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Thursday, January 26, 2012

The Real Economic Crisis Everyone Missed - Part III

"The global buying spree and the dramatic rise in aggregate output that accompanied it pushed up the demand for an ever-dwindling oil supply, resulting in a steep increase in prices on world markets.  The sharp acceleration in the price of oil triggered price hikes across the global supply chain for everything from grain to gasoline, finally leading to a worldwide collapse of purchasing power when oil hit a record $147 per barrel in July 2008.  Sixty days later, the banking community, awash in unpaid loans, shut off credit; the stock market crashed, and globalization came to a standstill.

"The upshot of eighteen years of living off extended credit is that the United States is now a failed economy.  The gross liabilities of the U.S. financial sector, which were 21 percent of GDP in 1980, have risen steadily over the past twenty-seven years to an incredible 116 percent of GDP by 2007.  Because the U.S., European, and Asian banking and financial communities are intimately intertwined, the credit crisis swept out of America and engulfed the entire global economy.  Even more troubling, the International Monetary Fund forecasts that the federal government debt could equal the GDP by 2015, throwing in doubt the future prospects of the United States of America."

The Third Industrial Revolution by Jeremy Rifkin

Not everyone missed the role that expensive oil played in the most recent financial crisis, of course.  The rest of the book describes how Internet technology and renewable energy hold the potential to save us from Doom.  We'll post a book review by the end of next week.

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