The Financial Abyss
By Peter Goodchild
10 November,
2008
Countercurrents.org
The present and future stages of global financial unraveling seem to be essentially as follows. (1) With the bursting of the credit bubble (massive over-borrowing), the real-estate market collapses, the banks collapse, and the stock market collapses. (2) Therefore credit dries up everywhere. Businesses cannot operate without credit. (3) Businesses stop making and selling products, so there is high unemployment everywhere. (4) The final result is that without adequate income from employment, people must live on their savings (or pensions or welfare), or try to live off the land, separating themselves from the global economy.
There are further matters to consider. For example, what is the risk of currency collapse, i.e. a country’s money becoming worthless vis-à-vis other currencies, so that importing of goods and materials becomes impossible? After all, that is exactly what happened in many countries over the last few decades. Perhaps that risk will not be as great as one might imagine. The present financial problem is global, not national. Every country will be hit badly, whereas currency devaluation is always a “relative” matter, a matter of one currency sinking versus another, not an “absolute” one. (Nevertheless, currency devaluation is obviously based on a type of credit crisis, as is the global financial problem.) There is greater risk of currency devaluation for small countries that have large debts and are highly dependent on imports. In any case, switching one’s savings to a safer currency --- and a more-reputable bank --- would be a good move.
Will importing and exporting stop? I.e., will “globalization” slow down? Yes, quite likely, because of the lack of credit and the failures of businesses, combined with high costs of fuel for manufacture and transportation.
What will happen to money in its various forms? It is generally agreed that one should first get rid of all personal debts, which will otherwise soon become unpayable. It is also agreed that investing in the stock market is hazardous. In addition, there is the obvious danger of keeping money in banks. In spite of all claims to the contrary, it is highly unlikely that governments or the World Bank will be able to come to the rescue if there is a run on the world’s half-dozen largest banks. The only money, if any, that will be protected will be plain cash, perhaps kept in a safe in one’s own home.
Cash was also important during the Great Depression of the 1930s; those who had cash could buy anything, quite cheaply. The comparison between the Great Depression and the present crisis should not be carried very far, though. The present problem is much bigger, with more variables, and with a vastly greater amount of debts than in the 1930s. Also, the stock market is far more complex than in those days, and stockbrokers have enjoyed inventing many esoteric “derivatives.”
Inflation and deflation, so called, are a curious question: Will prices rise or fall in the future? It seems that the first general pattern will be that of increasing prices, simply because goods will be scarce. Real estate may be the biggest exception, since houses are already vastly overpriced. A more accurate term than “inflation” would be “stagflation”: higher prices within a stagnant economy. Nevertheless, there will come a day when “consumers” are utterly lacking in the money that will allow them to “consume,” and then prices will crash.
Who will pay for the entire mess? The banks collapse, the governments utter cries of woe and spend large amounts of public money to make up for the losses, and the middle-class taxpayers have to rectify the problem of that dwindling public money. The process is a simple shell game: 1, 2, 3. The executives at the top are unlikely to suffer. In addition, there is something hypocritical in the fact that governments are shedding tears over these troubles. After all, both governments and businesses should have seen what was coming --- and probably did so. Instead of preventing the problem, they have created a new feudalism: the very rich and the very poor.
And all of the above is only the blip before the bang.
Peter Goodchild is the author of Survival Skills of the North American Indians, published by Chicago Review Press. He is temporarily living in the Sultanate of Oman. He can be reached at [email protected].
