The financial turbulence spreading across the world, which is now infecting both developed and emerging economies, is giving rise to a language rarely used by wary bankers. Phrases like “the largest financial crisis of its kind in human history” from the deputy governor of the Bank of England do much to create fear in the minds of mere mortals.
But the messages are confused. On one hand we have numbers of economists pointing out the cyclical nature of the current situation. They seem to believe things will return to normal once we have gone through the inevitable pain of recession. Others are making more startling claims such as this crisis heralding the end of the US-based model of capitalism.
So what is the truth? Within the chaos there are some key strategic imperatives that need to be understood and taken to heart.
In spite of the massive emergency bailouts and banking takeovers, there is no end to the panic in global markets because nobody really has any idea how the crisis will run its course. Even the Chinese and Korean economies are being forced into a policy rethink. Most politicians and bankers are terrified. Why?
The so-called problem we are experiencing is both structural and systemic. A global economic system based on debt is unsustainable so it seems reasonable to expect that the situation will get far worse unless the flawed economic policies of the past are rapidly dealt with.
These policies have given rise to easy credit. Easy credit fuelled incredible rates of consumption which fuelled further growth. This growth has given us luxuries and a quality of life we never imagined possible. It has also opened a Pandora's box comprising global warming, depleted resources, spiraling food costs, poverty, conflict and injustice on a massive scale.
The world’s political, financial and environmental systems are now entangled to such an extent that only a systemic response can possibly effect change for the better. Unfortunately the increasingly desperate actions of central bankers, finance ministers and neo-liberal economists are simply evidence of the intellectual impoverishment of the world’s ruling elite.
Consumer banks and entrepreneurs must not be blamed for the current predicament. It is the politicians, regulators and central bankers who have failed us by creating an unstable house of cards to which they are in thrall. This is a pernicious system that must be changed rather than propped up.
Mark my words this is not just a financial crisis. We are witnessing the decline of the global debt-based monetary system. And that is why we need to reinvent much that we have taken for granted. It is no longer sustainable.
Seen in this light the current crisis is a golden opportunity for democratic renewal. We all need to engage in an unprecedented undertaking: helping to design a more viable political economy that can begin to meet the extraordinary challenge of peak oil, debt and climate change.
Without a new system all the bailouts in the world will not help us in the end.
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