There's no pleasure in the vindication: four years after Northern Rock's collapse, three years after Lehmann, those of us who predicted a double dip recession are seeing it transpire before our eyes.
In that sense, it is fair to argue that the recent increases in the public-sector indebtedness of many developed economies is the consequence in large part of the decisions taken in 2007 and 2008 not to let the banks and the financial system collapse.
Arguably the deleveraging of the banks, the shrinkage in their balance sheets, has been transferred to the state.
The overall volume of indebtedness in the economy is therefore still with us - although it has been shuffled from financial sector to public sector.
The massive debt of the shadow banking system, now socialised and transferred to the tax payer across Europe and the US, is causing a run on sovereign debt across Europe: Greece, Ireland, Portugal, Spain, Italy and now even Belgium are seeing the costs of government borrowing rise. They're trapped in a uniquely evil trap:
1. Borrow to reflate - and see the bond markets speculate the debt is unserviceable
2. Cut expenditure - and see the bond markets speculate the lack of growth is unsustainable
Neoliberalism is bankrupt - literally. 30 years of Reagan Thatcher, which saw real wages in the UK and the US actual fall, and living standards only rise through increased debt, has now no way of reflating itself. Nearly all the fiscal and monetary bullets are now used up.
The last remaining weapon in the armoury - Quantitative Easing - will just flood the shadow banking system with cash for ever more destabilising speculation on commodity prices and government debt default.
What has been described as feral finance is virtually impossible to regulate by one government alone. The virtual movements of capital have no borders. They seem to be able to blackmail any government at will. The only solution to the dysfunction of the shadow banking system is concerted global governance. But instead of working together, most governments are engaged in competitive currency manipulation.
This is like the trade war of the 1930s - but happening at a much faster velocity. The lack of solvency in the global system could soon create another disastrous liquidity crisis: interbank lending ceases up, investment withers, trade stutters, ships queue outside ports....
There's no leadership in Europe. The US is distracted with it's own political gamesmanship running up to an election year. As Gordon Brown has just written in the Huffington Post:
Europe's problems can only be truly understood in three dimensions: not just as a fiscal crisis but as a pan-European banking crisis -- which started as, and continues to be, one of massive unfunded bank liabilities -- and as a trans-continental crisis of low growth, in part the result of the euro's deflationary bias.
Together, and in lethal combination, these three problems threaten to create a tragic roll call, year after year, of millions of European citizens unnecessarily condemned to unemployment in a wasted decade.
Having started from the wrong analysis, leaders have been making exactly the same kind of mistaken judgments we have seen in the U.S., where there are four political no-go areas: no higher taxes, no entitlement cuts, no economic stimulus and no infrastructure investments. These political constraints have also trumped an agenda for growth, and yet another engine of the world economy is being shut off from anything other than an anemic recovery.
The rise in jobs in the US just announced - at 117,000 stronger than anticipated - is unlikely do cause much more than cause a temporary uptick in world markets.