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A Depression, Not a Recession

Posted by alifinmath on February 23, 2009

Lately (well, okay, for over a year), I’ve been obsessed with the Depression. But a year ago it was more potential than realised, whereas today it is for real, and we are clutching the straps as the roller-coaster of global finance capital hurtles downwards and threatens to go off the rails altogether. Not good for the digestion.

Every serious thinker and writer I know is squinting and staring into the murky fog of the future and trying to discern how bad things could get. No-one I know sees a bottom where things will stabilise.

We are clearly in depression country now. No more quibbling about it being a recession. A description of the distinction can be found in this piece by Bill Bonner here:

The typical recession is nothing more than the economy taking a little breather after a brisk walk. A depression, on the other hand, occurs after a long, uphill sprint – when the economy clutches its chest and falls down dead.

A depression is not merely a pause…it is the end. Unless the meddlers can work miracles – such as raising the dead – they will just make things worse. Because, while they are trying to revive a corpse, they are standing in the way of change.

*** Recessions are a natural feature of the inventory cycle. The economy gets a little over-stocked…and has to clear the shelves. Prices are cut. A few people are laid off. And then, after a few months, everyone is back in business… It’s “laissez les bons temps roulez,” as they say in New Orleans.

Depressions are a natural feature of a much bigger cycle. A part of capitalism that people love to talk about when the going is good…but despise when it turns against them. We’re talking about what Schumpeter describes as “creative destruction.” Everyone loved “creative destruction” in the late ’90s – when they thought it added to their balance sheets. Now, they beg government to save them from it.

What we are witnessing in the economy is creative destruction at work. And what we are witnessing in politics is a bunch of numbskulls trying to stop it.

What’s being destroyed? Trillions of dollars’ worth of asset values, of course. Millions of jobs. Hundreds of thousands of businesses.

In a recession, the basic plan or formula for the economy is still valid. The economy just needs a little time…and maybe a little monetary boost…before it continues growing. Typically, inventories are sold down…so a new burst of production can begin.

But in a depression, the problems are structural.

The last depression took about 20 years…and a major war (talk about creative destruction!) Then, the United States was making the structural shift from a Japan-like capital investment-led economy…to a post-WWII consumer-led economy.

Our guess is that it (the Depressioon — AA) will also destroy the U.S. consumer-economy model…and the dollar-based world monetary system.

My apologies for the lengthy cut-and-paste but this is one well-written essay.

Now what should one do in a Depression — i.e., how is one to stay alive, keep body and soul together? Many of the people I know have been stockpiling water purification tablets, tinned food, ammunition and guns (to keep the marauding hordes at bay), seeds, and so on. I can’t say they’re doing wrong: we may be looking at some form of “collapse.” As enunciated by Dmitry Orlov, the five stages of collapse are:

1) Financial collapse

2) Commercial collapse

3) Political collapse

4) Social collapse

5) Cultural collapse

I believe we are already past the first stage. How much further we go on the road to collapse is not clear to me. Incidentally, a couple of relatively recent books devoted to social and cultural collapse (from the American point of view) are Berman’s “Dark Ages America” and Jane Jacobs’ “Dark Age Ahead.”

Where to find more advice on how to survive in the looming dark age? One useful site I’ve found is The Global Depression Survival Guide. It’s chockful of practical down-to-earth advice. If anyone knows other such sites, please post them in the comments to this post.

And finally some words from one of my favorite Conan stories, Beyond the Black River:

“Barbarism is the natural state of mankind,” the borderer said, still staring somberly at the Cimmerian. “Civilization is unnatural. It is a whim of circumstance. And barbarism must always ultimately triumph.”

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