Thursday, 5 March 2009
by Peter de Waal The key thing I got from Ambrose Evans-Pritchard's article We need shock and awe policies to halt depression is that industrial production has collapsed at a rate 2-10 times faster than in 1929-1932! The credit bubble was largely based on worldwide property prices being pushed up with financial tricks over a 30-year period. In my opinion Capital has two ways out of this: 1) Allow house prices to collapse to the value at which ordinary working people can afford to buy them again i.e. 1-4 times the average yearly wage. This would of course bankrupt many insurance companies, pension funds and banks, ruining the rich. This would happen if the governments of the world stopped promising to bail out failed banks. The banks would then have to "mark-to-market" their loan portfolios, rather than hanging on to the notion that the book value of 18 months ago can be realised. Because of the bail-outs US Banks have been refusing reasonable offers for properties and their loan books, and have actually increased their exposure to toxic credit derivative products safe in the knowledge that they are "too big to be allowed to fail." 2) Print money like crazy and hope inflation catches up with those still wildly-inflated house prices. Option (2) is very dangerous, as it would capsize US efforts to get the world to buy it's debt in order to finance the bail-out of it's destitute banking system. Why would you buy a T-Bond when the value of the US$ is plummeting? Printing money or allowing inflation to rip would deal quite effectively to the US debt problem. There is always option (3) War. World War II began as a trade war, became a shooting war and ended as a nuclear war. We need option (4) make the bosses pay and end capitalism.