The End of the World Is Just the Beginning: Mapping the Collapse of Globalization

With the US’s abandonment of the gold standard in 1971, the rule that money exists in limited quantities ended. In a world of fiat currencies, the Asian model made finance a tool of the state. Japan had a history of forgiving debt to ensure political stability. China took the model to an extreme, spending exorbitantly to pacify its people and maintain unity. While other Asian countries reformed in response to the 1997-1998 Asian financial crisis, China was unable to do so. As a result, it experienced inflation, debt, and overproduction. Europeans, with very different traditions of finance, acted on the belief that every country in Europe should be able to borrow on terms previously offered to the most scrupulous countries. This practice resulted in Greece’s “financial calamity.” COVID increased debts, which will never be repaid. In the US, easy terms of credit for mortgages led to the 2007-2009 financial crisis. Mortgage-backed securities, considered safe, allowed investors to drive down financing costs and encouraged banks to become lax in awarding mortgages. The shale fracking industry allowed firms to obtain financing despite their inability to pay back loans for earlier drilling sites. In the age of fiat currencies, capital is limitless.

Fiat currencies enable economies “to paper over their problems with cash” (195). All countries do this, and none print currency at the same rates. Compared to Europe and especially China, the US is not as bad. After the 2007-2009 financial crisis, American banks became healthy. Housing inventory is low in 2022, and the number of shale operators dropped by two-thirds from 2016 to 2022. However, Europe has made no such reform, and China has made its currency “a store of value for no one” (197).

Until mid-Industrial times, age groups “existed in a rough balance” (199). Smaller families and aging populations resulted from industrialization. Fewer people were necessary to economic survival. In addition, people’s lifespans increased and child mortality decreased. The later a country began industrializing, the faster it urbanized and decreased its birth rate.

From 1990 through 2020, a large group of the population was in their late forties through early sixties. This age group generates the most capital and creates an oversupply of mature workers. When this group retires, investments will decline, and financing costs will increase. Economic growth slows considerably as the price of credit increases. This large group will be paying far less income tax but will instead draw benefits from the taxpayer reserves of the government. This demographic shift in age will strain government reserves and even cause some governments to “go broke” (203).

Fallout from the issuance of fiat currencies and credit has been severe in several countries. After the 2007-2009 recession, the US experienced a doubling of credit and a 5% economic drop. Greece went into economic freefall after expanding its credit by a factor of seven in as many years. Hungary expanded its credit by a factor of eight, leading to financial chaos and the end of its democracy. Germany avoided financial collapse but engendered resentment for doing so. The British opted to leave the European Union and experienced detrimental consequences. The text identifies several countries subject to financial collapse and political fallout (including Australia, India, and Saudi Arabia) and singles out Russia and China as on the verge of credit collapse, with major repercussions for governance.

Because of the failures of fiat currencies and the demographic crunch, the days of cheap financing are ending. However, the impact from that development will vary significantly in nature and application by country. Geographies of success will matter again, as they did before globalization. Technological growth requires a mass market, skilled labor, and much financing. During de-globalization, the world would meet none of these requirements, leaving all but very rich countries at a technological disadvantage.

Capital flight would result, with money located to safer places. The US has already benefited from this phenomenon. In time, countries would assert capital controls to prevent this flight, especially in those countries, such as Russia and China, most at risk because of aging populations. Inflation would be commonplace as costs increase, but so would deflation, when declining demand creates an oversupply of unwanted goods. The mix would vary by location. As prices increase and other economic problems mount, populism would rise, threatening stable governments. The US is better positioned than other places because the Millennial generation will mature in the 2040s, increasing the capital supply. The extreme inequality in the US will help as well. The very wealthy retirees, or the one percent that “controls upwards of half of all financial assets” (216), will not act as normal retirees who have only low-risk investments. The super-rich will still invest in stocks and will transfer wealth to the next generation. Nonetheless, even in the US, the author questions whether capitalism can continue without economic growth.