NationStates Jolt Archive

What happens to the world economy?

All the national economies are interconnected. If a small economy fails, the impact will be felt, but not greatly. But, if a large economy fails - what happens? Would we have another world-wide depression like we had in the thirties? How do you think this would play out?

If the US economy goes boom, a lot of countries are in trouble. China, all that growth theyve had? Gone. What good is all the production they are doing if there is no one to buy their shit? Suddenly they have a surplus of everything. Unemployment becomes a problem, down they go.


So, despite what some Eurocentric, nationalistic, anything-bad-that-happens-to-the-US-is-awesome people on this board and in the real world believe, no one in their right mind should be anything but a little scared about the US economy tanking.

Probably, but the same factors that make the world economy more interdependent also make it more resilient. That's why there won't be another Great Depression unless there's a world war or resurgence in punitive tariffs; something has to really utterly shatter the global trade network to really bring it down in the same way as the Great Depression, and nothing short of war will do that.

If it went south over night, it'd be bad for anyone with investments or relies on anyone with investments in or with the US. Our stupid housing crisis effect nations outside of us.

However, it won't be the end of the world. Economies will shift and move on. China has its own emerging middle class that is the size of the entire US, India also is on the way. So if it happens slowly, like it is, everyone will have time to shift and we'll become like Spain, or England, or France, or any other of history's former 'super powers.' We'll still exist, we'll still have a seat at the big table, it just won't matter as much. Frankly, it's time.

However, it won't be the end of the world. Economies will shift and move on. China has its own emerging middle class that is the size of the entire US, India also is on the way. So if it happens slowly, like it is, everyone will have time to shift and we'll become like Spain, or England, or France, or any other of history's former 'super powers.' We'll still exist, we'll still have a seat at the big table, it just won't matter as much. Frankly, it's time.

Id be OK with it playing out like this. Its for the best really.

What happens to the world economy?
All the national economies are interconnected. If a small economy fails, the impact will be felt, but not greatly. But, if a large economy fails - what happens? Would we have another world-wide depression like we had in the thirties? How do you think this would play out?
At first, a massive economic collapse of the entire West. Using Western collapse, China buys out their West-owned industries for pennies and proceeds to buy out information and attract human resources.

Then, the worthless US dollar is replaced by real currency, backed by oil and issued by OPEC. The new pecking order becomes OPEC - China - Russia - rest of Asia - Europe - US - South America - Africa.

Fortunately, as US is about to fall further down, OPEC provides humanitarian aid in the form of "Oil for kidneys" program, akin to Western "Food for oil". US and Mexico form a profitable disassembly line with large-volume exports.

Then, the worthless US dollar is replaced by real currency, backed by oil and issued by OPEC. The new pecking order becomes OPEC - China - Russia - rest of Asia - Europe - US - Africa.

I think this is a slightly unrealistic view. It would take more then just us not being number one to beon the same level as Africa.

However, it won't be the end of the world. Economies will shift and move on. China has its own emerging middle class that is the size of the entire US, India also is on the way. So if it happens slowly, like it is, everyone will have time to shift and we'll become like Spain, or England, or France, or any other of history's former 'super powers.' We'll still exist, we'll still have a seat at the big table, it just won't matter as much. Frankly, it's time.

China used to be the largest economy on Earth, with a share of global GDP roughly equivalent to the US and basically declined steadily from the 18th century onwards. In case people have forgotten, the past 200 years have been pretty good for humanity compared to what came before them, so I'm not too worried about such changes in the future.

There is a saying

"If the US economy sneezes, the world catches a cold"

I think this is a slightly unrealistic view. It would take more then just us not being number one to beon the same level as Africa.
No, no, no. Above Africa. Just below Europe, and Europe being below Asia.

As for Australia and Oceania, not sure where they will end up. Oh... Wait, South America will be below US too, but above Africa.

At first, a massive economic collapse of the entire West. Using Western collapse, China buys out their West-owned industries for pennies and proceeds to buy out information and attract human resources.

Then, the worthless US dollar is replaced by real currency, backed by oil and issued by OPEC. The new pecking order becomes OPEC - China - Russia - rest of Asia - Europe - US - South America - Africa.

Fortunately, as US is about to fall further down, OPEC provides humanitarian aid in the form of "Oil for kidneys" program, akin to Western "Food for oil". US and Mexico form a profitable disassembly line with large-volume exports.

I'm pretty sure that's the backstory for Blade Runner. I suppose it also makes me Dr. Tyrell.

