A version of this article appeared in Syntagma recently.

Gold rushes come and go in the world’s innovation capital, California. But when they go … they really go.

The City of Vallejo in California has filed for Chapter 9 bankruptcy, making history it seems. Half Moon Bay, home to some internet digerati, may well be next. According to John Moorlach, Orange County board chief, “This is the tip of the iceberg: everybody is going to line up for Chapter 9 in California.”

What can it mean to people on the ground when their city goes belly up? What of their assets, houses etcetera? It will be interesting to watch this pan out.

According to Goldman Sachs and Lehman Brothers American house prices are likely to fall 25pc from peak to trough. With between 10m and 12m households in negative equity already, there’s still a way to go.

Shares across the developed world are set for big falls too. Albert Edward Société Générale’s global strategist says, “Nowhere and nothing will be immune. We are on the cusp of an equity meltdown that will slash and shred portfolios. We see a global recession unfolding. Liquidity will drain away and crush the twin emerging market and commodity bubbles. The recent hope that ‘the worst might be over’ is truly staggering. Profits are disintegrating.”

Ambrose Evans Pritchard of the Telegraph (UK) — ever the Cassandra — says pointedly, “Britain, Europe, Japan, and China will go down before America comes back up. This is turning into a synchronised bust, after all. The Global Slump of 2008-09 is under way.”

The Bank of England and the European Central Bank are still stubbornly refusing to cut rates because of inflation fears, which will be the least of our miseries in the next two years and should abate soon as global demand falls off the much-imagined cliff.

It’s probably true that Ben Bernanke’s Federal Reserve has saved the U.S. and other countries from another Great Depression. But nothing can stop a slump now because it’s already happening.

In the U.S. and Britain a recession is defined as when the data records two consecutive quarters of negative growth. So we can only call it a recession when we’re six months in — and then it’s usually already over.

It’s said that this definition was deliberately put about by advisers to President Johnson in the 1960s to allow him wriggle room when events were not neat and symmetrical — which is the the most likely case.

For example, if within a six-month period one month bucks the trend and shows a slight positive number, it can’t be a recession no matter how bad conditions are across the economy. And the quarters down have to synch with the “official” quarters from January through December. Different combinations of months don’t count apparently, even though they could skew the result.

However, we know that because of population and productivity growth, the U.S. needs to expand by about 2.5pc just to keep unemployment from rising.

We should forget the official definition because even flat growth is negative for the economy and almost everybody in it, and that means less than 2.5pc.

Everything points to conditions being much worse than that right now.

We could just as easily define it as six months of high gold prices — just like the present.

Ronald Reagan had a stab with, “A recession is when your neighbor loses his job.”

Ominously he added, “A depression is when you lose your’s.”

JP Morgan, America’s third biggest bank, has been hit again by the subprime crisis.

This time the hit is more than $4.6 billion (£2.6bn), taking its credit crunch losses to around $15 billion since August — an unparalleled rate of attrition.

Meanwhile, the bank’s profits tumbled by 51pc to $2.5 billion in Q1, eased slightly by a winning bet on the flotation of card giant, Visa.

Since the Fed is backing JP’s rescue of Bear with $30 billion, this will send a shudder down the spine of Ben Bernanke, the Federal Reserve’s Chairman.

Signs that the crunch is biting even deeper are coming across the board. House building in the U.S. is now at its lowest level for 17 years. JP Morgan suffered a 20pc reversal in its credit card division, while its retail banking arm slipped by over a billion dollars.

JP’s chief, Jamie Dimon, said, “The Economic environment will continue to be weak and the capital markets will remain under stress.”

With Britain beginning to feel the strain, along with some European economies, it’s now clear that the worst is still to come.

A version of this article has appeared in Moneyizor — Money, The Big Picture

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