You know how it is with buses? You wait ages for one, far longer than seems reasonable – and then three arrive all at once. Financial crises are a bit like that too.
The financial crisis everybody in the business has really been waiting for is a “hard landing” of the Chinese economy, now one of the two motors of the global economy. (The other is still the United States.) Everybody thought it was bound to come eventually – well, everybody who was not too heavily invested in the Chinese market – and it now appears to be here, although the Chinese government is still denying it.
The second crisis, less widely anticipated, is a credit crunch that is sabotaging economic growth in almost all the developing countries except India. In many cases their currencies have fallen to historic lows against the dollar, making it harder for them to repay the dollars they borrowed. Moreover, it’s getting harder for them to earn dollars from their exports because commodity prices have collapsed.
And a third crisis is looming in the developed economies of Europe, North America and Japan, which can see another recession looming on the horizon before they have even fully recovered from the effects of the banking crash of 2007-08. And it’s hard to pull out of a new recession when your interest rates are still down near zero because of the last one.
These crises are all arriving at once because they are all connected. When the huge misdeeds and mistakes of American and European banks caused the Great Recession of 2008, China avoided the low growth and high unemployment that hurt Western countries by flooding its economy with cheap credit. But that only postponed the pain, and between 2007 and 2014 total debt in China increased fourfold.
The Chinese government is more terrified of mass unemployment than anything else. It believes, probably correctly, that the Communist regime’s survival depends on delivering continuously rising living standards. So the Chinese economy went on booming for another six years, but the “solution” was fraudulent and now it’s over.
The huge amount of cheap credit sloshing around the Chinese economy mostly went into building unnecessary infrastructure, and above all into housing. That did preserve employment, but property values soared and and a huge “housing bubble” was created. There was nobody to buy all those houses and apartments, and there are now brand-new “ghost towns” all over China, so property values are falling fast.
Since the crash on the Chinese stock markets began last month, the government has done everything it could to stop it. It has dropped interest rates repeatedly, it has devalued the currency, it has ordered state institutions to invest more – and nothing has worked.
Chinese exports have fallen 8 percent in the past year, and even the regime admits that the economy is growing at the lowest rate in three decades. Nobody outside the regime knows for certain, but it may scarcely be growing at all. The “hard landing” is now close to inevitable.
Now for the second crisis. While China’s artificial boom was rolling along, its appetite for commodities of every sort, from iron to soya beans, was insatiable, so commodity prices went up. The other “emerging market economies” grew fast by selling China the commodities it needed, they attracted large amounts of Western investment because of their rapid growth, and they borrowed freely because Western interest rates were at rock-bottom.
The collapse of Chinese demand ends this party too. From Brazil to Turkey to South Africa to Indonesia, exports are falling, the value of the local currencies is tumbling, and foreign investors are fleeing. Capital flight from the 19 largest emerging market economies has reached almost one trillion dollars in the past 13 months, and the outflow is still accelerating.
And the third crisis, in the West? The problems that caused the crash of 2007-08 have not really been addressed, just papered over. What limited growth there has been in Western economies is due almost entirely to absurdly low interest rates and“quantitative easing” (governments printing money).
The average time between recessions in the West is seven to ten years, so one is due around now anyway. The likeliest trigger for that is a collapse of demand in China and in the other emerging economies, which is now practically certain. And when it hits the West, neither of the traditional tools for pulling out of a recession will be available. Interest rates are already near zero, and the money supply has already been expanded massively.
It would be rash to talk about a long-lasting global depression in the style of the 1930s, because a lot has changed since then. But it is certainly safe to say that the global economy is heading into a perfect storm.
To shorten to 725 words, omit paragraph 7. (“The huge…fast”)
Thursday is the 200th anniversary of the Battle of Waterloo, and in the course of the day you are almost bound to hear or read somebody claiming that it “changed history.” It was a very big battle, after all, and it would be a century before Europe saw war on that scale again. But did the events of 18 June 1815 “change history”? Probably not.
