VHeadline commentarist, University of Los Andres (ULA) political sciences professor, Dr. Franz J. T. Lee writes: Is the global capitalist system breaking down? In times of severe crisis, millennia ago, Heracleitus of Ephesus (ca. 540-ca. 475 BC) gave us sapient advice for praxical understanding: Everything flows; dialectics, contradiction, is good for us; and War is the Father of All Things. Many centuries later, at the advent of bourgeois capitalist society, Hegel, the Prussian State philosopher, clarified the dialectical limits of any planetary reality, of any closed system: Everything that comes into existence merits to pass away!
Three years ago, in January 2006, we were discussing these issues, inter alia, whether after the collapse of the Soviet Union soon the Big Crash of the United States of America would follow. Now that this scientific anticipation more and more is becoming a global reality, many serious questions arise which we have to debate in the corresponding academic and political environment.
We know that the Roman Empire fell, so did the British Empire, also the 'Third Reich' and so also the very American 'Empire' will disappear. Capitalism cannot live forever, it is not an eternal, absolute God. Its laws of existence Marxists have identified and along these lines violently it is giving up the ghost. At the moment we have to clarify the following, for the sake of workers' class struggles, of socialism, of global emancipation.
* Is this a simple 'financial crisis' caused by a few criminal bankers?
* Are we experiencing a complex 'world economic crisis'? Eventually will we solve all problems and capitalism will live happily after?
* At last, are we facing the end of the American Empire, that is, the total collapse of global capitalism?
* Is this the end of the world?
None of these questions can be treated within a short commentary, but it is important to underline their possible apocalyptic answers.
At different times across the last millennia similar questions have been asked and specific answers were given. However, previous financial and economic crises were remedied or postponed, until now. In spite of the Great Depression of 1929 including its violent, terrorist aftermath, capitalism did not collapse completely as yet. Furthermore, as we can see, for us the survivors Jesus did not come for a second time and the world has not ended as yet. Also on a world scale the proletariat has not conquered social power as yet. Concerning the total collapse of the capitalist system within the next years or decades, the answer is much more complicated, and we need profound stringent studies. Below just some delicious food for serious thought.
There is a big difference between the past recessions and depressions and the current ones. Our 'Big Crash' occurs in the epoch of globalization, at the end of full realization of the bourgeois democratic capitalist French and Industrial Revolutions. The financial and economic crises are just symptoms, appearance forms, of the total collapse of an obsolete mode of production which has become a Moloch of world destruction, and it could spell doom for life on the planet as we knew it till now.
Among other things, to understand our quo vadis, to try and answer the above questions, we need materialist dialectics, scientific praxis and philosophic theory. We must have sound knowledge about class consciousness and struggles, political economy and sociology, also we need knowledge about the theories of imperialism, fascism, globalization and the collapse of the capitalist mode of production.
No need to be scared or defeatist ... it is the easiest thing in the world to acquire all the above abilities and capabilities.
One just needs to live and study, to think and embrace anti-capitalism, that is, scientific and philosophic socialism,viz, to become a revolutionary, emancipatory Marxist.
Marxists have explained over and over again what is a financial crisis, what is 'finance capital' (Hilferding). Marx himself explained the 'world economic crises' in his 'Das Kapital'. Together with Engels they drew up the first 'theory of globalization' (Manifesto of the Communist Party). Lenin explained to us what is 'Imperialism, the highest Stage of capitalism'; Ernest Mandel explained what is corporate capitalism, the 'long waves of capitalism', its slumps, crashes and depressions in his 'Late Capitalism' and in other works. Rosa Luxenburg told us what the 'military and industrial complex' is all about and explained its relation to the accumulation of world capital. Modern Marxist and non-Marxist scholars have updated this knowledge.
Concerning recession, depression and 'the theory of the collapse of world capitalism', the Dutch Marxist Anton Pannekoek described their political essence in his work "Die Zusammenbruchstheorie des Kapitalismus," first published in The Netherlands in the review 'Raetekommunist,' No.1 of June 1934.
