It is ten years since the financial crisis of 2008 and, like many others in the conservative blogosphere, I find myself wondering if we have learnt any lessons from it. Given that the nations of the world have not re-instated the gold standard, ended the rule of the central banks, collapsed the Euro, or established 100%-reserve banking for deposit accounts, I am very much afraid that it is only a matter of time before another crisis hits. There are several concerning factors that lead me to this conclusion.
Firstly, there is the simple fact that some prominent figures, with individual reasoning of their own, believe that another crisis is coming.
Such figures do not usually make these statements lightly: their arguments and evidence ought to be considered.
Secondly, there is the argument from sustainable growth. If sustainable growth is possible only on the basis of savings, and not on the basis of unsupported credit, then an expansion of unsupported credit should be a cause of concern. As described in the post on the two primary types of banking, it is possible, though not ethical, to use deposit funds to support credit arrangements. When banks do this, they effectively create credit out of nothing, because the deposit funds cannot simultaneously be available for withdrawal by the depositor and be under the use of a third party borrower. When all of the depositors come at once to withdraw their funds, only to find that these funds have already been given to borrowers who have not yet repaid them, the bank collapses. When this happens across multiple banks at the same time, the banking sector as a whole is badly affected. When a country is heavily reliant on the banking sector to provide jobs and credit and handle transactions, the collapse of several banks becomes problematic for the country as a whole.
Thirdly, there is the problem of peak oil, which could be exacerbated by wars in the Middle East (e.g. an Iranian invasion of Iraq, Syria, Turkey, Lebanon, and Saudi Arabia). If we have passed the point of peak oil, allowing that demand stays the same (it, could of course, go up), the price of oil will increase dramatically. This will be worsened by increased costs involved in extracting harder to reach deposits. Oil is a crucial commodity for the world economy: although alternatives are being developed and slowly relied upon, we have not yet reached the point where we can cast oil aside. The period in which we find ourselves at the moment makes us vulnerable: a prolonged crisis similar to that of the 1970s would require individuals, businesses, and governments to change their behaviour.
Finally, there is the overall trend in gold prices. Following the 2008 crisis, the price of gold went up markedly. People buy gold in crises because it holds its value well. They do this with several thoughts in mind. There is the hope that they will be able to use some of the stockpile to buy commodities and other resources in the event of a currency collapse. The rest is retained in order to open new bank accounts in the event of a bank collapse and/or to obtain new currency at a time when a stable national currency is reintroduced. Fearing a number of possible scenarios, a number of people invested in gold following the crisis, and it reached its peak in 2011. Since then, in the thought that we are gradually recovering, the price has come down – but it has not returned to 2008 levels. It may yet go down if we are genuinely on the road to recovery, but the fact that it has not suggests there are still lingering fears in the market. These are fuelled by the factors above and, in Europe, concerns that the root causes of the Euro crisis have not really been fixed. If there is a sustained upward trend in gold prices, that could be a bad sign.
This post is not meant to depress, and I stress that I am not a detailed prognosticator. I do not KNOW that a crash is coming, much less when and on what particular trigger, but I do honestly believe that one is not far off. Nevertheless, these factors should make us all think long and hard about the precarious state of Western economies and what we really value: the value that many of us place on liberty will make us willing to experience short-term hardship for the sake of preserving it. In my own case, I did not vote for Brexit in the belief that we would immediately become prosperous as a result of it – far from it. But I hoped that we might gain the liberty we needed to put ourselves back on a firm footing. Only time will tell if this or successive governments in the UK learn the lessons of the past.