Even Larry Elliott...

...in The Guardian writes of 'capital controls' as if they represented some kind of failure. It is true in the case of Cyprus that there sudden and drastic imposition (and pretended 'temporary' nature) are a response to failure (both of the Cypriot banking system and of the bailout of that system) but they are not, in themselves, intrinsically bad.

I mean if they had been in place all along, we would not have built up a banking system whose inherent irresponsibility has led to the current crisis.

Indeed the last capital controls in the UK were only abolished with the first Thatcher government and with their general global dismantling, post-1971, various things have happened.

The world financial system has grown increasingly unstable, it has generated less actual wealth year on year (measured in GDP terms) than the preceding decades but has contrived to allocate that wealth increasingly unequally.

Are these facts in anyway possibly connected? To which the answer is yes. No man can serve two masters. You can either build a genuine economy in particular places, shaped around nations or regions where money is controlled and the servant of the needs of the household and people. Or, alternatively, you can deconstruct economies and live (for a time, like King Midas) in a casino where all activity is at the service of money. This gives the winners a great (and addictive) buzz but sooner or later many in the real world come to wake from their affliction and try again to rein money in. The sad thing is this tends to happen only after a calamitous shock - like many an addict, it is only when they discover themselves in the gutter that they begin to wake up.

Is the gutter coming up to meet us? Sadly, yes. The financial system is fundamentally insolvent and the next shock or the one after will finish it off. This is a sobering thought and I wish we could all wake up earlier and change. Here is hoping.

A friend who interacts at a senior level with a number of central banks said to me recently that ultimately we will need some form of radical 'jubilee' of debt forgiveness. I can only agree. I wish it could be forgiveness that is conscious and orderly. I fear it will come as an unwelcome and painful correction. 


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