The tipping point

Underlying inflation did not decline. On the contrary, it increased at a rapid pace and especially in those economic and financial sectors - infrastructure, education, health services and the rest - which could not be "off-shored".

Debt increased. This debt was partly from balance-of-trade deficits which in the United States have recently been running at between $700 and $800 billion a year. Debt was part official - it is now at a staggering total of trillions of US dollars and still rising; and household debt increased to unprecedented proportions; largely because real incomes of middle and working classes lost touch with consumer costs, especially where these were not modified by low-cost imports from emerging economies, especially in Asia - and, of course, those imports stole the jobs and the fixed-capital investment which would have benefited the lower-income earners.

At the same time, central-bank policies based on fundamentally flawed assumptions, were allied with political and ideological obsession with the free market, free trade, deregulation, privatisation, and other devices aimed at letting the market - and the bright, mostly young and highly creative “marketeers” of whatever kind - have as free rein as possible.

The result was, especially since the 1980s and more especially in the new century, an explosion of credit and credit derivatives of a range and volume that is completely unprecedented.

This was an explosion of CREDIT - repeat, CREDIT - the nature of which the global economy or national economies had never seen before. The rate of interest, as determined or fixed or whatever by central banks was of less significance because of the unregulated flow of funds from the non-banking as well as the banking sector, nationally and, again to an unprecedented extent, globally.

There was in this unregulated flow of credit or funds or “liquidity”, a large element of "Ponzi" finance and especially "Ponzi" speculation. “Ponzi” schemes could promise high returns, and keep their promises, so long as the blind faith of “investors” kept funds pouring into the schemes in sufficient quantity to enable the promises to be kept.

That meant that the boom in debt, credit, assets and the rest would go on spectacularly until some tipping point was reached. When something caused the avalanche of credit into the "Ponzi" schemes to slow, then the whole "system" would be quickly called into question and, at some point quite soon afterwards, it would be paralysed and, ultimately, destroyed.

That denouement was inevitable. It was inherent in the nature of the “system”. It was never a question of if there would be a bust, only a question of when and what form the bust would take in detailed terms.

This must have been known to some at least of the professionals in the financial markets. They must have known where it would end.

Their motives in not taking earlier action - earlier than when events forced it on them in the summer of 2007, for example - may have been in some sense honourable: they shrank from precipitating the acute crisis that would result from collapse of the "system" at whatever time it might take place. By postponing the inevitable, perhaps they hoped to ameliorate the pain in the short term. However, that pain might be even greater - and more enduring - down the track.

There may be less honourable motives - and these may still be operative. Those in the wobbly box-seats of the economic and financial “system” might have wanted, and might still want, to prop up a terribly flawed and inevitably doomed "system", come hell or high water. They will help those who have recklessly and selfishly exploited the "system", help them despite, at least in some cases, the dubious morality of their gains, even at the further expense of those who have already suffered severely from their policies and practices in recent years.

What this all comes down to is: