Finally, we get to the final installment of this little series. The first three posts described the sheer madness that is our fiat currency system, the twisted international economic relationships it has created and the gigantic quantities of unproductive debt that has been accumulated in the process of constructing these great imbalances. The previous post then proceeded to describe the potential of using competing gold/silver backed currencies to gradually phase out the madness of fiat money and the gross imbalances it creates. This post will wrap things up with a look at what needs to be done to cure society’s severe debt addiction.
In short, all that needs to be done to achieve this noble aim is to restore accountability within our society. Yes, I know – easy to say, hard to do – but it must be acknowledged that a very large portion of the economic woes we are facing today (and the European sovereign debt crisis featured in the above video is unfortunately just the beginning) is due to the gradual erosion of accountability when it comes to financial matters. This applies right the way through from individuals to banks to government. Let’s take a closer look:
The debilitating culture of consumerism and entitlement that has taken over the developed world has led people to come up with a rather impressive collection of scapegoats for their current financial troubles – anything from the government to the “banksters” to the “1%” to capitalism. As a result, people feel entitled to ever increasing quantities of government spending and welfare (even thought the government is even more broke than they are).
Yes, many external factors have played a role in the current economic slowdown and the rapidly rising unemployment figures, but the real root cause of the majority of personal financial tragedies is the self-inflicted combo of massive debt and next-to-zero savings (i.e. a complete lack of financial resilience). Before people assume accountability for their own personal finances, we will continue sliding down this very slippery slope of mounting debt and out-of-control spending. This is essentially the topic of the entire post series on personal finances and I really think that restoring personal responsibility in this crucial area is a central part of curing the madness of our economic system.
Although the individual accountability for personal finances remains the most important aspect, the increased levels of accountability needed to allow financial institutions to correctly price risk is also a vital factor. As discussed previously, the socialization of mortgage debt through exotic financial instruments played a very big part in the 2008 subprime mortgage crisis and many other such instruments are still in use today (just take a look at this infographic on the size of US banks’ derivatives exposure).
It also does not help when too-big-to-fail banks are continuously being bailed out upon the obvious collapse following years of totally reckless speculation. Irresponsible institutions should be held accountable when the hammer drops so as to re-balance the pricing of risk. The modern financial sector is well known for setting up the game so that they win big if a risk pays off and the taxpayer takes the losses when it doesn’t. These kinds of heads-I-win-tails-you-lose situations must be prohibited by law if we are to cure the madness of our economic system.
Finally, we get to catch up with our current economic crisis at the level of government. Following decades of financial recklessness on the part of individual consumers and financial institutions, the majority of Western governments now face rapidly mounting levels of sovereign debt and widening budget deficits due to dwindling tax revenues and ever increasing demands for state welfare. This is the final level and, due to the socialization of debt discussed previously, it is also the most dangerous because it erodes almost all accountability.
Restoring accountability for sovereign debt is therefore essential to curing the madness of our economic system. Instating a tax directly proportional to the interest payments on national debt might be a good way to achieve this. The electorate will certainly be more cautious about voting for ever-increasing quantities of government spending when they see the effects of reckless government borrowing on their tax returns…