The global economy's decade of debt-fuelled boom and bust
Mon 21 Dec 2009 00.05 GMT
Borrowing was both the shaky foundation of global growth and the cause of its collapse
It started with a bust and it ended with an even bigger bust. In between was sandwiched an unsustainable boom. Banks have been humbled. Economists have been found wanting. Geopolitical power began to shift from west to east. That was the noughties that was.
But the crisis of the past two and a half years has exposed vulnerabilities across the entire global economy. During the fat years in the middle of the decade, clear warning signs of trouble ahead were ignored. Ultimately, the global imbalances did matter. Ultimately, the build-up of personal debt did matter. Ultimately, the willingness of banks and other financial institutions to take ever bigger risks in search of high returns did matter.
The economics profession thought otherwise. It built sophisticated mathematical models showing that markets could not be wrong. Despite the fact that Wall Street and the City of London seemed to be dominated by headstrong young men with far too much money and far too little sense, the chance of a catastrophic blow-out was viewed as alarmist nonsense. When the meltdown occurred, there was a sense of utter disbelief. Chuck Prince, the (former) boss of Citigroup, captured the mood when he said, a couple of weeks before the crash, that while the music was playing he would carry on dancing. If prices in the markets were not signalling problems, how could there possibly be any?
Yet there was a dirty little secret about this supposed perpetual moneymaking machine. It required debt – and lots of it – to work. The real story of the noughties is that of how borrowing was used to plaster over the deep structural problems of modern global capitalism.
