The Financial Crisis Was Foreseeable … Thousands of Years Ago

Economists, Military Strategists and Others Warned Us … Long Ago

We’ve known for 4,000 years that debts need to be periodically written down, or the entire economy will collapse. And see this.

We’ve known for 2,500 years that prolonged war bankrupts an economy.

We’ve known for 1,900 years that rampant inequality destroys societies.

We’ve known for thousands of years that debasing currencies leads to economic collapse.

We’ve known for hundreds of years that the failure to punish financial fraud destroys economies, as it destroys all trust in the financial system.

We’ve known for hundreds of years that monopolies and the political influence which accompanies too much power in too few hands is dangerous for free markets.

We’ve known for centuries that companies will try to pawn their debts off on governments, and that it is a huge mistake for governments to allow corporate debt to be backstopped by government.

We’ve known for 200 years that allowing private banks to control credit creation eventually destroys the nation’s prosperity.

We’ve known for 200 years that a fiat money system – where the money supply is not pegged to anything real – is harmful in the long-run.

We’ve known since the 1930s Great Depression that separating depository banking from speculative investment banking is key to economic stability. See this, this, this and this.

We’ve known for 80 years that inflation is a hidden tax.

We’ve known since 1988 that quantitative easing doesn’t work to rescue an ailing economy.

We’ve known since 1993 that derivatives such as credit default swaps – if not reined in – could take down the economy. And see this.

We’ve known since 1998 that crony capitalism destroys even the strongest economies, and that economies that are capitalist in name only need major reforms to create accountability and competitive markets.

We’ve known since 2007 or earlier that lax oversight of hedge funds could blow up the economy.

And we knew before the 2008 financial crash and subsequent bailouts that:

  • The easy credit policy of the Fed and other central banks, the failure to regulate the shadow banking system, and “the use of gimmicks and palliatives” by central banks hurt the economy
  • Anything other than (1) letting asset prices fall to their true market value, (2) increasing savings rates, and (3) forcing companies to write off bad debts “will only make things worse”
  • Bailouts of big banks harm the economy
  • The Fed and other central banks were simply transferring risk from private banks to governments, which could lead to a sovereign debt crisis

Given the insane levels of debt, rampant inequality,  currency debasement, failure to punish financial fraud, letting the private banks take over the system of credit creation, de-linking of fiat money from anything real, growth of the too big to fails, repeal of Glass-Steagall, refusal to rein in derivatives, sovereigns taking on banks’ debt, crony capitalism, endless war, and other shenanigans … our financial crisis was entirely foreseeable.

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  • amy

    Perhaps then it is time to surmise the following conclusion: Humanity is insane.

    • The 5-10% of humanity of various sociopathic tendencies are the insane ones. The rest of us are too uneducated to see the problem or too invested in the insanity to even be willing to see the problem.

      If 5-10% of humanity had as strong a drive for balance and justice that the 5-10% of the Pathocracy had, that critical mass would counteract the insanity.

      • captnkrunch

        I don’t think so. Balance would require that those good and just people be elected (or usurp) to positions of decision making power. It is my observation that being elected requires malpathology (lying, exaggeration, pandering, bribing, coercion, obsfuscation, etc.). Of course, usurping power typically requires even more intense malpathology (murder, theft, etc.).

        If this observation matches reality, the important question is “why?” That is, why do people want to be “led” by sociopaths or is their malpathology simply not observable by most?

      • fallingman

        Well said Upoo.

        Really nice article Washington Blog.

    • captnkrunch

      Yes but since there are many kinds of insanity, maybe you’ll agree that it is more illuminating to say simply that “humanity is self-destructive.” Obviously, the degree of self-destructiveness matters.

    • Geoff Orchard

      Not so much insane as “not as bright as we think we are”. Our average IQ is only 100 – not 150.
      “We are not so much fallen angels as risen apes”. Some people find that hard to take but it is true nevertheless. We share a good proportion of our DNA with the daisy growing in your front lawn and that has yet to learn how to get out of the way of the lawnmower.

  • Carl Herman

    In my 33 years of working with economics policy briefs, I must commend GW for having the most comprehensive grasp of economic forces in play that are also communicated the most effectively.

    Thank you, GW.

    You’re earning trillions of good karma points (inflation may not be included).

  • Alister Cyril Blanc

    We’re merely realising that anarchy never left us, that spontaneous orders are the single most unifying factors under which all of us live. Spontaneous orders, the timeless & indomitable nature of all environment(s), indifferent to our personal choices & highlighted by the Universe, an anarchical Universe which itself decentralising, moving away from any particular means of central control. Is any person actually capable of escaping this anarchy? Can any person or group abolish anarchy & setup a Government in its place? Most people, regardless of their ideological
    preferences, simply assume that the abolition of anarchy is possible, and that this has been achieved & that therefore we now live “under Government”. Nothing could be further from the truth.

    Market anarchy is finally supplanting political anarchy, and the most political form of market anarchy is central banking, or in other words price-fixing interest rates by means which are not open to transparency or given to sending honest price signals. But now, the deluge of information is drawing the world’s attention towards the unsustainable nature of interest rates that are not free.

    • fallingman