* Lenin and Trotsky treated its emancipatory praxis in their theories of imperialism and permanent world revolution.
Precisely by focusing itself on the Great Depression of 1929 and on the rise of Nazism and Fascism in Europe and elsewhere, collapse and crisis theory became very topical in the 1930s in Marxist debates. The endeavor was to diagnose scientifically whether capitalist imperialism was simply in a passing crisis and would eventually recover itself, or whether the capitalist system as a result of its profound contradictions would collapse and perish. Another aspect was to analyze whether its so-called capacity to 'adapt' itself, was not simply a postponement of its agony, which every time would become worse, more fatal, and finally would reach a stage of total collapse, a state beyond any salvation. Precisely this discussion should interest us in the present serious depression.
Three years ago, we formulated this crux of the matter as follows: "Like today, in the 1930s, the question was whether the workers of the world should sit back, fold their arms ... cultivate class reconciliation to overcome boredom, breed reformism, participate in senseless dialogues and whether they should await peacefully the final inexorable breakdown of capitalism ... or whether by revolutionary praxis and theory they should do away with capitalism and imperialism even before its total globalization, before its own inevitable collapse."
With reference to the above, for Lenin and Trotsky it was crystal clear, that no matter how weak or how strong the capitalist economic system may become, automatically it will not breakdown by itself, it must be overthrown by conscious revolutionary workers' class struggles.
This is also our current opinion.
From Conspiracy Theories About Conspiracy Theories
I'll see your conspiracy and raise you -- an even bigger conspiracy.
Gleb Pavlovsky, a pro-Kremlin analyst who heads the Effective Politics Foundation, raised a few eyebrows last week when he told "Moskovsky komsomolets" that a small "pro-crisis party" is lurking inside the Russian elite and might be plotting "a new little coup.
Pavlovsky said this shadowy cabal -- which includes "big business, people at the summit of federal power circles in the capital, and some governors" -- is planning to stage "a farcical remake" of the August 1991 coup attempt that brought down the Soviet Union or of the 2004 Orange Revolution in Ukraine.
What is the 'pro-crisis' party discussing? The struggle over seriously reduced resources. When there was a lot of money, any faction in power could get a cut of the money flow... But the rivers have become shallow and some people need a shake-up, which, on the one hand, will enable them to write off losses to the old regime and, on the other, to gain unrestricted access to the new one...I repeat, if one is looking for sources of social protest in Russia, seek them in the corridors of power.
The goal, according to Pavlovsky, would be to remove Russia's de facto ruler, Prime Minister Vladimir Putin.
Enter Yevgeny Gontmakher, an economist and political analyst.
Back in November, he wrote an article in the daily "Vedomosti" warning that anti-government riots similar to those that took place in Novocherkassk back in 1962 were possible as workers in single-factory towns reeled from the economic crisis. At the time, "Vedomosti" received a warning from the authorities that the article could be considered "incitement to extremism."
So what does Gontmakher think of Pavlovsky's assessment that rogue elements in the elite -- and not disgruntled workers and angry citizens -- might provoke anti-government protests? In remarks reported by the "Financial Times," he called Pavlovky's warning "an attempt to consolidate the elite." In other words, Pavlovsky's comments were a carefully planted diversionary leak to scare the elite and the bureaucracy into maintaining unity as the very real threat of real social unrest rises.
G-20 Bank of England reclaim the streets Party
Capitalism has been heating up our world for years, melting the icecaps, burning up the rainforests, pushing the planet to tipping point. Now we're going to put the heat on them. At the London Summit , the G20 ministers are trying to get away with the biggest April Fools trick of all time. Their tax-dodging, bonus-guzzling, pension-pinching, unregulated free market world in meltdown, and those fools think we're going to bail them out. They've gotta be joking!
www.g-20meltdown.org
We can't pay, we won't pay and we are taking to the streets
At 12 noon, April 1st, we're going to reclaim the City, thrusting into the very belly of the beast: the Bank of England.
Early a.m. April 2nd, we're going to bang on their hotel doors, @ the Excel Centre, Canning town to deliver our message of a world beyond capitalism.
