Pardon my ignorance, but what might you suggest that they (the politicians)have (or have not) the political will to do. Perhaps we are at last entering the new paradigm of zero growth.

David

Extremely well argued, thoughtful article. Written by someone who clearly understands economics and the basic underlying causes of the current economic malaise!
A malaise that simply cannot be solved by more quantitative easing; but, temporally nationalised banks perhaps?
From my perspective, things have got to get much worse before they can get better!
We can save the ours, America's and the global economy or completely undeserved unwarranted privilege. But not both!
We must read the writ large writing on the wall; and take such steps as are available to us to insulate our own economy from the (worse) global economic storm emerging in a foreseeable future.
We have, I believe, vast untouched easily accessed energy resources, which we could tap; to reduce the total carbon output of our economy, around 35% in the first instance.
Competition is the very cornerstone of free market based capitalism, and ought to be reintroduced, into an almost captive energy market.
This would assist an economically depressed, energy starved world to begin to recover and transition towards a carbon constrained future!
Only a lack of intestinal fortitude and the political will prevents us from supplying lower cost, lower carbon energy components, to cash and carry customers?
We can also demonstrate already existing carbon capture and storage, by completely natural means, that instead of adding costs, adds profits and alternative, exponentially expanding energy supplies!
Very cheap energy has always accompanied/been responsible for human progress and freedoms! Today, it is what the whole world needs now; to first fully recover, and then transition towards a universally affordable carbon neutral/free economic future!
We simply won't ever get there, if only around 20% of us can ever actually afford the change; or we, even more thoroughly emasculate our/their/the global economy, in the endeavour!
Rhrosty.

A very thin piece indeed.

As VK3AUU points out, it is long on vague opinions about what is wrong, and significantly short on thoughts about alternatives.

And there are some odd moments that seem to have come from pub chat, rather than considered analysis:

"...major financial institutions... held onto the funds to bolster their capital reserves rather than issuing loans and stimulating the real economy as the Fed had intended."

If the Banks had embarked upon a programme of aggressive lending, would they not have i) endangered their capital adequacy position and ii) been simply replaying the behaviour that caused the problem in the first place? And, in keeping with the overall tenor of the article, there is no suggestion as to how they could or should have acted differently, without falling into these traps.

One of the more recent aspects of the European rescue efforts has been the belated understanding that it is the Banks that need direct support, if they are to be part of the solution. Whether or not you believe Banks to be the source of the problem in the first place, letting them all go bust holus-bolus only drives the problem deeper.

"The problem was not the availability of credit or its price but rather demand. Deep structural problems within the Japanese economy and the absence of the political will to fix them dampened consumer demand and the corresponding requirement by business for funds to invest in future growth."

All true. But the structural problems in Japan bear no resemblance to those of the US, with the sole exception of the burst of their own property bubble. Japan's industry was - and to an extent, still is - conducted through keiretsu, a complex web of interlinked businesses, kept afloat through a sophisticated old-boy network of the depth and breadth that exists nowhere else in the world. To compare this with the fiercely competitive, dog-eat-dog, devil-take-the-hindmost US marketplace shows a suspicious lack of understanding of the functioning of commerce.

Not everything can be explained in glib sound-bites.

An interesting take on things, but I do believe the current (as in 2012) problem is political.

What is not recognised, at least in Australia, is the fact that we have relied entirely on China to support us through the GFC.

China's growth has not been economic; it is political, driven by the need to have growth at any cost, to provide the jobs for the 500 million odd people who have moved from an agrarian life to one in the urban areas of eastern China.

Australia's entire economic and therefore political future has been modelled on a false dictum. China's economic growth is not real, it is political, the entire Chinese government has been hell bent on ensuring social stability, it has now realised that it has too much debt just like everyone else and is heading toward a very hard landing.

However, it is moving toward cornering the gold market, it is currently not capable of taking over the global reserve currency, but give it a couple more years and it will announce its gold reserves and the entire global economic sphere will be shaken to the core, China is very quietly moving to use a Gold standard and Australia is about to witness huge losses in value of our major resource companies and the banks (43% of the stock market) that will see our dollar collapse, house prices plummet and most people's super disappear in puff of disbelief.

Our entire growth model (economic and political) is based on a ruse out of China.

The US and ECB can print all they like, the political and economic side of their future is shot, China is the game-changer and no economist or politician has recognised what they are really up to!

That's a new take on an old chestnut, Geoff of Perth. But as irrelevant as all the others.

>>China is very quietly moving to use a Gold standard and Australia is about to witness huge losses in value of our major resource companies and the banks (43% of the stock market) that will see our dollar collapse, house prices plummet and most people's super disappear in puff of disbelief.<<

Pure fantasy. There is absolutely no point in China "using" a gold standard, simply because there is no possible means whereby they could enforce it. Consider first of all the tiny amount of the metal that is available. Only around 150,000 metric tonnes of the stuff has ever been dug out of the ground. at $53m per tonne, that's only around $8 trillion, hardly enough - even if all of it could be mobilized - to sustain a world economy.

Then imagine, for a split second, what impact this would have on China's own economy. Their vast store of US$-denominated loans would have to be written down, and their export trade would dry up in an instant. That's just for starters.

But to get back to your prediction for a moment.

How would China adopting a gold standard affect our resource companies? Surely, being paid in gold would not be particularly disadvantageous - unless its value fell, which I don't think is part of your scenario. How would it affect our house prices? We don't have a gold standard here, so how would its impact be felt? How would it affect our Banks? How would it impact our superannuation?

You seem to believe there is some kind of cause-and-effect going on here. Perhaps you could spend a moment or two explaining it.

Pericles it is very difficult to state so much with so little wording permitted.

Notwithstanding, Australian banks are highly exposed to credit (debt) from the Oz mortgage belt. Our home owners (those in debt to their eyeballs) are tapped out except for their limited access to credit.

Australia's major resource companies (BHPB and RIO) coupled with the big four banks make up about 43% of the ASX's value.

China's growth is not economic in real terms it is political, and China is very quietly changing their game plan.

Gold is going to be a key in their strategy to gain control of the markets, and they will not give a hoot about European or US debt, nor their US holdings which will become irrelevant.

China last reported gold reserves in 2002 (approx 550 tonnes), they will next report in 3-5 years and will shock the world with 5000+ tonnes and this will be a game changer.

Our current growth (apparently) is so good that no-one seems to be mentioning that the ASX has dropped 19% in the past 12 months and national house prices have dropped 10% over the same period.

We are about to learn the real lessons of politics, China's growth is a mirage, our terms of trade are about to reverse and significantly.

In my mind, buy gold, silver and make sure you dump stocks in any of the big four banks, BHP or RIO and any companies that are tied to them.

This is not going to happen today or tomorrow, but you will see it happen over the next couple of years.

My 0.02 worth