Economic Crisis Scenarios

As this is being written, world leaders are meeting in Washington and Europe looking for a way to "solve" the financial crisis. So far, the $700 billion plan has failed, as has lowering interest rates and lending money to AIG and other companies. Time will tell if future actions are any more successful. Captain Dave's best guess is that whatever happens will be a band-aid approach that solves the short term problem but puts off the major problems -- like deficit spending and run-away entitlement programs -- for another decade or so.

Best Case Scenario

Captain Dave's best case scenario is that somewhere after election day or possibly the Inauguration, thing stabilize and start to slowly recover. If McCain is elected, he and Congress will paste on a few band aids and pass a few bills to make it sound like this will never happen again. Gas prices will drop back close to $2 a gallon and consumer confidence starts to grow. The U.S. economy makes a comeback pulling Asia behind it, and while Europe lags, they eventually start to recover as well.

Most Likely Scenario

Same as above, but it takes another 12 to 24 months to start the recovery. I think this is more likely if Obama wins the presidency as I think his liberal tax and spend policies will make this crisis worse while McCain would probably do a better job of getting agreement on both sides of the aisle in Congress

Worst Case Scenario

The worst case scenario is the total collapse of the global economy. Imagine this scenario:

With falling sales and no credit, more and more manufacturing companies – especially those that make high ticket items – start to fail. This starts with small, unknown companies, but grows to include some of the largest manufacturing companies like General Motors, Caterpillar, US Steel, and General Electric. On their heels, companies that borrow heavily, such as the airlines, start declaring bankruptcy. This snowballs as their suppliers and vendors lose their chief source of income and vanish not long afterwards. This results in huge layoffs and as personal income drops, the retailers and restaurants will suffer, leading to more closures and layoffs. Pretty soon, so many companies are failing that not even the unlimited checkbook of Uncle Sam can save them all.

This corporate collapse will not be limited to the U.S. China's manufacturing will grind to a halt, followed by the rest of the Pacific Rim, as there will be no market for their goods. Sharp and Sony, LG and Hyundai, Samsung and Toyota, and other big names in Asia will follow in the footsteps of their U.S. brethren. In Europe it will be much the same as their global manufacturing companies, such as BMW, Bayer, Peugeot, Airbus and hundreds more have no income and cannot borrow money to survive. Consider it the failure of global manufacturing. The inter-dependent nature of our society means when one domino falls, others follow. It will be ugly.

On the heels of company closures, we will see municipalities go bankrupt, followed by states and then countries. In a moment of panic, governments will crank up the printing presses creating money out of thin air. Not only will this fail to stem the flood of closures, it will lead to inflation and hyperinflation followed by a collapse of the dollar, the yen, the Euro and all the other currencies. Pretty soon, you can only buy something if you have gold or silver, and barter becomes a common method of exchange.

Even Russia, Venezuela and the oil rich countries of the Middle East will find themselves with a sudden drop in income. Their wealth depends on us spending ours, and when we run out of wealth, their cash flow stops. Angry Venezuelans riot in the street and Russia pulls back its military to keep order at home. In China, unemployed workers refuse to leave their barracks and return to their family farms. Protests form despite mass arrests.

So now we have a scenario where there is wide spread unemployment, where everyone's savings are devalued and worthless, where it is hard to get food and goods, even when you have some money to pay for them. Things are looking pretty bad, but it will get worse.

In the middle of this economic and civil unrest, Iran decides to attack Israel, figuring that the U.S. and Europe are in such bad shape that they will not be able to retaliate. Iran gets the first strike, but Israel nukes Tehran and key strategic targets in Iran. Their planes bomb Lebanon and Syria and their tanks rumble across their borders in an all-out effort to destroy Hezbollah. A bold prime minister takes advantage of the situation and crosses into PLO territory to reclaim it, killing tens of thousands in the process. Without the focus of international media, there is wholesale slaughter in the streets and refugee camps burn. This leads to protests by angry Arabs in other countries and the burning of U.S. embassies in several countries, and suicide bombings in others, including France where 28 French nationals are killed.

