Sunday, October 12, 2008

Is this a pyramid imploding?

Are we looking at the wrong comparsion? The media talk over the past few weeks has been looking at the 1929 wall street crash.

But seemingly this has the potential to be a fundamental collapse of the entire financial system. The International Monetary Fund warns of a "systemic meltdown".

Given that effectively what has occurred is that the property market pyramid scheme has collapsed perhaps we need to think beyond some problems with the banks, people losing money in stocks and a slowdown - but try and imagine what a full melt down means.

For a start paper money of whatever sort loses all value. If there is a global meltdown, there will be no hard currency to revert to. We will be reduced to barter.

I was twice in countries when the local currency lost all value. In Romania in 1990, I once went to the doctor and paid her with a bottle of "western" shampoo and in Yugoslavia in the mid 1990s when the inflation rate was so high, that Marlboro and Kent cigarettes was what you bought with your dinar as a form of stable currency.

But more interesting I spent some time working in Albania following the implosion that country had when a variety of pyramid schemes collapsed. The outcome of that was economic, social and political anarchy. UN food aid was needed to keep people nourished and the Italian army and navy and the OSCE was needed to restore some semblance of security.

The question is whether the shenanigans going on in the financial industry are the start of the collapse of a global pyramid scheme and much more than a issue of confidence. If so then its difficult to see who or what will be able to come to the assistance of a USA and Europe without a reliable currency and angry citizenship.

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