Soaring capital flows, a debt-based consumer culture and unbalanced trade between countries all contributed to the worst financial crisis since the Great Depression. The question now is whether governments follow a 'business as usual' model based on self-interest and inequality, or one that promotes equitable development based on moral and social principles.
As the threat of US-driven recession looms ever larger, it is state intervention that is keeping the market economy afloat. Last month, central banks coordinated action to pump billions into the global financial system in an effort to loosen the vice of the credit squeeze. This week, we have had the spectacle of state investment funds from South Korea, Singapore and Kuwait taking stakes in US corporate giants such as Citigroup, the world's largest bank, to offset the impact of the sub-prime mortgage crisis and the biggest loss in the bank's history.
There is growing talk on Wall Street about the possibility of a recession. Since the beginning of the year three Wall Street firms (Merrill Lynch, Morgan Stanley and Goldman Sachs) have all stated they believe we are either in a recession already or are very close to a recession. In other words, it's no longer a matter of if a recession happens but when it will happen and how long it will last. In response to these developments, various presidential candidates have proposed various solutions.
The United Nations has warned of "clear and present dangers" that the United States will take the world economy to a near standstill this year. As some of world finance's leading analysts predict a US recession this year, the world body says America's problems with housing credit and a weakening currency threaten to drag the world into an economic morass. In an annual report , the world body forecast global economic growth at 3.4 per cent for 2008, only slightly lower than last year, but said it could be as little as 1.6 per cent.
Gordon Brown says Britain should brace itself for the impact of global financial turbulence. The Financial Times warns that the outlook for the economy is the worst it's been since the dotcom bubble burst at the beginning of the decade. Retailers fear that the Boxing Day stampede to the sales was the last gasp for the consumer before a prolonged period of belt-tightening.
You might not have heard of N. Gregory Mankiw. The Harvard economics professor and former adviser to George W. Bush is one of the most gifted economists of our generation. He is also one of the most effective and talented propagandists of our times. His target: young economics students. His field of operation: the world’s universities. His weapon: the best selling textbook in the world.
Thirty years ago, capitalism won a historic struggle against communism. Since then, prevailing wisdom has settled into the idea that markets are good and policy is bad. Let markets solve our problems. Shrink government, reduce taxes, deregulate and privatize.
On 9 August 2007, globalisation's rickety financial levees were broken by a storm-surge of debt, invisible to most punters, but scary enough to frighten bankers.
