Depression and the next crisis - Global Trade Collapse

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From SmartEconomy.com

November 17, 2008

Depression and the next crisis - Global Trade Collapse

I'm not overly surprised that three times as many people are searching for the word depression vs recession on Google and it's been going on for several years. Interest comes from the following countries (in descending order): Australia, USA , Canada, UK, India, Sweden, Germany, France.

Journalists in respected newspapers such as the Boston Globe and Washington Post are starting to write stories comparing the 1930's Great Depression to today's circumstances and what the impacts could be-here's my version. Frankly the 25 year long Depression in the 19th century is a far better comparision.

The G20 meeting in Washington was largely ineffective and no significant actions came out of the meeting. Our global leaders showed no foresight for any actions that will stall, mitigate or prevent the next leg of the finacial collapse, which may well be global maritime trade. The Baltic Dry Index -an obscure ocean shipping volume index, which most people have never heard of is at record lows, dropping to 841 this week from a record high of over 11,473 just last May. That means that the cost to charter an ocean-going vessel is at or below the cost per ton to crew and fuel the vessel.

"Industrial Carriers Inc., a Ukrainian operator of about 55 vessels, filed for bankruptcy last month. Zodiac Maritime Agencies Ltd., the shipping line managed by Israel's billionaire Ofer family, said last month it may idle 20 capesize ships, which typically haul coal and iron ore. That's about 5 percent of the fleet operating in the spot market."

Why the collapse ? Banks refuse to issue Letters of Credit because the S&P GSCI index of 24 raw materials has dropped 31 percent this month, its worst performance since at least recession.

Source: Baltic Dry Index Drops Below 1,000 for First Time in Six Years

What would be the immediate consequences of a collapse of global trade? Well quite dire, according to one scenario from one blogger- Naked Capitalism

"If cargo trade stops, a whole lot of supply chain disruption starts....

If cargo trade stops, the wheat doesn’t get exported. If the wheat doesn’t get exported, the mill has nothing to grind into flour. If there is no flour, the bakeries and food processors can’t produce bread and pasta and other foods. If there are no foods shipped from the bakeries and factories, there are no foods in the shops. If there are no foods in the shops, people go hungry. If people go hungry their children go hungry. When children go hungry, people riot and governments fall."

The key factor to watch after the G20 meetings is how nations will deal with one another as the depression gets worse.

Are we heading toward an era of National Egotism (concern for national self-interest, self-absorbtion) or National Altruism ( concern for the common global good, selflessness, mindfullness). Nations like Russia and China seem to be heading toward the former (after signing a 20 year multi-billion $ loan-for-oil swap, which guarantees China a place at the head of the line, when crude oil supplies start to dwindle from Russia.

So, will falling crude oil supplies, shrinking water resources, shared cross-boarder aquafers and harder to extract minerals be hoarded by nations or shared between nations? What conflicts will result from this?

Walter Derzko