Our Changing Globe

Archive for the ‘failure’ Category

For at least five years, I have told people that capitalism would soon collapse but was nearly always mockingly asked, “and what will replace it?’, to which I had and still have no real answer.

I did, and do know however that you can’t base an economy on debt and expect it to last and that is exactly what the U.S. economy is based on.

Just today I read that California is 42 billion dollars in debt and yes you read that right, billion and not million.

Many people find Barak Obama charismatic which I personally don’t but I do believe that he is very smart.

But is he smart enough to save capitalism?

In January, Obama will gain the authority to run the government of the United States of America, but its presidents cannot simply remain charismatic symbols but must also tackle its problems and America and the world have many of them right now.

When Obama began his journey to the presidency, the war in Iraq was first and foremost in a great many people’s minds but that is no longer the case and he will be judged by how he handles the world’s economic crisis.

The U.S. is still by far the biggest driving force behind the world’s economy so Obama’s first task will be to restore confidence to Americans who are deeply pessimistic about their near future!

People are not borrowing and most financial institutions aren’t lending and if that doesn’t change then the economy is doomed as perhaps it was from its inception?!

Simply exuding confidence will not be enough regardless of how much charisma you have and Obama may be forced to reform the system itself.

In recent months the U.S. government has taken on a huge number of obligations in the private sector …

Ownership in banks.

Guarantees of commercial debts.

And loans to the automobile industry.

Sadly and perhaps most seriously no exit strategy exists and the Obama administration will have to find one because that is exactly what it will be judged on!

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The Banks Are Now Indebted to Governments

Just last week Obama promised to spend hundreds of billions of taxpayers’ dollars to prop up the sinking U.S. economy and Gordon Brown’s British government announced that it would take from the “rich” in order to finance an economic rescue.

The Bush administration has all but nationalized the world’s largest bank, the Citigroup and it has also thrown in an additional $800bn to attempt to thaw America’s starving credit markets.

The banks meanwhile are pretending that they are still answerable to their shareholders whereas they are in fact only surviving with very explicit financial guarantees from their governments.

In spite of extreme attempts at resuscitation the markets continue to lack confidence however and if nothing changes soon then capitalist countries will have little choice but to assume even more direct control and even possibly take direct ownership of their banks.

In the U.S. and Britain, the centre-left understood more than a decade ago that if it wanted to win elections that it would have to accept Reagan-Thatcher economics and Bill Clinton promised the end of big government.

The bottom line is however that main street America did not vote to throw out the capitalist baby with the bathwater and the leading members of Mr. Obama’s new economic team are amongst the most enthusiastic believers in liberal markets.

Financial boundaries have moved and although downswings always created a backlash they were more often than not forgiven because of the following upswing, but this time the bust was so much more severe that the effect of the crash will be felt long after the actual recovery occurs meaning that ‘forgiveness’ will be much later in coming.

The public no longer trusts the market and it’s not clear whether president elect Obama and other leaders will be able to right the wrongs at any time soon, but what is certain is that financial thinking and the world’s markets will never be the same again.

The Banks Are Now Indebted to Governments.

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