For those enamoured by free markets and deregulation, the US experience makes for sobering reflection – although some argue that the Military-Industrial-Media Complex is hardly a model of free market economics.
For some time now, market fundamentalists had preached that the government should have as little do as as possible in regulating business. Now, we see Wall Street being brought to its knees and turning to the US government to bail out failed financial institutions, the victims of their own unbridled greed. All this is the result of financial deregulation with little oversight.
This is also what happens when the Occupation of Iraq meets financial deregulation, a wild credit bubble (cheap credit) and a colossal debt:
A shattering moment in America’s fall from power
The global financial crisis will see the US falter in the same way the Soviet Union did when the Berlin Wall came down. The era of American dominance is overJohn Gray
The Observer,
Sunday September 28 2008Our gaze might be on the markets melting down, but the upheaval we are experiencing is more than a financial crisis, however large. Here is a historic geopolitical shift, in which the balance of power in the world is being altered irrevocably. The era of American global leadership, reaching back to the Second World War, is over.
You can see it in the way America’s dominion has slipped away in its own backyard, with Venezuelan President Hugo Chávez taunting and ridiculing the superpower with impunity. Yet the setback of America’s standing at the global level is even more striking. With the nationalisation of crucial parts of the financial system, the American free-market creed has self-destructed while countries that retained overall control of markets have been vindicated. In a change as far-reaching in its implications as the fall of the Soviet Union, an entire model of government and the economy has collapsed.
Full article here.
The fall of the financial institutions was due to too much regulations and interference by the authorities. Since the 90s the US govts have been forcing Freddie Mac and Fannie Mae to lend generously to help out the lower income group to buy homes. This is the downside. The home buyers could not eventually pay back the loans. AIG is another matter.
People are dreaming. The US economy is too robust, and can sustain a hundred bankrupt AIGs. $700 billion is petty cash to them. Don’t hold your breath waiting for the US to fall. The rest of the world will fall first before the US falls!
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The economic crisis of capitalism is also an ideological and political crisis, and this unavoidably places Marxism back on the political agenda. Read more at :
http://asocialistmalaysia.blogspot.com/2008/09/world-economy-great-implosioncapitalist.html
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one should read the book “the rise and fall of nations” by kennedy and you will understand why. history is replete with downfall of nations due to arrogance and complacency as well as wanton display of financial indiscipline.
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That article is highly laughable. Financial crisis occur on a cyclical nature, probably on average once every 10 years. What is going on in the US will also affect all countries globally, like the likes of Europe, China, India and Russia, due to the interconnected and globalized nature of the world economy today.
Financial crises in the US have happened before. And the same predictions have occurred in the past from anti-US left-wing European publications like the Guardian. Be assured, the “fall of US dominance” is highly overrated.
I would say that the article you quoted is a load of bullocks.
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Oh but I think that the fall of American global hegemony has already begun. Any world power needs a moral authority or credibility to complement its financial and military power and the US is fast running out of moral credit.
China holds trillions of US debt. American wars in the past few years are expected to cost upwards of a trillion dollars. Russia is aggressively crushing any move by US to expand NATO bases to its borders. The usual sphere of dominance of the US, South America has gone left and the Russians are definitely going to pay the US back.
No one is saying that the US will completely fall down. They will still be the major world power for the foreseeable future. What I am saying is that the era of global hegemony by US in all spheres of life has ended.
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The financial crisis in US
It had been written in the Holy Bible
Those bible crusaders talked about it
For years nobody belief
Greed of wealth
Power corrupts the minds
Law makers forget their roles
Descended to the quests of masses
Gay marriages
The rules bend to popular reasoning
The personal crisis is brewing
Yet the powerful US is dreaming
The massive earthquakes will hit her shores
The US will never recover when this massive earthquake strikes
Starting from the land of Africa it travels to the US coastlines
Hitting them the magnitude of many times tsunami
The world leaders will sit and feel the sorrow
We have seen the best brains
Running the financial services
Yet they don’t foresee the liabilities
They dream on it
As the Lord says He will teach them
For forgetting His lessons
Back in the country
The dilly dally personal crusades
Of political power and gravy train
If we aren’t aware, we will feel the heat
Time not to put blame
Wake up and do the positive values
Admit mistakes pray harder
Else nothing will help
We are blinded by our greed
Of personal grandeur and crusades
Time to take stock of what we have done
Before it becomes our nightmares too
For the Lord is coming
He doesn’t have to say
These are his signals
Do we see it all?
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Hey anil,
is the movie war on democracy downloadable from the internet ? thanks
Yes, Dalbinder, I think you can download it somehow from here.
http://video.google.com/videoplay?docid=-3739500579629840148
There is a way to download it I think… see here:
http://www.orbitdownloader.com/How-to-Download-Google-Video.htm
cheers
Anil
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Dear All
For more analyses from the American progressives,
check out
http://www.commondreams.org
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Ludwig von Mises has long ago warned about how government intervention distorts the market. He even explained the desparate steps people take when the unwinding of their con game causes large economic corrections. Government intervention caused most of these troubles, and the troublemakers themselves blame free market, conveniently.