Workers in France are gathered to protest the lack of jobs and food, but a fiery speech by an angry young leader directs their anger to the car bombings and Arabs. This sparks the crowds' suppressed anger at Muslims. What was to be a march against the government turns into a riot that tears through Muslim neighborhoods. Muslim men, women and children are dragged from their homes to be beaten and killed by the angry mob in scenes reminiscent of the West Bank. Entire city blocks burn as Muslim enclaves are torched. The police, who largely avoided these neighborhoods, do nothing. The politicians are simply glad the people have another target, and the pogrom rolls across Europe like wildfire. By the end of the week, a new wave of ethnic cleansing targeting Muslims is pervasive. Muslim nations rush soldiers to their boarders to prevent non-Muslims from entering, and war erupts between Russia and Chechnya. Turkey seals its borders, even though it is part of the European Union.

Violence is not limited to Europe and the Middle East. With the UN and watch dog groups distracted, tribal warfare and ethnic cleansing of a different kind reaches a ferocious pace across Africa. Fighting flares up in Indonesia and the Philippines, but the rest of the world no longer cares; they have their own problems to worry about. There is tension between Taiwan and China, but China has its hands full with internal strife and chooses to do nothing.

There are scattered riots across the U.S. and parts of Philadelpha, Atlanta, Cincinnati and Los Angeles burn. But it is nothing compared to the rioting in Europe. Despite 9/11, Muslims in the U.S. are far better assimilated than those in Europe and the resentment is much lower. Besides, Americans have other things to worry about.

There is a shortage of home heating oil and a cold front heads for the Northeast. Hospitals and pharmacies run out of medicines. Food is in short supply and trucks carrying food to warehouses and grocery stores are hijacked in scenes reminiscent of Made Max. Crime quadruples in the first month and then doubles in the next week.

Murders increase, as do self defense killings. Many times, the police do not even respond. There is no political will to charge people who kill looters and thieves. Martial Law is declared and a curfew enacted. Some of those that are arrested by government troops are never heard from again. Rumors of large labor camps abound.

The government uses an executive order to take over most of the transportation industry and the food producers. Then it nationalizes energy producers and distributors. Electricity is free for every household, mostly because no one in government wants to see what happens when TV is not available to help distract and calm the populace.

National Guardsmen are stationed are stationed on trains and at rail yards, in ports, and at key truck depots. Food distribution centers are set up in mall parking lots and manned by military personnel. Farmers with grain silos form cooperatives and establish road blocks to protect themselves from hungry refugees. In suburban communities, neighborhood watches establish road blocks and form quick reaction forces to protect themselves from marauders. In urban areas, the night is a frightening time, despite the curfew, and new dead bodies are found every morning.

Most formal businesses are closed, but there is a grey market where you can buy almost anything. There is no viable currency, but everyone takes silver coins, jewelry and other precious metals. The government provides everyone with vouchers for 1,500 Food Calories and 250,000 BTUs, or two gallons of gasoline, a day. People with critical skills and jobs considered necessary are given more as well as promises for future compensation. Government vouchers for food, fuel, and other services quickly become the new currency. 500 Calories can get you a meal or a blow job.

For many, wealth no longer is measured in savings or shares; it simply means a full belly, warm feet and the prospect of another meal the next day. Dreams of large houses are forgotten as friends and families move in together to combine their BTUs. It is cheaper to heat one house with eight people in it than two houses with four people and one person in a car is considered a terrible waste. Priorities change and lawns are dug up and turned under so that they can be used as gardens in the spring.

Highways and interstates see little traffic and many entrance ramps are closed while others are guarded by state police. People who can afford to do so drift from the city to the suburbs or the suburbs to rural areas, often in convoys for protection. Getting permission to relocate can be time consuming and travelers must show someone on the other end is willing to take them in, but it can be done.

How likely is this worst-case scenario? Unlikely, but certainly possible given the interferences of our civilization. Survivalists often discuss the potential breakdown in the delivery of food, given the lengthy and complicated process it takes to deliver a slice of bread from the farm to your plate, yet we rarely consider the complex financial machinations that make this process possible. The collapse of manufacturing due to the global financial meltdown could snowball into a Depression era scale problem.