Capitalist Bubble Yet to Burst!

November 20, 2009 at 4:31 am (Economics)


By Muhammad Osama Ehtesham

Discussion about recovery from financial crisis is on horizon after surge in few stock markets and world economies. Notion that economies are moving towards recovery from the Global Financial Crisis is being pushed so that people are made to believe that capitalism has triumphed once again and the day has been saved. Truth is that capitalists are active in misrepresenting the facts so that trust on Global Financial System can be restored. However, reality is not as good as being presented, multiple reports and analysis are pointing towards the grim reality of severe depression in days to come. A number of crisis bubbles are facing global economies, and they are so huge, so big that sub-prime mortgage bubble is no comparision to them. The immediate bubble facing US and world economies is the bubble of Commercial real estate industry. Other bubbles include “Bailout bubble and general world “debt bubble”.

Bubble of Commercial Real Estate Industry

As Bloomberg quotes; “A piece of the puzzle that must be calculated into any determination of the depth of our bad economic health is the condition of commercial real estate — the shopping malls, hotels, and office buildings that tend to go along with real- estate expansions.” Bloomberg also quoted the statement of Deutsche Bank CEO Josef Ackermann as saying, “It’s either the beginning of the end or the end of the beginning.”

The situation is so grave that it is being estimated that any crisis in commercial real estate will result into a severe blow to financial industry which is already suffering from crisis in Housing real estate. Also US Federal Reserve has been instrumental in getting credits flowing for the industry so that they can get their projects refinanced. Thus it’s just a delay tactic to hold the inevitable crisis.

CNN reported that “vacancy rates at malls rose 9.5% in the first quarter, outpacing the 8.9% vacancy rate registered in all of 2008.” Financial Times is pointing that “From Vancouver to Manhattan, we are seeing rising office vacancies and declines in office rents.”

Without doubt commercial real estate industry is a crisis in making. It is big, it is grim and it will certainly create havoc in US and global economy.

Bubble of Bail out Packages

Gerald Celente, head of Trends Research Institute, one of the major forecasting agency in the world is of the opinion that “The biggest financial bubble in history is being inflated”. Celente calls it “Mother of all financial bubbles”. He names it “Bailout Bubble”.

Forecasts of Gerald Celente are of certain importance, as Washington Post quoted, “he is the person who accurately forecasted 1987 Stock Market Crash, the collapse of Soviet Union in 1991, crash of Asian currency in 1997 and 2007 Sub-Prime Mortgage crisis.”

Celente said that, “Phantom dollars, printed out of thin air, backed by nothing and producing next to nothing defines the ‘Bailout Bubble.’ Just as with the other bubbles, so too will this one burst. But unlike Dot-com and Real Estate, when the “Bailout Bubble” pops, neither the President nor the Federal Reserve will have the fiscal fixes or monetary policies available to inflate another.”

Report by Bloomberg is also of equal importance as it reported that US government has already spent, lend or committed $12.8 trillion. This amount equals total GDP of USA in 2008. Plus this amount is 14 times greater then currency in circulation.

Bail Out! Bail Out! Bail Out!

Last year can be marked as year of Bailout and it would not be wrong to say that 2010 could be the same. Many believe that USA might go in second phase of bailout packages. As in early July of 2009, billionaire investor Warren Buffet said that, “unemployment could hit 11 percent and a second stimulus package might be needed as the economy struggles to recover from recession” Mr. Buffent went on saying that “we’re not in a recovery”. Also in early July, an economic adviser to President Obama stated that, “The United States should be planning for a possible second round of fiscal stimulus to further prop up the economy.”

Bank of International Settlements, which is the central bank of central banks, and one of the most prestigious institution of the world, mentioned in their report that “There is a definite possibility that stimulus programs will drive up real interest rates and inflation expectations and expressed doubt about the bank rescue package adopted in the US.” The BIS further warned of inflation, saying that, “The big and justifiable worry is that, before it can be reversed, the dramatic easing in monetary policy will translate into growth in the broader monetary and credit aggregates. That will lead to inflation that feeds inflation expectations or it may fuel yet another asset-price bubble…”

BIS has also said that, “The fiscal stimulus packages may provide no more than a temporary boost to growth, and be followed by an extended period of economic stagnation.”

Most importantly the crisis of commercial real estate can further built pressure on Obama administration to bailout those who have created this mess. One can imagine that the bubble which is already inflated to $12.8 trillion, will further be inflated with new bailouts, and once it burst!! It will be a big big burst and no wonder it will take whole financial system with it.

Capitalism will create another mess!!!!

It is evident that global capitalism is failing and those who brought the crisis and those who were the torchbearers of this failing ideology has already said this. Alan Greenspan, Ex-President of US Federal Reserve, quoted that “He has seen flaws in the system he believed in.” Point to ponder is on the fact that why in the world are we dragging this defeated system with us?

It is getting clear to the world as everyday pass that Capitalism is a failing ideology, just like Communism. It is getting clear to mankind that no system can prevail which is a brain product of few genious individuals. It is getting more and more evident that world is not a place to be governed by systems made by Man. The world needs a change and it need it quick so that Human race can be saved from the Mess of Capitalism.

So What is the Solution?………..Islam! and nothing else!

How Islam is “THE SOLUTION”?

Boom and Busts are regarded as signs of economic activity in Capitalism. But the reality is that busts have turned themselves into recession and they can further convert themselves to depression. This cyclical thing is unique to capitalism and this system is always prone of crisis one after another. The reason is that flaws are in the foundation of Capitalist Economic System. Flaws such as 1. System of Fiat Currencies 2. Debt Based Economy 3. Privatization of everything 4. Parasitic Market practices such as short-selling, Forward Selling, futures. These fundamental flaws in Capitalism will always create crisis, not only in host country, but across the globe.

Allah (swt) revealed Islam to Muhammad (saw) and he brought mercy of Islam to the Mankind. The Economic System of Islam is pure from all these flaws and it has it’s own unique system to govern economic affairs of people. Islam has a currency system backed by gold and silver unlike Fiat currency system. Islam does not treat loan as a product, rather it is treated as a loan which is to be repaid without any interest on it. Islam does not allow privatization of everything but it defines crystal clearly that what things can be taken into private ownership and what will remain in public and State ownership. Islam has forbidden practices like forward and short-selling, future sellings, stock markets etc.

It needs a State to implement a system comprehensively and that state will be the Khilafah State. The only real bailout package to world today is re-establishment of Islam through Khilafah which will certainly liberate mankind from the quagmire of Capitalism.

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