On the surface the world's economy seems in pretty healthy shape, but a new book argues a repeat of the Great Depression may be just around the corner.
Trade between countries is at record levels, stock markets relatively buoyant, money easy to borrow and new technologies fuelling productivity growth. In addition, the world's major economy, the US, is starting to deal with inflation and speculative elements in its economy by raising interest rates.
Also, countries everywhere are keeping their currencies lower to maintain competitiveness, most major economies are growing and consumers are buying like never before, quite often using credit.
If the situation seems familiar it should. Jim Mellon and Al Chalabi, authors of Wake Up! Survive and Prosper in the Coming Economic Turmoil, argue it bares alarming similarities to the global market before the Great Depression struck in 1928. Mr Mellon, principal shareholder of British-based Charlemagne Capital, a company that invests in emerging markets, believes that it is a not matter of if, but when. 'The Great Depression was not anticipated by those who lived through it. People in the late 1920s were totally shocked at the speed with which their economies imploded,' said Mr Mellon, an asset manager for more than 20 years.
Although the authors put no timeframe on the worse-case scenario, they say it could happen soon. 'Just as in the 1920s there is no escape from the power of cycle and no secret formula to create forever-and-a-day growth,' Mr Mellon said. A series of Faustian pacts - consumers with lenders, Asian central banks with the US Treasury - have conspired to create conditions that could accentuate the down phase of the natural cycle.
The authors base their hypothesis on a number of areas - out of kilter trade balances, China's growth and the record debt of consumers, companies and governments. Anti-Americanism, rapid population growth, environmental concerns and the problems of waste, consumption and pollution are also added to the mix.
The book argues the unparalleled prosperity enjoyed by western nations over the past 50 years is unsustainable. The US imports half as much again as it exports, and it pays for the deficiency in its own, self-printed currency. The fiscal deficit is largely paid for by Asian economies recycling surplus dollars they receive for selling goods to America, through the acquisition of US government debt. 'American debt is higher today relative to the size of the US economy than it was in 1929, and all the monetary and fiscal tinkering in the world can't cure its pernicious effects,' Mr Mellon said.
