muses of the moment

August 22, 2010

The Great Depression of 1340’s

As I said I was going to study the great depression of the 1340’s a little closer, since many are comparing it to the current economic times. It is part of the last super economic cycle, and some claim we are now in the decline of the current economic cycle.

Click here by an article by Murray Rothbard about the 1340’s.

Here are some quick comments and comparisons.

A timeline of events during the last 13th and 14th centuries is helpful in determining the cause and effect relationships, actually, it’s more like several cycles hitting their low around the same time, similar to right now. First, in the late 13th century and early 14th century in Europe, there were disruptions in normal weather patterns that caused a series of  low crop yield and famines during this time. The Hundred Years War, which started in 1337 and lasted until 1453, caused disruptions in farming, commerce, and high taxes and lending rates.

About this time, nation-states, had great power, more than kings and the Church. The nation-states, like Venice, gained their money and power through commerce, banking, and lending (especial for the war). This was a time of shift from a equal balance of power between kings and the Church that had lasted from the Fall of Rome through the Dark Ages.

After the Venice banking system collapsed (from overexposure to derivatives, yes, derivatives are nothing new), a chain reaction occurred throughout Europe affecting all banking systems and commerce throughout Europe. No one lent money and no one traded, commerce came to a halt.

Shortly after the Venice Banking collapse, the Black Death, bubonic plague, reached its highest levels. The famines, war, and banking crisis of the previous 50 years had taken it toll and most of the populus was dirt poor, living in unsanitary conditions. This was just more fuel for the fire of the Black Death, making it much worse than it had been in previous years.

The Black Death wiped out over 25% of the European population. Physical labor was the engine of the economy at that time and the loss of so many people, just continued the slow economy and continued the vicious cycle of no growth, little food production, and little trade in Europe.

So, Europe during this time experienced an overlap of several diificult cycles: war, government power, weather, disease, one of which was economic,  that created a prolonged downturn and continious negative feedback loops.

Skipping to today, we also have several cycles converging at the same time that could create a similar situation. However, because everything is sped up in today’s world, I doubt it will take one hundred plus years to complete the downturn.

We have a perpetual war on our hands, called The War on Terror. This war drains money that could be used for development and growth and uses it on non-productive outcomes. Wars always hinder productive growth.

We have a banking crisis on our hands with over $530 trillion dollars in the global derivative market that can never be sustained. It will implode either slowly or quickly, it is just a matter of time. This banking crisis will stifle growth for some time.

We have a change in weather patterns that have effected crop yield for some years. This will probably continue. Call it climate change or global warming or whatever, normal weather patterns are changing and it affects global crop yield. It is just a fact. Crops that are normally grown in one area of the globe, now either can not be grown or require more input (money/energy) to grow. This effects food availability and food prices and thus the health of the general population.

We do not need a population of people to drive commerce now, it is driven by machines and thus energy. Whether you hold the theory of peak oil/energy or not, at the very least, there is a clear increase in demand (China) that makes energy cost more. A higher cost in energy will slow down growth, period. Lower growth stifles lending and further growth. It is a vicious cycle.

We are experiencing two shifts in global and government power. In the West, especially any country under the influence of the United States, corporations have more power over governments than at any time in history. Corporations shape policy and have spawned an entire industry, the lobbiest. This shift from a separation between corporation and government power to a hierarchy of corporation over government is significant.

Just as in the 14th century, kings were under the thumb of banking cartels to fund their wars and stole their taxes for interest, the United States is forced to bail outs banks, hedge funds, GM, states, BP and any other corporation that might cause an economic collapse on their watch, thus jeopardizing their illusion of power.

The second shift in global power is the beginning of a movement from West to East. Since the West has been driving the global economy for quite a while, this shift will impact overall global growth for some time. The decline of the USDollar and its eventual collapse as a global reserve currency is a prime example of this shift and its impact on global commerce.

Now, all we need is a pandemic, and we are overdue for that. Groovygirl has no doubt that one of the many super-bugs we have seen in the last 50 years will spawn the big one that we can not contain. That too, is just matter of time. The western population is not healthy, malnutrition caused  by processed food and plagued by immune-surpressing diseases.

Well, this is a depressing post. It sounds as if we are in dark ages. Based on these comparisons, we are in a deepening depression not a recovery.

The good news is that Europe finally emerged from the crisis. Not every one died, some lived and continued on. The war ended and growth occurred once again. The Renaissance of the 15th and 16th centuries was very progressive and beneficial for humanity. All cycles come to an end.

Life is blue. Life is green.

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