I wonder if a big war would revamp the US economy- if it did actually collapse.

There's probably be a lot of internal shit going on the US- rebellions, riots, civil war- and then if things ever get unified a war against someone for wealth.

No, no, no. Above Africa. Just below Europe, and Europe being below Asia.

As for Australia and Oceania, not sure where they will end up. Oh... Wait, South America will be below US too, but above Africa.

Why so confident that South America will be below the US? I know that you don't consider the region important - you forgot it initially, but economically there is quite some degree of strength developing there.

Why so confident that South America will be below the US? I know that you don't consider the region important - you forgot it initially, but economically there is quite some degree of strength developing there.
There are natural resources and reasonably well-educated people in most South American countries, it's just that bad governance is keeping people from making the most of it.

At any rate, if the US economy suffers, everybody does. Any myth of a disconnection with the strengthening of the EU and developing markets has come crashing down at the moment. The US is still a primary export market and source of foreign investment.

There are natural resources and reasonably well-educated people in most South American countries, it's just that bad governance is keeping people from making the most of it.

At any rate, if the US economy suffers, everybody does. Any myth of a disconnection with the strengthening of the EU and developing markets has come crashing down at the moment. The US is still a primary export market and source of foreign investment.

In general the US economy does have an effect on most other economies, but in the specific case of the Mercosur block, the degree of dependence on the US has been significantly reduced. The US is no longer the leading destination for exports (The EU now is), nor even is it in second place (Mercosur). It accounts for less than 20% of all exports and as such, while a complete failure of its economy would hurt, it would not be the crippling blow that it would have been 20 years ago.

Why so confident that South America will be below the US? I know that you don't consider the region important - you forgot it initially, but economically there is quite some degree of strength developing there.
Well, maybe. However, if being close to the center of power, South America hasn't developed into a power that at least is safe from being forgotten, it's probably not going to be a major power when it ends up isolated from major powers. And US is a pretty resilient country, after all, with its high internal food production and half the oil coming from Americas, so, while it will suffer a 5-10-fold GDP drop, it will still remain a viable, developing economy.

If the US economy goes boom, a lot of countries are in trouble. China, all that growth theyve had? Gone. What good is all the production they are doing if there is no one to buy their shit? Suddenly they have a surplus of everything. Unemployment becomes a problem, down they go.

Well... China can sell to Russia and Europe, or on the growing Indian market. An US economical crisis can be bad for the world, but not as bad as the '29. Back then, the big market was just USA and an european continent which was trying to restart after the Great War; now it's USA+China+Europe+Russia+Japan, with India and Brazil on the rise.

Well... China can sell to Russia and Europe, or on the growing Indian market. An US economical crisis can be bad for the world, but not as bad as the '29. Back then, the big market was just USA and an european continent which was trying to restart after the Great War; now it's USA+China+Europe+Russia+Japan, with India and Brazil on the rise.
Yeah, but the cross-ownership links are much, much stronger today.

Yeah, but the cross-ownership links are much, much stronger today.
Once US economy collapses, these US "ownerships" are worthless. Maybe they will still work in Canada, but not in China. Most likely, the US shares will be just bought out for scraps.

At any rate, if the US economy suffers, everybody does. Any myth of a disconnection with the strengthening of the EU and developing markets has come crashing down at the moment. The US is still a primary export market and source of foreign investment.
Of course, but to a different extent. Canada, for instance, is tightly tied to US, and will suffer a lot. The Warsaw Pact block has been living in isolation from the West for 50-70 years, until pretty recently, and even then its ties are normally to Asia or at most Europe, but not America. Similarly, while China has ties to US, it also has strong ties to the nations of Eurasia. As a market, US is large, but it has a degree of nationalism, and it's not as large a market as Europe.

Once US economy collapses, these US "ownerships" are worthless. Maybe they will still work in Canada, but not in China. Most likely, the US shares will be just bought out for scraps.
Well, it depends whether you mean a complete collapse or just a bad downturn. Even so, foreigners already have huge amounts of money invested in the US, which they'd lose. Even with home markets somehow remaining intact, the corporate world and thus the "commanding heights" would suffer huge damage. Not to mention the effects all the defaults in a collapsing US would have on the availability of credit all over the globe. Investment would absolutely tank, and you'd have the same negative effects we're seeing right now in the EU, only worse - and if the US government were to default, the Chinese also wouldn't be in the position to flood their own economy with cheap credit either.

