Times of crisis tend to bring out extreme views. This morning the ether is full of dark talk; talk about the end of capitalism, how it will all end in war. Meanwhile, across the media the search is on for someone to blame, and you don’t need to think hard to guess who is getting the flak. It is all those city whizz kids, or as the Express calls them the spivs, with their fat bonuses, and reward for failure.
Yet it seems the talk of pessimism has gone too far. We are no more witnessing the end of capitalism, than we were witnessing the end of history when the Soviet Union came to an end.
Capitalism is working – recessions and downturns are essential for its success.
That the world is changing, and that the US is losing its slot as the world’s only superpower, is palpably true, but that does not make war inevitable. Capitalism provides the single biggest reason why there will be no world war. You only need to look towards Russia, and its own economic crisis to see why this is so. The world today is more integrated than ever before. Globalisation has helped to lift hundreds of millions of people in China and India out of poverty.
Capitalism is creating wealth – real wealth, and it can only work with cooperation. There is no reason to fear its end. The days of empire building are over. With the Internet leading the way, we are entering an era of open markets, of open standards, of cooperation, as even the largest corporates cooperate with their rivals in R&D.
The biggest danger lies with us. It is too easy to blame bankers, too easy to predict the end of capitalism.
In reality we need to look closer to home. The real danger is that the backlash will put an end to the very forces that create wealth. Talk of a return to traditional banking has been kicked off again. This is the last thing we need – traditional banking will kill the flow of money required to fund innovation, including money required to fund renewable energy.
Some blame the speculators – shorting stock.
But there are other ‘shorters’ out there. There are other people selling us short. These are the people who are releasing their venom on financial institutions, and blaming everyone but themselves for the economic crisis.
The reality is different. The real causes of this crisis lie elsewhere. The greed is not just the greed of bankers, it is the greed of Joe Public. Those who have been shorting the economy are the popular media.
Now is the time for seeing things for what they are. This is a nasty economic crisis – but that is all it is. It will end. It won’t be like the 1930s. We are not really seeing meltdown in the financial sector.
Unless, that is, we listen too hard to the hysterical reaction of some of the media and some politicians.
The economic success enjoyed by China is not bad news, it is good news.
Modern banking and sophisticated financial procedures provide the single biggest reason to believe in a prosperous future.
Capitalism is working. Errors have been made, and these errors are being corrected. But we all need to face up to reality and see this crisis for what it really is. Take a hard look at your reflection in the mirror.
The popular media say we have become an economy that doesn’t produce anything. That we have made money from nothing, and now we are paying the price.
Well that is true up to a point, but not for the reasons stated. The current crisis is, above all, born of an unsustainable bubble in house prices. This created the view we could make money, save for our pensions, and thrive just by watching our home go up in value.
Money was lent on the assumption that the assets it was secured against would always go up.
This is the real reason for the mistakes made by financiers. And it was a tacit conspiracy, one most of us took part in. Bankers are no more to blame than those who borrowed the money they lent.
If house prices had kept going up this crisis would never have happened. Because this was impossible, the crisis has erupted. And that is all it is about.
For years we cheered at news that house prices had gone up, and failed to grasp the real poison this explosion had created.
Ultimately, the problem faced by banks is that they lent money in unprecedented proportions to fund activity that did not add to the nation’s productivity. Bank balance sheets are taking a battering because people are struggling to repay debt.
To deal with this crisis we need to save more. But saving itself can create a recession as aggregate demand across the economy contracts. That is why this economic crisis is serious.
But we will adjust. The gains from business are now so great, the potential so vast, the global economy so rich in innovation and dynamism, that the recovery will follow, it will follow within a few years, and when it does it will be just as dramatic as the crash.
The tone of this article suggests that this was all just a bad mistake. Unfortunately, many people forsaw this and warned Bankers and governments who did nothing about the asset price bubbles. The banks most of all are to blame for this, they should have known the danger signals that property prices should not be allowed to go beyond a proportion of income. But they continually ignored this and went on lending negligently to the point of criminality. They received bonuses for their negligence and as such shareholders and customers of banks are entitled to bring to justice those who are responsible for this negligence.
Governments as well have to pay. Gordon Brown especially os responsible for this because he took out the price of housing out of the inflation figures (I may be wrong but he did change the way inflation was calculated). Furthermore, he did not put any regualatory authority on top of these institutions ( I do not count the FSA as a regulator because it is a pointless organisation ). Tony Blair Gordon brown has been in charge of one the most callous and pointless economic decision making for the past decade. Just wait and see how they have fudged the books in a few years time when w have to pay for the Private Finance Initiative.