Some people, most people, think although the circumstances are peculiar to this downturn, it's just another downturn. And now, with a few worries along the way, we're back on the way up.
Other observors think this reversal is going beyond one cycle. ie there are structural elements to this downturn that block the way back to what we had known this last decade.
What are these structural defects? What are the remedies - indeed, will current politicially correct remedies really work? Are there really any ways out of this crisis? Can we change the structure of the economy and still keep existing political leadership?
The cause of this crisis lies somewhere in over production and policies of cheap money that would allow people to shift that production even if it meant getting into debt. Eventually, there was too much debt build-up, the red lights started to come on all accross the economy, beginning with the most exposed area: housing.
In this view, Madoff was one of us - we (governments, companies, individuals) were borrowing from new entrants - future generations- to buy the over production in the present and keep the wheels turning, the feel-good factor going. Everyone had their snouts in the trough, from politicians gaining votes from ever rising standars of living, companies and shareholders and ever rising profits, through to the public and soaring consumption.
If the fish rots from the head down, this must surely be the politicians who led the merry go round. Or to add another metaphor, was it the fox that ate the chickens that was responsible for this mess, or was it the farmer for leaving open the hen coop door? It seems to this author that none of the existing poliiticial leadership are capable of the out-of-the-box thinking required to avoid the over-production > unmanagemable debt problem that got us here, they are too bound by their past pronoucements, caught in the web of interests and in hock to their friends in the city.
The remedies will be wholly other than what is being tried at present. The current remedies involve taxpayers putting money into banks and banks sending their toxic (ie sub prime) assets to the government balance sheet in return, ie ordinary citizens are buying assets at pre-crisis prices and banks are shifting their risks to the pub lic purse.
But we cannot have existing politicians dragging back their city friends into the lifeboats. Leaving most of the passengers back on a sinking ship. We will all sart to see that this isn't going to save us, captain, crew and passengers, because structural means unsustainable and solutions start almost from a blank piece of paper, solutions mean rethinking elements not of our economy but of our culture.
For now, we have become a sub-prime society.
Where should we start? What needs to go, what stays? What is our current culture must change? How to bring about these changes? For example, we know that financial products and investment banking are just drains on our assets - clever people getting rich by wasting other people's money. They provided 25% of UK plc company profits and 10% of the land's employment. Where do we redeploy these people to?
I would like to know what sectors of the economy we must withdraw from: banks unless just intermediary money changers; and also withdraw from construction; out of luxury goods because even the rich are collapsing even if the poorest home owners suffered first; out of consumer durables; out of car production; and out of in general all borrowing-bubble-blown activities; even maybe out of energy and health care sectors.
The money should be going instead to other sectors that are going to do well, future sectors that are currently being starved instead, but that will create the wealth and the employment we have lost; and are probably new-technology led sectors.
How will we fund these changes? The absolutely huge amounts of money designed to re-animate the economy, money that was borrowed and printed, is there, but it is doing nothing at the moment. We have just shifted the toxic assets from private to public hands in order to shift the risk, the private sector is now awash with walls and walls of mattress money. Banks, who won't lend for fear of aquiring new risks and anyway no-one wants to borrow anymore - these institutions have our government money; private households have moved savings into cash and are sitting on mountains of cash earning almost nothing and waiting for confidence and new thinking to emerge; investment funds and professional investors, SWFs, are again sitting on enormous deleveraged cash piles. The government, on the other hand, is the world's bigest hedge fund, sitting on hundreds of billions of old-economy assets. Without investor confidence, they will never be able to float them back into their original private sectors.
So I would submit that a new economic philosophy is needed based on sustainability, a new political infrastructure is needed once the public sees that the crisis is mainly structural - call it the pay-as-you-go party; and careful inclusive central planning will identify or create these sectors of the future and put the mattress money into it.
Who is out there to do all this? Where is the talent needed to make the transitions? If it is the depth of the change that is frightening you, can you imagine what will happen if it is not made?
