Apocalypse 2009

This post is covered by the "January License" which allows a journalist to prognosticate freely about the coming year without being called a doofus if things don't turn out exactly as he said (or even if they turn out to be dead wrong).

Barack Obama warned the American people last week that the economic situation would get much worse before it got better. He did not say how exactly things would get worse. The general expectation is that the current economic downturn will turn into a severe recession, maybe even a prolonged 1930s type Great Depression.

I think not. Something much more apocalyptic might be in the cards. Here's why.

Ever since a German academic, Oswald Spengler, published The Decline of the West in the wake of World War I, fear of losing global dominance has been an active concern of European-American strategists. In the United States in recent decades, it has been regularly addressed in official and unofficial reports.

In 2005 the US Central Intelligence Agency produced a report, Mapping the Global Future, in which a group of senior intelligence analysts concluded that the rise of China and India would have as great an impact on world order as the emergence of a united Germany in the 19th century, and that of the United States in the 20th. The report projected that by 2010 the Chinese economy would be the second-largest in the world, after the United States. While the Indian economy would be smaller, New Delhi would be a significant influence in Central Asia, Iran, and the Middle East, all areas of critical interest to Washington. The only thing that could prevent the rise of the two countries, the report said, was "an abrupt reversal of the process of globalization or any major upheavals in these countries."

That's exactly what will happen in 2009; and this is how I think it's going to happen.

The United States has an unsustainable burden of debt, personal, corporate, and official. In addition to an unprecedented level of individual credit card debt and the trillions Washington has raised from foreign creditors through the sale of Treasury Bills (to meet massive budget deficits), Wall Street has a little understood burden of "collateralized debt obligations," estimated to be over $3000 trillion. (Total world GDP is some $60 trillion).

With personal bankruptcies, home foreclosures and business failures all at record levels, the country is headed into a deep recession that will collapse all debt pyramids. When that happens, there will be a downward spiral of all prices, commodities, manufactured goods, services and real estate. Even the most efficient businesses will find it impossible to make a profit. As businesses go under, millions of people will be thrown out of work, causing further demand destruction and accelerating the downward spiral. As in the Great Depression of the 1930s, world trade will collapse and globalization as we have known it will stop, and perhaps even go into reverse if nations seek unilaterally to protect their markets.

The path out of the crisis will be as hair-raising as the descent into it.

To escape deflation the United States will have no option but to deliberately hyper-inflate the dollar (by printing its currency without restraint). That will collapse its value at home and abroad and cause unprecedented socioeconomic turmoil. The life savings of millions of retirees will become worthless in short order; workers on fixed salaries will find it impossible to make ends meet; the unemployed will have to depend on soup kitchens. World trade, monetary and financial systems will be reduced to chaos as no market will be able to function properly.

The effect of all this will be quite different in each of the world's regions. The United States itself will emerge cleansed of debt and internationally more powerful than before the crisis.

Western European countries, with their well-developed capacity for mutual cooperation, will probably be best able to fend for themselves (although it would be a minor miracle if the Euro survived). Eastern Europe, Russia and the Central Asian republics of the former Soviet Union will remain extremely vulnerable to Western pressures, and most will probably be shorn of much capacity for independent international action. African and Arab countries will also be more firmly under the heel of those who want their resources. The Asian situation will depend on two countries mainly, China and India.

China
China will probably face the most severe challenges, for its economy is deeply dependent on Western investments and markets. With about 40 to 50 per cent of GDP tied to exports; a deep global recession will hit it hard. Millions of people are already out of work, and as Xinhua warned in an unprecedented editorial last week, 2009 will see an increase in "mass incidents" that would "test even more the governing abilities of all levels of the [Communist] Party and government". In Xinhua jargon "mass incidents" means public demonstrations and riots. Peasant rebellions.

Economic pain will translate readily into a political threat to Beijing because the Chinese population is deeply divided between the rural poor, who number nearly a billion and have a per capita income of about $400, and an urban population of about four hundred million, with a per capita income more than ten times as much. The latter are predominantly members of the Communist Party, their relatives and friends, and are cordially hated by those who have not been able to milk the system. Chinese history is replete with peasant rebellions leading to the withdrawal of the "mandate of heaven" from the ruling elite; in 2009 we could see that ancient drama replayed.

India
With less than 10 per cent of GDP linked to the export sector India is much less vulnerable to foreign shocks than China. But the slowdown and possible reversal of globalization will hit the country hard. In addition, we can expect intensified efforts to destabilize the country by the Pakistan-British complex of ISI-MI6 "jihadists" and "Naxalites." Assassination of key politicians during the forthcoming elections should be expected. (By "key" I do not necessarily mean important. If a "North Indian" kills Raj Thackeray, the fallout would be disastrous for national integrity.)

We can also expect an intensified British effort to drive Brand India into the dirt. (Or should I say shit, in the wake of Slumdog Millionaire?) The rape of a British teenager in Goa last year is to be made into a film by Warner Bros. It's to be called Goa. No word yet of the filmy future of 2008 Booker prize winner Aravind Adiga's sulphurous dump on India, but Salman Rushdie's Midnight's Children is to become a Hollywood product. "Sir" Rushdie's novel of India-as-freak-show-and-failure is back in the elimelight, selected as the "Best of the Bookers;" better than Kiran Desai's tale of post-colonial angst and general hopelessness, The Inheritance of Loss, and Arundhati Roy's caste-is-king-in-Kerala story, The God of Small Things. (All the Booker-prize winning Indian novelists portray our country from such a pucca British viewpoint and are so unformly anti-Indian in attitude, that I wonder sometimes if they've been ghostwritten.)

Asian Responses
Both China and India can be manipulated only with the connivance of their own nationals. In China's case the collaborators have been members of the overwhelmingly corrupt Communist Party. If the CP tries to remain in power by using violence (2009 is the 20th anniversary of the Tienanmen massacre), it could set off a process that will destabilize much of Asia. If out of the chaos a xenophobic demagogue comes to power with the backing of the military, we could be headed back to the days of Mao. Of course, the CP leadership (a national gathering is set for March), could decide to defuse and manage the rural unrest by calling multiparty elections and arranging for a smooth transition to democracy, but that would be a break from China's long tradition of leadership without vision or trust in the Chinese people.

In India the collaborators have been people hungry for success at any cost. They range from the habitually corrupt deal-makers in political parties who subvert the democratic system, to policemen without the integrity to do their job, to the deracinated Rushdies and Adigas who trash their country without thought of its strengths or achievements.

There is no simple policy prescription for this situation. Perhaps a first step would be for the leaders of India Inc. to sit down together and decide what they want done in the country. They bankroll the politicians and have the power, if they act together, to insist on minimum standards of performance in law enforcement, urban management and rural development. Reducing the British capacity to manipulate the Indian intelligentsia will take longer, but just acknowledging the problem might be a good first step. (More on this in a later post.)