Each of us has their own personal doomsday scenario related to the economic crisis: losing our jobs, losing our housing, being unable to pay for college or medical bills, bankruptcy. Collective scenarios have remained for the most part in the realm of indifferent-sounding statistics to everyone except macroeconomists: millions without work, millions without housing, and so on. Global scenarios have been even more conveniently vague, running along the lines of "things are bad and get worse before they get better." Terms like mass starvation, immigration for survival, social upheavals and world war rarely enter the ongoing discourse, but with a statement made by China's premier, maybe they will start to.
The shock value of the following historical parallel is less important than the immediate lessons that ought to be drawn from it. Late last week, China's premier announced that he is "worried" about the massive loans his country has made to the US over the past few decades, totaling about $1 trillion in US government foreign debt, nearly half of its total. Known for his diplomatically-worded, suggestive hints rather than blunt statements, Wen Jiabao's message may be translated: we are scared as hell, and if you don't give us reason to do otherwise, we will make sure we get our money back somehow. Here is where the imperfect parallel, though of great import, kicks in.
After WWI, during the Versailles Treaty negotiations of 1919, the victorious Allies (notably England, France and the US), blamed the War on Germany and forced it into reparation debts it could not feasibly repay, along with demilitarization requirements that crippled one of the key sectors in the country's economy. The democratic Weimar republic that emerged could not repay the debt and keep the domestic economy growing at the same time, which sowed the seeds of unrest that germinated into National Socialism when heightened exponentially during the Great Depression. Once elected, this party turned the country into a dictatorship and the rest, as the saying goes, is world history: desperate, its leaders annulled the debt and rearmed to boost the economy, in turn sowing the seeds of WWII.
In case the parallel isn't immediately clear, the US has been and continues to get itself into two holes of debt, the walls of which are caving before our eyes: one, on a consumer basis; the other, on a federal basis. Analysts have just started to announce scenarios in which people who can no longer pay their mortgages no longer being able to repay their other loans. Foreign policy wonks have not yet done so on the federal basis, but the corner into which the US is being pushed is eerily similar to that of post-WWI Germany. There is no shortage of American right-wing fanatics who are fortunately not in complete power for the time being, so by the parallel's terms we are still in the Weimar phase. Whether they become so as the recession turns into a depression (or not) is only one of many factors that could return past events as current ones, creating a future that may still be prevented.
