It's The End of the World, Don't You Know It

Simon Johnson from MIT’s Sloan School of Management and Peter Boone from the London School of Economics predict that the world is close to inflating its final economic bubble. After this bubble bursts, the world will plunge into a long and lasting depression that we haven't seen in many centuries. The end is near, they claim, because interest rates are near zero all around the world and cutting interest rates was our best weapon to fend off collapse.

According to them, the US financial system has tripled in size over the last three decades, and each time it has gotten into trouble, the Federal Reserve would jump in and slash interest rates down to revive it. The problem is that the crises appear to be getting worse and worse, their impact is increasingly global, and interest rates around the world has been slashed already to zero. The economy is not reviving, the debt is piling up, and many countries around the world are on final trajectories to economic collapse.

According to these economists, what brought us to this failure is that the state has corrupted the free market system. Banks and capitalist institutions have been protected from risk-taking and failure by the government through subsidies and bailouts, and the government regulators who were entrusted to protect the people from these risks and failures have not done so. This has led to these banking and financial institutions to make an utter mess of things, the government to bail them out, this encourages riskier behavior and rewards failure, interest rates are cut to revive things, debt is taken on, the the cycle restarts again, each time getting worse and worse.

The only hope is for governments to begin to live within their means (no more debt), for governments to quit playing games with the market, for the regulators to do a better job, and for some bankers to be punished with failure. But, this isn't likely to happen.

Last election the second biggest contributor to the Democratic Party was Wall street, and they know that they own Obama and the Democrats and that they won't let them fail. They own the regulators and won't ever face real regulation or opening up. The other big owner of the Democratic party is the labor unions, in particular the labor union for the government workers, and they won't let government live within its means or quit playing games with the market.

So, if this analysis is correct, there is a major bubble going to burst soon, and it'll be a big one. Our only hope is that Republicans, real Republicans, conservative and libertarian Republicans, win control of every single government institution and jam through brutal austerity measures. That kind of change may indeed give us some hope for the future.