In This Economic Crisis, We Are All to Blame 14 comments
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It's human nature to find blame in other people's actions. When things go wrong, the natural psychological reaction is to pinpoint the cause and try to ensure that it isn't repeated. Unfortunately, it is also human nature to find blame in a way that does not impact your personal well being, i.e., it's never your fault. I do it. You do it. We all do it.
As the global economy unravels in spectacular fashion, we find endless finger pointing. The Republicans blame the Democrats. The Democrats blame the Republicans. The British blame the U.S. The French blame everyone while wildly waving a white flag. The bankers blame the consumers. The consumers blame the bankers. And so on. But I've come to my own conclusions: we are all to blame.
The U.S. and U.K. have been blaming Asia (mostly China) for their role in the crisis, specifically citing their excess savings and currency manipulation. In addition, much of Asia (EPP) (FXI) was embroiled in a spectacular stock market and real estate bubble driven by debt and speculation:
click to enlarge
Asia had been the engine of the 2003-2007 bull market. Once the region began to decline, the house of cards toppled. The alleged currency manipulation (CNY) wreaked havoc on the debt of foreign nations. Did all of this play a role? Absolutely. Was it the cause? No. But it certainly contributed. And they weren't the only ones who played a major role.
The Financial Times is out with an article smearing the U.S. for the crisis. They've essentially come to the conclusion that the U.S. is to blame. As if the U.S. forced them to borrow money and purchase homes in London and Madrid and drive European stock prices (IEV) to the moon. The U.S. played no role in what has potentially become the biggest blunder during the crisis: the ECB's focus on inflation that resulted in extremely high interest rates and a bloated currency (FXE) while their economies deteriorated at record paces. In addition, I guess they forgot about their own little bubble at home:
The housing bubble in the UK and in much of Europe was actually far larger than anything the U.S. experienced. In addition, European banks loaned over $3.5 trillion to emerging markets (think junk debt) while U.S. banks made most of their junk loans domestically. The U.S. and Japan combined made only $700 billion in loans to emerging market nations. You could essentially make the argument that Europe was financing the bubbles in the BRIC nations (EEB) while the debt levels in their own back yards exploded. Now they need hundred billion dollar loans from the U.S. Federal Reserve to stabilize their own banking systems while their bloated currency collapses.
As a whole you could say the U.S. is more at fault than the rest of the world, but only by default. The U.S. is the largest economy in the world by a large margin so anything the U.S. does is magnified.
Since the Cardinals lost the Super Bowl this Sunday, everyone will blame Kurt Warner. The world blaming the U.S. for the credit crisis is like Arizona's players blaming Kurt Warner for the loss. Yes, he's a more vital component of the team, but that doesn't mean others didn't play a role in the loss. We all need to take some responsibility. This global economy isn't the one man band it once was.
So yes, the U.S. definitely played a larger role in this whole mess, but that doesn't mean the U.S. acted alone. In this global economy we are all to blame and it’s everyone’s job to act together to help us all get out of this mess.
Disclosure: No positions.
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sense of guilt--in an oddly communistic way--to legitimize greed and distract attention from wrongdoing. You can bet "we are to blame" will be
popular phrases in our corporate-controlled media that will be repeated ad nauseum for as long as we are in a recession. After that we will be back to the proudly entrepeneurial, "I did it, so can you!"
Too bad that even otherwise legitimate-seeming newsources will repeat this corporo-fascist nonsense to get us all feeling cozily, communally guilty, while bankers, brokers and politicians run off with our millions in the service of the rich.
Where the credit bubbles came to exist differed in different areas, even within individual countries, and some bubbles were built for nefarious reasons as well, but the bubbles don't even come to exist without fiat money.
And if the various governments and central banks are able to patch up this mess and reflate (which is not a given yet, in my book), then we'll see this again in short order. The particulars of the story will change, but the same thing will continue to happen until we have sound money again.
Human nature is what is it is. We want stuff now. Human nature and fiat money are not a good fit. Fiat money makes it too easy to have stuff now and pay for it later. Long periods of excessive growth in the supply of fiat money and credit also raises asset prices and fools us into making mistakes like thinking that housing and stock prices will always go up. This makes it even easier for us to justify having now and paying for it later.
That's where the bubbles come from. That's the recipe for these crises. There's only one fix - sound money - but too few want to do it.
Even sound money doesn't bring a perfect economic world. There's still human nature.
It is not important in sorting out this mess to point out that someone is not a cause of the problem. This is a societal problem. In fact, it is a world societal problem. Just because someone contributed little to the problem does not mean they will be absolved from having to contribute to the solution.
On Feb 02 10:02 AM Gracias wrote:
> Nonsense. "We are all in this together" and "we are all to blame"
> forgets the fact that 1) many are not suffering (we are not all in
> this together) and 2) some of us saved and rented and never ran up
> debt (so much for we are all to blame. Too bad that Seeking Alpha
> would publish such obviously pro-corporate, pro-bailout propaganda.
On Feb 02 10:44 AM JohnAl wrote:
> The scourge of fiat money is what is responsible for this economic
> crisis.
>
> Where the credit bubbles came to exist differed in different areas,
> even within individual countries, and some bubbles were built for
> nefarious reasons as well, but the bubbles don't even come to exist
> without fiat money.
>
> And if the various governments and central banks are able to patch
> up this mess and reflate (which is not a given yet, in my book),
> then we'll see this again in short order. The particulars of the
> story will change, but the same thing will continue to happen until
> we have sound money again.
On Feb 02 11:00 AM JohnAl wrote:
> (Permission to revise and extend my remarks?)
>
> Human nature is what is it is. We want stuff now. Human nature and
> fiat money are not a good fit. Fiat money makes it too easy to have
> stuff now and pay for it later. Long periods of excessive growth
> in the supply of fiat money and credit also raises asset prices and
> fools us into making mistakes like thinking that housing and stock
> prices will always go up. This makes it even easier for us to justify
> having now and paying for it later.
>
> That's where the bubbles come from. That's the recipe for these crises.
> There's only one fix - sound money - but too few want to do it.<br/>
>
> Even sound money doesn't bring a perfect economic world. There's
> still human nature.
Saying 'We are all to blame' is a form of moral and judicial nihilism.
Yours is a good article and in my books it deserves an A -. Congratulations!
However, the title of your article might perhaps need some minor adjustment. The "...All..." word seems to be too inclusive. Now I am not being self-righteous, and my comment here is truly most sincere.
The story was that sometime in 2007 when I first heard of the phrase "sub-prime mortgage", I couldn't quite comprehend its meaning then. I thought the "sub" would mean to describe a special preferential premium rate at below the usual prime lending rate for mortgages, as in the case of my HELOC which is at a good half-percentage below the prime. (Don't laugh please, this is a true story; ordinary citizens like myself and my family have enough day-to-day chores to contend with, pay the bills, feed and wash ourselves, make the boss happy, and take the garbage to the curb on time...). Obviously what transpired into our current meltdown invoked me to learn all about CDS, MBS, and all that rich man's game.
Again, thanks for an inspiring article.
Teutonic