Daily Times

An economic crash is inevitable. But the most crucial questions are: when; why; and what can be done to prevent or to mitigate a crash? Three earlier economic crashes illuminate a warning.

In October 1929, two huge sell offs on Wall Street set off the Great Depression. The causes-in part due to tariffs and the leverage of buying equities on “margin” of 10 cents on a dollar-were well known. What is less well known is that, statistically, America was economically worse off a decade later. It took World War II to repair the economic damage.

Fifty-eight years later in October 1987, another crash occurred on Wall Street catalyzed by the dot com bubble. And twenty-one years later in 2008, mortgage backed securities; even greater leverage; and the false assumption that housing prices could only escalate nearly produced financial and economic ruin. Fortunately, we escaped October’s perils at least this year.

In 1987 and 2008, fiscal and monetary tools to deal with those crises were in place. In the latter crisis, the government was able to approve about $800 billion in the Troubled Asset Relief Program (TARP) that kept financial institutions solvent. And those funds were repaid with interest.

For the foreseeable future, fiscal and monetary tools may be capable of firing only blanks. With nearly a trillion dollar budget deficit this year and even larger amounts of future red ink looming, spending our way clear of economic danger will be problematic. Interest rates in America are at record lows and negative in parts of Europe meaning it costs to invest in government bonds.

Of course the Federal Reserve could monetize. But this only compounds the fiscal shortfalls. And if interest rates were to rise substantially, how the government could service the $22 trillion and growing debt is by no means clear.

To paint an even bleaker picture, economic growth in advanced economies is not robust. China’s annual GDP growth has slowed to about 6%. This means global demand is down for goods, products and services so returning to better economic health in these circumstances is limited.

China’s Belt and Road is meant to increase access to markets and resources as well as influence. But that investment is not cheap for China. And if it fails to generate larger markets, what does China do?

The tariff wars generated by the Trump administration have hurt the U.S. economy. Last week’s Wall Street Journal’s editorial page made that point loudly and clearly. A trade agreement with China has yet to materialize. American tariffs just went into effect with Europe.

In a rational world, anticipating a possible economic meltdown and preparing for it should be among the highest priority of government. One solution is to stimulate global growth. That means abandoning dangerous tariff excesses

Concurrently, world politics are growing more and not less volatile. Brexit remains a cancer in Britain’s body politic that Prime Minister Boris Johnson’s quick wit will not cure. The December 12th Parliamentary elections raise further uncertainties. The possibility of a hung Parliament with no majority, a better outcome than a win by Labor’s Jeremy Corbyn with his radical socialist agenda, is not good either.

Lebanon, Syria and Iraq are in turmoil. Saudi Arabia’s initial public offering (IPO) for Aramco will not reduce the fragilities of that government or the vulnerability of oil infrastructure to attack. North Korea’s Kim Jung Un continues to test weapons and add to his nuclear stockpile. ISIS leader Abu Bakr al-Baghdadi elimination does not end that threat and reprisals are likely now that a successor has been named.

Last and far from least is the approval of the impeachment proceedings voted on party lines by the House of Representatives last week. In normal times, decorum might be in evidence. But open impeachment hearings will be a circus gone wrong on steroids. For those who may have forgotten the spectacle of the Benghazi hearings in which a number of Republicans including the current Secretary of State made fools of themselves, that will be, by comparison, a tame Sunday school meeting.

Witnesses will be impugned and maligned by Trump defenders as Ambassador Bill Taylor and Lt Col Alexander Vindman have been. Talk radio and cable news will manufacture conspiracy theories for and against the president that should be categorically rejected and yet will be taken as ground truth by some. And most of the nation and much of the world will be riveted by the show.

In a rational world, anticipating a possible economic meltdown and preparing for it should be among the highest priority of government. One solution is to stimulate global growth. That means abandoning dangerous tariff excesses. Another is stimulating greater capital investment at home and abroad

That will not happen. What will happen comes from the final minutes of the unsinkable Titanic. “And the band played on.”

The writer is UPI’s Arnaud de Borchgrave Distinguished Columnist and a Senior Advisor at the Atlantic Council