Richard Heinberg: What if the economic diagnosis is fundamentally flawed?

Heinberg: In short, I am suggesting an Alternative Diagnosis. This explanation for the economic crisis is not for the faint of heart because, if correct, it implies that the patient is far sicker than even the most pessimistic economists are telling us. But if it is correct, then by ignoring it we risk even greater peril.

SHOOT: Recommend you read the full text. And sit down whilst reading.

clipped from www.theoildrum.com Everyone agrees: our economy is sick. The inescapable symptoms include declines in consumer spending and consumer confidence, together with a contraction of international trade and available credit. Add a collapse in real estate values and carnage in the automotive and airline industries and the picture looks grim indeed. But why are both the U.S. economy and the larger global economy ailing? Among the mainstream media, world leaders, and America’s economists-in-chief (Treasury Secretary Geithner and Federal Reserve Chairman Bernanke) there is near-unanimity of opinion: these recent troubles are primarily due to a combination of bad real estate loans and poor regulation of financial derivatives. This is the Conventional Diagnosis. But what if this diagnosis is fundamentally flawed? The metaphor needs no belaboring: we all know that tragedy can result from a doctor’s misreading of symptoms, mistaking one disease for another.