Some wise philosopher once said there were two ways to look at something — the glass is half full, or the glass is half empty.
That leaves out the third way, an increasingly popular point of view when looking at the economy: the glass is shattered.
Economic collapse has several definitions, and doesn't necessarily mean that society grinds totally to a halt. The United States suffered what’s considered an economic collapse during the Great Depression, with high unemployment and bankruptcy rates. Other examples include the Weimar Republic in Germany (hyperinflation), the Confederate States after the Civil War, and Germany during World War II (blockades and the cost of war reducing consumption and leading to scarce resources).
Today an extremely negative economic outlook, including the possibility of collapse, has been triggered by the back-to-back recessions of the late 90s/early 2000s, the first caused by the Internet bubble, and the second blamed on the housing crisis of the 2008–2010 era. Both were sucker punches to the economic gut, creating pessimism that caused investors to react like George Costanza after a cold swim — or a turtle, pulling back into the shell.
In addition to bad economic policy triggering a collapse, there’s always the possibility of a "black swan" event…
This rippled down through the US economy, which was already transforming from manufacturing to service (ie, high wage to low wage), as technology and off-shoring sucked the need for large numbers of workers out of the economy. The result was an uneven recovery, with few of its root problems solved. This leads to further speculation that the worst is yet to come.
In the US, the ticking time bomb of economic collapse generally centers on the financial burden carried post-recession. The government’s efforts to stimulate the economy by printing money and buying bonds have a limit, skeptics say. At some point, foreign investors will become so nervous that they will withdraw, leaving obligations of trillions of dollars, high unemployment, growing social entitlements, and likely hyperinflation. No jobs, no growth, no way to pay it back, no recourse — only growing unrest.
The Black Swan
How realistic is the possibility of a massive collapse? Don’t say it can’t happen here. In addition to bad economic policy triggering a collapse, there’s always the possibility of a "black swan" event — a massive earthquake, asteroid crash, plague, large scale civil unrest, or other spoilers that will disrupt normal life, and plunge regions and potentially the nation into a dark age. Mobs will take to the streets in search of food, government services will grind to a halt, and currency will be worthless.
There are alleged government protections in place. The stock market has its Plunge Protection Team, a murky consortium of shadow figures created by Ronald Reagan by executive order. They are officially the Working Group on Financial Markets.
What this team allegedly does is “consult” with various market players during a financial crisis, hoping to mitigate large scale sell-offs. Some claim they actually finance stock purchases to prop up the economy. As a consequence, the market looks better than the footing of its companies.
Regulators are also trying to goose the financial players in other ways. The eight biggest US banks must boost capital levels by a total of about $68 billion under new rules. This would help reduce the reliance on debt to finance their schemes, relying instead on shareholder equity or earnings. It allegedly would end the type of bad choices that created the housing bubble; but in a profession that is always looking for an edge, the temptations to play fast and loose are still in place.
Another problem on the horizon that may not auger well for the US is the ongoing financial crisis in Europe. Greece has huge unemployment, with official statistics pegging it at 27% — and unofficial ones putting it much higher. Spain, Portugal, and Italy aren't much better off, and waves of immigrants piling into Europe to escape even worse economic problems in other parts of the world are only adding to the burden. This affects key partners in world trade, with consequences for our economy.
If indications of economic trouble in China prove true — the country’s power consumption has plummeted, a sure-fire sign that things aren't rosy — things can only get more dangerous. No overseas consumption equals dropping exports, less tourism, and waves of economic refugees seeking asylum.
Of course, there will be survivors in any collapse. There’s always someone who saw what was coming and stockpiled the right resources in anticipation of a problem. As for the others — well, life is a cabaret, old chum. Right this way, your table's waiting. Unless it’s already been used for firewood.