When the G20 meet in Washington on November 15, there will be a spectre in the wings. The incumbent President is a dead duck and his successor will be ever-present in people’s minds but not physically there. So whatever the G20 decide, there will have to be a renewal of all commitments three months later.

But more than that, there is another imponderable the meeting will face. Is this global crisis one of the many periodic crises Capitalism has faced—in 1971, 1981, 1987, 1997—or is it something of a once-in-a-lifetime event? The Great Depression was one such event. It was the deepest crisis of Capitalism, but at the end the system came out of it reformed and stronger. But it was also the signal of the end of British and European dominance and the rise of America. It was America which had begun the stock market crash and indeed the incompetence of the Federal Reserve which prolonged and deepened the cycle. Yet, it was Europe which lost out and America which became the dominant power.

This time around once again we have a meltdown. It started in America with the subprime mortgages, but the entire financial system of the world is caught in it. There are several causes—excessive risk taking by banks, new financial instruments which were little understood but much used by hedge funds and others, rapid movements of markets thanks to IT and 24x7 news coverage which spread panic fast. But underlying all those things were global financial imbalances. China and many Asian countries had accumulated large reserves of foreign exchanges which had resulted from America and Europe overconsuming. They put these reserves into US Treasury bills, which meant lending the money back to the US at low interest rates, creating excess liquidity in world financial markets. China’s manufacturing exports and India’s service exports kept global inflation low, and everyone had a bonanza since despite an explosion in global money supply, prices remained reasonably low.

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