Why The Next Global Crisis Will Be Unlike Any In The Last 200 Years

Tyler Durden's picture

Submitted by F.F. Wiley of Cyniconomics blog,

Sometime soon, we’ll take a shot at summing up our long-term economic future with just a handful of charts and research results. In the meantime, we’ve created a new chart that may be the most important piece. There are two ideas behind it:

  1. Wars and political systems are the two most basic determinants of an economy’s long-term path. America’s unique pattern of economic performance differs from Russia’s, which differs from Germany’s, and so on, largely because of the outcomes of two types of battles: military and political.
  2. The next attribute that most obviously separates winning from losing economies is fiscal responsibility. Governments of winning economies normally meet their debt obligations; losing economies are synonymous with fiscal crises and sovereign defaults. You can argue causation in either direction, but we’re not playing that game here. We’re simply noting that a lack of fiscal responsibility is a sure sign of economic distress (think banana republic).

Our latest chart isolates the fiscal piece by removing war effects and considering only large, developed countries. In particular, we look at government budget balances without military spending components.

(Military spending requires a different evaluation because it succeeds or fails based on whether wars are won or lost. Or, in the case of America’s adventures of the past six decades, whether war mongering policies serve any national interest at all. In any case, military spending isn’t our focus here.)

There are 11 countries in our analysis, chosen according to a rule we’ve used in the past – GDP must be as large as that of the Netherlands. We start in 1816 for four of the 11 (the U.S., U.K., France and Netherlands). Others are added at later dates, depending mostly on data availability. (See this “technical notes” post for further detail.) Here’s the chart:

fiscal balance ex-defense 1

Not only has the global, non-defense budget balance dropped to never-before-seen levels, but it’s falling along a trend line that shows no sign of flattening. The trend line spells fiscal disaster. It suggests that we’ve never been in a predicament comparable to today. Essentially, the world’s developed countries are following the same path that’s failed, time and again, in chronically insolvent nations of the developing world.

Look at it this way: the chart shows that we’ve turned the economic development process inside out. Ideally, advanced economies would stick to the disciplined financial practices that helped make them strong between the early-19th and mid-20th centuries, while emerging economies would “catch up” by building similar track records. Instead, advanced economies are catching down and threatening to throw the entire world into the kind of recurring crisis mode to which you’re accustomed if you live in, say, Buenos Aires.

How did things get so bad?

Here are eight developments that help to explain the post-World War 2 trend:

  1. In much of the world, the Great Depression triggered a gradual expansion in the role of the state.
  2. Public officials failed to establish a sustainable structure for their social safety nets, and got away with this partly by sweeping the true costs of their programs under the carpet.
  3. Profligate politicians were abetted by the economics profession, which was more than happy to serve up unrealistic theories that account for neither unintended consequences nor long-term costs of deficit spending.
  4. With economists having succeeded in knocking loose the old-time moorings to budgetary discipline (see first 150 years of chart), responsible politicians became virtually unelectable.
  5. Central bankers suppressed normal (and healthy) market mechanisms for forcing responsibility, by slashing interest rates and buying up government debt.
  6. Regulators took markets further out of the equation by rewarding private banks for lending to governments, while politicians and central bankers effectively underwrote the private bankers’ risks.
  7. Monetary policies also encouraged dangerous private credit growth and other financial excesses, resulting in budget-destroying setbacks such as stagflation and banking crises.
  8. Budget decisions were made without consideration of the inevitability of these setbacks, because economists wielding huge influence over the budgeting process (think CBO, for example) assumed a naïve utopia of endless economic expansion.

Sadly, all of these developments are still very much intact (excepting small improvements in budget projections that we’ll address next week). They tell us we’ll need substantial changes in political processes, central banking and the economics profession to avert the disaster predicted by our chart. And we’re rapidly running out of time, as discussed in “Fonzi or Ponzi? One Theory on the Limits to Government Debt.”

On the bright side, a fiscal disaster should help trigger the needed changes. Every kick of the can lends more weight to the view expressed by some that the debt super-cycle – including public and private debt – needs to go the distance, eventually reaching a Keynesian end game of massive collapse. At that time, we would expect a return to old-fashioned, conservative attitudes toward debt.