From Is A Major War A Possibility In 2009? The Historical Antecedents by Dr. Frederic F. Clairmont
In these lectures I shall venture to answer some of the queries made regarding the prospects of a major war . The notes to these lectures were scribbled over time in the corner of the living room.
There are two large standing lamps that illuminate the copy book that I am using to scribble these lines. The thin light black pen is gliding effortlessly over the paper. It is one of my inseparable companions. It is Made in China as well as the copy book with squared paper.
One of my Associates raised the question the other night: is there any manufactured products that American capitalism can produce that China cannot produce better and in greater quantities and considerably cheaper?
This is not fanciful speculation. It therefore follows whether American capitalism in its current state of indebtedness, mass impoverishment and financial disintegration will be able to compete internationally. Or put it another way: how and by what means will it pay for its imports, for what it consumes? Will it be able – on present evidence it is not – to shave and ultimately to eliminate its trade deficit by exporting more than it imports? Further, can the dollar be an acceptable medium of payment and exchange given the battering to which it has been unrelentingly subjected for many years? The observation by Iran's Mahmoud Ahmadinejad that the Greenback is worth less than used toilet paper is ungracious, but it is shared by many leading spirits in the world of finance capitalism.
In subsequent lectures we shall explore the ramifications of these issues. Suffice it to say that it is a matter of life and death that takes us into the deepest reaches of the conflictual contradictions within world capitalism and the imperialist lethal that I have will give you more than an idea of what is meant when we say that China has become the industrial hub of our planet; as well as an idea of what we mean when we speak of financial imbalances. Of that more later.
The Ramifications
Some of you have evoked the possibility of a world conflict in the course of 2009.. I shan't say that this prediction is far-fetched; or remote. Doubtless, many of you do not mean a regional conflict as in Ossetia and Gaza . Nor do I exclude the possibility of the US / Israel on Iran . In the making of war, madness can never be excluded. Let us keep in mind that the US caste oligarchy (USCO) and its trillion dollar militarist appendage is at war on several front in areas engulfing tens of thousands of kilometers: It is pursuing a war in Gaza via its surrogate; it is pursuing a war in Iraq; and of course it is escalating its military drive in Afghanistan; it has extended its killing fields to Pakistan. Recall that Pakistan has a frontier of 2,500 kms with Afghanistan .
Such a possibility cannot be ignored. How does one approach the subject? What is the most appropriate method? I am aware that itemizing the potential flashpoints gives us individual dots but the dots are not connected. They remain separate and cannot provide an insight of the detonator. I am sympathetic to your speculation. The historian must select his facts This is a matter of personal choice. But how and to what purpose he selects his facts stems from his principle of selectivity that is a part of a process of abstraction.
His selection and his interpretation of events are thereby conditioned by his ideological and philosophical predilections. His class affiliations. His personal experience. One may itemize a list but itemizing single events does not give us a handle to comprehend these complex phenomena.. The assassination of Kronprinz Franz Josef by a young Serb nationalist was certainly the detonator but it tells us very little without disentangling the complex of nationalist convulsions and economic and dynastic rivalries that shredded the vitals of the world economy. Nor can we ignore the military naval buildup of the German empire that challenged the centuries old supremacy of the Royal Navy. As David Lloyd George - the shrewdest of imperial artisans and a paramount Hatchet man the Great War noted : “if 1914 had not come when it did it would have inevitably come later”. The key words are 'come later'. What Lloyd George had in mind was that the power politics of finance capitalism and imperialism, and the carnage it irrepressibly incubated, was inherent in the evolution of world capitalism given its ceaseless lunge for territorial and financial spheres of aggrandizement. And its wars were confirmatory.
