The causes of the financial crisis

The very essential driver of the economy is spending by individual consumers. And many consumers have been spending more than they earn.

In the US for example, consumer spending in 2007 was 130% of income, up from 60% in 1982. Overspending was fuelled by easy, unlimited credit offered by the financial system, with the complacency of regulators and the government. Credit was financed by real money from abroad, especially Asia, and "future money" created from the blue through intricate financial engineering. The US economy enjoyed artificial wealth based on borrowing that eventually dried up, and future consumer income that may never become real.

Other countries more or less followed the US financing model. Eastern Europe and the Baltic are examples of countries that financed consumer spending through huge credits in hard currency from Austrian, Italian and Swedish banks. The UK is another example; the only doubt here is whether they were the actual mastermind or the co-inventor of the overspending model.

The financial or rather economic crisis is just the most visible side of a wider global crisis: overconsumption of resources, be it money, air, water, forests, minerals, etc. Our lifestyle is simply unsustainable, at the expense of the poor and future generations.

How does economic sustainability relate to sustainable development?

The term "sustainable development" somehow wore out by indiscriminate use and loose interpretation.

The original definition coined by WCED refers to development that meets present needs without compromising those of future generations.

The UN 2005 World Summit emphasized on economic development, social development and environmental protection as the pillars of sustainable development.

We certainly tend to forget that sustainable development is not only about natural environment, but also about social environment and sustainable economy.

The present economic crisis and its savage impact on the world poor makes evident that there is an increasing gap, instead of convergence, between rhetoric and reality. Ever Increasing carbon concentrations in the atmosphere just confirm the gap on the nature's side.

Paraphrasing the title of a famous documentary,

  If global warming is an inconvenient truth,
  then what we are doing about it is a convenient tale.

Mhai Selph, March 2009

© 2010 Mhai Selph  All rights reserved