This Really is Not Working, Is It?

The real-estate crisis exploded in America and engulfed mortgages, rendering debtors unable to pay their loans. Major banks and financial corporations either collapsed, or are on the verge of bankruptcy. Incited by attractive subsidy packages and public announcements of anticipated heavy profits, international banks and investment funds rushed to this sector. So, the collapse of American banks and More.. financial establishments, globalised, spreading to the world. It is as if America sneezed, infecting the entire world, which has now caught its cold.

Some financial sector sources have estimated the losses incurred, due to the real-estate mortgage crisis, at 300 billion dollars in the US alone, and another 550 billion dollar outside America! Therefore, affected nations, particularly the wealthy ones, intervened by pumping in billions of dollars into the financial markets, to restore confidence and provide some liquidity for stimulation of economic activity. In fact, some countries intervened directly to the extent of nationalizing certain banks, as Britain did!

As such, an all important foundation of the capitalistic economy, the free market and "laissez faire," was demolished. These two matters are held as a fundamentalist belief by the capitalists. Indeed, the US Senate in December 1999 issued an act of law prohibiting any restriction upon the financial system and declared keeping the financial markets free at all cost. Subsequently, the invalidity and corruption of this foundation was manifest even to the chief advocate of capitalism, America. America announced state intervention in the market, after approval by both the Senate and the Congress of a plan devised by the US Treasury Secretary, Henry Paulson, to salvage the economy by pumping 700 billion US dollars in order to purchase financial instruments, issued by troubled banks and financial institutions in the real-estate mortgage market. And within hours of approval, the Treasury Secretary implemented the plan.

This indicates that after the burial of the Communist Socialist system, the Capitalist economic system is on its death bed!

These events triggered a world wide effort. Four of the major European states, France, Germany, Britain and Italy, gathered for a meeting and called for a wider meeting to review the financial system. Similarly, finance ministers and central bank officials of the G-7 (or G-8 if Russia is included) called for an extraordinary meeting in Washington.

But will such efforts really save the capitalist economy as intended?

Any observer of the state of the Capitalist economic system can see that the system is on the verge of collapse, if it has not collapsed already. Whatever efforts the capitalists have planned to salvage the system can only at best relieve its pain for the time being. This is because the causes of the collapse require serious treatment of capitalism's foundation, rather than mere patch work. There are four factors at the heart of capitalism's foundation that need addressing:

First: The curbing of gold as the sole standard for currency, by bringing in the dollar as a parallel standard at the end of the Second World War under the Bretton Woods' agreement, and then finally completely replacing gold by the dollar as the monetary standard in the early seventies, rendered the global economy susceptible to any economic shock in the United States. This was because the currencies of most other countries, if not all, were tied to the dollar instead of gold, even though the value of the dollar bill itself is that it is not more than a piece of paper printed in America. Even after the advent of the Euro in the arena, the dollar generally retained its position, as most currencies were tied to it.

It is for this reason that unless gold returns as the monetary standard, such economic crises will certainly be repeated. Any dollar shock will automatically shake the economies of other countries. Even American policies that impact the dollar will have effects outside of America . Indeed, this can happen with any paper, fiat currency of any influential state.

Second: Interest based loans result in great economic difficulties. Even though the original loan, or principle, gradually decreases in time with respect to the interest payments, individuals or states are unable to repay loans, in many instances. This results in a loan repayment crisis. Economic activity slows down due to the inability of many, or most, of the middle income bracket to repay loans and this effects production as well.

Third: the system and practices in the financial markets and stock exchanges of buying and selling of shares, financial instruments and commodities does not require possession of goods. Rather these are sold and bought many times over, without being actually transferred from the original seller. This practice is invalid. It causes difficulties rather than solving them, because it inflates and depreciates prices of goods, even though the goods are not in possession. All this triggers shocks in the markets. Thus profits and losses accrue through various speculative means. These may accrue repeatedly, unabated and undiscovered, until an economic crisis ensues.

Fourth: A very important factor is the complete of lack of awareness about the reality of ownership, both amongst in the East as well as the West. Under the communist socialist ideology, all ownership is vested in the state and under the liberal capitalist ideology, it is held by the private sector with no state intervention, simply because the liberal capitalist ideology promotes free market. This is further compounded and exacerbated by globalisation.

The complete ignorance of this reality leads to economic tremors and crises. This is because the ownership rights should not be held by the state and the private sector alone; rather there are three types of ownerships:

Public Ownership: consisting of solid, liquid and gaseous minerals including petrol, iron, copper, gold, natural gases etc. found in the depths of earth, all forms of energies and the energy-intensive, heavy industrial plants. These public properties are to be managed by the state and their benefits distributed amongst all the people.

State Ownership: consisting of various taxes that are collected by the state, along with revenues for the state from agricultural, trade and industrial activity, outside the ambit of public properties. The state spends these incomes on state expenses.

Private Ownership: unlike the above two, it is held by individuals and disposed off in accordance with the Shariah rules.

If these three types of ownership are considered as one and are held either by the state or the private sector, crises and failures are inevitable. This has previously led to the collapse of the communist economic model, as they had vested all ownership in the state. In the communist economic system, the sectors that must naturally be owned by the state were a success story- like the petrol and heavy industry etc. On the contrary, such sectors that must naturally be held in the private ownership, such as most agriculture, trade and small to medium industry, were a disaster and led to its downfall. Similarly, the capitalist economy has failed and is on the verge of inevitable destruction. This is because it vested ownership of public utilities and properties like petrol, gases, energy sources, heavy and even strategic arms industry to individuals, enterprises and companies, while the state remained excluded from the markets, deprived of owning things that it was responsible for in origin. This was done in the name of free markets, laissez-faire non-intervention and globalisation. The natural result of this was inevitable: Wyoming Lemon Laws recessions, rapid collapse of one financial market after another and one corporation after another.

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