Well, it depends whether you mean a complete collapse or just a bad downturn. Even so, foreigners already have huge amounts of money invested in the US, which they'd lose.
Yes. But still, it has to be kept in mind that US is a service economy, and China an industrial one. The secondary sector can work without the tertiary, not vice versa. What US suffers is a collapse, what ROW suffers is a slowdown of development.

As for collapse vs. downturn, I'm not sure if there really are two variants. US economy is unstable, due to immense amount of USD reserves worldwide, which will be rapidly exchanged for better currency, should USD start rapidly falling. That creates an avalanche effect, a chain reaction, leading to complete fall of the USD. Something in between might just not be an option. It requires all countries retaining or even buying USD at massive loss to themselves - and they might well just opt for a temporary depression instead of continuous losses.


Not to mention the effects all the defaults in a collapsing US would have on the availability of credit all over the globe.
That is, partially, an issue. But then USD credit rates keep moderately high due to inflation. It all depends on which currency will be next. A faster-inflating fiat currency (Yuan, Rupee, Ruble) could have higher rates, but faster payback. A stable black gold backed currency (OPEC Dollar) would have slower payback, but also low interest rates, although the availability would indeed suffer a lot. The former might create a bubble, while the latter will lead to slow but reliable development, but nonetheless, the credit system will reform. Once US dollar becomes just paper, availability of USD credit doesn't matter, it's all down to new powers. Although ROI:interest rates will certainly fall.

North Korea would take over the world :tongue:

North Korea would take over the world :tongue:

And this is the backstory to 1984...

Of course, but to a different extent. Canada, for instance, is tightly tied to US, and will suffer a lot. The Warsaw Pact block has been living in isolation from the West for 50-70 years, until pretty recently, and even then its ties are normally to Asia or at most Europe, but not America. Similarly, while China has ties to US, it also has strong ties to the nations of Eurasia. As a market, US is large, but it has a degree of nationalism, and it's not as large a market as Europe.

I think a good part of the world is starting to reroute it's economies around the United States, I know, for example, that in Canada we've built (or building) a pipeline to take oil from the oil sands right to BC's docks and ship it to China.

I think a good part of the world is starting to reroute it's economies around the United States, I know, for example, that in Canada we've built (or building) a pipeline to take oil from the oil sands right to BC's docks and ship it to China.

That makes sense, given that the US is importing significantly less oil than it was a few years ago thanks to increased conservation and domestic production.

Deflation in the US, inflation in the BRICs, Euro collapses and is abandoned b/c the germans and french won't want to bail out spain, portugal, italy, greece, UK does some kind of mad max thing, scotland leaves the UK and adopts the groat as its national currency.

That is how it is playing out.

China used to be the largest economy on Earth, with a share of global GDP roughly equivalent to the US and basically declined steadily from the 18th century onwards. In case people have forgotten, the past 200 years have been pretty good for humanity compared to what came before them, so I'm not too worried about such changes in the future.

China also cut off all trade and destroyed its own navy and trade ships over two mast. and the decline began from the late 1400's. 1800's onward was just when the decline had proceeded so far that Europe could out maneuver China from half a world away.
Never under estimate China's ability to shoot themselves in the foot.

China also cut off all trade and destroyed its own navy and trade ships over two mast. and the decline began from the late 1400's. 1800's onward was just when the decline had proceeded so far that Europe could out maneuver China from half a world away.
Never under estimate China's ability to shoot themselves in the foot.

Never did figure out that one. I mean you've really, really got to unequivocally fuck up to go from being #1 to nothing in so short a timeframe.

I hope that the US economy waits until after I'm done my PhD to tank. I'd like to be able to escape Canada and get to Europe... Our economy is too dependent on the American one so we'll probably be screwed.

Yes. But still, it has to be kept in mind that US is a service economy, and China an industrial one. The secondary sector can work without the tertiary, not vice versa. What US suffers is a collapse, what ROW suffers is a slowdown of development.
China's industrial sector produces primarily for the consumer markets in rich countries. If the US goes, and Europe takes the associated hit, who is China going to produce for? They already are toying with overcapacity in places, all these new investments that won't have customers to produce for will go bankrupt.

And besides, industry without the services that allow it to function smoothly doesn't get very far either.