From Flesh, flesh everywhere, Nor any morsel to eat…
"Nothing more strongly arouses our disgust than cannibalism, yet we make the same impression on Buddhists and vegetarians, for we feed on babies, though not our own." Robert Louis Stevenson (1850-1894)
"Water, water everywhere, Nor any drop to drink" Samuel Taylor Coleridge
In Niger, a toddler´s mother shoos annoyingly persistent flies away from her precious child´s mouth and eyes in a futile attempt to ease his suffering in some way—his emaciated face and distended belly portend his imminent death. Even when she manages to find food or water and gives him a bit, he immediately vomits it back up. He will soon become another of the 15 million nameless, faceless children who will die of starvation this year.
Haitians lob Molotov cocktails, burn tires, smash windows, and pelt riot police with rocks in a desperate demand for something more than "mud cookies" to satiate their hunger. According to the World Health Organization, one third of the human population is well-fed, one third malnourished, and the other third is starving.
In the wealthiest nation on Earth, the mean-spirited "every man for himself" ethos forces lonely, forgotten grandmothers to face the grim choice of buying their medicine or putting meager amounts of food on their table and demands that single working mothers forego paying their utility bills so that their children can eat.
Such abject and profound suffering….and so unnecessary!
Yes, that´s right. We have it in our power to put UNICEF out of the business of providing for hungry children. We can render Oxfam obsolete. Feed the Children? Food pantries? There is really no need for them. We can feed the multitudes and we don´t even need a single loaf of bread nor one fish to accomplish this feat.
We have all the food we need to eradicate world hunger. We are simply too myopic, closed-minded, tradition-bound, and quite frankly, weak-willed, to do what is necessary.
Flesh, flesh everywhere, Nor any morsel to eat…..Does Soylent Green ring any bells, dear reader?
Why is Charlton Heston´s startling discovery near the end of that movie so horrifying to many who watch the film? Heston and his friend, Edward G. Robinson, lived in an over-populated, heavily polluted, food-scarce dystopia (starting to sound familiar?). So why does the possibility of Heston munching on Robinson (or any other human animal for that matter) in the form of a green wafer draw such a powerful visceral rejection from most viewers? What kind of a heartless person would want another sentient being, particularly a friend, to die of starvation rather than eating something of theirs, even a part of them, for which they had no further use?
Why the nearly inviolable taboo on cannibalism in "civilized" cultures? Why is human flesh so sacrosanct that we allow people to succumb to starvation whilst nourishing "meat" decomposes and goes to waste?
We human animals fancy ourselves to be the master species, "unique" in our "superior" cognitive and communicative capacities. Yet our most noticeable characteristic is our ability to create global havoc, devastation, and misery. Therefore we have found it necessary to hide our monstrous agenda behind "traditions," acculturated and inculcated customs that grant us license to exploit, oppress and murder with impunity while preserving our own "sacredness."
Anthropophagy, commonly referred to as cannibalism, has been vilified and condemned throughout history. Western European "explorers" annihilated millions of indigenous people in the "New World" under the pretext that they practiced anthropophagy and were better off dead or enslaved than they were living in their natural "uncivilized" state. Scholars and historians have determined that often the claims of cannibalism were greatly exaggerated or utterly fabricated. But regardless, according to "conquerors logic," we were morally superior to the indigenous folk of Turtle Island because even though we slaughtered millions of human beings, we did the "moral thing" and left their remains to stink and rot rather than eating them. Genocide in the name of imperial expansion is excusable while cannibalism is not, according to Western cultural tradition.
From The "Great Financial Crisis": A whole new kind of struggle is emerging - Interview with John Bellamy Foster by Mike Whitney
MW: The financial crisis is quickly turning into a political crisis. Already governments in Iceland and Latvia have collapsed and the global slump is just beginning to accelerate. Riots and street violence have broken out in Greece, Latvia and Lithuania and worker-led protests have become commonplace throughout the EU. As unemployment skyrockets and economic activity stalls, countries are likely to experience greater social instability. How does one take deep-seated discontent and rage and shape it into a political movement for structural change?
