TWICE in the last 150 years, global depressions contributed to the outbreak of world wars. Can it happen again?
The first depression, in the 1870s, began when Europe was flooded with cheaper agricultural products from the rest of the world. Governments had no Plan A to defend their economies, so national pride was allowed to fester. Germany resented its exclusion from the colonial spoils in Africa, and so began the race to re-arm. Despite major technological innovations which created new industries, the social trauma was sufficiently deep-seated to lead to World War I.
In 1918, Europe’s governments abandoned the paradigm shift that had been offered in the years immediately before the war. A fiscal shift – reducing taxes on wages and raising revenue from land – was the mechanism for delivering full employment and sustainable growth. That policy was alive in both Britain and Germany, but the politicians preferred the business-as-usual option. That led directly to the 1930s depression. Europe’s economies were rescued, but the decision to re-arm led to another world war.
What’s different This Time?
The European Union was created to hamstring governments: political integration was supposed to prevent territorial conflicts of the military kind. But now the EU project is called into question. Again, it is a depression which is causing the problems, starting with the crushing of the euro.
A two-track Europe is an unavoidable outcome. That’s because the politicians still refuse the paradigm shift that would lay the foundations for stable growth for the whole of Europe.
But would another world war be triggered by Europe? The centre of political and economic gravity has shifted. Now, the geo-political tensions are between a declining American Empire and a hungry Chinese Dragon.
As the Debts Mount…
America is deeply in debt to the Chinese. China continues to hold dollars and US Treasury bonds, but she is also buying precious chunks of real estate and minerals around the world. As the Chinese economy steams ahead over the next cycle, her foreign acquisitions will become the source of diplomatic dispute…
The US has no plan to restore growth in a way that serves the interests of the world economy, so the prospective losses on China’s financial assets will continue to mount. The Dragon holds the whip hand. All that’s needed in this lethal financial cocktail is a reason for Beijing to flex its military muscles….
For the US and her European outposts, this prospect becomes a reason to re-arm. This would reduce the dole queues and raise profits, and offer the illusion of prosperity. But once the armies have been mobilised, what do we do with them?