The guns of criticism should be pointing to central bankers, who control the supply of money, and governments, whose interventions often make their buddies rich though the military-industrial-media complex mentioned.
Interest rates suppose to reflect the savings in an economy. There’s totally no rationale for such low interest rates in the US, with close to zero savings rate.
Imagine being a banker in a 1% interest rate situation back during the Greenspan era. All you competitors are earning double digit incomes speculating on risky mortgages (that historically has low default rates). What are you to do? By following the herd they get nice bonuses, good stock price and virtually no risk (since the gov implicitly guarantees). By being prudent they will be punished. Herein lies the ‘moral hazard’.
Such loose monetary policy is due to the Fed’s ability to create money ‘out of thin air’. This is akin to throwing a truckload of freshly printed, legal tender money on the streets. People scramble and all the greed is there to see.
Had gold and silver been used as money, there simply won’t be enough ‘extra’ money supply around the fuel the greed, and people would be forced to be prudent in their finances.
It’s a pity Economics and Finance is barely touched in schools, yet this knowledge is of critical importance and relevance to everyone.
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It’s funny how the United States’ government also suffers from this “political syndrome” of saying one thing, and doing another.
Like government intervention, cap on free-market trades…the list is endless.
http://www.suaradu.com
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We’ll see. Maybe they’ll pull out of this tight spot. Maybe they won’t.
Remember, people said the same back in 1929 and 1980s.
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There was time when the American economy rested on strong fundamentals. Banks only lent out their money on strong economic basis.
Nowadays, the banks are only interested to put borrowers in trouble. The way in which they pushed their credit cards without any regard as to the creditworthiness of the borrowers is going to be another fuse ready to set the American economy ablaze, and in fact the economies of other countries that avidly follow the footsteps of these American financial whiz-kids.
Fanciful investment instruments were created without any underlying support or assets to back them up. In other words banks have gone from a policy of prudence to sheer greed, thinking that they can create wealth out of thin air!
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I fell off my chair reading stuff like “the US economy is too robust and $700 billion is petty cash to the American economy”.
In the distant past, money was backed by gold reserves in order to enjoy the necessary confidence in it as a token for exchange. But ever since the evil empire and its allies succeeded in dominating the world, $700 billion nowadays is only the USA’s digital money created by a computer keystroke (used to be called “printing money”) and certainly not even real petty cash. It is ‘financed’ by a big fat number in America’s national debt until, if ever, it is redeemed by the sweat of present and future generations of American tax payers and the blood of the USA’s victims as it launches more conquests for resources.
In the meantime, the world has to continue having ‘confidence’ in the evil empire’s big fat negative number for fear everybody will sink together. Since the world is held hostage and has to continue giving actual goods and services in exchange for American digital money, why then the panic?
It’s because while governments and central banks may try to prop up this collapsing rotten tower, they can’t control the decisions on consumption and investment that is made by the billions of individuals and millions of corporations – such as if an individual has $1 million or an insurance company has $100 million in the stock market and they pull out, what happens?
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Haha, 700 billion is petty cash? then why on earth did the bill not pass in congress? simon li is right, of course. america thought it could go on overspending and incurring huge debts because the world because in an integrated global economy such as exists today, the world could not let it sink. and so they keep issuing the treasury notes and kept spending with funds from abroad, from japan, china, saudi and the rest.
what is the greenback backed by today? if the americans are not careful, their currency could well be on the way to becoming the american equivalent of the banana notes that became such a sick joke during the japanese occupation of malaya.
right now, the governments and central banks cannot allow the US to collapse, but i doubt they will continue to feed the profilgacy and greed in america. once the US dollar is no longer the preferred currency of world trade, america’s slide from the pre-eminent power will have been confirmed. that day is not far off. america will not fade away and die, but it will no longer be the alpha male of world politics.
that’s not necessarily a bad thing, is it? just hang on to your seats, fellas, cos the turbulence is going to hit us soon and maybe for a bit longer than the flu of 97 as the world adjust to the seismic shift…
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The empire lives on, stronger than ever… in China.
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#
int on September 30th, 2008 at 3.13pm
The empire lives on, stronger than ever… in China.
Except that this “Chinese empire”, like so many others today, depends on the US market for its well-being and on US manufacturers setting up factories there. I would agree that reports of the US collapsing or losing its influence anytime soon are greatly exaggerated. I think many people simply have no idea about the sheer size of the US economy. This so-called economic crisis is probably going to turn out to be more of a correction than anything else.
However, there seems little doubt that, long-term, the US appears to be in something of a decline. And the cause of that is not economic, but social. Quite simply, there has been a “dumbing” of America for the last few decades as their education system has slowly but surely deteriorated. The fact that they could twice elect George Bush as President is an indication of that.
