Bad real estate debts also are pulling down banks in the two leading creditor nations, Britain and the United States. Real estate prices, stock market prices and employment are going down in a straight line unprecedented even in the Great Depression of the 1930s. This has turned the neoliberal financial dream of “creating wealth” by inflating asset prices, by creating credit without actually increasing tangible capital formation (wages and living standards) into a nightmare. Just as individuals can’t live off a credit card forever, neither can nations. As any classical economist knows, societies that only manufacture debt are unsustainable. Casinos may be fun places to visit (customers pay by losing their money), but no place to live. The same is true of casino economies.
A long read, but worth it. Covers most of the issues that have been bothering me for the last couple of years. Looking at history older than the Great Depression is instructive. It would appear that the issues of debt are intrinsic to the system of capitalism and human nature:
The birth of international post-medieval banking proved disastrous for many family banks that foundered on what turned out to be bad loans to the leading powers of early Europe, from Spain to France and England. The historian Richard Ehrenberg notes that Spanish bankruptcies “occurred at intervals of about twenty years – 1557, 1575, 1596, 1607, 1627, 1647,” often being rationalized by pious allusions to Church prohibitions against usury. England declared bankruptcy under Edward III in 1339, and Charles II shut down the Exchequer in 1672 and suspended payment on its floating debt.Wiping out debts was the only way to retain basic economic and political relations and national independence. In view of this long experience, England’s advice to Iceland today is in the character of “Do as we say, not as we ourselves have done and are doing.”
All the ‘smoke and mirrors’ tricks of governments to shuffle debt around, tweak interest rates, fix / float exchange rates, end up being impacted by the usual human failings: clever in the short term, but catastrophic in long term. The imbalances are maintained until entropy can no longer be cheated, and the whole hideous edifice comes crashing down.
My favourite analogy for this are the forests of the Western US. By managing for decades to control the fires that would periodically rage there, the build up of undergrowth reached a point where control was impossible, and any fires became unnaturally large / fierce. Giant sequoia that can easily withstand the periodic small fires, don’t stand a chance in these raging infernos.
Too big to fail? We shall see.
This seems to be one of the underlying messages of Straw Dogs – man’s presumed mastery of the world around him is largely an illusion. All our ‘progress’ comes at a price. And it’s not cheap.
Meanwhile, the stock market in the US has recently had it’s strongest five days since 1932. There are still a lot of people out there who want to believe…