Great replies for Saturday morning.
I think that like a stale beer, the financial foam will slowly evaporate along with cheap oil and abundant commodities in general. The main feature will be an economy increasingly starved for credit, the uncertainty of risk making money either too expensive or just downright unavailable. That's the collapse part and could take years or decades to play out. It might go with a bang or a whimper or both though I kinda lean toward whimper.
Unfortunately, things look exactly like that today. I don't say that as proof but in the way of trying to be aware that current situation might cloud my guess about the future. But, one of my first comments here was 'How long to prepare before the cost of preparing is too high?" Is that where we are now?
For example, we have big plans to raise the CAFE mileage standards in the US, yet the average age of the fleet is the oldest ever. Maybe we'll bounce back but forecasts were good at the beginning of 'both '10 and '11 yet last year disposable income was flat, debt at all time highs, real estate continuing to fall and labor income - the kind you actually work for - was anemic:
IN the eight decades before the recent recession, there was never a period when as much as 9 percent of American gross domestic product went to companies in the form of after-tax profits. Now the figure is over 10 percent.
During the same period, there never was a quarter when wage and salary income amounted to less than 45 percent of the economy. Now the figure is below 44 percent.
So, the bumpy plateau ride shakes the beer till the froth evaporates - then the decline.
The main difference between now and then... well, there really isn't much difference aside from degree. Declining actual production (or is it declining already?)
will make prices stay exactly at the point of economic stall speed.
The same lack of credit availability as we have now will make change nearly impossible for a majority. Assets with any value (housing, cropland) will be bought up by investors fleeing 1's & 0's - again, exactly like the FedGov is planning to do right now by privatizing bad REOs via public subsidies. Plastic chachka consumerism of course goes by the way as do more and more jobs and more and more savings and 99'ers' assets.
On the up side, manufacturing will return from wherever it's gone for lots of stuff, the downside of course is there won't be much demand for stuff. Globally, labor costs will continue
to become more equal and of course transport continue to be more expensive. Carbon and other tariffs may be implemented earlier in the name of climate change and later, protectionism.
One thing I'll point out is globalized trade might collapse faster than I previously thought. I saw a shipping index the other day showing rates from China are surprisingly low, this leads me to believe that shipping companies will operate at a loss as long as the can until they can't, when the rates then rise to a profitable level the trade goes poof. Here is the Harper index
of container shipping prices:Bulk shipping of raw materials like Iron ore are plunging as well.
Even though Bunker fuel prices are at record high average levels:
Anyway, we won't be buying $10 Lattes or $2 waters any more and coffee makers that cost $10 now will cost $30 or $40 but at least we'll be making them ourselves. Local and regional manufacturing industries will slowly reemerge, the speed depending on how fast transportation, labor and infrastructure costs change.
Pre-car cities will essentially do the same things they did then, subdivisions will become more self contained as casual travel diminishes and they become essentially small towns - and small towns will revive, simply because driving to Wallys, soccer, school, malls, etc, 20 miles away just won't make sense so cheap properties beyond 30 miles out will again make small town business viable.
The biggest change then will be the economies of scale enabled by nearly free transportation and unlimited energy availability will be eliminated. Competition then will no longer be entirely about scale. As mobility decreases, credit evaporates and labor demand falls, just regular trades will return. How many loaves of bread would you need to sell to support yourself in such a situation? Obviously far fewer than you would now since now you must compete with pricing discounts available to a baker that measures daily ingredient input in tons.
Anyway, I have no idea of what the time frame is, I'm sure we're closer to decline than we were 5 or 6 years ago. Perhaps we are four years into the collapse already, or maybe we are on the cusp of another 20 year boom-cycle fueled by natural gas and fracking cheap oil.
After all things looked pretty scary in 1982 as I remember...