Global economic inflection

This morning I read Larry Elliott's summary of five key dates in the current economic crisis. His article highlighted 9 August 2007 as the day banks began pulling out of the US mortgage market, precipitating the crisis; 15 September 2008 as the day the world learned that big banks could fail when the US let Lehman Brothers go bankrupt; 2 April 2009 when the G20 met in London and agreed to expansionary policies; 9 May 2010 when the IMF and EU announced that they would bailout Greece; and 5 August 2011 when S&P downgraded US debt to AA+. Each of these dates, according to Elliott, mark a loss of stability and security in global financial markets, as the perceived security of investments in big banks and countries was undermined. I think he is right on, but in my opinion, the last date is likely to prove the most momentous in the long run.

I would compare it to the the unpegging of the US dollar in 1973. After the elimination of the gold standard, the American dollar stood as the fixed international currency upon which all others measured their value. However, in 1973 with oil shocks and recession impacting the US, this proved unsustainable and global currency markets became floating markets. However, the dollar did not lose its fundamental integrity because US debt was deemed the most secure of investments. It served as a fundamental source of security in the uncertain global market. As of 5 August 2011, however, this security is gone. There is no security in money any longer.

Will we now see a return to the most fundamental of fundamentals? Beyond gold, there are the tangible raw materials that support all production. We've seen the prices of these eminently(?) nonabstract goods rise rapidly in the last several years. I imagine they will continue to rise for some time. And this may be a boon for those concerned with the environment. Rising prices will encourage more sustainable practices. It is also likely to reduce economic growth, which will negatively impact the income of many workers, reducing demand. This economic contraction may be precisely what the world needs to redirect itself to a more sustainable path.