A potential financial crash in 2023 could be worse than the 2008 Global Financial Crisis.
by Richard Heinberg, originally published by Resilience.org
Several commentators have commented that the US is at war with Iran Echoes of 2008. I would argue here that a potential financial crash this year could actually be much worse.
The Global Financial Crisis (GFC) of 2008 was the largest economic crisis since the Great Depression. Unemployment has risen, above 10 percent in the United States. Global stocks lost trillions of dollars in value. Big brokerage houses have collapsed. The US auto industry survived only because of massive government bailouts. How can another crash top that?
Consider the reasons. The 2008 Great Recession was caused by a combination of three factors:
- US wars in the Middle East have failedExamples of that against Iraq and Afghanistan. Many economists justify the wars in Iraq and Afghanistan GFC contribution Widespread American budget deficits and trade imbalances worsened, and created a “capital flow bonanza” that triggered the US credit boom. Although not the only factor, the war exacerbated the weakness of the US economy.
- Rising oil pricesAfter world conventional oil production plateaued in 2005. Demand for oil continued to rise but global oil supply did not follow suit. On July 11, 2008, crude oil prices reached $147 per barrel, their all-time high. Since the economy runs on energy and Oil is the world’s most important energy sourceOil prices have a way of affecting all industries. Financial markets reel after oil-price hits three-month high.
- A bursting financial bubble Inflated by subprime mortgages in the United States and financial derivatives traded globally. D The mortgage bubble The 2000-2006 housing boom involved $1.3 trillion to $1.5 trillion in high-risk loans issued. It was a house of cards.
The resulting unwinding of loans and derivatives came within a hair’s breadth of turning into a massive bank run and general economic collapse. Governments (led by the US) bailed out industries and banks, lowered interest rates to zero, bought large swaths of financial securities, and launched massive fiscal stimulus programs and tax cuts. Even with this rapid and maximum-scale effort of hundreds of billions of dollars, the GFC led to massive housing foreclosures, a nearly 40-percent drop in the S&P 500, and a significant increase in the poverty rate.
Now consider the following:
- Today’s AI is the financial bubble Four times bigger 17 times larger than the subprime mortgage bubble of 2008 and the dot-com bubble of 2000.
- The Iran war, while not involving US ground troops so far, is likely to be more problematic than the 2003 invasion of Iraq, from the perspective of energy flows and international trade. As a result war is likely Real oil shortages and possible price even higher Compared to 2008. Additionally, much of the Middle East is now embroiled in hostilities, and Oil and gas production and shipping infrastructure is being damaged or destroyedThis in turn undermines the region’s long-term economic prospects, as well as destabilizing its politics. No one knows how it will end.
- For the US economy, Warning signs were already flashing Before the war: Stubbornly high inflation, a poor jobs picture and worsening consumer sentiment were indicators of recession.
- The final factor can be stated as a question: Will today’s US Treasury chief succeed in avoiding financial ruin as Henry Paulson did in 2008? Then, the United States was able to enlist government and business leaders from the world’s major nations to collaborate in developing a collective survival strategy. Will current US Treasury Secretary Scott Bessant have similar success in recent times? Collapse of global confidence in US leadership?
Given the potentially catastrophic consequences of an attack on Iran, many people wonder what motives could justify it. Logan McMillen argues Foreign policy in focus The so-called “Donro Doctrine” seeks to disengage China from the Western Hemisphere and deprive it of cheap energy:
“The strategy is completely zero-sum. By turning the Middle East and the Caribbean into militarized chokepoints, the U.S. China’s independent oil supply lines are suffocatingIts industrial capacity is starved while guaranteeing temporary profits for the Western supermajors. Simultaneously, from Bolivia’s lithium flats from Port of PeruWashington is deploying right-wing proxies and military coercion to systematically displace Chinese capital in Latin America, recolonizing the Andes to secure 21st century supply chains.”
Other commentators view the war as Led by members of the Christian Zionist movementWhich calls for the fulfillment of Bible prophecies of the battle of Armageddon and the return of Jesus.
Even if McMillan’s analysis is sound and there is A well-reasoned motive behind the war, does not necessarily mean that the campaign will go according to plan or that it will achieve its goals. Many analysts are looking at it In the meantime take care off the rails.
It is too late to prevent the inflation of the AI bubble or advise against a US attack on Tehran. At this point, the most we can do is hope for a quick end to the war and for some improvisational brilliance among the world’s government and finance leaders.
Meanwhile, it would be wise to do what you can to prepare. For people in the Northern Hemisphere, this spring is the time to start planning a food garden. You may want to plant a few more rows of beans than most years, so you have enough to share with the neighbors.
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This post was Previously published on Elastic and is republished here with permission From the author
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