The really decisive battle was fought a year and a half before that near Leipzig in Germany: the ‘Battle of the Nations’. Three times more men were involved in that battle than fought at Waterloo. There were many more battles before the Russian, Austrian and Prussian armies entered Paris and Napoleon finally abdicated as Emperor of the French in the spring of 1814, but he never won another battle.
Napoleon was given a mini-kingdom on the island of Elba, off the Italian coast, to keep himself busy. The victors began to put Europe back together after twenty years of almost unbroken war, around 3 million combat deaths, and a comparable number of civilian casualties. And after only ten months, Napoleon escaped from Elba and went back to France for another try.
But it was really already over. The British (the paymasters of the coalition), the Austrians, the Prussians and the Russians were all still mobilised, and their armies started closing in on France. In the ‘Hundred Days’, Napoleon managed to lure many men who had fought for him in past wars back into his new army, but it was pure nostalgia.
He moved fast, hoping to defeat the British army in what is now Belgium before the other allies arrived to reinforce it, and he almost succeeded. The British commander, the Duke of Wellington, said that the battle of Waterloo was “the nearest-run thing you ever saw in your life.” In the end, late in the afternoon, the Prussian (German) army showed up and turned the tide. But if Napoleon hadn’t lost at Waterloo, he would have been defeated a little later.
“God is on the side of the heaviest battalions,” said Voltaire, and Napoleon agreed, just substituting “the best artillery” to demonstrate that his military knowledge was fully up to date. But his political knowledge was woefully deficient: God is actually on the side of the biggest economies, especially if they know how to turn their wealth into military power.
Britain had already overtaken France as Europe’s biggest economy (and in those days, that meant the world’s biggest economy). The industrial revolution in Britain was already into its second generation, while France had barely entered the first. Even in sheer numbers of people, a low birth rate meant that France would fall behind Russia, then behind Germany, and eventually even behind Britain in population.
So even if Napoleon could go on winning battles, he couldn’t win the war. In the end he couldn’t even win the battles. He was running out of soldiers, and his enemies had spent a generation at war learning (very expensively) to fight battles just as well as he did. Waterloo only confirmed what everybody with eyes could see already: France was finished as Europe’s superpower.
Then Britain got a century at the top (and after 500 years of Anglo-French wars, it never had to fight France again). The United States is now about 75 years into its term as the reigning superpower – and you are probably assuming that I am now going to speculate who gets the crown next. Wrong on two counts.
First of all, it’s a thorny crown, and nobody in their right mind would want it. The relevant statistic (which hides in plain sight) is that the more powerful a country is, the more wars it fights and the more people it loses. More power doesn’t give you greater security; it just gets you into more trouble.
Secondly, about half the time there is no undisputed top dog. That was the situation for the century 1600-1700, when Spain was in visible decline but France was not yet ready to assume the mantle of sole superpower. It was equally true in 1945-1990, when nuclear weapons (the great equaliser) meant that the United States and the Soviet Union were co-equal superpowers even though the US economy was far bigger than the Soviet one.
And now, with the American superpower allegedly in decline, there is obsessive speculation about when China will step in and take over the role – or might it turn out to be India instead? As though it were still the early 19th century, when France was going down and Britain was taking over. It isn’t.
Military power doesn’t deliver the goods any more. The United States has lost almost every war and mini-war it has fought in the past fifty years (except Grenada and Panama), even though it accounts for around half of the planet’s spending on defence. In the present global strategic environment, decisive victories are about as rare as unicorns.
This is not necessarily a bad thing. In fact, it is probably a good thing. Victory is a much over-rated concept.
To shorten to 725 words, omit paragraphs 4 and 6. (“But…nostalgia”; and “God…power”)
4 June 2014
By Gwynne Dyer
The presence of President Vladimir Putin on the Normandy beaches on the 70th anniversary of the D-Day landings was planned long before the current conflict over Ukraine, but it is a useful reminder of the fact that Russia is not some Asiatic tyranny on Europe’s eastern borders. It is a European country that has played a major role in the continent’s affairs for centuries.
