I am here at The Simple Kitchen having dinner with John Matthews at a small meetup I had not attended before, and it is quite nice. The focus of one speaker is B2B Social Media and using it massively in large enterprises.

A German visitor is taking about social media being called other things, such as knowledge management. And right now, John showed me an advanced copy of The Whuffie Factor by Tara Hunt that is coming out in April.

While painting today – it came to me that certain things about our current economic situation are starting to gel for me – and look, this is only my opinion, and I could be wrong.  I’m seeing Depression 2.0, which might be jumping the gun, but then again, look at the news story about Japan’s Economy Plunges at Fastest Pace Since ’74

“…The fourth-quarter results were Japan’s worst quarterly drop since its economy contracted at an annual pace of 13.1 percent in the first three months of 1974.

The sharp downturn is exposing the vulnerability of Japan’s export-driven economic recovery. The dismal figures also place Japan firmly among the worst-hit in the global crisis, dwarfing economic declines in the United States and Europe.”

The New York Times also had a story about Job Losses Pose a Threat to Stability Worldwide where it was mentioned that …

“….Worldwide job losses from the recession that started in the United States in December 2007 could hit a staggering 50 million by the end of 2009, according to the International Labor Organization, a United Nations agency. The slowdown has already claimed 3.6 million American jobs.”

Doing some quick math and tying back to my post on Scoring Conversational Media using Comscore I gave the link to a spreadsheet where the collected GDP of each country is estimated (see “Data” tab) using Wikipedia and other public sources such as the World Bank.

In short, 50 Million workers losing their jobs equates, to about 2 Trillion dollars less spending (based on an average of 20,000 USD per worker per year – averaged across the globe).   Added to the rest of the downturn, and it’s not hard to see choppy waters ahead.

Paul Krugman says it better than me in his post on  Decade at Bernie’s

…. The bottom line is that there has been basically no wealth creation at all since the turn of the millennium: the net worth of the average American household, adjusted for inflation, is lower now than it was in 2001.

At one level this should come as no surprise. For most of the last decade America was a nation of borrowers and spenders, not savers. The personal savings rate dropped from 9 percent in the 1980s to 5 percent in the 1990s, to just 0.6 percent from 2005 to 2007, and household debt grew much faster than personal income. Why should we have expected our net worth to go up?

Yet until very recently Americans believed they were getting richer, because they received statements saying that their houses and stock portfolios were appreciating in value faster than their debts were increasing. And if the belief of many Americans that they could count on capital gains forever sounds naïve, it’s worth remembering just how many influential voices — notably in right-leaning publications like The Wall Street Journal, Forbes and National Review — promoted that belief, and ridiculed those who worried about low savings and high levels of debt.

At the end of his post Paul Krugman mentions the only thing that pulled the world out of the Last Depression was World War II

…. If you want to see what it really takes to boot the economy out of a debt trap, look at the large public works program, otherwise known as World War II, that ended the Great Depression. The war didn’t just lead to full employment. It also led to rapidly rising incomes and substantial inflation, all with virtually no borrowing by the private sector. By 1945 the government’s debt had soared, but the ratio of private-sector debt to G.D.P. was only half what it had been in 1940. And this low level of private debt helped set the stage for the great postwar boom.

Since nothing like that is on the table, or seems likely to get on the table any time soon, it will take years for families and firms to work off the debt they ran up so blithely. The odds are that the legacy of our time of illusion — our decade at Bernie’s — will be a long, painful slump.

In a blog post earlier today Krugman adds an insight he did not present in the OP-ED I quoted above – the post is titled Debt in wartime

….. One way to look at our current predicament is through the lens of Irving Fisher’s theory of debt deflation: as everyone tries to work off excessive debt, the combination of a contracting economy and falling prices puts everyone deeper in the hole. But how do you get out? I’ve drawn the above chart using debt data from Historical Statistics of the United States Millennial; it shows the debt-deflation spiral of 1929-1933, and the partial recovery of the New Deal years.

It also shows something I haven’t seen emphasized: the role of WWII in cleaning up private-sector balance sheets. During the war years there was very little private borrowing, thanks at least in part to wartime restrictions; meanwhile there was both strong economic growth and a lot of inflation. The result by the war’s end was a very low private debt level relative to GDP.

