We’re heading toward a global Weimar

online.wsj.com...

From the article: The global banking system is… on the brink of bankruptcy. So the worst-case scenario is the most likely scenario: a collapse of the banking system followed by world-wide inflation.

This growth of public debt, on top of private debt, can only lead to catastrophe: the bankruptcy of households, banks, even countries. What has happened to Iceland can happen to larger countries as well, if panic seizes creditors. Anything is now possible, including the collapse of the global banking system, whose losses would have grown beyond reach of rescue.

This panic could be set off by the realization of the insolvency of the system. It could also be set off by political or terrorist movements: A number of determined groups, with even limited means, could organize speculative attacks on banks, leading to their collapse.

Then we could arrive at a global depression. It could even be followed by hyperinflation, provoked by the immensity of the monetary means created since the start of the crisis; the depression would allow the debt to be reduced to nothing, to the benefit of the borrowers. The world would then be experiencing a depression ready for inflation, a global Weimar.

Strange article..
Very correct diagnoses, but
very bad solutions. I really do not understand this new age, global-ecologoy-green-world governement fantasy. We need much more concrete plans. But as in diagnoses, the article presenst very frightening facts, which are now and soon much more than a fiction.

[edit on 12-2-2009 by deccal]

When I think about the fact that this article comes from the Wall Street Journal, I can only shake my head in wonder at how far we have come (or fallen). One or two years ago, one would never see a headline like that outside of a "tinfoil hat" alternative news website. Today it is featured in the world's flagship financial newspaper. This in itself is a good development because it shows that people on a broad level are finally starting to confront the magnitude of what is unfolding, after years (decades?) of denial.

One of the things that made the old system supposedly so safe was the "universalization of risk." Risk was chopped up, sliced and diced, and minced finely until, almost invisible like dust, it could be spread everywhere, throughout the whole system. Because risk was everywhere, it seemed like it was nowhere. But now we are seeing the ugly flip side to that equation: when you spread risk throughout the whole system, disaster will impact the whole system when it finally comes, rather than one or two big institutions or sectors. This is what we are seeing today.

Although the diagnoses of the problem is spot on,I'm not so sure of part of his cure.Joining the G8 with the UN security council? That looks like a recipe for disaster to me.
I do however agree that debt must be reduced.The immediate future of economics in the US are dire indeed.This year personal bankruptcies will sky rocket.This credit crunch has sent credit card companies into a frenzy,of raising interest rates and fees.All of this is in expectation of major defaults comming.
IF this country reaches a 35% bankruptcy rate.The bottom will fall out.

WSJ should have been talking about this 3 years ago like many internet websites were. The mainstream media was obviously told not to talk about the economic train wreck they all knew was coming.