Not only were the Russians on the same side as the “Western” allies in the Second World War. They did most of the heavy lifting in the war against Nazi Germany, and they paid by far the highest price.
While 850,000 American, British and Canadian troops were landing on the French coast in June of 1944, 6 million soldiers of the Soviet army were fighting massive battles with the German army in eastern Europe. The land war on the Eastern Front was already three years old, and by June of 1944 the Russians had won: the Germans had already begun the long retreat that ended above Hitler’s bunker in Berlin eleven months later.
The price the Russians paid for their victory over Nazi Germany was huge: at least 11 million military dead (compared to fewer than 1 million dead for the Western allies). No other country in history has lost so many soldiers, but in the end it was the Red Army that destroyed Hitler’s Wehrmacht: 80 percent of Germany’s 6 million military dead were killed on the Eastern Front.
The main strategic significance of the Normandy landings, therefore, was not the defeat of Germany, which was already assured. It was the fact that Moscow had to accept that Europe would be divided between the victors down the middle of Germany, rather than along some line further west that ran down the Franco-German border, or even down the English Channel.
President Putin, who began his career as a KGB agent working in Soviet-dominated East Germany, will certainly be aware of the irony that he is commemorating a military operation whose main result was to contain Soviet power. And his presence will remind all the other participants that the Second World War was not really fought to defend democracy from tyranny.
Hitler never intended to conquer Britain, and was surprised when his armed forces conquered France in 1940. He was certainly not out to “conquer the world”, a preposterous ambition for a country of only 80 million people. His real target was Russia: the “Jewish-Bolshevik” Soviet Union. And he couldn’t even conquer that.
Unlike previous great-power wars, the two world wars had to be represented as moral crusades against evil because new wealth and technology turned them into total wars that required mass participation. If people are going to be asked to sacrifice vast numbers of their children in a war, they must be told that it has some higher purpose than the traditional one of settling disputes among the great powers.
The people who lived through the First World War were fed that lie, but we no longer believe it now. To a remarkable extent, the Western countries that fought in the Second World War still believe that it was a moral crusade, because Hitler was a very evil man.
So he was, but almost nobody in the countries that were fighting him knew about the death camps until the war was over. Moreover, the country that was carrying the heaviest burden in the war against Nazi Germany was a monstrous tyranny led by Joseph Stalin, a man who certainly rivalled Hitler in terms of how many millions of people he murdered.
It seems churlish to insist that the Second World War was just another great-power conflict on the day when the last survivors of the generation who fought in it are gathering to honour, probably for the last time, those who died on the beaches of Normandy. But there is no other time when people will actually pause to listen to such an assertion, and it is important that they understand it.
If the world wars were moral crusades against evil, then our only hope of avoiding more such tragedies in the future (probably fought with nuclear weapons) would be to extinguish evil in the world. Whereas if they were actually traditional great-power wars, lightly disguised, then we might hope that we could stop them just by changing the way that the international system works.
That was the real conclusion of the governments on the winning side in both world wars. It’s why they created the League of Nations after the first one, and the United Nations after the second. Both organisations were designed to break the cycle of great-power wars by criminalising those who start wars and taking the profit out of victory (because nobody will recognise your conquests even if you win).
The League of Nations failed, as first attempts often do, but the United Nations did not. There has been no Third World War, and no great power has fought any other for the past 69 years. Putin’s presence in Normandy is an embarrassment precisely because he broke the UN rules by forcibly annexing Crimea, but the enterprise is still, on the whole, a success. So far, so good.
To shorten to 725 words, omit paragraphs 8, 9 and 10. (“Unlike…murdered”)
16 February 2014
It’s Abrupt Climate Change, Stupid
This is not how it was supposed to happen. The standard climate change predictions said that people in the tropics and the sub-tropics would be badly hurt by global warming long before the people living in the temperate zones, farther away from the equator, were feeling much pain at all.
