We didn’t know it, but September 11 was the start of the West’s economic crisis.

Much of the economic decay that set in after 9/11 can be directly linked to the political response to the atrocities. That’s not to say that the US Federal Reserve was wrong to cut interest rates and flood the system with liquidity, or that the Bush administration’s panic reaction in promoting the mother of all booms in the consumption was wrong. At the time, these seemed like a reasonably practical response to an event that threatened chaos in financial markets and a collapse in business and consumer confidence. Bin Laden should not have the satisfaction of crashing the economy along the Twin Towers.

As it stands, the Dow Jones fell 7.1 pc on the first trading day after the attacks, the biggest daily drop on record at that time. It was even worse for the S&P 500, which lost 11.6 percent, while the high-tech Nasdaq lost 17 percent. There was real fear in the street.

But the dramatic policy easing that followed, far beyond anything warranted by what had happened before for the economy and inflation, ignited the fuse for reckless credit expansion. which was ultimately to give us the collapse of subprime mortgages and the near collapse of the Western banking system. In the absence of real profit growth, politicians have instead fed the masses a cheap debt regime.

The war on terrorism has done little to help; it was not just the expense of the whole, disobeying like that the old rule already proven by the Vietnam disaster that you can have guns or butter, spend for war or the national economy, but not both.

The invasion of Iraq also sparked another massive sell-off and yet another push of exceptionally accommodative monetary policy in mitigation. Up to a point, it did the trick. The bear market that began with the dot.com crash at the turn of the century eventually died down, but the overbreadth of it all sowed the seeds of the coming financial collapse.

Thus was established a model which has reigned ever since; any economic shock comes up against a new flood of monetary impressions, in order to maintain the pretext of perpetual growth.

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