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Global Financial Crisis Agonistes

February 15th, 2009
At the G7 meeting of finance ministers in Rome, representing most of the world’s major economies (but excluding China), there was an outpouring of Keynesian conformity. Already engaging in fiscal policies in most G7 countries that represent major structural deficits, the finance ministers in unison pledged even more massive deficit spending as a panacea for demand destruction and rising unemployment. However, even if massive stimulus spending were the correct policy response in a normal recession, in this economic crisis such a course is doomed to failure. The current Global Economic Crisis began with a global financial crisis that is still very much with us. The banking and financial system in the major economies is struck with paralysis, resulting in a credit crunch that has debilitated a growing proportion of the world’s primary economic activities. Without a solution to the global banking and credit crisis, all the debt spending in the world will accomplish nothing save international insolvency.

Right now, frightening proportions of the banks of the major economies are either insolvent, close to insolvent or in otherwise poor condition. Though the major economies have already poured trillions of dollars of largely borrowed money into shoring up the balance sheets of failing banks, it has been a case of good money after bad. There may simply not be enough money available in the world to “fix” all the banks, which are rotting with the disease of toxic assets. Yet, without some form of effective, coordinated policy response on a strategic level to the financial component of this global crisis, all the other conversations ongoing in Rome with these illustrious finance ministers represents nothing more than side-talk on the decks of the Titanic.

U.S. Treasury Secretary Timothy Geithner and his G7 colleagues are pontificating about their robust stimulus deficit spending and pledges to avoid protectionism, while paying lip service to the catastrophic disintegration of much of the global financial architecture. As outlined on this blog in prior posts, almost the entire United States banking sector is insolvent; ditto for the United Kingdom. I have also drawn reference in another post to a leaked secret document from the European Commission, which seems to suggest that a large proportion of the Eurozone Banks are also infected with toxic assets to such a degree, they are also threatened with insolvency.

The financial cancer is spreading through the enfeebled limbs and arteries of the global credit and banking system. Time is running out for an effective and comprehensive solution. Yet, in imitation of Emperor Nero, the G7 finance ministers prefer to exercise their fiddles, accompanied by the lyrical singing of meaningless rhetoric, as the financial and economic world around them burns with agonizing ferocity.


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