The global economic crisis has already inflicted crippling blows on major advanced and emerging economies. Only massive levels of public indebtedness, and wanton quantitative easing by central banks, has prevented (temporarily, in my view) the onset of another Great Depression. However, geopolitical events of an unpredictable nature can upset even the best laid plains of a Ben Bernanke, Timothy Geithner and their counterparts across the globe. The wild card in the mix is undoubtedly Iran.
I have commented before on the Iranian nuclear program, and the possibility of an Israeli pre-emptive strike on Tehran’s nuclear facilities. I’ll repeat my earlier conclusion, which is, apart from the demerits or merits of using military means to address the Iranian nuclear challenge, the inevitable response by Iran’s regime will create economic havoc, particularly with respect to oil prices.
The current issue of The Economist has an illuminating piece, entitled “The gathering storm,” which makes a persuasive case for 2010 being the year that something definitive will happen on the Iranian nuclear front. Should that prove to be the case, the resulting geopolitical reverberations may be the final nail in the coffin of the global economy. Worst case scenario: regional war in the Middle East, massive disruption of oil shipments from the Persian Gulf, resulting in a severe global economic depression. Not even money-printer Ben Bernanke will be able to dodge that bullet.
The Economist, one of the leading financial magazines in the world and a leading voice for free enterprise economics, presented a bombshell in its most recent edition: the economy of the United States is in the throes of a depression rather than recession. As many economists who concede that the global economic crisis has inflicted the worst financial turmoil in the U.S. since the Great Depression still refuse to use the “D” word, this is a major turning point in public perceptions of the economic disaster that is now unfolding.
In formulating its dire assessment, The Economist based its conclusion on an analysis of past depressions. The Economist stated that the U.S. economy is manifesting the characteristics of a depression, taking into account the causes of the current economic crisis.
According to The Economist, the primary distinction between a recession and an economic depression is not linked to the decline in growth nor its duration, which are factors encountered in an economic recession. The magazine indicated that a depression is triggered by a bursting of the asset and credit bubble, a contraction in credit, and a decline in general price levels, all the indicators being experienced in the current Global Economic Crisis, especially in the United States.
The U.S GDP figures for the fourth quarter of 2008 declined by an estimated six- percent. Though less severe than during the Great Depression of the 1930s, The Economist maintains that the decline in American GDP is more closely aligned to an economic depression, given that it was facilitated by the bursting of the largest asset and credit bubbles in financial history. The findings by The Economist add substance to the growing consensus that the Global Economic Crisis will be a worldwide catastrophe of monumental proportions.