Transcript JICMI 2014 - Hizbut Tahrir

The Collapse of Global Capitalism:
What can we learn from the Global
Financial Crisis
Jamal D. Harwood
London, UK
@jamal_harwood
Financial Crisis of 2008 and today...
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The greatest crisis since 1929
5 Years after growth poor and much slower
recovery than 1929
Jobless recovery – built on debt
Confidence precarious
Governments using media to generate confidence
Unhealthy relationship with media and banking
Causes of the crisis in 2008...
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Enormous debt bubble
Repeal of Glass Steagall act in the US opened up market to high risk trading
Unprecedented fiat money creation
Housing bubble via easy credit
New exotic derivatives and mortgage backed securities poorly understood risk profile
Cause for pessimism – search for alternatives?
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Growth has not returned and is being over-stated
Joblessness is growing and is being under stated
Inflation is growing fast and is being under stated
Swingeing cuts to social and public services
Risk still at record levels – derivatives little or no control over it
Corruption in financial circles endemic and not being tackled –
fines not prison
Growing indebtedness, more asset bubbles (stock and bond
market
Three inherent crises apparent in Capitalism
Weakness in and
adherence to the
rule of law
Growth/Profit
obsession and
excessive risk
taking
Corruption in the
highest levels of
government
Overall Income inequality
continues to deteriorate…
Rule of law
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Repeal of Glass Steagall act in late 1990‘s
Ignoring the evils of interest
Money creation to feed the demand for interest payments
Leverage of financial assets beyond comprehension
Federal Reserve and other central banks working for the interests
of the banking cabals, not the public
Growth/Profit Obsession
• Misplaced understanding of derivatives
with respect to risk vs gambling
• Derivatives 17 times the size of the world‘s
economy
• New notion of - Too big to Fail –
encouraging greater risk taking
• Banking interests forcing government to
bailout losses with public moneys
• Concentration in markets opening them up
to distortion
Illegal Market Manipulation
now common
• Libor interest rate fixing scandal (several banks)
• Drug money laundering (HSBC)
• Multi trillion dollar foreign exchange market – front
running client orders (multiple banks)
• Mortgage bonds and securities mis pricing, mis
selling and confiscations
• Precious metal (gold, silver) market direct
manipulation (bullion banks)
Corrupt relationships in Government
• Federal Reserve bank privately owned by banks
• Too big to fail banks provide most senior government
financial officers – executive and legal
• Quantitative easing programme placing $85 billion
monthly into markets including $40 billion of
mortgage securities
• Major banks 30 and 35 times leveraged and new
Dodd Frank laws not applied
• March 2009 FASB changed mark to market to (mark to
model!)
• Exchange stabilisation fund routinely intervenes in
markets
Derivatives market as large as ever…
It looks like we have a recovery in growth… but
Adjusted for real rates of inflation
and growth is really flat…
Despite continued interventions bust
and boom cycles dominate…
• Monetary and Fiscal policy are interventions to smooth the business
cycle. Are they effective?
Governments continue to overspend to attract voters
The US leads the world in developing debt
For an economy that is supposed to be in recovery
this is not normal
But growing debt is a global problem
The reality is that the Capitalist world is
addicted to debt – 8% CAGr (1980 – 2013)
The policy is to print more and more money
from nothing…
The more money printed the greater likelihood it will
get out of control…
FMQ = Total Check deposits, M1 currency, Savings deposits, and Reserves balances less vault cash
The cost of out of control debt
(money creation) is consistent
and high inflation
And after numerous changes to the way it is calculated real
inflation is really higher
Many of the figures are “managed” real growth
is much lower than reported
Manipulation of unemployment
figures is probably the worst
Numbers relying on food stamps
steadily increasing despite claims unemployment down
Massive quantitative easing (money creation)
benefiting the stock market
Increased money and productivity
not trickling down to real wages
Wages not keeping pace even with inflation
over the past 30 years
The only age group in the US increasing
employment is over 55’s!
The Islamic Imperative
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Non Interest economy
Gold/Silver based currency
No hoarding of wealth
Radical taxation policy
Prohibition of gambling
Land reform
Distinctive regulatory framework and true financial
reform
• Social welfare reform
Political Stability
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No ruling party
No electioneering based on material interests
No political patronage
No political lobbying based on business interests
No 3, 4 or 5 year election cycles to stifle decision making
No election cycle pushing politicians to make popular
spending decisions
• Central authority with decentralised management of the
needs of the people
• Caliph does not face constant election
/re-election decisions and appoints key
economic and administrative appointees
independently
All Interest is forbidden
 Low cost equity/partnership based investment
model without banking intermediaries
 Debt based creation of money is out of control and
grossly destabilising
 Perversely Central Banks effectively moving to zero
interest rate policies with their QE and suppression
of interest (to banks) now close to zero rates
 Despite high cost of interest to society banks also
received bailouts costing taxpayers 100’s of billions
 Perpetual growth to pay interest is impossible and
leads to crashes and asset seizures
Gold/silver as currency
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Currency stability over millenia and a level playing field
between Nations
Relatively mild instances of deflation and inflation
compared to fiat money
No counterparty risk, with manageable growth in
currency
Gold/Silver the only currency and treated as a true
medium of exchange
Universally accepted, promotes sound and low cost
trade policies
Advantages of Gold/Silver currency can only function
with non-interest system
Hoarding prohibited
 Key to circulation of wealth – connected with
explicit textual evidences
 Compare with the banking system which
withdraws capital during downturns
 Direct Investment, charitable giving, consumer
spending – all positive outcomes
 Business cycle downturns work against investment
and spending
Radical Taxation approach
Zakat (2.5% on nonutilised wealth)
Kharaj/Ushr on
capacity of land,
Jizyah
No Income,
Consumption,
Business, Rates,
Council,
Transport taxes
Wealth taxes are
proportionate to
wealth – fair on all
(natural
redistribution)
Strong incentive
for investment
and spending and
full employment
All Gambling is prohibited
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All gambling including most derivative
contracts forbidden (incl. short selling,
forward contracts)
Derivatives are increasing volatility in markets
at higher risk levels
Gambling in all forms take wealth out of
circulation/trade
Unacceptable losses to society via moral
hazard
Land Reform
 Use it or lose it (3 years)
 Revival of dead, unused lands promotes
widest ownership among masses
 No leasing of agricultural land
 Land tax encourages full utilisation
 Laws against price fixing
Distinctive regulatory environment
and financial reform
• No state bailouts of private
companies
• No monopoly, strong anti-fraud
provisions
• Stable regulatory environment –
laws consistent over 1400 years
• Lobbying unlawful
Social Welfare reform
• Individualism stifling society
• One third to one half of US/UK citizens depending on social
welfare payments for survival
• Breakdown of the family unit
• Family unit vital in support of the individual
• The State as a final help for the basic needs when the family
unit is unable to
Concluding Comments
 2008 a massive warning to us all – but little done to change the
situation
 Unprecedented opportunity for Muslims to lead the way with true
reform
 Must be holistic – Islamic solutions individually will fail when not
applied comprehensively (Gold/Silver as currency cannot operate
with interest)
 “And so judge between them by that which Allah has revealed
and follow not their vain desires, but beware of them lest they
turn you away from even just some part of that which Allah has
revealed to you” [Quran 5:49]
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