Governments refuse to admit that the Western model of economics is dead, and should be buried. With no room for manoeuvre, they should be preparing the blueprint for a viable future Instead, with the US leading the way, the West is boxing itself into a disaster that will terminate in horrors that no-one dare imagine.
The financial numbers are beginning to reveal the depth of the crisis. The debt explosion from which there could be no return was supposed to happen at the end of the next 18-year business cycle. But now, according to Moody’s, the US rating agency, “The crisis has ‘fast-forwarded’ history, eroding all the time available to adjust”.
The original timetable was based on the demographic time bomb. Aging populations are creating a debt burden that a shrinking working population would not be able to support. Pensions and health needs could not be funded by the fewer young people coming on stream. We had just 15 to 20 years to deal with that crisis. That time-scale has now been erased by the Depression of 2010.
Compounding that crisis is the failure of policy-makers. We know that they don’t have a clue how to build out of this crisis. But worse still, they are now planning strategies that will make the next property boom/bust even more catastrophic.
Protecting Property Speculators
In Washington, the Obama administration is planning measures to provide government protection for the mortgage sector on a scale even greater than the one that contributed to the sub-prime crisis that triggered the credit crunch in 2008.
In one of those Kafka-esque statements that leave you speechless, Treasury Secretary Tim Geithner has just revealed that additional federal government support for the mortgage market was necessary. Without it, “future recessions could be more severe because the financial system would not have the capital to support mortgage lending on an adequate scale”.
This means the US government is planning to lock America into a trap from which it will be impossible to escape.
The Role of Housing
The chain of causation between land speculation, housing markets, mortgages and credit-creating banks, and the impact on the health of the economy at large, is fully documented in Boom Bust (2005). All the evidence, however, is ignored by people like Geithner.
In part, it was because government supported the two US mortgage giants Fannie Mae and Freddie Mac that allowed Wall Street speculators were willing to chance their luck with the sub-prime scam. Now, the US government is planning to ensnare itself even deeper with guarantees that will inflame the next round of property speculation leading to the collapse of the US economy in 18 years.
In other words: instead of re-fashioning the financial system to boost growth and reduce risk, policy is being shaped to deliver the opposite outcome. The financial arteries of the weakened giant of the Western economy will now haemorrhage at a rate that will prove fatal for all of us.