As for the chart, it helps to flesh out a handful of ideas we’ve been either writing about or thinking of writing about. We’ll return to it in future posts, including one drilling down to the individual country level that we’ll publish soon.

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So Close's picture

Suppressing vol and creative destruction (esp. in finance) works.... until it doesn't.

Gankfest's picture

Eveyone loves a crisis! :P

Offthebeach's picture

Debt up a nation until the streets run red with blood, then buy.

After mass discount purchases, align with the nominal new leaders, have assets values multiply. Sell assets and loan into bubble. Cash out and encourage revolt.

stocktivity's picture

Oh great! Another fucking chart to show It's all Bullshit!!!

Sudden Debt's picture

you should see one of my wife's and tell me if it you still do

Errol's picture

This analysis fails to address the cause of the unprecedented spike up during and immediately after World War II:

the discovery of mind-bogglingly huge, near-surface regions of light, sweet crude oil in free flowing reservoirs.  The first was in Texas in the 1930s, the second in Saudi Arabia in the early 1950s.

This was a ONE TIME windfall for humanity, which we of course promptly squandered like drunken heirs.  Having ramped up agricultural production, population, and infrastructure as if this was a permanent new golden age for humanity, we will now be eaten alive by maintenance costs until the inevitible population collapse.

The over-arching condition will be contraction, for the rest of this century at minimum.  Invest accordingly.

newsguy68's picture

You Have Been Warned....


Federal Reserve Issues Warning, Bank Drills, Possible False Flag 



Obama_4_Dictator's picture

Call me a skeptic, but I've seen these types of warnings for years, and nothing....

Westcoastliberal's picture

From other indicators I've seen over the last couple of months, I think we're very close now.

Obama_4_Dictator's picture

I hear ya, but I also got all sorts of "indicators" in 2007, 2008, 2009, 2010, 2011, 2012, 2013, and now 2014....see what I'm saying....

cougar_w's picture

What you are witnessing is heroics. The central planners saw the signs too and rather than sit back and let nature take its course, they made a blood pact with the devil and have been sacrificing the future and burning through resources like mad men trying to forestall what is by all measures inevitable.

They could do this because we allowed them to, and they knew we would. They've done a little good for their own purposes, while digging a grave for the rest of us that will pretty much swallow 400 years of "progress" (yeah right) and probably 5 billion souls, before the ashes have settled down.

It's like this, see. The devil will let you run for a while but in the end he gets his due, and all the dodging you can do won't hold back the day forever.

You feel that hot wind at your back, making your hair stand up on end?

Yeah. He be right there.

BandGap's picture

I have no idea what you mean but I gave you a +1.


FredFlintstone's picture

The last chapter of a very popular book says that this all does not end well.

TheInfoman's picture

And Methinks its close at hand.

tip e. canoe's picture

have no fear, according to the Stuper Bowl commercials by Microsoft & Scientology,


jbvtme's picture

i hear the scientologists took out hoffman for being a fresh prick in "the master"...

tip e. canoe's picture

wouldn't surprise me

then again, little would at this point

all the more reason not to buy-in to anything they're selling, including and especially china white (and/or other assorted brandnames)

Keyser's picture

It doesn't matter how much debt they rack up as they have no intention of paying it. War cleanses all debts. 

Winston Churchill's picture

Ignoring the cries of 'wolf' will get you eaten.

Just a matter of time.

Tick tock.

Obama_4_Dictator's picture

Trust me, I'm not ignoring, been planning for years but these dire predictions are becoming old and I'm getting exhausted.  

maxmad's picture

Thank you O_4_D  there will be a little something extra in your check this week:)



Tall Tom's picture

Then the warnings are not necessarily for you. If you have been planning for years then you are prepared for the eventual outcome.


Then why concern yourself with the exact day that it happens and be at peace and content now...since you have been planning for years? You probably have it all down, right?


These warnings are for others whom may not yet have heard the clarion call to arms and battle.


They need to listen to this message also.


Everything that is published is not just published just for your sake. It is not all about you.


It is about OTHERS so that they may be made aware and prepare.