As for collapse vs. downturn, I'm not sure if there really are two variants. US economy is unstable, due to immense amount of USD reserves worldwide, which will be rapidly exchanged for better currency, should USD start rapidly falling.
Why would it though? We've seen a pretty big crash and a pretty big fall in the dollar, but it's recovering, because there is still a consumer base there unrivalled in the world. First you need some event that would actually make the Japanese and Chinese take trillions of dollars in losses by dumping their dollars.

It requires all countries retaining or even buying USD at massive loss to themselves - and they might well just opt for a temporary depression instead of continuous losses.
It's not a given that they'd be buying at a loss, if the underlying value of the dollar is still there. It was overvalued before the crisis, then we had it and at some point people figured that it had become undervalued, so they bought it.

That is, partially, an issue. But then USD credit rates keep moderately high due to inflation. It all depends on which currency will be next.
Not really. First of all, banks lose trillions in assets that sit in the US and aren't worth stuff anymore, not because of the dollar, but because the economy has tanked and they don't produce returns. And then on top of that, you have the collapse in the dollar, which hurts them more. At that point what the Fed does with rates has no big impact anymore, because the volumes we're talking about are just too large.

There is no decent-sized bank in the world that wouldn't lose a huge chunk of its assets if the US economy were to disappear. And as a result, they wouldn't be doing any more lending anywhere else either. That's part of the reason we're seeing the EU reacting so severely to the credit crisis.

A faster-inflating fiat currency (Yuan, Rupee, Ruble) could have higher rates, but faster payback. A stable black gold backed currency (OPEC Dollar) would have slower payback, but also low interest rates, although the availability would indeed suffer a lot.
That's all secondary. If the dollar disappeared today, the international finance system would switch to euros instead. OPEC is utterly unable as an organisation to get a thing like an oil standard running, and even if it did, banks would hardly fall over themselves adopting it.

None of which really matters, because the big banks would have bankruptcy lawyers swarming all over them.

And I'm not actually sure what you mean by "payback".

Although ROI:interest rates will certainly fall.
Official ones maybe, as governments desperately try to make money available to cover the stuff lost in the US. But they'd never reach the consumers.

Deflation in the US...
Not sure whether you saw this one: http://www.economist.com/finance/displaystory.cfm?story_id=11964819

Our economy is too dependent on the American one so we'll probably be screwed.
Right now there's a hick-up in the US. It's not even a recession yet, but it's still enough to knock all the air out of the EU's upswing.

The US economy is still the centre of the world economy. The EU may have many people, but most of them are much poorer than Americans are. The rich Europeans are an important, but much smaller market which is also plagued by structural issues with the economies there. The developing world is growing rapidly, but doesn't have the sort of consumption capacity that could even begin to rival the US.

De-coupling didn't happen, the US is still the integral part of the puzzle. It doesn't matter where you move, a collapse in the US will still affect you.

Right now there's a hick-up in the US. It's not even a recession yet, but it's still enough to knock all the air out of the EU's upswing.

The US economy is still the centre of the world economy. The EU may have many people, but most of them are much poorer than Americans are. The rich Europeans are an important, but much smaller market which is also plagued by structural issues with the economies there. The developing world is growing rapidly, but doesn't have the sort of consumption capacity that could even begin to rival the US.

De-coupling didn't happen, the US is still the integral part of the puzzle. It doesn't matter where you move, a collapse in the US will still affect you.
Yeah, and I'd rather not live in a country where the bulk of our trade is with the US where the effect will be bigger.

I hope that the US economy waits until after I'm done my PhD to tank. I'd like to be able to escape Canada and get to Europe... Our economy is too dependent on the American one so we'll probably be screwed.

I'm hoping it hits bottom and recovers between now and September of 2010, since I'll be taking my CPA exam that summer and I'd prefer there to be job opportunities available.

I'm hoping it hits bottom and recovers between now and September of 2010, since I'll be taking my CPA exam that summer and I'd prefer there to be job opportunities available.
Of course, I'm sure a lot of people would be happy to have a certified public accountant if their businesses are tanking.
Also, I think you've said this before but I forget: what is the difference between a CPA and a non-CPA accountant?

Of course, I'm sure a lot of people would be happy to have a certified public accountant if their businesses are tanking.
Also, I think you've said this before but I forget: what is the difference between a CPA and a non-CPA accountant?

CPAs have certain legal abilities that non-CPAs don't, such as the ability to certify financial statements and conduct audits. Plus, it tends to be seen as a professional certification that guarantees the accountant in question knows their stuff.

