There’s no doubt the global economy is undergoing significant changes with far-reaching, unknown consequences.  Tens of trillions of dollars of fictitious wealth will need to vanish from the books of financial institutions around the world before stability can return to banking and international trade.

The panic, hysteria and hyperbole in the media are reducing the likelihood of a smooth and relatively painless transition.  Drastic, ill-conceived measures like the 700 billion bail-out are not based on research or reason, but on fear.  As a society, we make fear-based decisions at our peril, and the outcome is never attractive.

It’s essential that we seek out reasonable voices to explain the roots of our economic troubles and lay out research-based strategies for mitigating the impact of these vanishing trillions from world markets on our daily lives.  The mainstream media is not going to help us in this respect; it is an echo chamber of “conventional wisdom” that still ascribes to the religions of free market capitalism, growth-based economics and the globalisation of trade and regards any effort at debate as a dangerous display of ignorance.

Reasonable and informed commentators do exist.  Glenn Greenwald at puts out a veritable feast of them in his effort to to address the accusation that we are ignorant or incompetent if we can’t see the necessity of socialising economic risks while leaving gains in the bumbling hands of the private sector.

Gordon Bigelow addresses the evangelical religious roots of our economic model in an article at

Dr. Albert Bartlett puts the built-in self destruction of growth-based economics in a mathematical context in a lecture available on YouTube.

The IMF has released a research paper that directly contradicts the doctrine that tax-funded bailouts are beneficial to long-term economic recovery and considers the historical outcome a number of alternative measures.

Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.

We who will be stuck with the bill for any measures our governments take to stabilise capital markets should not tolerate the absence of debate or the suppression of dissenting voices.  We must not allow our legislators to rush through unsound policies in reaction to the panic of business columnists and investment bankers.  We must not accept without critical examination that a lack of swift, thoughtless and costly measures to rescue our crumbling banking institutions will result in catastrophic losses for us all.

There is never a better time for reason, research, caution and critical thinking than in the midst of a crisis of this magnitude and complexity.  The US has passed their thoughtless bailout package, and if the IMF is correct in their analysis, the impact will only make things worse.  For the rest of us, we should encourage our governments to be more cautious.

0 Responses

  1. Something I have noticed this time around is that there are more and more people coming out and talking about ‘invented wealth’ and so on. It used to be people like David Icke but gradually it’s becoming more mainstream, except it is still rare for the so-called mainstream media to do anything other than read out what’s on the latest government press release. In fact, the mainstream media are less and less mainstream as time passes. I think the current financial situation has meant that some of the absurdities of the system have had to come out into the open.

  2. Hi, Richard. There has been increasing discussion of invented / fictitious wealth, I’ve been happy to see. The first thing that needs to be understood before solutions can be found is that the multiple trillions in losses are not wealth that has been lost, but wealth that never existed to begin with. For business to continue “as usual”, we all had to pretend that wealth had a basis in something real or measurable, and we needed social policies that could guarantee a more or less even distribution of wealth. (When the gap between rich and poor became too large in the US, you suddenly had the poor having to pay prices dictated by the rich.) Anyway, people seem to be waking up now. At least I hope they are! Maybe now we will heed our grandparents’ advice and stay out of debt.

  3. I’m unsure on what basis you say the wealth never existed in the first place? Could you explain for this economic cretin (preferably while using crayons)?

  4. Hmm – being an economic cretin myself, I find it hard to explain. But to give a very vague and probably wildly inaccurate summary, investment bankers have not been trading actual wealth for about 400 years, but trading “projected future earnings” based on the assumption that all the world’s economies would continue to grow exponentially, forever. Stock prices – in anticipation of profits to be had years or decades down the road – have inflated well beyond representing anything with real, measurable value. Growing economies are meant to catch up later and make up the shortfall.

    Housing prices are a microcosm of the global picture. In a properly functioning economy, the average house would only be worth (in real terms) what the average home buyer can comfortably afford to pay. By lending practices which intentionally distorted the affordability of houses, millions of people bought houses they will never be able to pay for. Meanwhile, debts that would NEVER be paid off were traded as if they were already paid in full, based on the doctrine of treating “projected future earnings” as “wealth”. So the gap between what people can REALLY afford to pay for their houses (ie the amount that can be paid off before defaulting on the loan), and the distorted value of the mortgage is wealth that never existed and will never exist. But there it sits, on the balance sheets of every major lending and investment institution in the world.

    To simplify things, it’s as if I bought myself a handful of pretty baubles and trinkets for a thousand bucks, assuming I would be able to sell it for two thousand bucks tomorrow, and spent my profits (on credit), only to discover all I can get for it is a fiver. The difference between the fiver I can sell for and the thousand I paid is wealth that never existed. If I were an investment banker, I would be INSISTING the baubles and trinkets are worth what I paid for them and demanding the government make up the shortfall so I could balance my books.

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