JBF: The first thing to recognize is that we are suddenly in a different historical period. One of my favorite quotes comes from Gillo Pontecorvo's 1969 film Burn!, where the main character, William Walker (played by Marlon Brando) states: “Very often between one historical period and another, ten years suddenly might be enough to reveal the contradictions of an entire century.” We are living in such a period; not only because of the Great Financial Crisis and what the IMF is now calling a depression in the advanced capitalist economies, but also because of the global ecological crisis that during the last decade has accelerated out of control under business as usual, and due to the reappearance of “naked imperialism.” What made sense ten years ago is nonsense now. New dangers and new possibilities are opening up. A whole different kind of struggle is emerging.
The sudden fall of the governments in Iceland and Latvia as a result of protests against financial theft is remarkable, as are the widespread revolts in Greece and throughout the EU, with millions in the streets. The general strikes in Guadeloupe and Martinique, the French Antilles, and the support given to these movements by the French New Anti-Capitalist Party is a breakthrough. In fact much of the world is in ferment. Latin Americans are engaged in a full-scale revolt against neoliberalism, led by Venezuela's Bolivarian Revolution, and the aspiration of a new socialism for the 21st century (as envisioned also in Bolivia, Ecuador and Cuba). The Nepalese revolution has offered new hope in Asia. Social struggles on a major scale are occurring in emerging economies such as Brazil, Mexico, and India. China itself is experiencing unrest.
The one place in the world where this world historical ferment appears to not be having telling effect at present is the United States. This can be traced to two reasons. First, the United States as the center of a world empire is a fortress of conservatism. Second, the election of the Obama administration has confused progressive forces, leading to absurd notions that the Democrats under Obama are going to create a New New Deal without renewed pressure arising from a revolt from below. Meanwhile, under Obama's watch, and with the help of his chosen advisers, vast amounts of state funds are being infused into the financial system to benefit private capital.
What is needed in the United States today, we argue in The Great Financial Crisis, is a renewal of the classic concept of political economy (with its class perspective), whereby it comes to be understood that the economy is subject to public control, and should be wrested from the domination of the ruling class. The bailing out of the system right now is going on with taxpayer funds but without the say of the public. A revolt to gain popular control of the political economy is therefore necessary.
It is possible to start with the demand for a New New Deal rooted in the best legacy of the Roosevelt administration in the 1930s, most notably the Works Progress Administration. But as Robert McChesney and I argued in “A New New Deal Under Obama?” in the February 2009 issue of Monthly Review, the struggle has to move quickly beyond that to an expansion of workers' rights along socialist principles, breaking with the logic of capital. For this to occur there has to be a great revolt from below on at least the scale of the industrial unionization movement of the 1930s that created a new political force in the country (later destroyed in the McCarthy Era). The story of this struggle is told in David Milton's classic account, The Politics of U.S. Labor, which also points out that the rising labor movement was led by socialists and radical syndicalists.
It is important, as István Mészáros explained in his Beyond Capital, that the radical politics opened up in this historical moment not be diverted into attempting to save the existing system, but be directed at transcending it. As Mészáros wrote: “To succeed in its original aim, radical politics must transfer at the height of the crisis its aspirations—in the form of effective powers of decision making at all levels and all areas, including the economy—to the social body itself from which subsequent material and political demands would emanate.”
In the United States a primary goal of any radical politics should be to cut military spending, which is the imperial iron heel holding down the entire world, while corrupting the U.S. body politic and diverting surplus from pressing social needs.
The obvious weak link of the whole political, ideological and economic structure in command in the United States today, is that the system has clearly failed to meet peoples' real needs. Rather than addressing these pressing needs in the crisis, the emphasis of the economic overlords is to bailout private capital at virtually any cost. Between October 2008 and January 2009 the federal government provided about $160 billion in capital and infusions and debt guarantees to the Bank of America, which had a total net worth in late January of only a small fraction of that amount. The rest had gone down the rat hole.
The robbing of public funds to bailout private capital is now on a scale probably never before seen. A politicized, organized working class capable of understanding and reacting to that theft, and choosing thereby to restructure society, to meet real social, egalitarian needs is what is now to be hoped for. The title of a recent cover story Newsweek declared: “We Are All Socialists Now.” As it turned out, Newsweek's editors were simply referring to the increase in public spending now taking place—hardly an indication of socialism. But the fact that this is said at all in the mainstream media points to the fact that we are in a different historical moment in which radical forces have the possibility of moving forward.
