6 Steps to Doomsday: A Great Depression II Scenario

I have to get this out of my system. BP’s interview with historians Michael Allen and Larry Schweikart helped assuage my fears some. Facts aside, I still entertain terrible daydreams of the Great Depression II emerging out of our mess of collapsed banks like some undead bayou creature.

After reading Glenn Beck’s CNN article (based on information from New York economist Nouriel Roubini), I came up with a step-by-step descent into Depression II.

I’m not advocating this as reality. I have a lot of hope that it won’t get to Step 6. But by expressing my scenario into a post, I hope to gain a more neutral, involved perspective on where we are now, untainted by sharp-edged visions of America the Starving.

The first five steps are informed by Beck’s article. The last, Step 6, is my own conjecture:

1. Housing prices collapse.
Massive amounts of people foreclose, triggering massive bank write-downs.

2. Americans, out of money, default on their mortgages, car loans, student loans, credit card loans, etc. Bond insurance companies’ credit ratings nosedive, resulting in even bigger bank write-downs.

3. Banks fall like dominoes under the pressure of their write-downs. *We’re here.*

4. Hedge funds fail; the market crashes.

5. Banks hoard money, making it nearly impossible to get credit. Want a new car? A new house? A new credit card? Forget about it. Banks don’t trust you; you don’t trust them. Without access to credit, you can’t get that loan to start up the new business you’ve been planning. You can’t go back to school. You can’t get that new Toyota Hybrid. You and your family can’t upgrade to a larger home. You and the bank are now both hoarding money, and there’s no exchange process. The economy relies on exchanges, or transactions; without them, it slows dramatically.

6. This is the doomsday scenario people rant about. To me, it looks something like a developing country (I’ve visited many), but angrier. Here’s the scenario:

Structural Challenges

Grocery stores run out of food. Bridges collapse and don’t get fixed. Natural disasters will continue to scour the continent, but, due to lack of funds, some destroyed areas will simply be left collapsed. Things like air travel become prohibitively expensive—no more visiting the family during the holidays.

People squat in abandoned, foreclosed houses. Young women and men—prime workforce material—wander around aimlessly in search of work, any work. Homeless families and tent cities become more visible.

Social Adaptations
Lucky enough to have regular work, but unable to afford gas, you start hiring out your car as a taxi, picking up people on the way to work, negotiating fares in advance. If you’re in a larger city, you may see outbursts of violence, such as riots. If you live in a tight-knit community, you’ll join local incentives, such as community gardens and car-shares; perhaps even a local currency.

Scams and theft will become more commonplace. The usual industries—alcohol and prostitution—will burgeon. You may see increasing numbers of foreigners buying up vacation homes and regular properties in your community.

Socially, things will be unstable. Many people, feeling angry and disenfranchised, will lash out at other groups or individuals. More stable people will become increasingly concerned about safety, perhaps hiring low-wage security guards for their buildings or refusing to go out after certain hours.

Business Breakthroughs

Entrepreneurism and microbusinesses will thrive. Unemployed people will turn towards their hobbies—gardening, knitting, Web skills, handyman work—to make a buck, rendering associated goods and services cheaper.

Online and offline swap markets will boast screaming deals as people offload their extra belongings for money. Barter and trade networks will thrive. Skilled creative people will come up with incredible inventions growing out of the need and scarcity around them. We could see some breakthroughs music and art.


Government will take on a strong, visible role, either as a nanny or a strong-armed dictatorial force. Citizens must keep a close eye on government moves NOW to avoid an even more complicated future.


It sounds glum. But it isn’t, not yet. We need to get the credit machine oiled up again. Loss of credit is correlated with loss of confidence. Government inaction, indecision about the bailout bill, drains banks of crucial confidence. When banks refuse to lend to us, we lose confidence. Only then does the economy goes to sleep.

We’re still teetering on the edge of this. Contact your Congress and Senate people. Vote. Adapt your business to serve people better in a recession. Start a new one. Tell your employees or boss what needs to change. Be a good business advocate and a citizen. You still count. Make sure people around you know that.

Feels good to get that off my chest. I want accept the possibility of doomsday, then do everything in my power to help circumvent it, both on a personal and communal level.

What does your doomsday look like? What are you going to do about it?

  • Alex

    While don’t believe that another depression is not impossible. This scenario is because the scenario here would require the Fed to behave like they did in the 30’s by reducing the money supply and that is just not going to happen.

  • wa mu

    This sounds like Depression Lite the official snack food of the Bush Administration.

    For a lot of folks in America they’ve been at step 6 for 7 or 8 years or even longer. I grew up in a steeltown that was abandoned by the rest of the country about 1975, if you want to see the future go to Youngstown Ohio. It’s been like that for over a quarter of a century, read the police blotter. That is the future. Very wealthy and very poor and very few in between. The middle class has been gutted in this country, the policies and lack of regulation and enforcement have caused this. This is not a natural disaster, this is both man made and deliberate.

