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Chapter 4: Global Mega-Money Meltdown

 

It's not Just America's Bubble Economy, It's the World's Bubble Economy


A popular fairy tale gained favor in early 2008 proposing that the rest of the world, especially China, had magically "de-coupled"; from the naughty U.S. economy. Regardless of whatever foolishness and financial problems we happen to get ourselves into here, China (and to a lesser extent, the other emerging markets) would continue to be a reliable hotspot for investment profits. Even more magical, these burgeoning economies might actually help buffer the rest of the world, and even the United States, from the full impact of the U.S.-led recession.

Unfortunately, by the end of 2008 it became fully evident that this de-coupling myth could not be further from the truth. It was just another failed attempt at wishful thinking and economic cheerleading. In fact, when the U.S. housing bubble, stock market bubble, private debt bubble, and discretionary spending bubble all began to burst in late 2008 and 2009, the speed at which the rest of the world fell into deep recession was staggering. In the fourth quarter of 2008, GDP in the United States declined by 6.2 percent on an annual basis; in the UK it declined by 5.9 percent, Germany declined by 8.2 percent, Japan declined by 12.7 percent and South Korea declined by a staggering 20.8 percent (during the Great Depression, U.S. GDP fell by about 25 percent). Both Germany and Japan had accelerating declines in the first quarter of 2009 with Germany falling at an annual rate of 14.4 percent and Japan falling 15.2 percent. Mexico actually topped the list in the first quarter 2009 with a 22 percent decline. As the U.S. economy reduced its imports of goods from overseas, particularly in the fourth quarter of 2008, the rest of the world's economies, joined at the hip to ours and each other’s, simply fell off a cliff.

The U.S. and other economies are so tightly linked, and the impact of the U.S. Bubblequake and Aftershock will be felt so deeply around the world, that we almost titled our first book The World's Bubble Economy. But such a broad title would have reduced interest among our readers in the United States, which is most of our audience, so we went with the less accurate title. Nonetheless, just as we predicted in America’s Bubble Economy, when the U.S. multi-bubble economy started to fall, the world’s multi-bubble economy had little choice but to fall, too. And as we continue to fall, the rest of the world will end up in even worse shape than us.

The United States Will Suffer the Least

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