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Jun 16, 2011

Future News in 2030s: Global Economic Crisis Makes a Comeback

  Predicting an economic crisis is both a challenging task and also a risk worth taking. There are economists in history who rightly predicted the crises. Robert Shiller bluntly warned about a dot-com bubble in his famous book “Irrational exuberance.”
In 2006, Nouriel Roubini told audiences at International Monetary Fund that America was about to face a housing bust, a sharp oil shock, a sharping declining consumer confidence and inevitably a deep recession.[1] And he is right.
 We have Crash Proof: How to Profit from the Coming Economic Collapse(2007) by Peter Schiff and John Downes and America’s Bubble Economy: Profit When It Pops(2006) by David Wiedemer, Robert Wiedemer and Cindy Sptizer that sent a clear message that America’s economy was about to pop. Most economic laureates failed to predict or at least give hints on so-called the most severe economic crisis since the Great Depression. 
Reader, I got a sense that we will meet another severe global economic crisis in somewhere around 2030s. There are, you know, reasons to believe that the world economy will meet the crisis in the next two decades or so. That crisis might originate from either US or today emerging markets. Is the crisis inevitable? In a nutshell, it does.
The practices of American capitalism make the crisis inevitable and it is in her best interest to do so. In America, the laws don’t follow the greediness and competition quick enough. Traditionally, American politicians won’t make law regulating the birth of Fresh Business Environment. One may remember the dot-com bubble in early 2000s. The fresh business environment is the Internet. Internet is something new and profitable at the time.
Investors were competing for investing in bonds and shares markets. Their greediness inflated the true value of the asset and the Internet market eventually failed. When there is a new business environment, there is a crisis. Dr. George Friedman, authored The Next 100 Year: A Forecast for 21st Century observed America meets a crisis every fifty years. An economic crisis is like a cancer, it needs about 20 to 30 years to be born.
At longest 2015, America will see a real and strong recovery from recent crisis. Bubble in 2000s caused by a new business environment in the Internet market and economic crisis in 2008 caused by a new investment opportunity in housing market. I have faith that American politicians know well when their economy would meet the crises in the past years but they were not in a position to stop it.
Does it sound silly? Nope, it doesn’t. They allowed investors to compete without any interference.  Google, Yahoo! Inc. and Microsoft got rich and strong because of suppressing American middle class[2]. And the government let it be.  They created second generation the rich and made the rich crate the jobs for the poor. The bubble will eventually pop and then comes the law.
 This has been American’s economic cycle and it won’t be changed. Again, American’s economy will bounce back by 2015. At the eve of President Obama term, there should be a short recovery.  And the new business environment will come. I’m not sure about what’s kind of new business will look like. American’s economy will be seeing a great boom from 2020s to 2030s driven by that new business environment.
 Robert Shiller recently wrote that the next bubble’s driving force is farmland, reasoning that that a high demand for foods in the future will make investors interested in that field. Then, the investment will spur economic growth for years as increasing people are keeping investing in the hope of gaining profits.
History doesn’t repeat itself but it does rhythm. The next bubble’s driving force may have its root from stock market or Internet market. Recently, US have a law regulating the occurrence of bubbles in both markets. In the future, the politicians may change it as they used to do in the past or they just loosely implement and enforce it. The crisis will happen again after the bubble reaches its peak. In 2030s, the World economy is not as dependent as on US ‘economy as today. However, it still gets the strengths to bring down the whole global economy.
I’m afraid that that crisis is the most severe one. In 2030s, economies are very much connected to one another. The domino effect resulting from the crisis is very out-of-control, I’m thinking. There are things that all leaders in every country need to do to reduce risks in global economic system for the sake of all.
We should the take into account the risks in emerging markets that have the same potent to bring down the world economy in 2030s. Speculation is also high that the crisis in 2030s will come from China. By 2030s, most coastal regions will be industrialized and rural areas will be being developed rapidly. As Chinese people are getting richer, they need a more comfortable place to stay. At the same time, the houses in coastal areas will be old enough to construct new ones .So, investment in housing market will be ubiquitous in China at that time.
 After a while, all people will put their eyes in housing market. China’s economy might be the largest at that time but it is a slow-growing one after reaching the peak.[3]  To solve the slow-growing economy, China’s central bank should lower the interest rate to spur growth and thus further push up the investment activities. China’s economy might be of the same style of those of US.  The next bubble may also be driven by a property boom in China in 2030s. When the bubble burst, we are down with China. Stock and Internet bubble are also likely candidates. It is also likely that the next bubble comes from India or Europe. I will update this article as trends warrant.

[1] Crisis Economics: A Future Crash in the Course of Finance by Nouriel Roubini and Stephen Mihn.
[2] During the Internet bubble in the late 90s and early 2000s.
[3] International Monetary Fund’s Prediction