid-1990’s, and again after 2001. Now the trend turns.
We enjoyed adding debt — like knocking back too many brews at the local pub. The inevitable de-leveraging — like the resulting hangover — usually means a period of suffering.
This is from “Economic Snapshot September 2008“, Christian E. Weller, Center for American Progress. 9 September 2008. I recommend it as an excellent summary of the US economy’s condition. Weller is an Associate Professor of Public Policy at the U of Mass.
2. US exports
I have said that this economic cycle will end with
- the US dollar declining in value
- so that US exports of goods and services are more competitive on world markets, and
- we can earn the money to pay interest and principle of our foreign debts.
This means we will be poorer (able to buy fewer foreign goods), but our economy will again be on a firm foundation.
A frequent reply is that “the US no longer makes things” or that this natural economic re-balancing need never (or will never) happen to America. All are odd replies, because this is happening right now.
From Contrary Investor, 4 September 2008.
The growth of exports in absolute terms will slow along with the global economy, but the trend is clear — important and very good news. America must earn its way in the world, and by some means other than as a largely unwanted global policeman.
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For more information about this subject
- A brief note on the US Dollar. Is this like August 1914? (8 November 2007) — How the current situation is as unstable financially as was Europe geopolitically in early 1914.
- The post-WWII geopolitical regime is dying. Chapter One (21 November 2007) — Why the current geopolitical order is unstable, describing the policy choices that brought us here.
- We have been warned. Death of the post-WWII geopolitical regime, Chapter II (28 November 2007) — A long list of the warnings we have ignored, from individual experts and major financial institutions (links included).
- Death of the post-WWII geopolitical regime, III – death by debt (8 January 2008) – Origins of the long economic expansion from 1982 to 2006; why the down cycle will be so severe.
- Geopolitical implications of the current economic downturn (24 January 2008) – How will this recession end? With re-balancing of the global economy, so that the US goods and services are again competitive. No more trade deficit, and we can pay out debts.
- A happy ending to the current economic recession (12 February 2008) – The political actions which might end this downturn, and their long-term implications.
- What will America look like after this recession? (18 March 208) — More forecasts. The recession might change so many things, from the distribution of wealth within the US to the ranking of global powers.
- The most important story in this week’s newspapers (22 May 2008) — How solvent is the US government? They report the facts to us every year.
- The geopolitics of inflation, an introduction (17 June 2008) — Inflation is probably not what you think it is.
To see the all posts on this subject, go to the archive for The End of the Post-WWII Geopolitical Regime.