That was unfair, because it was the people of the rich countries in the temperate zone – North America, Europe and Japan, mainly – who industrialised early and started burning large amounts of fossil fuel as long as two centuries ago. That’s how they got rich. Their emissions of carbon dioxide over the years account for 80 percent of the greenhouse gases of human origin that are now in the atmosphere, causing the warming, yet they get hurt least and last.
Well, what did you expect? The gods of climate are almost certainly sky gods, and sky gods are never fair. But they have always liked jokes, especially cruel ones, and they have come up with a great one this time. The people of the temperate zones are going to get hurt early after all, but not by gradual warming. Their weather is just going to get more and more extreme: heat waves, blizzards and flooding on an unprecedented scale.
“In 2012 we had the second wettest winter on record and this winter is a one-in-250-years event,” British opposition leader Ed Milliband told The Observer newspaper last Friday. “If you keep throwing the dice and you keep getting sixes then the dice are loaded. Something is going on.”
The “something” is abrupt climate change. In Britain, it’s an unprecedented series of great storms blowing in off the North Atlantic, dropping enormous amounts of rain and causing disastrous floods. In the United States and Canada, it’s huge blizzards, ice-storms and record low temperatures that last much longer and reach much further south than normal. Welcome to the “temperate” zone of the northern hemisphere.
There have been extremes in the “temperate” parts of the southern hemisphere, too. Australia has just had the hottest year ever, with record-breaking heat waves and severe bush-fires. Argentina had one of its worst-ever heat waves in December, and parts of Brazil had record rainfall, floods and landslides. But that is probably just the result of gradual, relentless warming. The abrupt changes seem to be mainly in the northern hemisphere.
Geography may explain the differences. There isn’t all that much land in the southern temperate zone, and the vast expanses of ocean that surround it moderate the land temperatures. Moreover, the polar jet stream in the southern hemisphere simply circles the Antarctic continent, and does not operate over land – whereas the northern polar jet stream flows right across North America and Europe. And it’s the jet stream that matters.
The extreme weather trend in North America and Europe is less than five years old, so the science that might explain exactly what is happening is still quite tentative. The first hypothesis that sounded plausible, published in 2012 in Geophysical Letters, blamed a slowing of the northern hemisphere’s polar jet stream.
The paper, entitled “Evidence linking Arctic amplification to extreme weather in mid-latitudes,” was written by Jennifer Francis of Rutgers University and Stephen Vavrus of the University of Wisconsin-Madison. The authors’ methodology has been challenged by other climate scientists, but I think that in the end Francis and Vavrus will turn out to be largely right. That is not good news.
They start with the fact that the Arctic has been warming faster than anywhere else on Earth, so the difference in temperature between the Arctic air mass and the air over the temperate zone has been shrinking. Since that difference in temperature is what drives the jet stream that flows along the boundary between the two air masses, a lower difference means a slower jet stream.
Now, a fast jet stream travels in a pretty straight line around the planet from west to east, just like a mountain stream goes pretty straight downhill. A slower jet stream, however, meanders like a river crossing a flood plain – and the big loops it makes extend much further south and north than when it was moving fast.
In a big southerly loop, you will have Arctic air much further south than usual, while there will be relatively warm air from the temperate air mass in a northerly loop that extends up into the Arctic. Moreover, the slower-moving jet stream tends to get “stuck”, so that a given kind of weather – snow, or rain, or heat – will stay longer over the same area.
Hence the “polar-vortex” winter in North America this year, the record snowfalls in Japan in 2012 and again this winter, the lethal heat waves in the eastern US in 2012 – and the floods in Britain this winter.
“They’ve been pummelled by storm after storm this winter (in Britain),” said Jennifer Francis at the American Association for the Advancement of Science conference in Chicago last week. “It’s been amazing what’s going on, and it’s because the pattern this winter has been stuck in one place ever since early December.” There’s no particular reason to think that it will move on soon, either.
To shorten to 725 words, omit paragraphs 6 and 7. (“There have…matters”)