The Lessons Learnt From Foreclosure Crisis

Foreclosure-crisis

Life does not come to a standstill – society gains from experience and moves on. Many lessons have been learnt from the foreclosure crisis. It has been said that since the Great Depression, USA has not experienced such a catastrophe. But it has not been said to be equal in intensity to the Great Depression. At that time in the 30’s unemployment had shot up to 40%, world trade had collapsed, currency devalued, ridiculous levels of tariff imposed and democracy itself was threatened.

Today there is no doubt that the times are challenging. But nothing is as severe as the time of the Great Depression. There is a yawning chasm between the world of the 30’s and the world today. The conditions are different and from this lessons can be learnt.

Looking back it is now possible to analyze how actions taken for individual protection made it worse for the collective. Countries across the world, reacting to the happenings, have built up automatic stabilizers within their economies to ward off collapses. Each country reacted differently but the underlying thread at the G20 meet was balancing stimulus with regulation. All knew that if all wanted to move forward they could do so only on a common platform. Technology and science had made the world into one global village – a reality like the industrial revolution of yore.

The next lesson is a new kind of MAD-ness. Previously during the time of the Cold War it was mutually-assured-destruction between USA and Soviet Union threatening the very existence of each other with nuclear weapons. This has been replaced by monetarily-assured-destruction existing between USA and China, at a dizzy rate swapped real good for green paper money and held on to the paper for over two decades. This led to jumbo sized trade and monetary surpluses. USA seemed to have made a bet that its economy could be run indefinitely with China manufacturing goods, USA consuming these and giving back to China paper that would be given back to USA to fill the pockets of buyers to go on buying and buying. Logically this arrangement had to come to an end – Chinese consumption went up and USA had to produce stuff more real than derivatives. Both the parties know this and are paying for it.

Another lesson is the failure of an ideology that stated markets are always good and should be kept free and states are always bad and should be kept in chains. The collective represented in the state is once more becoming important in protecting the individual.