2009 Gloom & Doom update:batten down the hatches!

In the past months the global economy has become quite sickly. Oil prices are soaring, not because of supply shortages but because of the politics of energy markets and an ever-weakening US dollar. The USD itself is a reflection of the US economy, the ongoing mortgage crises and all its ripple effects.

The mortgage crisis coupled with a credit crisis (US savings rate was negative last year!) is quickly taking us towards a retail sector collapse. Soaring food prices (side effect of record-breaking oil prices) are exacerbated by food shortages caused by diverting food crops towards fuel (in response to oil prices) and because of severe weather anomalies. The transportation sector has also been hard hit by fuel prices.

In the era of globalization, in a connected world with fungible commodities and world markets setting prices, US woes have already become global woes. Perhaps this is the beginning of “the end of the world as we know it!” The richest countries will face shortages, bankruptcies and mergers however people will not die of hunger. The poorest countries will face shortages and deaths and most global citizens will not notice. Emerging markets will be a different story however. They will face shortages, deaths and riots. The riots and ensuing political instability will be noted by everyone. It is a matter of time before some of these economies will start shutting down their trade borders and start down a protectionist (anti-globalization) route to protect their own populations. Countries will be forced to become slightly less dependent on the global economy and slightly more focused on internal reform.

In the best case scenario they will start to see their own populations as their primary markets (instead of the global economy) and enable their own people through infrastructure investments. In the worst case scenarios existing regimes will fall and there will be anarchy before the next wave of leaders comes on board.

No matter how we look at it, the next few years will be turbulent and will see many transitions. It’s time to batten down the hatches and be prepared to weather out the storms!