No sinking ship goes down without some optimists aboard, so here are the views of a couple:
From After the big squeeze by Irwin Stelzer
Next wrong question: Have we seen the last of unfettered capitalism? But that red-in-tooth-and-claw model never existed. Market capitalism has always been characterised by rules, or fetters. Securities can be peddled only after meeting disclosure rules; houses can be built only after satisfying planning regulations; construction workers are protected by myriad safety regulations; the quality of the air we breathe is determined by government rules. There's more, but you get the idea.
The correct question is: will capitalism survive the downturn, and the increase in the reach of government that it has engendered, not only in Britain, where the Prime Minister has undertaken the task of saving the world, but in the United States, where President Barack Obama has accepted the more modest charge of reviving the national economy?
The answer to that question is an unequivocal "yes". We are not, as Newsweek recently argued, "all socialists now". Angry British subjects and US citizens do enjoy seeing their bankers serve as piñatas to parliamentary and congressional inquisitors, the silliness of whose questions is matched only by the vacuity of the bankers' responses. But Americans still vote for middle-of-the-road candidates, and there are no demonstrations in Britain demanding the restoration of Clause Four.
The alternatives are just too grim, and anyhow no more immune to the problems the capitalist economies face. Russia, despite or more likely because of the government grab of private property and confiscation of foreign investment, is in crisis as its rouble teeters on devaluation, unemployment rises, and the new commissars who studied economics while working in the security services prove no better managers than oligarchs who made off with a large portion of the nation's wealth.
China, its economy ruled by an authoritarian regime that controls the banking system and the major means of production, is not doing much better. Despite manipulating the renminbi to keep its value at export-subsidising levels, the regime is unable to prevent 20 million workers from disconsolately heading back to their rural homes after being cast adrift in the cities, adding to the reserve army of the unemployed. This is a combustible group of the kind that Marx envisioned would topple capitalism, not riot against its communist masters.
The final alternative to the US and UK models is typified by France, its hyperactive president an unrelenting critic of the American hyperpower, and now of Gordon Brown's decision to cut VAT, a move enthusiastically applauded by Ken Clarke, whose birdwatching skills are of little use when it comes to the hard work of analysing economic phenomena. The French electorate apparently is content to accept slow growth, protectionism and high levels of unemployment in good times to avoid some of the volatility of Anglo-Saxon capitalism. And instead of allowing market forces to correct excesses, France relies on the occasional riot to force governments to do what markets do in the US and UK to correct inflation, or wage discrepancies, or too-high tuition levels.
So we are back to the capitalism of Britain and the US, which, for the purposes of discussion, we can treat as broadly similar despite Britain's more comprehensive welfare state and greater taste for regulation. That capitalism will survive, not because it is perfect, but because it has the capacity to reform in response to the demands of a democratic electorate. Theodore Roosevelt attacked "malefactors of great wealth" and passed antitrust laws that reined in the cartels and monopolies. His cousin Franklin D Roosevelt later attacked the "practices of the unscrupulous money changers", and established the Securities and Exchange Commission to regulate their activities. Republican Teddy's Square Deal and Democrat FDR's New Deal reformed capitalism and restored faith in markets that had been stripped of their worst abuses. Not all abuses, nor all the future maladies that might be dreamed up by financial innovators run amok, but the worst of the day.
Which brings us to another sensible question: what form will the New Capitalism take? It is a good guess that the nationalisation of the banking systems will be reversed. Banks are eager to rid themselves of the need to trek to Downing Street or Washington in order to conduct their business, and have a huge financial incentive to buy back the preferred shares that governments have purchased and that eat up a large share of profits. The next generation of auto industry executives would rather decide just what vehicles their customers want than leave that decision to America's politicians or Lord Mandelson. And as much as the electorates in both countries are appalled by the behaviour of the captains of industry, they are at least equally inclined to deny their political leaders increased control over their lives and livelihoods.
