The Credit Crisis and the Global Financial System

The Credit Crisis: Is this the start of a global financial meltdown? And if it is should we care?

The financial news is increasingly bad. The stock market is heading south and potential bank failures are lining up one after another. Is this 1929 redux? I do not think anyone really knows for certain, but the situation is pretty grim. Dan Sweeney over at Juice: Alternate Fuels World has this to say about the comparison between today's economic situation and that of 1929:

"And, interestingly, the economy then looked much stronger overall than it does now. Inflation was nearly nonexistent. The U.S. was the dominant manufacturing power and experiencing a heady growth in productivity as the burgeoning consumer culture of the time soaked up more and more manufacturing capacity. Consumer debt was low and individual savings were high. Furthermore, real incomes were ascending rapidly. The Federal budget was balanced, taxes were low, military spending was minimal, and the mood of the country on the eve of the troubles was ebullient. America was confident, prosperous, and generally pleased with itself. America was considered a very good place to do business.

Furthermore, the major American banks, headed by the almighty House of Morgan, had a history of behaving responsibly. The Morgans liked orderly markets, and they enforced order and market discipline ruthlessly for decades. J. P. Morgan would have destroyed any financier who even suggested something like securitized debt."

However, in my mind the question of whether the current economic crisis is the financial 'big one' or just the start of a nasty recession is beside the point. Any economy that has to grow continuously in order to be 'healthy' is fundamentally cancerous and will eventually self-destruct. In our economic system even though we are a hundred time richer than our great grandparents, if we are not getting still richer by 3% per year we are 'dying'. Anyone whose brain has not been anaesthetized by the propaganda system of capital markets could figure out in half a minutes's thought that any economic system organized on this principle must sooner or later run into a wall. "If it be not now, yet it will come".

If, on the other hand, we were not concerned with growth or with increasing the size of our pile toys, and instead concentrated on producing truly essential goods and services as efficiently as possible and on sharing this output equitably, then the potential exists for maintaining a good quality of life with a much lower consumption of resources. The problem is that in the developed world there is almost zero social intelligence available for achieving this kind of economic focus. Any suggestion of a system of economic production which departs from the capital market driven / every nuclear family for itself paradigm is met with derision and contempt as discredited socialist idiocy. This derision comes from both the liberal and the conservative ends of the political spectrum. Capital markets and middle class security gained through private financial investment are perfect and eternal forms. We to need reform and regulate the activities of private financiers, but the right of rich people to get richer without lifting a finger is the only possible basis of a free society.

There is a scene in George Orwell's novel 1984 in which the main character is is hooked up to some kind of electrical machine, and under its influence he concedes for a moment that 2+2 might be equal to five rather than to four. The torturer who achieves this triumph of mind control is an absolute amateur compared to propagandists for our current economic system. Ninety-nine people out of one hundred walk down the street every day believing that two minus two equals a million. The faster we consume resources the richer we get. Forever. World without end, amen.

In order for true social intelligence to be awakened with respect to creating an economic system with long term stability, it is necessary that the dream of middle class financial security based on private investment should be destroyed. Destruction must precede creation. In South America, where large segments of the population are thoroughly convinced that capital markets are not serving and are never going to serve their practical economic interests, the process of creation has begun. Our turn will come.

October 9, 2008