The New Depression: “This is the mother of all postwar crises, which has barely started and remains out of control.”

February 18th, 2009

This article starts off well enough, but it goes off the rails. The problem is not “unregulated capital.” There are volumes of regulations related to capital and we don’t need an additional Soviet Ministry of Money Rules. The problem is the composition of the capital in the first place. The problem is the arbitrary ability of governments to print money out of thin air.

Restore sanity to money and skip the Neo Soviet tendencies that are emerging from essentially the same people who created this mess in the first place.

Fiat money is like cancer. Cancer spreads throughout the body and corrupts normal cell processes. Rather than making more useful cells, that an organism needs to survive and thrive, cancer repurposes those cells to turn healthy tissue is into tumors. If you have ever watched anyone die of cancer (I have) you know that it is one of the most unbelievable and horrific outcomes of the human condition.

Well, look around. The chaos that’s engulfing the planet is a result of the same process that turns a person into a tumor, except that the process has been turned inside out into the world around us.

Now, what about the role of derivatives in this fiat money-cancer analogy?

A Cryptogon reader and core contributor sent me a presentation on which he wanted some feedback. His presentation really summed things up and I’ll be posting that soon, but here’s a paragraph from what I wrote back:

I would focus a little more on the role that exotic derivatives have played in this. The commoditization of traditional loan products, and the resulting derivatives became an addiction that most banks (and many other financial entities, pension systems, municipalities, NORWAY! etc) simply could not resist. That’s what’s different about this “bust” cycle. It could be orders of magnitude worse than anyone thinks because this type of leverage has never been used before.

In other words, the financial cancer is capable of not only turning an organism into a tumor, but it has evolved into being able to turn the future into a tumor, today.

What does this say about governments that are WILLING TO DO ANYTHING to maintain a system of confetti paper that turns increasingly larger spans of the future into a cancerous mass?

The cure for this disease is small, decentralized commerce based on real money, barter and gifting. The tumors shrink away and the cancer dies in that environment.

Sorry to end this with a two sentence “prescription” but my son is running around, waving a greasy lambchop like a light saber and my wife needs a break.

Via: New Statesman:

We are living through a crisis which, from the collapse of Northern Rock and the first intimations of the credit crunch, nobody has been able to understand, let alone grasp its potential ramifications. Each attempt to deal with the crisis has rapidly been consumed by an irresistible and ever-worsening reality. So it was with Northern Rock. So it was with the attempt to recapitalise the banks. And so it will be with the latest gamut of measures. The British government – like every other government – is perpetually on the back foot, constantly running to catch up. There are two reasons. First, the underlying scale of the crisis is so great and so unfamiliar – and, furthermore, often concealed within the balance sheets of the banks and other financial institutions. Second, the crisis has undermined all the ideological assumptions that have underpinned government policy and political discourse over the past 30 years. As a result, the political and business elite are flying blind. This is the mother of all postwar crises, which has barely started and remains out of control. Its end – the timing and the complexion – is unknown.

Enormous international flows of unregulated capital have capsized the international financial system – with disastrous consequences for the real economy – in a manner akin to the effect of a roll-on, roll-off ferry shipping too much water. We can now see the cost of free-market capitalism and light-touch regulation. Iceland may provide an extreme example of the consequences of the credit crunch but it also illustrates the dangers facing the more vulnerable economies, the UK included, in a deregulated world where the market rules: a small, open economy; a large, internationally exposed banking sector; an independent currency that is not a serious global reserve currency (of which there are only three); and limited fiscal strength. These propositions have constituted the core economic beliefs – from Thatcher and Lawson to Blair and Brown – that have informed policymaking over the past three decades and without which, it was claimed ad nauseam, an economy could not succeed. Heavy-handed regulation and an overbearing state would serve only to frighten off capital and condemn a country to slow growth, stagnation and global marginality. Now we know the fallaciousness of these claims and the consequences of “letting the market decide”.

Like Iceland, albeit not as extremely, Britain has been living in a fool’s paradise. A failure to regulate the banks and other financial institutions in any meaningful fashion allowed bankers to behave in a grossly irresponsible and avaricious fashion; a boom that was made possible only by a government-enabled credit binge in which people borrowed recklessly; a bloated financial sector that grew to represent over 8 per cent of the total economy and which was found to have been built on foundations of sand; an overvalued currency that made manufacturing exports uncompetitive and thereby resulted in an unnecessary and counterproductive contraction in the manufacturing sector which must now be reversed; an absurd belief that boom and bust had been banished for ever, allowing the banks to turn a blind eye to the inflating of various asset bubbles and display a profound ignorance of the history of capitalism; a persistently chronic current account deficit that can no longer be compensated for by inward capital flows; monstrous salaries for those at the top of the financial and corporate tree, which were justified in terms of a trickle-down effect that remained a chimera, and as the reward for risk which was, in fact, a reward for greed and failure; growing inequality, which was justified in the name of a more competitive economy accompanied by declining social mobility in the cause of an open and flexible labour market; and, finally, the mushrooming of what can only be described as systemic corruption on a mega-scale as the state ignored the gargantuan abuses of those who ran the banks and other financial institutions, while regulatory authorities willingly colluded in their excesses.