What will emerge is a new capitalism, the contours of which are already visible. It will be a system in which high incomes will be unacceptable unless they are demonstrably related to economic performance. No more golden goodbyes for executives who have brought their companies to ruin; no more huge bonuses in return for short-run, illusory profits. Yet no rules against making large fortunes; Bill Gates, who has built a company that changed the way we live, Warren Buffett, who risked his and his shareholders' capital in pursuit of profit, and the entrepreneur show-off Richard Branson have all escaped public obloquy.
From Everything written about the economic crisis overlooks its true nature
(3) A quick summary of the situation
The crisis can be thought of as stress on the global economic machine which results in a “snapping” of links or components. The breaking of each component increases stress on the others, leading to more damage. Consumer demand and corporate investment decline, which in turn creates more stress leading to more snapping.
We can think of this in geophysical terms, as if God was putting torque on the world economy. The fault line runs from
- Asia — China, Japan, Korea
- through North America — US, Mexico
- to Europe — Eastern Europe and the PIIGS (Portugal, Ireland, Italy, Greece, Spain).
Each of these nations is under different forms of stress.
- China from the need for growth to maintain social stability.
- Japan from its aging population, massive governmental debt, and weakness following two decades of fighting deflation,
- Korea from its massive external debts and collapsing exports,
- the US from debt deflation, massive foreign debts (fortunately in US dollars) and coming collapse of consumer spending and export income,
- Mexico from a losing war with organized crime and the coming collapse in oil revenue,
- Eastern Europe from its massive foreign debts (worse, they're denominated in foreign currencies),
- and the PIIGS from a combination of the above.
The effect of other nations on the fault line cannot be reliably predicted, but offer great potential for unpleasant surprises. To mention just one of the major unknowns, Can the European Monetary Union survive the next recession?
(4) Missed opportunities to mitigate the damage
The opportunities to avoid the crisis lie in the past two or more decades. At some level we knew that we must save more and borrow less, that our ever-growing trade deficits were a threat to future prosperity, etc. We put those concerns aside, instead indulging in an orgy of consumer spending. Larger houses, more cars per household, granite counter-tops, insane government spending for every politically powerful group — from insane defense spending to bountiful agricultural subsidies.
Now the party ends and the hang-over begins. We fumbled our time as world hegemon and the world turns to something else — as yet unknown.
The fabric of our financial system began ripping in December 2006, as sub-prime mortgage defaults spiked up and the mortgage brokers went bust. During the next 12 months the applied a series of bank-aids to the growing tear. In September and October the global economy suffered a cardiac arrest, a brief but clear warning of what was to come. Readers of the FM site had a ring-side seat:
- High priority report: a geopolitical sitrep on the financial crisis, 15 September 2008 — We're in the “golden hour”
- A new sitrep, as we move into phase 3 of the financial crisis, 19 September 2008
- A sitrep on the financial crisis: why has the treatment been so slow, so small?, 8 October 2008
- Status report on the financial crisis: we're at a critical point in time, 10 October 2008
- The economy is in shock. The effects of this will soon become visible, 11 October 2008
- Damage Reports from home and abroad, 12 October 2008
- The coming collapse in business spending - made visible today, 15 October 2008
- Miscelaneous news and thoughts about the financial crisis, 16 October 2008
- More reasons why the government will be taking over allocation of America's capital, 27 October 2008
- The US economy must go to Defcon 1, 13 November 2008
November was the last opportunity for the government to “get in front” of the crisis — taking bold proactive steps to slow the decline. I described the measures necessary on 25 September 2008 in A solution to our financial crisis, with details in 3 subsequent posts. These needed to be done in November immediately after the election.
We missed that exit. The government took some (not all) of these steps during the following 4 months, in a too-small and uncoordinated manner. The last measure, the stimulus bill and closing down of the OTC derivatives markets will take effect during the next few quarters. The former is too late; the latter might be too late. For more on this, see Everything you need to know about government stimulus programs (read this - it's about your money).
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