Time is growing short and we approach the Day of Reckoning with each and every passing day.


It is an eventuality which will happen. I am at peace with it. I am at total peace with it.

Perhaps it is you who need find that peace. Perhaps you are not as prepared as you need to be.

Preparation begins in the mind. Then it progresses to an outward manifestation and realization of what is needed for the problems you will face.

Think of this like ...oh...Dying. The final stage of Dying is peace and acceptance. You really are powerless over it.

Well our Economy and our Nation is DYING. Most have denied it, became angry about it, bargained with it, became depressed about it, then became at peace with it and accepted it. Most vacilliate between all of the first four stages until they accept it. That is when true preparation begins.


Yet I still read the articles because it tells me that the regression is continuing slowly and that I still have time.


Go out and live a little bit. Watch a movie. Relax a bit. Enjoy some life while you still can...if you are already prepared.


If you are not prpared...you had best get prepared. The shitstorm that we have already been through will seem like the Good Ol' Days when the Shitstorm intensifies.

Obama_4_Dictator's picture

One of the best posts I've read on here and every word of it true.

The_Ungrateful_Yid's picture

Shit I have been hearing indicators since I was 10...nothing happens until the lights are out for good.

lasvegaspersona's picture

The internet say the end will be February 15...so you know that's when it will be...not like all those other predictions....on the internet....

Winston Churchill's picture

I will set my alarm clock, five minutes fast of course,would not want

to miss it.Whats the blast radius ?

TheReplacement's picture

Ah man.  I was gonna see that guy about the thing at that one place at 4:38.  Paulie is not gonna be happy about this.

Tall Tom's picture

At least you get 17 minutes to smoke a bowl.

BLOTTO's picture

i know, its like - lets fucking do this alreadyyy!


i dont wanna be a cripple in a wheelchair when shit goes down... I want to be able to help and contribute by fighting off the zombies...


Otherwise, just leave me behind so im not a burden and hold my crew back...and give me some firepower and a few grenades for the last stand.

dow jones 20000's picture

we'll give you some fire power and grenades and roll you and your wheelchair down a hill towards the front door of the Federal Reserve.

BLOTTO's picture

Brilliant - that was good! dj.lol


Leave me a couple of nuggets (green) too so i can get baked while rollin'...

Tall Tom's picture

An attack on blowing up the Oil Refineries will do a much better job than removing the Eccles Building.


In that way all of the cities will starve as there is no fuel to move the foods to market. The subsequent riots and killings will remove the burden from the elite rather handily. /sarcasm


VIOLENCE IS NOT THE ANSWER. Give Peace a chance.


You will find not find in the World. That is the wrong place to seek it. And peace begins with you.

wmbz's picture

The "can" kicking will indeed go the distance, ain't no stopping it now.

q99x2's picture

When the people ran the FED out of town the first time. They went in and ran them out and then removed all of the furniture. But like the cockroaches they are they came back. Here we go again.

buzzsaw99's picture

+1 "market forces" are not the answer. abolish the fed, burn it down, salt the ground where it stood. problem solved.

TheReplacement's picture

Somehow I don't think it is the building that is the problem.

Keyser's picture

The problem is the reptilians that have infested the building.  

starman's picture

We are all expandable!

Tall Tom's picture

Yes. We are expandable. When I eat too much of the wrong foods then I expand.

Keyser's picture

The price of expanding is going to go up exponentially with cattle herds at 1951 levels and prime farmland in California sitting idle due to no water. Just saying. It's going to get ugly out there. 


Carl Popper's picture

Am I the only one who logs in to zero hedge 20 times a day? I have withdrawal if I go more than one hour without a fix.

Is there a 12 step program?

cougar_w's picture

Until you get to 220 times a day you got nuth'n on some of the rest of us. Self included.

FredFlintstone's picture

I have been on vacation the past 2 weeks in a nice warm climate, but have been getting my fix on a new iPhone. This is new for me and causing serious eye strain. Wife kept asking "what are you doing"? Hope she does't get wise to the addiction.

Tall Tom's picture

I don't know. CP may be right. We can franchise it. Doom Porn Anonymous.


I never log out. I never turn my machine off.