The Collapse of Global
Capitalism: What can we
learn from the Global
Financial Crisis
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
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
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
Three inherent crises apparent in Capitalism
Weakness in and
Overall Income
inequality
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
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
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
Corrupt relationships in Government
• Federal Reserve bank privately owned by banks
• Too big to fail banks provide most senior
government financial ofcers – 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!)
Adjusted for real rates of
inflation and growth is
Despite continued
interventions bust and boom
cycles dominate…
The reality is that the Capitalist world is addicted to debt – 8% CAGr (1980 –
The more money printed the greater
likelihood it will get out of control…
Many of the fgures are “managed”
real growth is much lower than
Manipulation of
unemployment
fgures is probably the
Numbers relying on food stamps
steadily increasing despite claims
Massive quantitative easing
(money creation)
Increased money and
productivity
Wages not keeping pace even with
inflation
The only age group in the US
increasing
• Non Interest economy
• Gold/Silver based currency
• No hoarding of wealth
• Radical taxation policy
• Prohibition of gambling
• Land reform
• Distinctive regulatory framework and true fnancial reform
• Social welfare reform
The Islamic
• 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 appointees independently
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 efectively 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
• Currency stability over millenia and a level playing feld between Nations
• Relatively mild instances of deflation and inflation compared to fat 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
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
Radical Taxation
approach
Zakat (2.5% on non-utilised
wealth)
Kharaj/Ushr on capacity of land, Jizyah
No Income, Consumptio n, Business, Rates, Council, Transport taxes Wealth taxes are proportionate to wealth –
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
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 fxing
•
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
fnancial
• 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 fnal help for the basic needs when the family unit is unable to
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]
We need you to work for this change
.
