The global economy is still deep in uncertainty over not just whether or when a recovery will take place but more importantly there is much debate over if the financial turbulence of 2008 were just the tremors before a the real economic earthquake. The very fabric of the global economy is completely different today than it has been in recent history. Never before have nations been so dependent on each other for not just consumer manufacturing or financial inflow, but also strategic resources such as food and electricity as well as the components to produce strategic resources without which no civilisation can maintain its modern infrastructure and state functionality.
There is no doubt that the current economic system of global capitalism and its supporting institutions have been largely created and guided by the dominant super power of our times. The importance of the USA to the global economic system cannot be understated and the relationship can be conveniently comprehended by the clever cliché “If America sneezes, the world catches a cold”.
Even though many economic pundits are trying their utmost to convince the world that it is in recovery and that mistakes leading to the financial meltdown of 2008 have been corrected. I have great concern that these very same masterminds who didn’t see the 2008 fiasco coming are ignoring basic economic facts and are in a state of denial. Just by glaring at the facts in the US alone we can get a global perspective of where the world may be heading.
The American social security system was created at the end of the second world war in 1945. At the time there were 43 taxpaying citizens for every single pensioner. A victorious America entered into a period of unprecedented growth, it was one of the few places untouched by the war and a manufacturing behemoth, a significant proportion of global manufacturing and capital were now American, with birth rates skyrocketing and the resulting generation being termed “baby boomers”.
In 2011 however America is a very different place. The taxpayer to dependent ratio has dropped to 3 to 1, people are living longer thanks to advances in medical science and those baby boomers are starting to retire, all 80 million of them. According to some statistics, starting in 2011 about 10,000 a day will be retiring and turning into a burden on the system. How exactly is the US planning on dealing with this massive problem? Well for starters the regulatory authority of the United States , The Federal Reserve is in fact a privately owned institution and is helping deal with the problem by printing more money. The scale of the 2008 fiasco has already caused the Fed to print $824 billion, which is only going to cause hyperinflation in the united states and undermine the dollar, causing further problems. Historically, hyperinflation has already occurred in the US before, once during the revolutionary war and then again during the American civil war.
Globally, there are now seven billion people , and populations in rapidly developing countries such as India and China are starting to behave like American consumers, thus these countries will now be competing for the same resources as the US, causing further global inflation.
Another term often associated with the global economic nightmare is “peak oil” , which is basically a term given to the fact that we have taken more oil out of the ground then we will ever find. Global oil discovery peaked in 1964 and in 1984 the world was consuming more oil then it discovered, in 2011 we consume 4-6 barrels for every barrel discovered. And to make matters worse; newly discovered oil is much more expensive to refine and will further undermine our global system which is centered around cheap oil , everything from shampoo and fertiliser to asphalt and electronics is dependent on oil, thus any increase in crude oil prices directly effects all those products.
The most dangerous aspect of the inflation bomb is the effect on food; many countries such as Brazil are switching agricultural land normally used for the food supply to produce bio fuel. According to a UN survey, food prices sky rocketed 48 per cent in 2010; wheat rose 74 per cent, the price of oats 68 per cent and corn, coffee and sugar prices are at record highs. Global warming is causing crop failures worldwide, further impairing the food supply. During the last depression , credit cards didn’t exist and not many people had access to home equity loans or debt. In 1929, the US was a manufacturing behemoth and enjoyed a trade surplus, quiet contrary to the situation today. And the model of economics back in 1929 was not so debt reliant. The sooner the international community comes out of its state of denial, and addresses the writing on the wall, the sooner it will ensure avoiding a second dark age.
The writer of is Chairman, Jinnah Rafi Foundation and Honorary Consul for Malaysia
