If historical events are a guide to the future we could should see the following pattern of events occurring either singly or together.
- The climatic conditions described earlier should make the Arctic cooler than normal to move the rain belts further south; at the same time oscillations in the Atlantic and Pacific will make it unusually dry in Northern China, Central Asia, North of the Sub-Continent and the Middle East. This has only made the latter area more violent.
- Water will become unusually scarce in important areas such as Northern China that could trigger incursions into well-watered regions such as Myanmar to the disadvantage of India; they could be accompanied by China’s allies such as Pakistan and North Korea. Against this grouping could be nations wishing to contain China and support India such as the United States and her allies.
- Water scarcities will force up the price of food – as has happened during other climatic ‘minima’. This is a highly unfortunate occurrence as it coincides with nations burdened with excessive debt and acute deflationary pressures. A previous period was the depression years of the 1930s, however then there was a secular decline in food and other commodity prices.
- The combination of acute deflation and rising food and commodity prices will most likely cause stagflation previously encountered in the early 1970s and very difficult to control.
- Acute deflationary pressures cause large budget deficits which present inexperienced managers/politicians, used to lavish spending on social spending in times of prosperity, with a huge dilemma: do they attempt to drastically cut expenditure and thereby deprive their people of the welfare state or do they raise taxation in an attempt to balance the books hoping the deflationary forces can be cured?
- In addition do politicians and central bankers attempt to reduce their debts either by inflating their way out of debt, by literally printing money, or do they allow acute deflation to take its course? Unfortunately the experience of the Great Inflation in Germany during the early 1920s have left their politicians determined never to repeat this episode; for others the previous acute deflationary forces will lead them to the inflationary route.
- The inflationary route will lead to a destruction of currencies and all those with financial assets such as those on fixed incomes or relying on pensions. In Germany it destroyed the middle classes who supported right-wing demagogues such as Adolf Hitler. However acute deflationary pressures lead to innovations that will drive the next upswing.
The next upswing can only take place once the previous distortions are unwound, but these actions must be crafted in such a way that leave economies and people ready to take advantage of the new opportunities. Among these measures will need to include:
- Finding alternatives to funding the welfare state that is now unaffordable as budget deficits can only be financed with the increasing cost of bonds. It was the direct result of governments attempting to take an increasing share of national output to support their voting constituencies at low productivities and efficiencies that eventually doomed these policies. It left the more efficient private sector to suffer increased taxation and regulation.
- Privatising health, education and welfare made possible by compulsory insurance programs.
- The extreme deflationary pressures forced governments, organisations and companies to reduce costs and size by sub-contracting an increasing number of routine operations made possible by the rising use of communication technology.
- This exercise greatly increases unemployment that forces the state to seek ways of re-training swathes of skills that became no longer relevant. There is also the urgent need to restore from state dependency a sub-class of people who had never known work. The state also needs to encourage graduates, who found their training longer relevant into trade and vocational skills so that they could earn a living.
- Historically deflationary environments generate many technological innovations that provide the basis for the next upswing; inflation is always destructive – particularly for the middle classes.
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