What Happens Next?

Nearly six out of ten Americans believe another economic depression is likely.
(according to a CNN poll: http://money.cnn.com/2008/10/06/news/economy/depression_poll/index.htm)

A depression is defined officially only as “prolonged” recession. The U.S. has seen 10 recessions since World War II.

The CNN/Opinion Research Corp. poll, which surveyed more than 1,000 Americans over the weekend, cited common measures of the economic pain of the 1930s:

• 25% unemployment rate; • widespread bank failures; • millions of Americans homeless and unable to feed their families.

While many economic “experts” argue that a depression is unlikely, it should be stressed that these same “experts” failed to predict the current financial melt down. In any event, the fact that so many believe a depression is likely is evidence of a complete lack of confidence in the economy. Complete lack of confidence and extreme fear are the necessary ingredients for a depression.

 

TGC analysis indicates 3 possible broad scenarios:

Best Case Scenario: Deep Recession
(our guess of probability: 20%)
Banks continue to function. The economy slows and unemployment rises to around 10%. Public order is maintained. Crime rates increase slightly. Real Estate prices decrease 10-15%. After 2-3 years the economy starts to improve, with stock prices and housing prices increasing slowly.

Medium Case Scenario: Depression
(our guess of probability: 60%)
Many bank failures occur. Unemployment rises over 15%. There is widespread economic instability, resulting in either high inflation, or crippling deflation, depending on the strategy taken by central banks. There are occurrences of protests and public unrest, with breakdown of law and order taking place in certain areas of larger cities. A limited form of Martial law is practiced for a limited time in affected areas. Anti-terrorism laws are utilised to help enforce the rule of law. After around 4 years the situation starts to recover, with unemployment reducing and stock and house prices increasing.

Worst Case Scenario: Deep Depression
(our guess of probability: 20%)
As per the medium case, but far deeper. Almost complete failure of the banking system results. Unemployment rises to around 20%. There is a widespread breakdown of the rule of law in cities, resulting in government imposing a form of Martial law. Acts of Terrorism or Natural Disasters may aggravate the situation, resulting in the activation of Shadow Government, and a restructuring of Government structures and diplomacy internationally. The world is changed forever, but an altered form of order emerges after several years of chaos.