In the last two hundred years there have been three serious credit crunches which have been preceded by vastly increased indebtedness; 1837, 1873 and 1929. 2007 makes a fourth. There have been other serious credit crunches too, eg 1907 and 1973 in the twentieth century and 5 or 6 in the nineteenth century, but they were not preceded by indebtedness increasing by a factor of 2 or 3 and so did not lead to long term political consequences.
The credit crunches in 1837, 1873 and 1929 all led to systematic bank failures, depression and the rise of broadbased political movements essentially supported by the newly impoverished.
The 1837 credit crunch saw the rise of the chartist movement, which was essentially a forerunner of modern day trade union movement. (See http://en.wikipedia.org/wiki/Chartism). Chartism is still widely studied amongst the trotskyist movement throughout the world and thats where I got an introduction to it, in my idealistic youth, before I developed a more realistic political perspective.
The 1840's was a very dire time indeed and was the time during which Marx and Engels wrote the Communist Party Manifesto and "The condition of the working class In England". It was the decade of the potato famine which decimated Ireland and other regions such as areas of Belgium. It was also the decade in which revolutionary fervour reached a peak with 1848 being the year in which revolutuions were attempted and put down across most countries in Europe.
The 1873 credit crunch was a different affair. It was the prelude of a 23 year depression which was then known as "The Great depression" , but is now known as the "Long depression". (http://en.wikipedia.org/wiki/Long_Depression). The political consequnces during this period were not so great but there was a widespread rise of "The Populist Movement", particularly in America. Populism has some fairly negative connotations and populist demagogues are still regarded in intellectual circles as scoundrels who prey on the ignorance of the lower classes and their need to find a scape goat to blame. In many ways populism was the forerunner of fascism, which was ofcourse the political movement that arose in many European countries after the 1st World war and in particular the "Great Depression" of the 1930's.
The handling of the 2007 credit crunch has been so bad, that we are now almost certain to suffer a substantial economic collapse and this probably will lead to political collapse. This will leave a political vacuum that will be filled by a political movement that is yet to emerge, but IMO will be extremely nasty indeed.
The continued "bailout" of the incompetent, particularly the bankers was completely the wrong thing to do. There was never going to be an easy resolution to the gigantic credit expansion of 1982-2007, but the pain is going to be dragged out over a long period and will impoverish the majority of the working and middle classes in grossly indebted countries like the USA and the UK.
Stable countries deal with economic problems by deflating and allowing the incompetent to fail and default. Their assets are then bought up by the competent who were smart enough to foresee the problems and kept their money in cash ready for such an opportunity. The way the Western governments are acting now is to take the assets of the competent via taxation or depreciation of currency, give them to the incompetent and then tell them to compete with them on an equal basis. This is a recipe for disaster and smacks of the sort of things that happened in the USSR prior to economic collapse in the early 1990's.
Those of you who have read some of my prognostications on here will know that I do my economics by historical analogy. What really worries me is that I can think of no historical comparison of the brash arrogant and corrupt way in which the banking industry has behaved in the last 20 years. I don't know my 18th century history that well, but the only thing that I can think of that comes close is the behaviour of the French Aristocracy just before the French Revolution. If this is the correct analogy and I'm not sure it is then you can expect to see senior bankers swinging from lampposts at some point over the next five years. And if that occurs then this will be a very unpleasant place for all of us to live. Be thankful you all chose to be actuaries and not Investment bankers!
Last edited by a moderator: Dec 20, 2008
