“The whole world is drinking poison to quench its thirst. It may feel like relief now, but the sickness will strike in 2012.”

-       Economist Andy Xie, referring to capital injections to stabilize the financial system.

Karl Marx held that capitalism would end through the revolutionary actions of communists. If capitalism does end as a result of a financial crisis that many presume to be over but which we believe is merely in abeyance, it will have come about simply by collapsing in upon its own self-interest. That may actually be a little unfair, not least in semantic terms; the OED defines capitalism as a system which favours the existence of capitalists – a term which it goes on to define as “one who has capital available for employment in financial or industrial enterprises”. There is, in turn, a tendency to conflate capitalism with free markets. And the irony, of course, is that we now have neither. Banks are bereft of capital, and the free market has in large part been suspended by government fiat (and governments aren’t exactly overflowing with capital either). So the government now controls the price of money (thus impoverishing savers), and despite its ownership of much of the banking system, seems powerless to stop the banks it owns from refusing to lend much of it out – but equally powerless to prevent the banks it owns from lending money to foreigners so that they can take over domestic businesses with the associated threat to domestic jobs. If we outsourced our government to al-Qaeda it could hardly make a bigger mess of things. The alleged unwillingness of capital-light banks to lend may also be missing a broader point: as per Japan’s experience during its own balance sheet recession, cutting the price of money to zero has little impact when few really want to borrow and many businesses and individuals are in a greater hurry to pay down their debts than to take on fresh ones.


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