Annual Forecast 2009: Major Global Trends: Recession, Russia, The Jihadist War

Annual Forecast 2009: Major Global Trends: Recession, Russia, The Jihadist War

The world begins 2009 in its first synchronized recession since 1974. The proximate cause of the global slowdown was the collapse of the U.S. subprime housing market, which touched off a liquidity crisis as American financial institutions that had participated in subprime were forced to set aside cash to rebalance their asset sheets. As the recession deepened, loans far healthier than those originated in subprime also went bad, compounding the need to rebalance and draining more capital out of the system. This contributed to a credit crunch that continued into the New Year. This “simple” credit crisis is hardly the end of the story.

If money is akin to water, then a liquidity crisis is analogous to a very low tide that exposes a host of dangers lurking beneath the surface. The United States sports the fewest of these dangers. Its culture of change means that inefficiencies are regularly and ruthlessly purged from its system. For example, the mortgage brokers who made subprime possible are all already out of business, and most of the investment houses that gorged on securities linked to subprime — up to and including Lehman Brothers and Merrill Lynch — have either gone bankrupt or been acquired by more stable institutions. This obsession with efficiency and rapid evolution results in the constant uncovering of problems, but this very constancy means that the problems tend to be small. In the current case, subprime and its related issues struck more or less at once, but the United States will be able to recover from the problems without getting caught up in unrelated issues. This hardly means that the American recession is a fun time — for one thing, the liquidity crisis has triggered a painful broad-based credit rollback — but the United States is not facing any deeper structural issues.

You can Download the Article and a PDF report by going to the Stratfor Global Intelligence Site: Annual Forecast 2009: Major Global Trends: Recession, Russia, The Jihadist War