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Economic contraction could provoke: confrontation between U.S. and China or an unraveling of the European Union.
As the global economy heads for its first annual decline since WWII and the biggest decline in trade in 80 years, more and more commentators are using the term depression to describe the vertiginous economic collapse.
The rate of the decline is astonishing. Nouriel Roubini, a.k.a. “Dr. Doom,” writes, “The scale and speed of synchronized global economic contraction is really unprecedented (at least since the Great Depression), with a free fall of GDP, income, consumption, industrial production, employment, exports, imports, residential investment and, more ominously, capital expenditures around the world.”
During the Great Depression the global economy fragmented, leading to the rise of competing power blocs. Eventually, fascist Germany and imperial Japan launched wars of conquest for new markets and lands because they lacked the territorial and trade outlets possessed by the United States, England and the Soviet Union.
This crisis is at an early stage, but the process of global fragmentation has already begun, which means a greater likelihood of interstate military conflict. With the fading of the “war on terror” as the central U.S. battleground, China will probably return as the pre-eminent peril in the minds of the U.S. economic and political elite.