But Bush may turn out to be someone who will be remembered fondly in the future. This year’s election is already guaranteed to produce a mediocre President, as the choice Americans have given themselves is between an old, one-trick pony in McCain and an empty all-style-no-substance “rapper politician” in Barack Obama.
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Most people understand money as a ‘Token for Exchange’ but this idea actually blinds us to the host of evil greed behind this game of exchange as it is played and led by America. For a grasp of why the USA’s (and likely, the world’s) financial system is now collapsing, money should be understood as nothing more than “Promises by the Financial System”. Let me explain.
When you render a service or sell a product in direct exchange, it means that you accept the other person’s promise of a specified service or product in return, to be delivered upon exchange or in the future. Of course, such direct exchanges are rare and confined to certain trades only. But if you trade for money instead, you are in fact accepting a promise made by the Bank or the Monetary Authorities that you would be able, in the future, to receive any kind of goods or services by passing on this promise. In the meantime, if the money earned is in physical currency, you can keep it under your pillow or ‘save’ it in the bank, the only difference to you (but not to the bank) being that the former way won’t earn you interest. (Just to jump forward a bit, with banks collapsing like dominoes, just ask yourself what you are going to do with your life savings in money, stocks or bonds?)
If the money you earned is physical currency or credits draw-able on another bank and you save or transfer it to your bank, your bank can use it to create more promises of many times greater value to grant to its customers by way of loans. In the case of transferring draw-able credits, the other bank will have to shrink an equivalent amount of its loans to its customers.
Conversely, if you take a loan from the bank, it gives you money (in cash or by crediting your account) which is, as said, promises made by the financial system and in return for the loan you pledge to pay the bank back in future money, which is just as much promises made by the financial system. But your pledge itself is no more than your own promise to the bank, backed by whatever asset, if any, that you may have.
However, money is not the only form of promises made by the financial system. All paper or electronic records of ‘assets’ capable of being invested in but practicably backed ultimately by money (such as stocks, bonds and all kinds of derivative financial ‘products’ like investment in swaps, options, futures and indices) are also nothing more than mere promises by the financial system,. Thus, the financial system is a huge and complex bubble of layers upon layers of web-like interrelated promises by financial institutions, originally resting upon the production, consumption and trade in actual goods and services but subsequently multiplying (or ballooning, in fact) as a result of the financial system’s operators and players creating more and more promises in the form of monetary ‘assets’ (which assets I shall call “generators”) in search of monstrous profits.
The financial institutions comprise the Monetary Authorities, the banks and all of the institutions with monetary assets as their sole or main value and whose main business is creating and trading in monetary assets or promises.
These institutions are the financial system’s operators. The players comprise not only these institutions themselves but also their investing clients, advisors, fund managers and brokers. The operators seize upon “generators” to do two things: (1) Grow the volume of these investment “generators” regardless of their ‘quality’, such as by creating a self-perpetuating loop of easy mortgage loans to borrowers with doubtful repayment capacity that push up real estate prices which in turn demand ever larger loans; and (2) Bundle these sub-prime loan assets with other ‘better’ monetary assets to create new investment derivatives that would thus ‘merit’ better ratings. Inevitably, such toxic products seeped upwards through the whole financial system and markets, from the loan-making banks and institutions (Fannie Mae and Freddy Mac) through the entire US and world community of investment banks, insurance giants, pension funds, equity funds, government sovereign funds and other investors, all of whom have their fingers and pie in these ‘securities’ and the stock and bond markets. Of course, through the last decade, US sub-prime mortgages are not the only potentially unravelling “generators” that have ballooned through toxic derivatives and made billions of profits for the system’s operators and players.
Carrying such a huge toxic load of potentially worthless ‘assets’ that must keep multiplying in order to keep profits rolling and the entire financial system ticking, the whole bubble had to burst at its weakest point, which is when sub-prime mortgage promises began to default and those first of the over-extended loaning banks started to go under. Empty promises built on layers upon layers of unsustainable promises will keep imploding downwards until your money is no longer safe in any bank and thus the economic system also collapses. So the US government has no other choice but to take over these empty promises to the tune of US$700 billion (if this is enough!) to be backed by the sweat of present and future generations of US tax payers, the blood of more victims of US conquests for plunder and God knows whatever else is in store for you and me.
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You people do not have to worry about USA,they know how to solve their problems.Whether you like it or not,US is going to be fine and remains a great financial and military power in years to come.Worry about our country,malaysia is in distress !
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miwaki, can you use an american name next time
people might mistake you for a japanese
it’s no fun reading about america by a japanese
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I think the golden rule applies – if you borrow too much and spend too much, don’t earn enough and don’t save enough, then as an individual you’ll face a financial crisis. When that happens to a nation collectively, when the banks don’t care whether you can pay back, then the country faces a financial crisis. Simple as that. It happens to Msia in 1997, it happened to the US last year and it’s happening to Dubai. Wasteful spending always leads to a downfall. Don’t underestimate the Americans .. they will bounce back. Don’t underestimate China .. they have secured 2nd place in the world economy, and they are poised to go higher.
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