A car crash so slow we forget it's happening

In Thursday’s Financial Times, columnist Stephen King, chief economist at HSBC, expressed the view that we are living in a world "where the financial system appears to be slowly crumbling." And in a letter published the same day, Giles Conway-Gordon, of Cogo Wolf Asset Management in San Francisco, expressed a very similar idea: "for the first time in more than 300 years, there is no sound global reserve currency…[and]…it is difficult to see any return to the former global financial structure."

The idea that the existing financial system is doomed seemed to be present from the onset of the global financial crisis four years ago, but it was crowded out by more urgent calls to prevent immediate collapse and restore normal functioning. If we are in fact living through the terminal crisis of the world as we know it, and if we all knew this all along, what’s remarkable is how long it’s taking.

It’s as if we are all in a car hurtling into an unavoidable accident and time has slowed down, so that the whole agonizing process is stretched out in our awareness. So far we’ve been fiddling with various switches on the dashboard, deep in denial about the inevitable fate we are skidding towards. Perhaps this is just as well: I once saw denial in a list of the three most effective responses to being told you have cancer. But what if we look up to take in the view ahead?

Maybe this is the stage we have now reached. What do you do as a society if you’ve spent decades building a global economy with a digital-powered financial system running at warp speed, and suddenly you realize that some really basic things need fixing or the whole thing's going to be toast?

One problem is the lack of precedent. In the case of a car crash we have a pretty good idea what’s going to happen, because we’ve seen so many before. But what exactly happens when a global financial system fails, and what can be done about it?

Some people are starting to think that the real root of the problem is the system of money and banking itself. In October 2010, Mervyn King, the Governor of the Bank of England, suggested in a speech that the remedies for the current malaise included not just breaking up banks, but actually "eliminating fractional reserve banking." Interest-bearing fiat money lent out on a fractional reserve basis by banks served us well during the 200 years or so of rapid growth to the present global economy. But this may not be the best enabling platform for the coming era of sustainable development-focused economics.

Perhaps some combination of non-fiat money and the power of the Internet can provide solutions fast enough to save us. There are already plenty of examples springing up spontaneously. Zopa.com offers peer-to-peer lending. The green utility Ecotricity is disintermediating banks by raising money directly from its customers. Bitcoin lets you mint your own Internet money. And in Japan, social problems are addressed by creating social money known as "Caring Relationship Tickets."

So let's hold onto our seats as the whole field of money fragments and diversifies away from fiat currencies, and hope that this will yank the steering wheel over hard enough to stop the entire global economy nose-diving off a cliff.