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I would argue that the Global Free Market - as propagated by the neo-liberal institutions the IMF and World Bank - is beginning to unravel.

As we have seen across the globe the enforced market liberalisation of the IMF has had more often that not, negative results. Even Brazil, which has enjoyed the most impressive recent recovery, cherry picked the reforms; its recovery was managed by the moderate socialist Luiz Inacio Lula da Silva. When Argentina was in economic dire straits its problems were made worse by neo-liberal market reforms. In the end Argentina broke with the IMF’s medicine.

In fact the most impressive economy of the past decade has been the Chinese model, a hybrid of communist central planning and capitalism. Privatisation was limited and controlled, so the economy suffered none of the system shocks that follow neo-liberal reforms.

John Gray in his book al Qaida: And What it Means to be Modern argues that neo-liberal economists such as Milton Friedman and Francis Fukuyama are the economic successors to the Positivist’s of the Enlightenment. However unlike their predecessors they forget the human factor in their mathematics. Neo-liberal economists believe foolishly that a single economic system can be successfully implemented across the globe. This belief has been roundly defeated in practice, yet the free-market acolytes continue to believe economics is a science devoid of human nature, and the realities of history.

The neo-liberal economists believe they have defeated the economic cycle and that they are ushering in constant uninterrupted economic growth. This fallacy is about to unravel….

The American Economy, which is the model for the free-market, is the greatest example of neo-liberal failure in the world. Indeed the US political elite are among the most prolific users of protectionist tariffs and limits on imports. The pharmaceutical and agricultural industries are among the most cosseted markets in the world. US manufacturing is on its knees and this is evident in its huge trade deficit.

American household savings recently dipped to the symbolically low level of 0.0%. This represents the nadir in the safety of the US economy as credit has reached unsustainable levels; with interest rates kept artificially low by massive inflows of foreign capital the irreversibility of recession is inevitable.

As the worlds biggest debtor the US will not be able to rely on household savings to soften the economic meltdown. It was the Japanese household’s proclivity to save that enabled it to re-emerge from its recent recession relatively unharmed; the US has no such reserve on which to draw.

With the misguided Congressional pressure on the Chinese to revalue the Yen, the American political leaders are facilitating a catastrophe. As the Chinese economy begins to cool the amount of capital invested in the US Treasury will undoubtedly reduce. At this point the US Treasury will have to look elsewhere for investment. The likelihood is that the capital available will be insufficient to keep American interest rates as low as the American people have become used to.

Unable to control its low interest rates the current housing bubble will collapse. Families that have borrowed heavily on property will find themselves in negative equity. The rising costs of servicing debts (with increasing interest rates) allied with this domestic financial insecurity, will decimate US domestic consumption.

With domestic automobile manufacturers already struggling against cheaper and superior imports, this industry – along with many more – will not survive the retraction in demand. As unemployment rises the compound problems that face the US economy will result in a massive recession.

As the US people are the major default consumers of global over production the globe will face a massive economic retraction.

We are approaching the biggest economic depression since the 1930’s.