    Buy canned goods, and it probably wouldn’t hurt to stock up on ammo, even if you don’t own a gun, it might make a good barter item.

  • Christ Drea I want to jump in front of the A-train! However, good points. I have no faith in anyone right now. At least not until that idiot gets out of 1600 Pennsylvania Ave.

    Call me sardonic, but I want to be able to blame someone so I can shred him. I want people to be friggin’ accountable! I want heads on sticks. Now, I realize that won’t get me anywhere, but it will fell good!

  • poor

    Based on #5, it sounds like the economy is a huge con game!

    p.s. if Robert jumps in front of the A-train, I won’t be able to get to the Port Authority bus terminal.

  • Ten Simple Tips for Surviving the Great Depression:
    1. Ignore the media. The speculation is a downer.
    2. Become a spendthrift. Buy wisely.
    3. Buy American.
    4. Support your local economy.
    5. Pay off your credit card debt.
    6. Be thankful for what you have.
    7. Be thankful for what you don’t have.
    8. Create. Innovation is what has made America great.
    9. Re-create. Build a better mousetrap.
    10. Keep positive. Depression can’t survive in a positive environment.

    Al Ain University of Science & Technology,
    Abu Dhabi, UAE

    This is the Great Depression II
    The present crisis that we are now facing can rightly be called as the Great Depression II of 2009 and it is several times severe than the Great Depression I of 1929. It is not mere a financial melting down; not mere a credit crisis; nor even a recession that disappears within two years. The dimensions and intensities of the Great Depression II are quite different from the early one. Who had brought out the present crisis and where had gone all the money or credits that were available before four or months, are the two questions that the general public is asking.
    Who has brought it?
    Almost all banks had been lending five to ten times more than what they had, by diluting the principle of 80/20 in the age of electronic cash and e-banking or e-commerce, that ultimately resulted in the credit crisis and crushing of the stock markets. Further, the heavy expenditure on armaments incurred by almost all nations and terrorist organizations had aggravated the crisis. By siphoning off billions from the accounts of the big corporations and also individuals, especially the elderly, the terrorist organizations made money for their operations. Governments borrowed heavily for defense expenditures. Unfair business practices and high level frauds had made every thing very complex.
    The Basic Reason
    After high and fast growth and booms now it is the turn of gloom, recession and depression. There is a limit for speed and growth. Development based on aggressive marketing, consumerism and globalization, ignoring the vast majority, cannot go on very long. Recessions and depressions are self correcting mechanism for the maladies of a society that strives for unlimited growth at a high speed. No human being or economy can run fast for very long. Information Technology and the Modern Management Techniques do not have any answer for the present crisis. These are the basic lessons that the Great Depression II teaches us.
    After a period of fast life, everybody has to go back to slow life. In the fast life, nobody has any time even to dream, imagine, think and learn. Knowledge and scholarship are pushed back for data and information; learning is reduced into an exercise for scoring of higher grades or marks; reading is neglected for the sake of scanning and extracting from the internet. Critical thinking and creative ideas or works are denigrated; superfluous analysis and mimicries are dominated in the place of sound theories and strategies. Men of ideas, scholarship, theories and strategies and multi-disciplinary backgrounds could alone solve the present crisis.
    In the fast life, even young men and women could not find time for romance and love making other than fast sex, that too without the botheration of child birth. The greatest causality is the family life, the cordial relationships between wife and husband and between parents and children. Even in religion, faith in God and love of human beings are pushed back by the harsh and rigorous practices and rigid interpretations, without any element of mercy and forgiveness.
    The Missing Link
    The value and importance of rural life, especially agriculture are withered away for the over projection of the glory of urban life and the service sector. But cities could not survive without farming and rural sector. Urban sector is depending too much on the rural sector rather than the villages relaying on cities, because most of the villages could be easily made self sufficient with regard to the basic necessities of life. Service sector of an economy could not flourish when its agricultural or industrial sectors are weak.
    How long it will be?
    The Great Depression II, now in its first phase, would continue for a minimum period of five years, sometimes ten years, in a more rigorous way. It brings about a crisis of faith in technology, money power, managerial talents and the entire banking and insurance sector, besides the money and stock and share markets and the credit system The highly acclaimed economic and business wisdoms and formulas are crushed and shattered. A sense of helplessness and even meaninglessness are to dominate in the thinking and behavior of the common people. Everybody, including the top billionaires and technocrats and the most trusted business houses, has become vulnerable. A good many of them, especially the youth, are in the verge of a suicide or mental brake down.
    We have to accept that the age of consumerism and the dominance of the service sector over the agriculture and industrial sectors are over. The age of supermarkets and malls besides the over-salaried CEOs and their big bonus are over. So also is the case with cities over the villages. The inter-sector imbalances with regard to growth and wage or salary structures and the striking disparities with regard to the standard of living of the people of the various sectors are the basic reason for the present global crisis. The growth of defense industries is possible only jeopardizing all the other industries and sectors.
    The only agency to deal with The Great Depression II with long term strategies and policies is the Governments that must be strong and duly functioning. No single country or government could tackle it; instead, global efforts and strategies are required. The UN must be made strong enough to act globally for dealing with the Great Depression II, chalking out the area of international cooperation. It must act on a war footing; other wise, over 80 per cent of the jobs would be wiped out; and billions would die out of hunger, epidemics and civil wars.
    Ineffectiveness of the Keynesian Strategies
    The Great Depression II could not be dealt with a set of conventional monetary and fiscal policies as have been prescribed by the Keynesians or the Post-Keynesians that have reached the saturation level. There is a limit for technology and management techniques, including marketing in this regard. Now what are required are a massive behavioral change and a new way of life, freeing from consumerism and fast life style on the part of the society as a whole. Greater cooperation and mutual support between nations, even at global level, are the only means for survival and growth. All nations must cut their defense expenditure to the extent of seventy or eighty per cent and a joint global strategy against terrorism must be launched as no nation can be made free from it.
    Time for Re-creation
    This Great Depression II brings life slow. It is the time for learning and acquiring knowledge, creative works and above all reinventing the basic human, family and religious values coupled with humanism, spirituality and cooperation. It is the time for baby booms. It is the time for the re-birth of rural and farming sector. People find new meaning in agriculture and country life. Now, it is unproductive to make heavy investments in cities and high technologies and the service sector. Religions have to play a very important positive role in these regards, even by developing mutual respect and cooperation rather than revelry and aggressive fundamentalism.
    Counter Strategies
    The best strategy to deal with The Great Depression II is to invest heavily on the rural and farming sector and develop their infrastructures along with making heavy investment in education, especially basic science and engineering, social sciences and humanities. Learning must be encouraged by developing libraries and encouraging the overall reading habits of the people. Cost effective Open Learning– Open Schools and Open Universities or Virtual Universities, even in Science and Technology must be set up or developed to make education reach in the hands of millions.
    These strategies are equally applicable to both the East and West, developing and developed nations, including GCC countries. Nobody, including the American President, Barrack Obama, has a magic stick to deal with The Great Depression II, other than following the above noted long term strategies and policies. It is high time to realize that no affluent nation can survive by keeping a large number of nations or people poor and depressed and selling arms and defense equipments and following consumerism. It is high time to realize that terrorism and religious fundamentalism add miseries and sufferings of the humanity and bring hell on earth.
    From Dooms to Booms
    When implementing the above policies and strategies, people will come out with innovative ideas, plans and strategies and to apply them in agriculture, industry and the service sector within three years. All these will push up economic activities, including global trade and business. International cooperation between developed and developing or underdeveloped societies and nations would emerge so as to ensure a minimum development and standard of living for all. The people will dictate their terms of peace and co-existence over the Governments and the Terrorist Organizations, including aggressive and fundamentalist religions.

