This economic slump will last another 20 years

A prophesy for London, New York or Berlin in 2012? Not exactly. It is a description of Vienna in 1873. In that year, in one of the great crashes of all time, the Austrian markets triggered collapses across Europe, swiftly followed by an equally spectacular collapse in New York. It was the start of what economic historians call The Long Depression: a prolonged period of volatility, unemployment and slumps that lasted an epic twenty-three years, only finally coming to an end in 1896.

I have been researching that episode for my new e-book ”The Long Depression: The Slump of 2008 to 2031.” The parallels with our own time are fascinating. German unification, and the adoption of the gold standard, had led to a boom in that country, and cheap German money had flooded Europe. Greece had just joined the Latin Currency Union, an ill-fated attempt to merge currencies across Europe. Banking had been deregulated, which was partly why so much German money was invested on the Vienna bourse. The telegraph created instant communications, allowing the European crash to spread to New York. The U.S. was industrializing, transforming the global economy as much as China has in the last decade.

All those factors came together to create an almighty bubble, followed by an even worse crash. The slump that followed — although it is hard to measure these things precisely — lasted more than two decades. If the slump that follows the crash of 2008 is anything like that one, then this one is going to last until 2031.