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Don't Blame Capitalism for Big Government's Big Mess

Why the current 'crisis of capitalism' is nothing of the sort...

SO. IS THIS Great Crisis of Capitalism over yet? asks Dan Denning, editor of the Daily Reckoning Australia.

Well no. It's not. And come to think of it, it's not really a crisis of capitalism either. It can't be. Why? Because a system where Big Business and Big Government make a Big Mess is not capitalism. It's something else entirely.

We'll get back to that in a second...

The non-farm US jobs report came out on Friday, and it was good. The American economy added 103,000 jobs. Happy Days are here again!

Or not. Late in the US trading day, news came from ratings agency Fitch. It was bad news, if you're either Italy or Spain. Fitch downgraded its credit ratings on both countries and changed its long-term outlook to negative. Meanwhile, ratings agency Moody's downgraded a dozen or so UK banks.

The two separate announcements reminded everyone of one singular problem: Europe's banks are full of the debts issued by Europe's governments, and Europe's governments are bankrupt. This makes things complicated.

If it was just a matter of letting the debtor – the government – declare bankruptcy, it would be easy enough. But when the debtor is the government, bankruptcy (or default) has a whole host of social and economic consequences. Most of them are not good.

And then there's the creditor, the banks. If the debtor defaults, the creditor finds his assets have suddenly become liabilities. And so Europe finds itself in the position of not being able to extinguish government debt without wrecking the Continent's entire financial system. Hmmm.

Enter the Franco-German power couple of Nicolas Sarkozy and Angela Merkel. The French President and the German Chancellor met over the weekend. They are the respective parents of Europe's unhappy family. They are determined to work things out for the sake of the children (the Super state always treats everyone like children, or wards of the State).

Enmity between France and Germany has been the source of European conflict for centuries. The whole purpose of Europe's monetary union was to make political union inevitable. And the whole motivation for political union was to prevent Europeans from slaughtering themselves ever again. Twice in one century was enough.

The parents are putting on a brave face. "We are determined to do what is necessary to guarantee the recapitalization of our banks," Momma Merkel says. "We will make proposals in a comprehensive package that will enable closer cooperation between Euro-zone countries that will include changes to treaties," Poppa Sarkozy adds.

Proposals and plans are like drunken declarations of love or New Year's resolutions: easily made and quickly forgotten. The Europeans are stalling for time and trying to increase the size of their bailout fund from $602 billion to a couple of trillion – without panicking the market.

So are the Eurocrats bluffing? Well, the share market doesn't think so. At least it didn't think so last week. Aussie stocks had a torrid finish to the week. Yet the share market is right back to where it was 30 days ago. And Europe is no closer to a resolution to its seemingly intractable problem.

Our view is that Europe is going through now what the United States went through in the first half of the 19th century. It's tending toward financial and political centralization. But its people and its politics are so different that the whole project is bound to fail. Not all of them know that yet.

But we'll see. In the meantime, a whole new protest movement has sprung up on the Internet and in the streets of cities around the planet. The "Occupy Wall Street" movement is a kind of open-source protest against...something. It doesn't have a unified message yet. Maybe it won't. Right now, if you're against something, it's probably the place to be.

Someone had better explain to the protesters that capitalism is not at fault here. Big Money, Big Business, Big Government, Big Labor...they have all managed to create the regime of "the Big." In the regime, the interests of the Big are looked after. Barack Obama is currently Mr. Big, but only at the sufferance of Goldman Sachs and those whose bidding he does.

Find out how you can get the lowest possible prices when Buying Gold...

Best-selling author of The Bull Hunter (Wiley & Sons) and formerly analyzing equities and publishing investment ideas from Baltimore, Paris, London and then Melbourne, Dan Denning is now co-author of The Bill Bonner Letter from Bonner & Partners.

See our full archive of Dan Denning articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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