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The Cannibalism Of Capitalism

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There’s something diabolical about a creature that consumes itself. It seems so profoundly irrational, so utterly insane. We file stuff like that in some ‘unspeakable’ part of our minds.

Except that we live it every single day.

Capitalism is a great system in many ways, but it has a tendency to destroy itself if left unchecked. We’re seeing that all too clearly right now. There are two areas where capitalism is profoundly cannibalistic.

The first is how it handles credit.

The flow is pretty simple. Institutions offer cheap credit, which consumers and companies snap up. But at a certain point their ability to pay is reduced, and the value of the debt drops into the toilet. The institutions respond by raising rates, further reducing consumer and companies’ ability to pay. That starts a feedback loop which destroys both sides of the equation.

The second is in the real economy.

Let’s call this “The Walmart Syndrome”. Strong companies control costs, and grow. Large consolidated companies with efficent cost structures want to keep costs down, and demand more for less from their suppliers. This creates globalization, forces labor costs overseas, and jobs are lost at home. As the domestic economy weakens, the ability to afford goods is reduced, causing further cost reductions, and reinforcing the feedback loop which cripples both sides of the equation.

The two feedback loops begin to combine. Weak credit leads to a weak real economy, and downard costs. That’s how world depressions begin.

To restore equilibrium will require a massive ‘brake’ from government in the short term which will have to be deficit financed, and in the longer term, a new economic paradigm. Social Democracy, a mixed economy, strong regulations, and personal and corporate responsibility.

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