The Great Depression of 2008 Project

If a 2008 depression followed the pattern of the 1929 one, there would initially be little difference between what actually happened and the Great Depression scenario. The pattern would be a nasty, but seemingly controlled recession that gradually deepened for about two years, with apparent signs of recovery.

At that point you would start to see the weakest European Central banks fold. The stronger European Central Banks would try to bail them out, but fail, with each failure weakening the stronger European economies. In about three years most of the European Central banks would be on the verge of collapse. The crisis of confidence in the banking system over there would reflect back to the US and force healthy banks to pull in loans to healthy businesses because they would be afraid of runs on the bank and would need liquidity. With businesses hurting, the US would go the protectionist route, and everyone else would follow suit. Voila, Great Depression, with things really getting bad two to three years after the 2008 crash.

Of course a 2008 depression wouldn't take exactly the same form. Unemployment insurance and two-earner families would buffer us, keeping demand higher than it would otherwise be. So would safety-net programs--food-stamps and the like. So, for a while, would the higher percentage of people in state, local and federal jobs. There wouldn't be as much chance of runs on the banks by small investors because of deposit insurance. And the experience of the last depression would influence the Fed. Even without TARP, etc, the Fed would pump liquidity into the system and push interest rates to near zero which theoretically should revive the economy.

That last paragraph seems to be saying that another depression is impossible. I'm not saying that. I am saying that it would probably take longer than three years from the initial crash to hit the deep phase because of the various buffers and that it would take a deep failure of monetary policy to cause things to get that bad. Monetary policy isn't always a panacea though. The Fed can push interest rates to effectively zero, but that doesn't mean banks are going to loan to people who are unemployed, are underwater on their house, or have $150,000 in student loans or credit card debts and are working at WalMart. Get a high enough percentage of people in those classes and loans won't happen to them pretty much no matter how much liquidity is in the system.

Low interest rates can actually create downward pressure on the economy in some ways because it means that people nearing retirement aren't earning as much on their existing savings and have to put away more to have the savings they need for retirement. States and localities have to spend more on their pension funds because the money they have in the funds is earning less. That additional money going into pensions means cuts in other services, which means state and local employees get cut back and/or taxes get raised, which in turn depresses the economy.

If the crash happened in 2008, the full impact of it might not be felt for four or five years. For those years it might look like a worse than normal recession. Then it would spin out of control because of something no one anticipates and in this alternate reality we would face the 'joy' of another Depression.
 

MAlexMatt

Banned
If a 2008 depression followed the pattern of the 1929 one, there would initially be little difference between what actually happened and the Great Depression scenario. The pattern would be a nasty, but seemingly controlled recession that gradually deepened for about two years, with apparent signs of recovery.

*SNIP*

If the crash happened in 2008, the full impact of it might not be felt for four or five years. For those years it might look like a worse than normal recession. Then it would spin out of control because of something no one anticipates and in this alternate reality we would face the 'joy' of another Depression.

The eerie take-away from this post: OTL's path actually isn't all THAT different from the Great Depression, anyway. The main difference is the entirely different reaction of the Fed. The Fed in the Great Depression pursued a CONTRACTIONARY policy.
 
Hey Dalecoz, since you seem to be knowledgeable on the economic side, any guess on the political effects worldwide?
 
If a 2008 depression followed the pattern of the 1929 one, there would initially be little difference between what actually happened and the Great Depression scenario. The pattern would be a nasty, but seemingly controlled recession that gradually deepened for about two years, with apparent signs of recovery.

At that point you would start to see the weakest European Central banks fold. The stronger European Central Banks would try to bail them out, but fail, with each failure weakening the stronger European economies. In about three years most of the European Central banks would be on the verge of collapse. The crisis of confidence in the banking system over there would reflect back to the US and force healthy banks to pull in loans to healthy businesses because they would be afraid of runs on the bank and would need liquidity. With businesses hurting, the US would go the protectionist route, and everyone else would follow suit. Voila, Great Depression, with things really getting bad two to three years after the 2008 crash.

Of course a 2008 depression wouldn't take exactly the same form. Unemployment insurance and two-earner families would buffer us, keeping demand higher than it would otherwise be. So would safety-net programs--food-stamps and the like. So, for a while, would the higher percentage of people in state, local and federal jobs. There wouldn't be as much chance of runs on the banks by small investors because of deposit insurance. And the experience of the last depression would influence the Fed. Even without TARP, etc, the Fed would pump liquidity into the system and push interest rates to near zero which theoretically should revive the economy.