This is the sad story of the New Labour era.

The ultimate cost of this debacle as yet remains unknown. What began as a financial crisis is threatening, as the government seeks to bail out a bankrupt financial sector, to become a currency crisis, with foreign investors concerned about the effects this might have on the value of sterling, and perhaps even worse, ultimately a sovereign debt crisis, with growing doubts about the UK’s financial viability. Until there is some end in sight to the financial crisis, and a line can be drawn under the banks’ indebtedness, we will not know the answer to these questions. One thing is clear, however: whatever the limitations of the social democratic era, it was never responsible for such an all-enveloping and cataclysmic crisis as the one that the neoliberal era – and the Thatcherites and New Labour – have managed to produce. After all the boasting about the virtues of the Anglo-American model of capitalism, the Grim Reaper has finally spoken: a boom pumped up by credit steroids and a bust that takes us back to the 1930s.

3 Responses to “The New Depression: “This is the mother of all postwar crises, which has barely started and remains out of control.””

  1. sharon says:

    The analogy you made to cancer is a good one: the proliferation of cells within the body that do not function in any way to support the life of the whole body, but instead parasitize the body. My understanding is that cancer cells consume ever more of the nutritional elements that the body takes in and metabolizes, starving the body’s healthy cells. I once read that death caused by cancer is, in fact, “nutritive death.” The tumor has robbed the body of nutrition–taken it all.

    I’m open to correction here. (I read a medical book once.)

    Taking the cancer analogy a bit further, we might want to consider how a healthy body defends itself from the proliferation of cancerous cells. Supposedly they appear with some regularity in a healthy body, but the healthy immune system is able to suppress and destroy them.

    In State systems, you see the cycle in which a seemingly healthy organization is born and becomes ever more highly organized. It’s power structures become ever more highly centralized, and the power centers become ever more parasitic, eventually consuming so much of the vitality and productive power from civil society that it dies its own kind of “nutritive death.”

    You have to ask yourself what kind of “immune system” could defend against this process. The main ones that come to mind would be a population with high and rather inflexible standards of honesty, integrity, and business ethics, along with a firm belief in individual freedom (both personal and economic) and self-reliance. That’s your immune system.

    The trouble is, all State systems work to progressively undermine these values. The individual’s power to be economically independent is gradually eroded. You can only get a livelihood by “getting a job” within the ever-more-centralized machinery of the economic structure. Within these structures, the individual’s honesty, integrity, and ethics will be a serious liability, as will independent thinking. (No more livelihood for you.)

    The centralization process ultimately places all the healthy “cells” of the organism in the service of the tumor–or turns the healthy individuals into cancerous “cells.”

    It seems to me that this is just the inevitable life-cycle of any State system–that it’s is bound to a cycle of “nutritive death” and collapse. This is because such systems are infected from the outset. They are all based on a parasitic model, having their origins in a class system based on elite ownership of “assets” and on the State system of land tenure.

    The key element of this system is law-made private ownership of the earth and its resources. The land and water are owned and controlled by a small group of elites. No one else has the right to occupy space on the planet except on their terms. Their terms are: You must pay for the right to exist on the planet. Hey, they own it.

    This system is dishonest, since no one can justly claim ownership of anything not made by their own labor. Earth, water, and air were not made by human labor.

    This system of ownership is what’s at the root of the State system. This is where the fundamental break with basic human rights, honesty, and integrity happens. This is what ultimately subverts these within the whole of civil society.

    (See Henry George and Albert Jay Nock for detailed discussion of this concept.)

  2. dagobaz says:

    @kevin wrote: The cure for this disease is small, decentralized commerce based on real money, barter and gifting. The tumors shrink away and the cancer dies in that environment.

    gifting. core contributor to cryptogon.

    exchange of goods / services without expectation of immediate quid pro quo. An economy based on … altruism.

    hmm … maybe more folks should take note of the wisdom, there.

    — c

  3. pdugan says:

    If you haven´t already, please Google “Thomas Greco mutual credit clearing” or just one of those phrases, and read his presentations on the subject. Fungible currency transcends the limitations of barter, and mutual credit clearing transcends the limitations of fungible currency. It´s a way of having a flexible monetary base that is flexible both ways, rather than being some kind of toxic plastic that stretches out but doesn´t retain form. Interest-free liquidity that can expand and contract as transactions require.

    Here, I´ll dig up a good link on the matter… first I find this treat: http://beyondmoney.net/2009/02/17/yes-abolish-the-fed-but-how/

    Here´s a decent overview of the idea, there are more clean ones that can be found on his website: http://beyondmoney.net/monographs/credit-clearing-pure-and-simple/

    I think that system backed up with sufficient local capacity for clean food, then renewable energy production would provide the commodity backing to let mutual credit really take root. Then it´s a matter of percolation over the internet, from local clearing networks to global ones.

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