How big a role did these improved balance sheets play in the fact that the postwar economy didn’t fall back into depression?

I realize not everyone agrees with Paul Krugman – and that he has no official role in the Government bailout – but he’s very influential in the debate, none the less, and has been just about the only one who can explain the complexity of what’s happened to us, to the World, in layman’s terms, though Robert Reich has tried to do the same thing, over at TPM (Talking Point Memo) but doesn’t come up with anything different than Krugman and his posts are a lot longer.

However, it also occurred to me, while the problems that brought the financial system down, were long in the making (not everything can be blamed on W. and the Republicans) much  of it can, especially, the preoccupation with Iraq and deregulation of the housing market.

I’m trying not to say it – don’t really want to but it’s almost hard not to miss the obvious - the last 8 years set the stage for the fall of Western Economic System - the very system Osama Bin Laden tried to topple with 9/11, G.W. Bush’s policies managed to accomplish - again, he didn’t do it alone – but had the largest share of responsibility, in my eyes.

Sure, we spent too much, almost all of us did, and saved too little (almost all of us did that too) – but the US Government was there to encourage just THAT, and crippling any oversight that might get in the way, including oversight of Wall Street.

Paul Krugman thinks Alan Greenspan bears the largest blame True, but i think an even larger reason for this mess we’re in is the focus on Iraq and … hunting Osama in the wrong place and in the wrong way, along with unfolding of the Sub Primes caused this mess to unfold as it did -and I believe it all points to 2012; how, I’m not sure.

Btw, here’s the work (which may not be done yet) that I worked on as I thought about the above

By the way, if you want to read another insight about Paul Krugman – take a look at More from Paul Krugman on the Economy over at Harvard Business Review Editors Blog where he gives what it would take to bring the United States out of Recession – and I know this a vision not everyone agrees with – but bear in mind, Krugman has been right almost 100% of the time, when it comes to Economics.

The rest of Krugman’s video clips at Harvard are here.

At the end of the day, hopefully, before 2012 – just about everything that Paul Krugman said in the clip above, I believe, will have to be done; sooner is better – unfortunately – it looks like we’ll probably end up trying to avoid doing much of this – based on the first month of Obama’s administration.

But … I think, by 2010, hopefully before, it will be clear there’s no other choice than the above, and it has to be all out application along the lines of what Krugman is saying, not half way measures. At least, by that time, it’ll be painfully obvious, there won’t be any alternatives – and that will help get any needed legislation, passed.

Let’s hope it doesn’t end up taking till 2012 to find this out – what we already know, “in our Gut”, so to speak. We know this is what’s needed – let’s just do it, now – all the way.

While walking to work this morning I thought about news of the last day; that we’ve been in a Recession since December 2007 (one year!), that several of my friends have already lost their jobs, that rents and other fixed expenses continue to rise, but income is falling and the economy,as a whole, is moving toward Deflation.

My mind races to paint a picture of what we’re likely to see next year and what I came up with, is this.

Economy continues to go deeper into recession as Barack Obama takes office in January 2009; the first stimulus package is passed by early Feb and the first money for stimulus flows out of the Tresuary in late April 2009. Unfortunately, the stimulus is too late to help the unemployed and nothing much happens.

A second stimulus happens in late 2009, but 2009 is already a wash out, and it’s not till spring of 2010 that employment starts to grow again, and not till 2011, before it recovers to a pre recession level. I think a third stimulus will happen in early 2010, and that will seal the recovery.

In all, about 2 Trillion Dollars will be spent over the next two years, trying to revive the economy, and that had nothing to do with stimulus going on in other countries at the same time.

I expect the usual challenges that everyone is talking about, but the problem is going to be, how to survive through 2010.

And the problem is that there’s going to be a lot of difficulty around “uncertainity” in when the economy will recover.

Maybe, the best thing Obama can do, at this point, for the economy is bring a sense of certainity back to the markets and to provide as many alternative energy jobs as he can create.

Of course, this is all my own views (no one else’s) and I may be all wet.

We’ll see.

Btw, this post was written on my iPhone, expect the usual spelling and grammar errors.