BIG CRASH 2008

FINANCIAL MELTDOWN

As anticipated, the global financial system is now in free-fall. The bankruptcy of Lehman, the government take-over of Fannie/Freddie (essentially, a gov't takeover of the entire US mortgage market), the fire sale of Merrill Lynch (moments before it too went into free-fall), the expansion of Federal Reserve emergency lending into securities (which codifies its position as the only source of capital for big financial firms), the looming failure of AIG (the world's biggest insurance company), the impending failure of Washington Mutual (which will deplete the entire FDIC fund in one whack) all point to tougher times ahead. The easily foreseen failure in the US/UK mortgage markets due to rampant corruption has now developed into a financial black swan that due to entanglements (connectivity), opacity, size, speed, and complexity is beyond the capacity of the US (and its allies) to control. It will get worse as the run on the massive (30 times larger than the US economy) shadow banking system begins in earnest.

While to many this developing situation will uncharted territory, for those of us that have already recognized the trend lines the roadmap for the next decade is increasingly clear. There will be:

•         An acceleration in the decline of the state. From financial failures in developed countries (at the gov't level) to the proliferation of hollow/failed states. Due to financial distress, new black swans (of different types) will create greater levels of dislocation than previously. States will lurch from crisis to crises, undercut by groups emerging below them.

•         Widespread economic dislocation. Since everyone is now in competition with everyone else in the world (the state won't/can't protect you from that), there will be an accelerated shift towards primary loyalties as people scramble for economic protection (to eat, get energy, and move forward). On the whole, these groups will opt for open source warfare to fight their foes (both states and corporations). IF you don't have a group (other than the state) to rely upon to back you up, you are vulnerable. The best alternative for those not willing to resort to violence/crime will be to shift towards resilient communities.

•         Privatization of everything. The financial distress of nation-states will cause them to enlist allies from the corporate world. Fire sales of state assets and the replacement of gov't services with corporate services will be commonplace. Everything will be fee-based. Expect a rapid differentiation in all services (particularly those commonly expected from the gov't) between those that can pay and those that cannot. Increasingly, violence will be between global guerrilla groups (based on primary loyalties) and corporations, with control of a hollow nation-state as the spoils.

Posted by John Robb on Monday, 15 September 2008 at 12:50 PM | Permalink | Comments (4) | TrackBack (0