There needs to be a creation of a new socio-economic system, one that fosters economic growth not solely through consumer spending, less saving, and individualism but one through better accountability and responsibility. Capitalism has its roots in mercantilism and in order for it to work effectively it must have a consumer culture (people that are willing to define themselves through the products they buy without knowing the makers) and a low social class, consisting of people willing to work for unlivable wages and unaware of, or rather, indifferent to the injustice. As globalization continues to benefit and help stabilize developing countries worldwide, capitalism finds itself running out of a low social class and a new one to exploit. This translates into less future profits for corporations, which the stock market’s performance truly reflects. Although subprime mortgages, credit swaps, and financial speculators were key factors in the global financial system’s downturn, they are only the scapegoats for capitalism’s faulty and taut system.
This faulty system has led to loose morals, uncontrollable spending by the government, and a domino effect across the world’s largest economies; it is time for paper currency to be backed by something other than the good faith in the U.S Government. Although global liquidity is increased due to fiat currency, the ease in accumulation of debt is also proportional, thus the status quo. Now, I’m not calling for the reinstatement of the Gold Standard or a new Bretton Woods style conference of nations, but I am calling for an attempt by economists to seek stronger stability for the U.S. dollar, whose value has dropped over 20% in the last five years.
Gold cannot be the answer due to its inventory and supply limits but oil reserves can; the combined GDP of the world’s economy was over $65 trillion last year and the current barrels of oil in the worlds oil reserves is estimated at about 1.4 trillion. If you multiply this number by the price of oil in the range of $45-$70 per barrel then we can see how easily the total amount can be related to the world’s GDP in terms of purchasing power, thus making oil reserves (not oil contracts) a valid commodity to support paper currency. I understand there are barriers to this being a reality and the geopolitical complications that may ensue…but just a thought.