The Oil Drum: Canada

Stoneleigh, Thank you for your excellent financial roundup post. As usual.I don't believe this crisis is a crisis of confidence. The internal mechanisms of the global economic system are seizing up. I found a very good description of what is happening in The Past, Present and Future In Gold by Lance Lewis at Minyanville. He gives an excellent rundown on the massive inflationary expansion of money driven by cheap credit following the 2001 recession. What I found so interesting was how inflation is critical for the survival of the system:

As for all the talk of “will the Fed cut or won’t they”, this is irrelevant in my view. Given the Wild West nature of the way the modern financial system has evolved over the past 20 years, it requires ever-expanding rapid credit growth, or it just dies. If credit growth slows, the system dies like a shark that stops swimming, and the social consequences of that option are much worse than an inflation problem, at least in the near term....When given the choice between a deflationary depression and the possibility of higher inflation on down the line, the Fed will always choose to inflate (because it must in order to assure the survival of the system), and that’s precisely what Feldstein was urging them to do this past weekend. ...The Fed must “do whatever is necessary” in order to keep the system intact, and that requires a massive inflation given the enormous credit bubble in real estate that was blown in the wake of the stock market bubble bailout. In essence, all roads lead to the same place in my view: to more inflation.

The system is in a crisis because it cannot longer create the money via lending, legitimate or no, to service the existing debt. People can't pay their existing debt, much less take on additional. The system is choking up.

And so this is why I think its less about a lack of confidence, but really real crisis that seems to be leading to recession (view the atrocious housing numbers). Mish at http://globaleconomicanalysis.blogspot.com/ has offers an excellent post, Moonbats Active Again in Massive Jobs Disaster, explaing how in fact the housing numbers are actually much worse than the 4.6% unemployment number show.
The growth of the money supply via credit has hit a wall. We're getting right now high inflation, with more to come in the near term. How long can the system resist the downward pull of the deflationary depression ? The lesson here again is that whether or not we can attribute the current crisis to high energy prices, the fact that the end of growth spells the end of credit expansion spells system economic crisis is very likely to be what we would see if it were.