September 17, 2008
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American Economic Collapse?
Senator McCain knows he is following the time-honored custom of "Reassuring the troops" with his claim that the U.S. economy is "Basically sound". Senator Obama will undoubtedly follow suit with the caveat that any problems are fixable.
Well, IMHO the problems are not easily fixable and we are in for a rocky ride - worldwide.The recent problems in the U.S. have a fundamental philosophic base: How far can laissez faire be allowed to go in a modern complex economy? Should basic economic institutions be politically regulated or should entrepreneurs be allowed to operate freely without political restraint?
Most modern developed nations put some restraints on their economic institutions - often by regulating or administering the basic banking systems.
In recent years the U.S. has loosened its control over both the banking system and the stock markets, allowing both bankers and entrepreneurs much greater freedom to seek profits in risky areas.This has had two effects: Much greater possible market fluctuations and much less protection for individual and institutional investors. The decades-long rise in market value has led economic institutions and individuals to make risker and risker investments and greatly inflated the perceived value of both stocks and, most notably, real estate.
Has this governmental attitude led to serious economic problems?
To what extent can the national government now act to correct and calm down the sudden negative changes in the economy?
Comments (9)
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I know that I've been living under a rock, but what is the extent of our current economic problems? I don't really feel well enough informed on this topic to even discuss it.
Are those fact the beginning of the inevitable fall of capitalistic system empire?
I have no doubt of that fall, but i just hoped it would have been much slower than this.
Dick, i believe we are going to be all very poor, and we are not prepared for this.
I guess that this won't affect who is controling the global economy. Those ones we trusted for institution, and those ones that now are taking out their claws to defend their privileges.
Omniscence: i believe we won't be enough informed on the gravity of the situation till when it will be too late.
Perhaps one root cause of the present crisis (yes, it is a real crisis - especially for anyone who has invested for their future) is that most of us are convinced that economics is too complicated to understand and that it is a good idea to trust our life savings to experts. Many Americans seem to believe that the American banking system is effectively regulated by the government.
As a result of the great depression of eighty years ago, additional regulations of both the banks and the stock markets were put in place, but many of these regulations have been allowed to lapse or have been changed to allow banks and markets greater freedom.
The present "bubble burst" in the mortgage market and subsequent collapse of major banks has been the result.
The ripple effect from this is already being felt worldwide. A lot of "paper profits" and invested value has already disappeared and this will spread pretty rapidly around the world and impact us all.
Philosophically, is this a time for more political oversight of the basic economic institutions or should we just go along for the ride?
To reply to Dario's comment: I think "...fall of the capitalistic system empire" is overstating present world problems. After all, Capitalism is simply the economic application of the very popular concept of individual liberty. The question will more likely be: How much individual economic freedom will the world's population be willing to give up in return for economic stability? The Soviet Union's collapse twenty years ago demonstrates the problems of too much political control over an economy. I do think there will be - well, already is - a demand for more effective regulation of basic banking institutions.
I think that deregulation has caused much of the problems that we now have. AIG is reported to be too large to allow to fail. If it is too large to allow to fail then it is too big to exist and it is the governments responsibility, as the hired workers of the citizens interest to ensure this.
Thanks for the advice I sent my mom all the e mails so she could see what I am talking about and she says the same thing you do!
Odd , this page turns up with a black hue to it, what shade is the primary color on your webpage?