Many readers are familiar with Stratfor’s George Friedman, who is excellent at peering into the geopolitical considerations of nation-states. With the world approaching a full blown multi-dimensional crisis, Friedman takes a look at the political drivers and concerns of the three major players – the US, Europe, and China.
The current economic crisis is best understood as a crisis of political economy. Moreover, it has to be understood as a global crisis enveloping the United States, Europe and China that has different details but one overriding theme: the relationship between the political order and economic life. On a global scale, or at least for most of the world’s major economies, there is a crisis of political economy. Let’s consider how it evolved.
Origin of the Crisis
As we all know, the origin of the current financial crisis was the subprime mortgage meltdown in the United States. To be more precise, it originated in a financial system generating paper assets whose value depended on the price of housing. It assumed that the price of homes would always rise and, at the very least, if the price fluctuated the value of the paper could still be determined. Neither proved to be true. The price of housing declined and, worse, the value of the paper assets became indeterminate. This placed the entire American financial system in a state of gridlock and the crisis spilled over into Europe, where many financial institutions had purchased the paper as well.
As the world economy appears to be ever increasingly driven by political decisions these days (RIP Free Market), a perspective like Friedman’s becomes especially useful. Maybe someday in the distant future we’ll again make investment decisions based on such arcane measures as fundamentals!