A worldwide recession now appears inevitable. Economic news from the European Union and former Soviet bloc nations does little to inspire confidence. Poland, Latvia and Hungary have been hard hit. On the other side of the world, in Asia, the fate of the furniture market is a case study of what can go wrong when a sector of the economy in a distant place collapses, in this case, the U.S. housing market. Demand for furniture has dropped by more than 25 percent and several major American outlets have closed their doors.

No region of the world is immune form the global financial crisis. Some will weather it better than others, especially in the West, Japan and China, where the currencies remain strong or more precisely, have the backing of stable governments. But elsewhere, regions dependent on foreign investment and those that sit on shaky political ground could easily sink into a depression. Mass unemployment will have dire consequences especially in those nations where the populations are expanding geometrically. 

What the world is facing is without precedent. Former Federal Reserve Chief Alan Greenspan could not have better described the nature of the economic crisis when he said “a once in a 100-year event.”  In the collapse of Lehman Brothers, we learned overnight that a 159-year-old titan on Wall Street that weathered panics, depression, and world wars can disappear along with Bear Stearns, Merrill-Lynch,  many other banks and corporations, numerous chain stores in the malls that dot our landscape, and Oldsmobile, which was killed off after a 100-year run.

But we have learned something else in this on-going crisis and herein may rest part of the solution. It is with some irony that the nation that set this into motion is still viewed by the rest of the world as a safe haven for the storage of cash in treasury bills and notes and this in turn has caused the rise of the value of the dollar. The United States is still seen as the most stable nation on earth. With the election behind us, all eyes will turn to Washington’s actions and it is becoming very clear that Washington will not permit national symbols like GM or Ford to go under. If it did, it would be a confidence- shattering event far greater than Lehman’s collapse. We can also predict— with some confidence—that a massive infusion of cash will be put into public works in an effort to rekindle the economic fire, a long overdue rebuilding of our infrastructure: roads, bridges, dams, levees along the great rivers, new power plants, and a dated electric grid to serve a growing population.

Just as the housing bubble consumed much of what we produce and import, the modernization of the nation will also consume much of the same and much more. It will also produce jobs that will be in great demand as unemployment rises. To fuel our own economic needs, Congress may mandate a temporary demand that a very high percentage of what is used to rebuild America be made in America. Once we return to a pre-recessionary level, this would be lifted. In time, the rise of the American tide will lift all ships. In other words, our recovery is a prerequisite beginning of the end of the world slump.

It is noteworthy that few economists or politicians have stepped forward and said when this recession will end. On the contrary, they agree on one thing: it will get worse before it gets better. We also know that a new administration will take a multi-faceted approach but in the end, stick with one major game plan. When faced with a major downturn after World War II, Harry Truman received contradictory advice from the experts. “On the one hand… but on the other…” he was told. He allegedly responded, “I need a one-armed economist.” In time, the situation righted itself. It will again, but given the nature of our capitalist system, another generation will be faced with a different type of bubble. We can only hope regulations are put into place now that will prevent another October 1929 panic, the likes of which we have never seen. The Great Depression opened the door for economic nationalism, strident controls of immigration, the coming to power of Adolf Hitler, the collapse of nearly all of the European democracies created after World War I, rearmament, and World War II, which nearly shattered civilization as we know it. Small wonder the word “depression” is spoken in whispers.

-- Sander A. Diamond, professor of history