That last paragraph seems to be saying that another depression is impossible. I'm not saying that. I am saying that it would probably take longer than three years from the initial crash to hit the deep phase because of the various buffers and that it would take a deep failure of monetary policy to cause things to get that bad. Monetary policy isn't always a panacea though. The Fed can push interest rates to effectively zero, but that doesn't mean banks are going to loan to people who are unemployed, are underwater on their house, or have $150,000 in student loans or credit card debts and are working at WalMart. Get a high enough percentage of people in those classes and loans won't happen to them pretty much no matter how much liquidity is in the system.

Low interest rates can actually create downward pressure on the economy in some ways because it means that people nearing retirement aren't earning as much on their existing savings and have to put away more to have the savings they need for retirement. States and localities have to spend more on their pension funds because the money they have in the funds is earning less. That additional money going into pensions means cuts in other services, which means state and local employees get cut back and/or taxes get raised, which in turn depresses the economy.

If the crash happened in 2008, the full impact of it might not be felt for four or five years. For those years it might look like a worse than normal recession. Then it would spin out of control because of something no one anticipates and in this alternate reality we would face the 'joy' of another Depression.

Would we all be in agreement, though, that while it may take a while to develop this into a full-blown depression, the initial recession would somewhat worse than inOTL?
 
I'd always wonder how a radical, Socialist Greece would fare when it came to dealing with it's "fascist parliamentarian" neighbors. Would the revolution naturally spread beyond Greece once people saw how "good" true Socialism/democracy turned out to be?

Would the mainstream European press vilify the new Greek state as "authoritarian", "SOCIALIST!"(or "COMMUNIST!"), and all around lie about it once they realize that Capitalism's time was up?

Heck, I bet that in OTL Greece will eventually have an explosive Socialist revolution. If you really study the composition of the Assemblies, they seem to be dominated by far-left radicals striving for actual revolution. many can barely afford MILK and BREAD of all things, while facing excessive taxation without representation on necessities such as electricity, while in the meantime they basically hold the burden of the bailout while the rich flee the nation.

In a few months I bet you that Greece will have a revolution and Europe and the world will panic at the prospect of Social revolution on a world scale, essentially succeeding where the Bolsheviks failed. Combine this with true democracy, worker control, etc. etc. and international Capitalism will be trying to soon enough resort to fascism and try to in vain to legitimize itself.

my two rambling cents. ;)

 
I'd always wonder how a radical, Socialist Greece would fare when it came to dealing with it's "fascist parliamentarian" neighbors. Would the revolution naturally spread beyond Greece once people saw how "good" true Socialism/democracy turned out to be?

Would the mainstream European press vilify the new Greek state as "authoritarian", "SOCIALIST!"(or "COMMUNIST!"), and all around lie about it once they realize that Capitalism's time was up?

Heck, I bet that in OTL Greece will eventually have an explosive Socialist revolution. If you really study the composition of the Assemblies, they seem to be dominated by far-left radicals striving for actual revolution. many can barely afford MILK and BREAD of all things, while facing excessive taxation without representation on necessities such as electricity, while in the meantime they basically hold the burden of the bailout while the rich flee the nation.

In a few months I bet you that Greece will have a revolution and Europe and the world will panic at the prospect of Social revolution on a world scale, essentially succeeding where the Bolsheviks failed. Combine this with true democracy, worker control, etc. etc. and international Capitalism will be trying to soon enough resort to fascism and try to in vain to legitimize itself.

my two rambling cents. ;)


So, would you think under this scenario the process would be sped up?
 
...If the crash happened in 2008, the full impact of it might not be felt for four or five years. For those years it might look like a worse than normal recession. Then it would spin out of control because of something no one anticipates and in this alternate reality we would face the 'joy' of another Depression.

If the credit markets froze due to bank failures and widespread fear, you could have an economic collapse in a matter of weeks or months. Businesses that rely on credit to even out cashflows and which are otherwise healthy and solvent wind up in trouble. Consumer purchases grind to a halt; the housing and auto industries are decimated. In such a scenario, things could get very ugly very fast.
 
How does this affect the Scottish independence movement?

That depends on the 2011 Scottish General Election, and that largely on a 2009/2010 British one. As Growth strategy will probably take precedent over deficit reduction Labour might be able to outdo the Tories, at the same time though the Government is overseeing sky rocketing unemployment and the blame will largely land at their feet regardless of whether it's justified. There will probably be a huge anti-establishment backlash as well, expect parties like the BNP, RESPECT, the Green Party and UKIP getting higher vote shares as well as the Liberal, the SNP and Plaid to some extent. The outcome will likely be crazier than OTL.

If there's a Labour majority, or Labour led coalition I think you might see Scottish Labour do a bit better than in 2011, without the ludicrous campaign misfire at the Tories and with Brown still carrying a huge amount of weight.

If the outcome is similar to OTL I could still see the SNP winning, but not necessarily a majority, probably throwing independence into the tall grass for another 5 years or so.
 
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