The Bill for our Party is now due


The Bill for our Party is now due

There's no easy way to summarise why we are where we are today (other than the word 'greed').

Mike 'Mish' Shedlock has a few thoughts though:

Global Recession Headed Our Way

The world is heading for a global recession and a sure bet is that it will be blamed on a subprime crisis in the US. The reality is the greatest liquidity experiment in history is now crashing to earth.

The root cause of this crisis is fractional reserve lending, and micromanagement of interest rates by the Fed in particular and Central Banks in general. The Fed started the party by slashing interest rates to 1%, but Central Banks everywhere drank the same punch to varying degrees.

The Greenspan Fed lowering interest rates to 1% fueled the initial boom, but like an addict on heroin, the same dose a second time will not have the same effect. The Fed, the ECB, etc. could have slashed rates to 0% today and it would not have mattered one bit.

The reason is simple: There is no reason for banks to go on a lending spree with consumers tossing in the towel, unemployment rising, and rampant overcapacity everywhere one looks with the exception of the energy sector.

Consumers are tapped out, not just in the US, but in nearly every country on the planet. We had our party, and a fine party it was. However, the party is over and the bill is now past due. The price is a global recession. That price must be paid no matter what Central Banks do.

We had a false start last year, but Shares Slump and Credit Crunch which I wrote in August last year is my best effort to explain how we got here.

I was merely following the lead of friends at the The Oil Drum and those now at The Automatic Earth.

Take this graph as an example, also posted last August by Stoneleigh:

Can you pick where we are now?

What we need now is a new monetary system, one that promotes long term thinking instead of short-term growth. Bernard Lietaer's "The Future of Money" is one of the most important books I've read this decade - the way 'money' works today is not the way it has to be.