2010 Year of Disaster – Haiti Earthquake Guarantees It

I’ve been thinking for some time now that the year 2010 would be one of widespread disaster. However, until the earthquake that devastated Haiti struck I was thinking more in terms of continued financial distress, and perhaps catastrophe.

I still feel that the level of both private and public debt, especially sovereign debt, is more than excessive and practically guarantees that the governments of the world will be unable to control the deleveraging process,and that a deflationary spiral will follow. And by that I mean, that the tremendous increase in the issuance of money by the central bankers of the world has resulted in only a weak recovery, one that will likely collapse once the various central bankers are forced to reduce the issuance of fiat money. Certainly, the creation of additional vast amounts of government debt is not sustainable.

Should governments continue to create what they consider to be money out of thin air a highly deflationary environment may be transformed into an environment of hyperinflation. In short, the United States government, the UK government, the Greece government, and many others have boxed themselves in. I see no way out of the present predicament without a great deal of pain being experienced by citizens of these many countries. What ever they may do from here, the year 2010 has a high likelihood of being a disastrous year.

Now the absolutely catastrophic event of the January 11, 2010 earthquake in Haiti guarantees that 2010 will be known as the year of disaster. Early reports suggest that as many as 3 million people were involved and that perhaps as many as 100,000 have been killed in the Haiti earthquake. In addition to those killed outright, there must be several hundred thousand who have received injuries ranging from tragically severe to minor. Homes, businesses, and many lives have been destroyed.

The financial cost of clearing away the damage and of rebuilding Haiti to reasonable standards will be in the many billions, perhaps trillions, of dollars. As Haiti is the poorest nation in the Western Hemisphere, and is among the poorest nations on this earth, most of these funds will be coming from the international community, especially from the United States. At a time when the world and United States economies are in recession and capital has become more difficult to source the needs of Haiti, no matter how well deserved and indeed necessary for the well-being of the Haitian people, will be a severe drain on the resources of those already suffering economies.

While I am very sympathetic to the needs of those poor people in Haiti the fact is that resources that are deployed to Haiti will not be available to the United States and elsewhere. In a world that is short of investment capital and resources granting Haiti all of the assistance that it would need, not only for 2010, but for well beyond is going to be a challenge.

No doubt that the humanitarian disaster in Haiti is one that tugs at all of our hearts and generates an emotional response. However, when it comes to an allocation of increasingly scarce resources I really wonder if Haiti will receive anything near the help that it requires. The additional strain upon the finances of the United States government and of those good people in the United States who wish to help those in need will only add to the stress that is already apparent within the United States economy.

In the United States, another round of residential mortgage resets is about to get underway in earnest. In addition, a crisis is coming in the commercial real estate market. In spite of vigorous action taken by the government unemployment is still increasing. All the talk about green shoots and a real improvement in the real economy is mostly just that, just talk. The deleveraging and deflationary process underway in the US will likely take many more years to complete. The government seems to be stuck in a pretend and expand mode rather than to address long term structural core problems.

Indeed,it is difficult to see how the year 2010 can be anything but a year of disaster. Even without the forces of deflation still at work within the US economy the natural disaster of the earthquake in Haiti practically guarantees that 2010 will be a most unpleasant year, placing further distress upon the world economy. Yes, indeed, 2010 will likely go down as the year of multiple catastrophic disasters, both financial and natural.