Now that the stock markets are crumbling

Governments took on an entirely new role almost 100 years ago. To be more precise, the centenary will actually be in 2014. The original event was when several European governments, led by the UK, started printing banknotes in prodigious quantities to pay for the First World War and then, afterwards, assumed that they could control their own economies. They made a bad fist of it, and this is why, of course, the second World War took place in 1939. They (now dominated by America) made an even worse fist of it when they decided in 1944 (before the war had actually ended) at Bretton Woods that they would control the whole world’s economy by fixing all the principal currency exchange rates, the American dollar being the only one to be exchangeable with gold.

But they didn’t control the world economy, they don’t, and they never will do, despite what the politicians might say in their State of the Union addresses or their Budget speeches. The real world economy takes place by means of hundreds of millions of daily transactions between businesses involving the movement of quadrillions of physical and informational goods backwards and forwards around the world. Governments can only intervene in fits and starts as data are collected periodically. Whether the data are elections (or opinion polls, or riots) of their people every now and again, or their annual personal incomes, or the balance sheets of businesses, the decisions are always after the event. Their decisions ā€” whether of taxation, interest rates, quantitative easings (printing of banknotes), exchange rates, regulations, granting of privileges ā€” are all of an adventitious, not to say, parasitic, nature. Important though governments may be for the security of the citizen, they are, financially, only the ivy growing up the trunk of the tree.

The businesses of Western Europe, America and China are now inextricably inter-dependent. But their governments are all in disarray. America’s government cannot balance its books and can only continue by continuing to inflate its dollar. China still cannot decide whether it is seriously freemarket or needs to relapse into communism. The Eurozone is becoming a political snake-pit with senior politicians of least 6 governments (Greece, Portugal, Spain, Ireland, Finland and, most recently, Netherlands) saying “Stop! We want to get off!”

The stock markets of Western Europe, America and China have been dithering for weeks and are now plunging. One of the three (probably the Eurozone) is going to collapse soon and all three will then be thrown into a depression worse than anything that has happened in 300 years. What can possibly happen to prevent this? A new world trading currency will have to be instituted. This will have to bebrought into existence within days before not too many business transactions falter by default. In my opinion, the only institutions that can do this and keep all existing economic transactions going are the largest transnational corporations. Its use can then ripple downwards and outwards to all businesses within days. Governments, corporations, and individuals will have to start brand new account books using the new money. All this will be the only guarantee that the world economic machine can keep going and that social breakdown can be kept to a minimum.

What will happen to present accounts, imbalances, bank collaterals and debts? They can be put on one side for the moment but they’d have to be paid off (with new money) in due course. This will take accountants years to do and, no doubt, years for politicians to bicker between themselves as to the exchange rates between their old national currencies and the new world currency. Government debts will have to be paid off also. But it would be unfair that future generations should pay for our governmental debts out of taxation (as governments are presently expecting them to). Huge though the debts are they can easily be paid off by selling some of the physical assets of governments, particularly property and land, of which all governments have sufficient. (Ex-prime minister Macmillan called this “selling the family silver”!) All this will take decades, but at least some sort of world economy will continue and our grandchildren will be relieved of the burden of paying our governmental debts from of their incomes. They’ll have more than enough problems of their own without ours as well.

One thought on “Now that the stock markets are crumbling

  1. Your focus, as most educated peoples’, is on the tip of the iceberg, the visible bit.
    Most of the economy is however invisible – voluntary work/exchanges that are not accounted for. This part will still be there if/when the tip falls off – in some ways may even work better thereafter! It could be worthwhile to bring it into focus already.

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