Was ‘Structured Finance’ Structurally Sound?
So the Crash of 2008 had multiple interwoven causes – but it’s important to understand how these were related. One major background cause is the nature of the monetary system and the very existence of interest. All money is created through governments borrowing from banks on interest. This means that repayments of the debt are larger than the original size of the loan. For the loan to be repaid, more money needs to be created which means more lending on interest. The result is that over the long-term, as the money supply increases, the value of the currency depreciates and thus costs of living rise. There is therefore a long-term structural tendency toward rising inflation. This contributes to the devastating nature of capitalism’s boom and bust crises - at some point the debt-bubble is patently unrepayable and has to collapse.
Yet pre-Crash inflation also had another specific cause in the 21st century, namely, rocketing fuel prices; fuel prices rose from 2001 through to 2008 primarily due to supply-demand issues (not purely due to financial speculation although this played a role), most likely as a consequence of peak oil. According to an October 2007 oil market report by the Energy Watch Group in Berlin, world oil production peaked in 2006. The excessive energy costs fed directly into the entire system, raising cost of transport, food, living and basically everything, which thus also placed structural pressure on banks to increase interest rates to cover their own costs. Experts like petroleum geologist Colin Campbell, who worked for companies like Shell, BP, Esso and Texaco, confirm we are probably now on what is known as the “undulating plateau”.
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