The far gloomier picture is that too many countries (primarily the US that kind of started the domino effect we are seeing now) ignored common sense and put way too much at stake during the 'global economic boom' over the past decade... give or take depending on which countries you look at. Either way... it has led to the authorization of risky investments that have been cleared/backed by reserve banks/goverments and now those investments can't be made back. Risk analysis was made for a purpose to look at the whole picture and not just cutting paper losses to live and see another day, hoping for the best.
Look on the bright side... the US at least understands where it messed up with the housing bubble... Australia has been indirectly following your trends and also has a housing bubble on the verge of bursting and the economists here have absolutely no clue as to where the money has gone. Although... it probably won't be as bad as what the US potentially faces... because our economy is significantly smaller and has less of an impact on the world economy.
People are scared that countries are running decifits 4-5 times that of the great depression... but we also forget that the world is more globalized (whether that's good or bad is another issue altogether) and its economy is so much bigger than it was back then. There is a lot of interdependence going on... primarily due to the promotion of capitalism. Capatalism will never succeed though because the very bodies that push for it have some of the strongest protectionist measures in place which is understandable... Europe never again wants to be as vulnerable as it was after WWII. But yea... the hypocrisy is there and it has definitely affected the way certain things that have come to pass.
So reserve banks are doing everything to keep confidence up... maintain the spending, both fiscal and consumer... but eventually it'll run out... the problem is compounding and will be worse the longer we try to prevent it. It doesn't help when speculators are running around screaming RECESSION when most of them apparently don't even know the definition of one. The only country that has had the onset of a recession sofar has been the UK... and its overdue under our current financial system... they've been experiencing growth longer than any other country.
With the way the financial market has evolved since the birth of Bretton Woods and its eventual conclusion during the Vietnam war... where the US dollar has effectively become the international currency... it was intended for economies to maintain agreed upon parities but when the currencies started floating and opened themselves up to speculation... this was not the original intention of the Bretton Woods agreement... no one officially made plans for this.
Yes, people made a killing... a lot of countries are far richer because of it... but now they've also made themselves vulnerable to it. The pressure of raking in more money to satisfy the bottomline... resorting to short-term measures just so shareholders remain happy and disregarding common sense and being rational about welfare and the future has contributed to the stage we are at now.
Ultimately, the monetary system in its current state is flawed... it has led to fluctuations which we've known about for ages... and with fluctuations come up times and down times. The longer you try to prevent a downtime... the worse it will get when it eventually hits. IMHO.. we should have all listened to Keynes back at Bretton Woods and implemented his idea of an independent global financial institution with its own currency and countries having to maintain parities in order to trade (it at least had the same goal as the original gold standard which to this date has been the most stable monetary system but it wouldn't have been as biased). AND actually help countries stay out of deficit in the long-run which never really happened with the Bretton Woods agreement... IMF/WB don't count - sad attempts to try alleviate countries in need of help and making westerners richer is pretty appaling.
What i find ironic though... is that a lot of western economies are now reliant on the very one country that they opposed for so so long, China. Personally... i think we should all just eat the recession and get it over with... but a lot will suffer... so i hope that there'll be another way. Nobody is certain just yet because this is new territory.
Its in China's best interest to continue buying the USD and other foreign currency... keeping their currency pegged... just so that they continue to grow for now. Pray it doesn't change in the short run... the minute they stop indirectly buying up US deficits, we'll be in for an interesting ride. It'd be stupid of them to do it though, at least for now.
People need to understand that overall... we have a socialist-capitalist hybrid structure in place. These ideals conflict... a pure capitalist is all about efficiency and the strongest survive and the weak die off. Socialism promotes equality - both of which can lead to different kind of balances (due to different policies), if that makes sense. Theoretically, if you had either or... achieving some sort of equilibrium should be possible, but then again communism did fail which is why everyone sides capitalism. Problem is... of course communism will fail eventually if the rest of the world has different ideals. Reverse the roles and it would be similiar.
However, this system has 'worked' for so long... partly due to no new world wars (thank god) and i guess on some level... people like to have the best of both worlds... we want the pros of both capitalist and socialist ideals... which is awesome... but one needs to accept the notion of downtime every now and then for this to be possible.
And we did accept it.. there've been recessions in the past... but we hated it... we've learned more now and are trying to prevent it... or ignore it. We can't seem to accept that recessions are inherent unless drastic changes are made.