China's industrial sector produces primarily for the consumer markets in rich countries. If the US goes, and Europe takes the associated hit, who is China going to produce for? They already are toying with overcapacity in places, all these new investments that won't have customers to produce for will go bankrupt.
And besides, industry without the services that allow it to function smoothly doesn't get very far either.
Yes, it's not as fast to develop as with fully developed tertiary (and "post-tertiary") sector. But industry works without services, while services are pointless without it.


Why would it though? We've seen a pretty big crash and a pretty big fall in the dollar, but it's recovering, because there is still a consumer base there unrivalled in the world.
Slow fall 10% isn't big by any means. More of "not negligible", but that's it.

First you need some event that would actually make the Japanese and Chinese take trillions of dollars in losses by dumping their dollars.
To prevent loss of even more? If a currency is falling, dumping it is what you do, before it's plain worthless.
Japan, probably no, but China and Russia might very well do it.


It's not a given that they'd be buying at a loss, if the underlying value of the dollar is still there.
To buy not at loss, they'd have to buy at a point times less than current, i.e. by the time USD is no better than any other currency there is.


At that point what the Fed does with rates has no big impact anymore, because the volumes we're talking about are just too large.
I meant the current rates.

Yes, of course, all banks would have losses, should US economy collapse. But it's not like their scaffolding can stop it, should it start.


That's all secondary. If the dollar disappeared today, the international finance system would switch to euros instead. OPEC is utterly unable as an organisation to get a thing like an oil standard running, and even if it did, banks would hardly fall over themselves adopting it.
None of which really matters, because the big banks would have bankruptcy lawyers swarming all over them.
The issue is, due to Europe-US tight relationship, Euro would fall after Dollar - not as low, but still it would be not a currency to invest in.
Plus, you're right, current big banks might well become nothing after the fall.

Currencies of countries least linked to US will suffer the least, and so are the best candidates for a new standard.



Official ones maybe, as governments desperately try to make money available to cover the stuff lost in the US. But they'd never reach the consumers.
I meant the ratio before ROI and interest rate. In other words, greatly falling profitability of new enterprise.

I'm hoping it hits bottom and recovers between now and September of 2010, since I'll be taking my CPA exam that summer and I'd prefer there to be job opportunities available.

I'm hoping the housing market sucks for another two years, because by that point I'll have my Masters degree, and a solid job offer from those folks downtown. I'd like to buy a house as cheap as possible.

I'm hoping it hits bottom and recovers between now and September of 2010, since I'll be taking my CPA exam that summer and I'd prefer there to be job opportunities available.

I wouldn't worry so much I recall reading an article on accountants though I must admit it may have been CPA literature saying that over the next decade the amount of jobs which require an accountant will have a ratio of 4 jobs to every accountant.

I wouldn't worry so much I recall reading an article on accountants though I must admit it may have been CPA literature saying that over the next decade the amount of jobs which require an accountant will have a ratio of 4 jobs to every accountant.

Yeah, it's looking pretty good for the foreseeable future. I'd like to be in an economic upturn, of course, since I can get more and have a better negotiating position in the future.

I'm hoping the housing market sucks for another two years, because by that point I'll have my Masters degree, and a solid job offer from those folks downtown. I'd like to buy a house as cheap as possible.

Depends on what part of the nation you are in. However odds are it will take more than a couple years to recover. I personally am leaning towards 5+ to recover. Most likely we wont see in our lifetimes the housing boom we just witnessed. No more easy credit.

To prevent loss of even more? If a currency is falling, dumping it is what you do, before it's plain worthless.
Japan, probably no, but China and Russia might very well do it.


This is so january. Look, the US has mega huge ginourmous problems, that's true. But so does everyone else, more or less, and the thing is we just noticed them first.

So while there are going to be some pretty big changes around here, it doesn't mean that the rest of the world is going to sail on its merry way, and in fact, its probably going to turn out that the dollar collapse was overdone. Pretty much everyone overdid the the credit binge (look at denmark) or is super dependent on exports to those who were overdoing the credit binge.

And the Euro has its own problems, in that it doesn't really cover an optimal currency area and there are no real mechanisms for redistributing wealth from the prosperous parts of the EU to the poorer ones in times of downturn. This is further exacerbated by the fact that the Eurozone workforce is considerably less mobile that the US's owing to language barriers and such.

Now, that's not to say that the US government won't do something monumentally stupid, like monetizing bad paper, but right now it isn't. And it doesn't look like its going to. So right now, holding dollars is not a bad bet.