    About the Author

    Dr. Raju M. Mathew is a strategist and theoretician with strong background in Economics, Cybernetics, Education and Information Science & Technology with long years of experience in teaching and research, including directing a major research project and supervising ten doctoral works. With the publication of his book, ‘Library Resource Allocation’ from England in 1981 he has been recognized as a theoretician and strategic thinker, that made the Netherlands based FID to nominate him as one among the International Committee on Research on Theoretical Basis of Information Science in 1983. He formulated two basic theories of knowledge consumption and knowledge production that got published jointly by the FID and the USSR Academy of Sciences in 1985 in their work, ‘Theoretical Problems of Informatics’.. Now they are known in his name and become the field for doctoral research.

    In 2005, Prof. Mathew proposed Knowmatics and Knowledge Technology in the place of Computer Science and Information Technology for processing and handling knowledge and also set the International Forum for Knowmatics & Knowledge Technology (IFKT); http://www.ifkt.net. Dr. Mathew on 25th Oct. 2008 in his letter addressed to The National, forecasted the fall of oil price to the extent of $ 40 per barrel within a period of two months when the price was $78. In his web site: http://www.mathewrm.com , in Sept 2000, when IT was in boom, he successfully predicted the Great Crisis of IT within a period of five months and in April 2001, his was the only site on IT crisis. Dr. Raju M. Mathew can be contacted by mobile: 0097155-7423450 and e-mail: rajoocyber@yahoo.com.