The Economic Recovery Myth

The Wall Street Journal reported today that Citigroup and Bank of America have both been told that they must raise billions of dollars of extra capital. The stress tests conducted by the US government on 19 banks found that Citi and Bank of America both need more funds to cover future losses caused by the economic downturn. 

 

 This report therefore suggests the financial crisis is far from over.

 For the last month various politicians have attempted to talk up the prospects of a recovery as both nationalization and continued stimulus packages have done little to stem the ‘great recession.’ 

 Capitalist nations are finding that lying to the public about the debt and unemployment scenario is really the best way to deal with the little faith that is left after a decade of excess.

 The problem fundamentally is down to the fact that Capitalist economies are not built upon anything real but contracts that are either derivatives of real assets or based upon future income streams. The boom of the last decade was built upon the real estate bubble, which was driven by debt – i.e. money that is built upon the prospect of future re-payments. The boom was also driven by a $500 trillion derivatives market built upon the illusion that the global economy will continue to grow. 

 Once such an illusion reached astronomical proportions and the financial industry realized that their future revenue streams were being defaulted upon on mass, the pack of cards came crumbling down. 

 Unless Western nations ditch such an approach to wealth creation, the global economy should expect another crisis – that’s if the global economy gets out of the current predicament. However the fact every thing can be commoditized, and that all participants of the ‘market’ can own whatever comes of the production line, whether real or not, means the current crisis is a result of idea’s that go right to the heart of Capitalism. 

 The way forward is not to lie to the public, but the discussion about alternatives based upon real wealth.

This is in response to the following article

Citigroup and Bank of America ‘must raise billions in extra capital’