InterOuts

Recession or Depression? Choose.

Are we entering a recession or moving toward a depression is a question few wish to contemplate given how either will impact on our personal lives. Our ‘lives’ are a balancing act between survival on basics we need like water, power, food and shelter and the constant rise in the price of everything without any commensurate rise in earnings. The items that are now seen as ‘luxuries’ seem to drift further away each time we contemplate purchasing them as their affordability diminishes. The reasons given range from the War in Ukraine, Sanctions, the Climate Crisis, Inflation and many more including the usual out of field ones like overpopulation. To add to the maelstrom of collapsing banks in the USA and Switzerland (are there others?) and recessionary fears in most EU nations, the UK, Germany (semi admitting it) Japan (well 2+ decades makes including it irrelevant) and the self-inflicted pain economically (Australia versus China), the subjective analysis surrounding the great American Debt Default is promisingly optimistic about a fudged outcome while the more ‘pragmatic’ experts point to a downward spiral with the need for dictatorial controls on resources as the end result. Neither is very promising or holds out any clear cut hope for the near future. What is a recession? Merriam-Webster defines a recession as a ‘downward trend in the business cycle…characterized by a decline in production and employment, lower household incomes and spending and delays in large investments or purchases by businesses and households’. This does not sound good to me. A depression on the other hand is defined as ‘a major downswing (far more severe than a downward trend) in the business cycle, and a sharper increase in unemployment, a serious decline of growth in construction, and great reductions in international trade and capital movements. Depressions are most often measured in years and are the plummeting rather than dropping of GDP.’ Till now and still to a large extent, the world’s economy is tied and dependent on the USA’s economy, and is currently suffering from the ‘wobbles’ as the days count down for finalising the default crisis ( whatever latest development is touted). Any resolution that has been reached is only a stop gap to the unfolding of the global economic system that is occurring. The economies of China, Russia, India and others like the OPEC producers and BRICs nations have shifted away from the western markets and lessened their dependency on the Dollar. Their reliance on western consumers as their major market has decreased accordingly with most replacing the western markets with to a large degree, internal and equivalent eastern and global south ones. Economics globally has been shaped since WW2 (many say the groundwork was much earlier) by the overwhelming might of the USA’s productive output and demand. Since America accounts for more than 30% of the world's economy, its consumers are highly important as it is the single biggest market in the entire world. No matter what the political chicanery says, business comes first and all the players (producers of everything from commodities, services, culture, intellectual copyrights and on) want to be on America’s stage. However that does not mean that they either like this or accept the terms and conditions laid down by the USA in order to be able to become a participant. Many play the game but few do so willingly.

American economic history supports the theory of a market ‘boom and bust cycle’, with the world’s economic powerhouse suffering nearly 50 recessions since 1776, and facing more than 80 years of total recessionary periods over the past 250 years. To many, it all started with ‘The Monroe Doctrine’ which the USA enacted and implemented in 1837 was agreed by the United Kingdom though France and others ignored it until after WW2 as the United States did not have the economic or military might to enforce it. These facts alone have allowed the USA to implement controlling mechanisms which became overtly manifest when President Richard Nixon took the United States Dollar off the Gold Standard and allowed the US Dollar to be the only Reserve Currency Globally against which all currencies, commodities and services were quantified. The ‘Petrodollar’ had arrived as the price of Oil was measured in US Currency and the Oil Producing nations were in the main, in the same boat as the US and collective West.

The degree of control included access to Dollar denominated financial instruments and a reasonable exchange rate against the Dollar which kept many nations toeing the USA’s hegemonic line. The advantage this gave the USA was twofold, firstly the ability to ‘negotiate’ the terms of business favouring themselves and secondly the complete control of all the financial mechanisms upon which the global economy rests. That meant the price was overly in the USA’s (and the West’s) favour which given that most of the producers were ‘3rd’ world nations, meant they were constantly in debt to the company store, the IMF, World Bank and powerhouse brokers and banks such as Morgan Stanley, Vanguard, JP Morgan, Credit Suisse, and insurance markets like Lloyd's of London. This has played out in the Geo-political sphere with disastrous results for those at the receiving end of the western dominated financial system’s control of who succeeds and who does not, by withholding or making it impossible to obtain credit and other financial facilities in order to transact on the world’s economic stage.

