Over time, as the enormous debts in the financial system are expunged and the financial system resumes its role as a mechanism for allowing the production of goods and services, as opposed to a producer of wealth in its own right, the economy stabilises. Admittedly it’s a much smaller economy and people generally are much poorer than pre-crisis.
However most people have come to realise that most of the wealth that was destroyed was virtual wealth only due to the fraudulent nature of fractional reserve banking and fiat currencies. People have to work much harder to survive, but their basic needs are being met, largely because communities have become the centre piece of economic organisation. In many ways, people are more fulfilled.
While international trade still exists, most of the things that people "need" are produced close to home. Cottage industries develop, producing everything from clothes, to furniture and soaps. House prices have become affordable, although it takes much longer to save a deposit than before with the majority of banks now being low risk "savings and loans" institutions.
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Government welfare has been pared back significantly, but with the resurrection of the household economy and lower expectations, most people don’t need as much support from their Government. And with the much smaller levels of energy (and other resource) consumption, climate change, resource depletion and peak oil cease to be of much concern.
No easy way
Neither of the two scenarios outlined above provide our leaders with a particularly palatable choice. I guess that is the nature of predicaments - there is no easy way out. Perhaps if different decisions had been made back in the 1970s we would not be in this situation now. Unfortunately you can only play the cards you have bean dealt and industrial civilisation’s current (self inflicted) hand is a losing one, at least in terms of maintaining the status quo.
The world’s leaders are left with two choices. The first is to maintain the current unsustainable and increasingly unstable economic system for as long as it can, hoping that there will be some technological or other break through that will allow growth to continue in perpetuity. Alternatively they can dismantle the current economic system, dissipating much of the power and wealth inherent in that system as well as their position within it, but with the potential for building a sustainable economy.
So how stupid are the decisions of our leaders likely to be? Judged on their track record to date, my hopes are not high. The actions of politicians and central bankers around the world since 2008 to the present day have all focused on attempting to prop up zombie corporations and zombie countries. In this, they have largely been successful, at least in the short term.
We seem to love the upside of capitalism; growth, prosperity and jobs. The downside, such as recessions, corporate bankruptcies and market reversals, that punish risky investments and poor decisions but at the same time prevent major economic catastrophe, government seems to abhor.
Perhaps if the too big to fail corporations had been allowed to fail in 2008 and if countries had been allowed to default on their debt, we would no doubt be in the middle of a nasty depression. This depression would however have provided an opportunity to reset the global economy. We now face a much worse prospect, that of global economic collapse.
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It appears only a matter of time until the GFC Part Two is upon us. If this is the case, the stupidest thing that the world’s leaders could do is to attempt to prolong the current economic system. The likely result of that approach is many more crises leading, at some point, to economic collapse.
Counter intuitively, the smartest thing for the world’s leaders to do is to do nothing, bar restructuring the financial system to one requiring 100% reserve requirements for banks and currencies backed by something more tangible than "trust me." Unfortunately for those who are relying upon the current system to deliver wealth and prosperity, industrial civilisation is well past the point where there are any easy options left to transition to a "sustainable" economy.
Perhaps it is time that "we" built an alternative system whilst "they" do their best to destroy the current one.
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