The Collapse of Global Capitalism: What can we learn from the Global

Financial Crisis

Jamal D. HarwoodLondon, UK

@jamal_harwood

Financial Crisis of 2008 and today...

• The greatest crisis since 1929• 5 Years after growth poor and much slower

recovery than 1929• Jobless recovery – built on debt• Confidence precarious• Governments using media to generate confidence• Unhealthy relationship with media and banking

Causes of the crisis in 2008...

• Enormous debt bubble• Repeal of Glass Steagall act in the US opened up market to high risk trading• Unprecedented fiat money creation• Housing bubble via easy credit• New exotic derivatives and mortgage backed securities poorly understood risk profile

Cause for pessimism – search for alternatives?

• Growth has not returned and is being over-stated• Joblessness is growing and is being under stated• Inflation is growing fast and is being under stated• Swingeing cuts to social and public services • Risk still at record levels – derivatives little or no control over it• Corruption in financial circles endemic and not being tackled –

fines not prison• Growing indebtedness, more asset bubbles (stock and bond

market

Three inherent crises apparent in Capitalism

Weakness in and adherence to the rule of law

Growth/Profit obsession and excessive risk taking

Corruption in the highest levels of government

Overall Income inequality continues to deteriorate…

Rule of law• Repeal of Glass Steagall act in late 1990‘s• Ignoring the evils of interest• Money creation to feed the demand for interest payments• Leverage of financial assets beyond comprehension• Federal Reserve and other central banks working for the interests

of the banking cabals, not the public

Growth/Profit Obsession

• Misplaced understanding of derivatives with respect to risk vs gambling

• Derivatives 17 times the size of the world‘s economy

• New notion of - Too big to Fail – encouraging greater risk taking

• Banking interests forcing government to bailout losses with public moneys

• Concentration in markets opening them up to distortion

Illegal Market Manipulation now common

• Libor interest rate fixing scandal (several banks)• Drug money laundering (HSBC)• Multi trillion dollar foreign exchange market – front

running client orders (multiple banks)• Mortgage bonds and securities mis pricing, mis

selling and confiscations• Precious metal (gold, silver) market direct

manipulation (bullion banks)

Corrupt relationships in Government

• Federal Reserve bank privately owned by banks• Too big to fail banks provide most senior government

financial officers – executive and legal• Quantitative easing programme placing $85 billion

monthly into markets including $40 billion of mortgage securities

• Major banks 30 and 35 times leveraged and new Dodd Frank laws not applied

• March 2009 FASB changed mark to market to (mark to model!)

• Exchange stabilisation fund routinely intervenes in markets

Derivatives market as large as ever…

It looks like we have a recovery in growth… but

Adjusted for real rates of inflation and growth is really flat…

Despite continued interventions bust and boom cycles dominate…

• Monetary and Fiscal policy are interventions to smooth the business cycle. Are they effective?

Governments continue to overspend to attract voters

The US leads the world in developing debt

For an economy that is supposed to be in recovery this is not normal

But growing debt is a global problem

The reality is that the Capitalist world is addicted to debt – 8% CAGr (1980 – 2013)

The policy is to print more and more money from nothing…

The more money printed the greater likelihood it will get out of control…

FMQ = Total Check deposits, M1 currency, Savings deposits, and Reserves balances less vault cash

The cost of out of control debt (money creation) is consistent

and high inflation

And after numerous changes to the way it is calculated real inflation is really higher

Many of the figures are “managed” real growth is much lower than reported

Manipulation of unemployment figures is probably the worst

Numbers relying on food stamps steadily increasing despite claims unemployment down

Massive quantitative easing (money creation) benefiting the stock market

Increased money and productivity not trickling down to real wages

Wages not keeping pace even with inflation over the past 30 years

The only age group in the US increasing employment is over 55’s!

• Non Interest economy• Gold/Silver based currency• No hoarding of wealth• Radical taxation policy• Prohibition of gambling• Land reform• Distinctive regulatory framework and true financial

reform• Social welfare reform

The Islamic Imperative

• No ruling party• No electioneering based on material interests• No political patronage• No political lobbying based on business interests• No 3, 4 or 5 year election cycles to stifle decision making• No election cycle pushing politicians to make popular

spending decisions• Central authority with decentralised management of the

needs of the people• Caliph does not face constant election

/re-election decisions and appoints key economic and administrative appointeesindependently

Political Stability

Low cost equity/partnership based investment model without banking intermediaries

Debt based creation of money is out of control and grossly destabilising

Perversely Central Banks effectively moving to zero interest rate policies with their QE and suppression of interest (to banks) now close to zero rates

Despite high cost of interest to society banks also received bailouts costing taxpayers 100’s of billions

Perpetual growth to pay interest is impossible and leads to crashes and asset seizures

All Interest is forbidden

• Currency stability over millenia and a level playing field between Nations

• Relatively mild instances of deflation and inflation compared to fiat money

• No counterparty risk, with manageable growth in currency

• Gold/Silver the only currency and treated as a true medium of exchange

• Universally accepted, promotes sound and low cost trade policies

• Advantages of Gold/Silver currency can only function with non-interest system

Gold/silver as currency

Key to circulation of wealth – connected with explicit textual evidences

Compare with the banking system which withdraws capital during downturns

Direct Investment, charitable giving, consumer spending – all positive outcomes

Business cycle downturns work against investment and spending

Hoarding prohibited

Radical Taxation approach

Zakat (2.5% on non-utilised wealth) Kharaj/Ushr on capacity of land,

Jizyah

No Income, Consumption,

Business, Rates, Council,

Transport taxes

Wealth taxes are proportionate to

wealth – fair on all (natural

redistribution)

Strong incentive for investment

and spending and full employment

All gambling including most derivative contracts forbidden (incl. short selling, forward contracts)

Derivatives are increasing volatility in markets at higher risk levels

Gambling in all forms take wealth out of circulation/trade

Unacceptable losses to society via moral hazard

All Gambling is prohibited

Use it or lose it (3 years) Revival of dead, unused lands promotes

widest ownership among masses No leasing of agricultural land Land tax encourages full utilisation Laws against price fixing

Land Reform

• No state bailouts of private companies

• No monopoly, strong anti-fraud provisions

• Stable regulatory environment – laws consistent over 1400 years

• Lobbying unlawful

Distinctive regulatory environment and financial reform

• Individualism stifling society• One third to one half of US/UK citizens depending on social

welfare payments for survival• Breakdown of the family unit• Family unit vital in support of the individual• The State as a final help for the basic needs when the family

unit is unable to

Social Welfare reform

2008 a massive warning to us all – but little done to change the situation

Unprecedented opportunity for Muslims to lead the way with true reform

Must be holistic – Islamic solutions individually will fail when not applied comprehensively (Gold/Silver as currency cannot operate with interest)

“And so judge between them by that which Allah has revealed and follow not their vain desires, but beware of them lest they turn you away from even just some part of that which Allah has revealed to you” [Quran 5:49]

Concluding Comments

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