Hi Gail,

What I got from Prof. Daley's presentation is that the damage has already occurred. The debts exist. There is no mechanism for their removal nor is there remotely sufficient real wealth to do so even if a globally agreed procedure was already in place.

Not only will the GDP fall, it is already falling and has been for a long time now. The decline was simply hidden by statistics that treated imaginary products as though they were real ones, as if bushels of wheat were somehow equivalent to 'credit default swaps of securitized tranches of tax incremented municipal surety bonds' (i.e. indecipherably absurd financial instruments.) As for the Trade Deficit, the arcane relationship between real and hallucinatory production makes it virtually impossible to even calculate what the deficit IS, much less balance it.

The situation is comparable to Peak Oil in a lot of ways. We might like to go on driving big cars on limitless fuels forever (just like we would like to have endless pay raises), but we're not going to because gone is gone. Another non-negotiable constraint imposed by an utterly non-abstract world.

I personally doubt that any government or combination thereof has the power to stop the chain reaction that is accelerating at such a rate as seen in the past few weeks. It would require what? The simultaneous elimination of fear in many millions of minds? The suspension of hundreds of laws controlling the honoring of debts and contracts? How could such an engendering of faith in the faithless even be transmitted to so many people so quickly? To make matters worse, those who need their heads put back on straight are the same people who created the problem in the first place. If we passed a hat for enough money to really bail out the world economy, does anyone believe Hank Paulson or any of his ilk would chip in their own ill gotten gains?

There might still be a miracle. It will require nothing less.

What we are doing now (in discussions like this on The Oil Drum) is not so much proposing realistic solutions to fix what's broke, as we are hashing out the details of better rules-of-play should we ever have the opportunity to rebuild a civilization from the ashes of this one.