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STRATFOR Global Economic Downturn: A Crisis of Political Economy

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~published by STRATFOR courtesy~

Origin of the Crisis

As we all know, the origin of the current financial crisis was the subprime mortgage meltdown in the United States. To be more precise, it originated in a financial system generating paper assets whose value depended on the price of housing.

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It assumed that the price of homes would always rise and, at the very least, if the price fluctuated the value of the paper could still be determined. Neither proved to be true. The price of housing declined and, worse, the value of the paper assets became indeterminate.

This placed the entire American financial system in a state of gridlock and the crisis spilled over into Europe, where many financial institutions had purchased the paper as well.

From the standpoint of economics, this was essentially a financial crisis: who made or lost money and how much. From the standpoint of political economy it raised a different question: the legitimacy of the financial elite.

Think of a national system as a series of subsystems — political, economic, military and so on… tot pe STRATFOR

Read more: Global Economic Downturn: A Crisis of Political Economy | STRATFOR

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