The Parallax Brief

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Unrepentant Subjectivity on Economics, Politics, Defence, Foreign Policy, and Russia

World Economy at One Minute to Midnight

Over the last week, portents of doom have enveloped the Parallax Brief. Increasingly, a Great Depression of the Twenty Tens looks to be the fate of the world. Lest we forget, the economic turmoil between 1914 and 1945 led to political upheaval almost unimaginable now, and unleashed the horrors of total war on the developed world.

Why do I feel so pessimistic?

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Financial Crisis: 2009 Equals 1931?

Ambrose Evans-Pritchard (pictured right) is the Stephen King of financial columnists: his articles and blogs for the Daily Telegraph (London) are terrifying.

Evans-Pritchard reports on each new squall of dire financial news with élan and wit, and his remaining readers (surely, I assume, many must have liquidated their assets, bought gold, and fled for the hills) have been rewarded with what has been one of the most prescient columns around: Evans-Pritchard foretold the armageddon long before the true reality of this horrific mess hit home to the rest of us.

This makes is latest column petrifying – and perhaps relieving:

“Barack Obama inherits an economy already contracting at an annual rate of 6pc, much like the mid-Depression year of 1931 (-6.4pc). This may beat Germany (-7pc) Japan (-12pc) and Korea (-22pc) over the fourth quarter. But that merely underlines the dangers ahead as the collapse of global trade chokes the mini-boom in US exports, setting off another stage of the crisis.

The US is losing 500,000 jobs a month. Brazil lost 650,000 in December. Beijing says 10m Chinese have lost their jobs since the crunch began. Japan’s exports fell 35pc last month, year-on-year. The central bank is printing money furiously, buying bonds to prevent a relapse into deflation.

It is like early 1931… But it is not yet like 1933.”

Evans-Pritchard paints an arresting picture of the America Franklin D. Roosevelt took over in March 1933, and in doing so provides a startling allegory for the dangers facing us now. Those libertarians and Hoover-Mellon acolytes still appalled by the brazen use of budgetary deficits and monetary easing should read on to get a picture of what happened the last time we did things your way:

“That second leg down [between ’31 and ‘33] was the result of “liquidation” policies by a Dickensian leadership blind to the dangers of debt deflation. By then the Gold Standard had degenerated into an instrument of torture. It forced the Fed to raise rates from 1.5pc to 3.5pc in October 1931 to stem gold loss, with predictable results for shattered banks.

It is worth glancing at the front page of New York Times on Monday March 6, 1933 to see what the world looked like three days after Franklin Roosevelt moved into the White House.

The newspaper splashed with the story that FDR had closed the US banking system – invoking the Trading with Enemies Act – and ordered the confiscation of private gold. From left to right, the headlines read: “Hitler Bloc Wins A Reich Majority, Rules Prussia”; “Japanese Push On In Fierce Fighting, China Closes Wall, Nanking Admits Defeat”; “City Scrip To Replace Currency”; “President Takes Steps Under Sweeping Law of War Time”; “Prison For Gold Hoarders”.

President Obama faces a happier world. The liberal economic order is still in tact, if fraying at the edges. Capital and ships move freely. North America and Europe talk the same political language. China has so far proved a dependable pillar of the international system.

Roosevelt took over a country where the economic machinery had completely broken down. The New York Stock Exchange and the Chicago Board of Trade had closed. Thirty-two states had shut their banks. Texas had restricted withdrawals to $10 a day.

Few states could borrow on the bond markets. Illinois and much of the South had stopped paying teachers. Schools closed for months. An army of 25,000 famished war veterans squatting in view of Congress had been charged by troopers of the 3rd US cavalry with naked sabres – led by a Major George Patton.

Armed farmers threatening revolution had laid siege to a string or Prairie cities. A mob had stormed the Nebraska Capitol. Minnesota’s governor was recruiting Communists only for the state militia. Lawyers attempting to enforce foreclosures were shot.”

We must not allow the second leg to happen again.

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