The Washington based think tank, Responsible Statecraft issued a warning that the dominance of the US is diminishing due to the decline in the usage of the Dollar. The sanctions that Washington imposed affect 29% of the global economy added to which the rise in interest rates by the Federal Reserve impacts the price of much needed commodities like food, raw materials and of course, energy, which are priced in US Dollars. Many nations, the developing, the global south etc. have the extra burden of shouldering external debt calculated in Dollars, debt incurred following policies required by the IMF/World Bank to qualify for entrance to the global financial system calculated in Dollars. This has increasingly led to the reduction in the use of the greenback and the change to using local currencies and the more globally accepted ones like the Chinese, Saudi Arabian and Russian ones. The barter system returning in places has further eroded financial transactions involving banks and other methods of international currency exchange, usually quantified in the local currency’s worth in Dollars. No longer are commodities, services and other traded items only denominated in Dollars but more often in Yuan and Roubles let alone the currencies of the traders i.e. India and Pakistan, China and OPEC. Obviously if the US enters recession, the situation will worsen with lowered consumer spending negatively impacted by higher interest rates, inflation and the ending of federal fiscal stimuli leading to a further diminishing in the Dollars use. The likelihood of that happening is being reported increasingly and by more reliably ‘informed’ sources. With other factors playing in like numerous Bank failures making consumers feel unsafe (Confidence rules all markets) and so lowering consuming (spending), the likelihood of a recession in the USA is fast approaching with little in real terms to prevent this happening. Given that the USA endured 18 months of the ‘Great Recession of 2008’which was still measurably being felt by a considerable part of the population until late 2021(largely the under 30’s), with the way the global economy is today and given America’s indebtedness (32 trillion $ and rising), the recession is likely to be much closer to a depression with the chance of it turning into one being highly probable. The stock market valuations and corporate earnings will take a very large hit this time around as the factors today are different to those of 2008. From increased scarcity of commodities especially raw materials, higher prices, logistic bottlenecks and decreasing demand as the globe tightens its belt in the Dollar denominated nations and with the consuming nations becoming ever more removed from the Dollar ruled global financial system, the all-consuming American dollar’s rule is definitely ‘on the wane’ to be narrative correct. The reality is likely to be different. Our History shows insane sudden collapses like America (The Great Depression), Germany (pre-war inflation) and closer to us in time, Argentina and other nations like Zimbabwe.

So who will suffer? Those in the Petrodollar zone of the globe, those who rely on that zone for their income and those who tied their major investments and reserve funds to the greenback. The rest will feel the effects but to a significantly lesser degree as they are not currently weathering high inflation, lack of resources and commodities, economic and fiscal problems (even the west has admitted such) and social problems on either the scale and the level of the breaking down of the social fabric that the western nations and their retinue are undergoing (drug/ substance abuse, homelessness and criminality skyrocketing). In the short term, the effects will be devastating on the west as they have no viable mechanisms in place which will deal with the immensity of the problem, the number of people affected will be over 50% of the population (the Covid fiasco proved that fully with everything like hospital beds to medical supplies not being sufficient either in quantity, quality or quick enough to fit with the time frame). In the medium to long term, the effects will accumulate and start to undermine the ability of the west to remain innovative, competitive and relevant as a leader politically, culturally, scientifically, socially and militarily (new ways to destroy are always needed as the nuclear option is the final one and kept in reserve-hopefully).

The world will therefore change politically from unipolarity to multipolarity of a sort, since admirable human qualities like greed, self interest and other nice touches will emerge instantaneously. This is a given despite all the naysayers who would fill the debate with masses of ‘chosen’ data and emotional triggers. Bar World War 3, the loss of more decades of the good life that the USA and by definition the West has enjoyed at the world’s expense are coming to an end and quite soon. Nuclear Armageddon is the only way the Dollar can retain its past dominant position as the conflicts globally have shown with particular reference to the Ukrainian Crisis, that the west cannot enter a conflict with an opponent that is its equal or greater and compete effectively overall, be it the actual armaments or the production and supply of them. This is also true economically on the global scale as western goods and services are overpriced and often, other than the social cachet, are no better than the supposed ‘copies’ made in countries like China, Russia and Iran which have other features not as paid for options but automatically included. The era of ‘western centrism’ is coming to its grand finale; one we hope will be played out humanely and with regard if only in part, to ethics and morality. That unfortunately is up to the USA and the collective West to decide.