Does the 1871 interaction between Europe and America predict a great monetary blackout from which the world may need to borrow from the electric industry’s grid model to recover? 1871 suggests that because of some trigger, like perhaps Greece defaults on the world’s CDSs that are lined up like dominos stretching ten times around the world anxious for someone to ignorantly tilt the first one over, America will draw the rest of the world into depression.
In 1871, Europe drew America into a long depression from which America recovered first after four years, our longest down cycle, but we went on to prosper until our capitalist model once again created a housing and stock bubble that popped at the end of the 20’s. Europe, however, took 20 years to recover from the 1871 depression.
This time, it may be the entire world that goes down and stays down for the Greatest Depression. Unlike 1871, national economies may not be able to recover, if we attempt as a globally connected economic system to recover together. Somewhere in the world, a country will have to have a strong enough economic engine to restart an isolated region of the world in trade. That region will be the basis of a new money system. I expect that country, with its newfound infrastructure, commodity partners and internal demand, will be China.
East of the Mississippi River, all power plants in North America are connected to one electric grid. Amazingly, all their turbines spin in unison at 60 cycles per second give or take. As power needs come online, electricity is drawn from the grid affecting the spinning momentum of every turbine connected. One day in the fall of 1965, all of New York, New England, and Eastern Canada suddenly plunged into darkness when the entire electric grid system in the region quit. For over 24 hours, subways stopped, refrigerators thawed, and clocks remained still.
After six days of looking for the cause of the region’s blackout, the Federal Power Commission investigators found that one small faulty relay at the Sir Adam Beck Station no. 2 in Ontario, Canada (a fault of the size of a potential Greece default on a CDS obligation compared to the size of all CDS obligations if you will) caused a key transmission line to disconnect from the grid. This small failure triggered a domino effect of line overloads that quickly raced down the main trunk lines of the grid disconnecting more plants from cities and weakening the entire system with each subsequent break. As town after town went dark throughout the region, within 15 minutes the entire CANUSE area went into the dark ages.
Because so large a region was affected, the entire Northeastern grid had to disconnect into manageable grid pockets that could be restarted by individual power plants coming online. Then, gradually, pocket by pocket was re-synced to the rest of the grid after stabilizing individual pocket electricity demands. Without disconnecting into pockets, any attempt to feed the entire system would have sucked the life out of any plant trying to restart. Shortly after attempting to revive the grid, millions of homes demanding electricity would have absorbed any power it tried to create (similarly to how the whole world is sponging the comparatively minuscule effect of QE2).
If our monetary grid goes down, as it seems it may, any attempts to revive the world by barely functioning regional centers of commerce will draw them down similarly to sucking the life out of a single power plant on a massive electric grid. The monetary grid will have to disconnect. Individual financial and economic centers will have to attempt to revive pockets of commerce that function separately and little by little reconnect through safe trades supported by a new monetary system.
It took America four years under the then existing monetary system to recover after the start of the Long Depression of 1871. How long will it take China to recover with a new system? How soon will the Asian market adapt? How soon as a major commodity supplier to China will Australia reconnect to the Asian monetary grid?
They called the grid malfunction the Great Blackout of ’65. How will we restart the monetary grid after the Great Monetary Blackout of 2012? The world should get ahead of this very possible Great Monetary Blackout with a “Preparatory Bretton Woods” similarly to how the free world met even as WWII was being waged toward its inevitable military blackout.