Happy Birthday, America.
As the sun sets and Americans gather from sea to sea to celebrate their nation, the world is in the midsts of a financial crisis, the likes of which has not been seen since the Great Depression.
And I continue to maintain that we have suffered a deep and significant financial earthquake, the effects of which most people still do not fully understand or appeciate.
To be sure, it is NOT the prelude to another Great Depression.
History does not repeat itself.
The banking system will not be allowed to collapse as it did in 1932 exactly because its collapse then caused the Great Depression.
But understand this, dear reader. Events in the 1930s took years to play themselves out. It took from October 1929 until mid 1932 for the banking system to collapse. And it was only after that collapse that we entered the Great Depression.
So if this is not to be another Great Depression, let's also be clear that it is not comparable to some of the smaller, period crises which have afflicted particular segments of the financial system since the 1980s.
It is not like the international banking crisis of 1982, the savings and loan crisis of 1986, the portfolio insurance debacle of 1987, the emerging market crisis of 1997, nor the technology bubble of 2000.
This crisis is not confined to a particular firm or a particular segment of the financial system.
It has brought the entire system to the brink of a breakdown, and it is being contained only with the greatest difficulty.
What we are witnessing is a crisis with far-reaching consequences. It is not business as usual... but the end of an era.
But while some hearld the decline and fall of the American Empire, I'm not so sure that is fait accompli.
We are already seeing that those who insisted that India, China and Europe would keep the global economy moving (even as the United States choked and sputtered on trillions of dollars of excess consumer debt) may have miscalculated.
Europe, like America, is also in shambles. India is stumbling, and it is becoming increasingly clear China is not doing as well as predicted (more on that later this week).
To be sure... America is in for a royal economic shite-kicking and there is some serious pain ahead.
But on this Fourth of July, I would be willing to bet serious money that twenty-five years down the road China will not be supplanting America as the world's dominant nation.
I will try and explain why over the course of this month.
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Saturday, July 4, 2009
Happy Birthday, America.