The economic fallout is predicted to be huge, with recession likely to hit major western economies. The extent of the inevitable political fallout is hard to predict as the USA, the world's only superpower, is teetering on the edge of bankruptcy. Many view the USA as the world new ‘sick man'. But global markets and economies are so intertwined if this ‘sick man' falls, many states could be crushed beneath. At this time of crisis, The Muslim world has a huge opportunity and responsibility. For as leaders in the west flounder for solutions to this crisis in Capitalism - a crisis that was as inevitable as night follows day, due to inherent flaws in the system - Islam has real solutions in this field that would prevent the seismic shocks this inherently unstable free market will always produce with its cyclical boom and bust. So what are some of the key problems and how does Islam's system contrast:
1. Unrestrained credit creation because of the interest based economy
An interest based system means that banks will always seek to maximize profits from lending. In doing so, they have lent more than they possess in assets by an enormous scale. There has been no effective regulation or restraint on the system and this model reaped huge profits. However, the knock-on effects on the rest of the economy are set to be colossal - on businesses, individuals who are set to lose their jobs and on the taxpayer who has effectively absorbed the risk whilst bankers have made the profits.
The Islamic system prohibits the giving or taking of interest payments, so naturally avoids the get rich quick schemes from lending. Investment of wealth is in the real economy where sharing of risks and rewards is between business partners without banking middle men who control the flow of credit to their advantage.
2. Paper based currencies
In the free market model money is not backed by any commodity. Governments bail themselves out of debt by simply printing more money or extending credit lines. We have seen the inflationary effects of this in an exponential rise in fuel and food prices this year - leaving people in poor countries on the brink of starvation. The fragile nature of these paper based currencies was exposed in the late 1990's with currencies collapsing in South East Asian due to market speculation. Currently, the US is massively in debt (10 trillion dollars). The US will ultimately pay much less (to their creditors like China, Japan, etc) when the dollar depreciates further (as it has been) through their accelerated printing. But the cost of this falls back on the ordinary citizens - through greater taxes, cuts in social/health service spending and a rise in the cost of living that is the result of printing more money.
The Islamic system has a stable and real currency based on gold and silver standard which cannot be created by the state treasury out of thin air. This means that money has a real value behind them and forces people to live within their means. They cannot artificially create wealth for a few, ultimately creating misery for the many.
3. Financial services industry is out of control and is effectively a gambling market
The derivatives industry is not the real economy but betting or ‘hedging' on how markets/measures of the real economy will move. This market is "estimated" at 600 to 1,000 trillion dollars and is 10-20 times larger than the real global economy at trillion. The counterparty risks (other side of the contract) are so large and widespread now that many banks, pension funds, investment funds, hedge funds and even countries (Iceland for example) could collapse. The domino effect of these failures will be massive and has the potential to bring the whole economy down - it will likely be too large for many governments to cope with.
The Islamic system has a clear regulation of company law, anti-gambling legislation, prohibits short-selling and non-futures contracts, and specific laws regulating the sale/purchase of commodities and currencies. Islam has clear financial contract laws controlling all of these excesses which are predictable and preventable.
4. The Free Market!
Capitalism now stands on the brink. Economies, staggering from crisis to crisis, now require massive state intervention and nationalisation. This runs completely counter to their very own principles. Their notion of the "free market" has been exposed as a lie, and has failed. The official response - a promise of new and better regulation - has an appalling track record of dealing with underlying problems (where has Sarbanes-Oxley (SOX) post Enron era helped in the current crisis?). It is also contradictory to the "free market" philosophy. Regulation merely presents a challenge for traders to look for loopholes to run legitimate trade, but by the same rules that produce the crisis we are currently witnessing.
The Islamic system has a system of ruling and economy which is transparent, stable and has a track record of consistent success over several centuries. Rulers are subject to the law and do not invent new laws at the first crisis. When a system is so fragile that it needs constant amendment what does that say about the system?
It could be said that the Islamic system provides the only truly stable free market. The fixed laws of regulation cannot be changed by a whim and powerful lobbies - and people can invest and trade in a market freely within those rules.
So where are the Muslims today? Islam has the solutions to this crisis, yet it is nowhere to be seen in the Muslim world. We sit idly by and watch the world economy fail with untold misery to a large percentage of the world population. Furthermore, regimes in the Muslim world - who have invested heavily in propping up this failed system, at the expense of their own population - may see their economies crushed under the falling ‘sick-man' of the United States.
Our countries and their corrupt regimes are part of the problem and if anything are helping to try and prop up the failing system (sovereign wealth funds, bank bailouts, and even having their currencies pegged to the US$). Many non-Muslims will be shaken to the very core by this crisis; they have never experienced anything like it. They are interested in alternatives and we must be there to present the only alternative.
It is time for the Muslim world to liberate itself from this failed system, establish the Caliphate (al-Khilafah) and a model market that others will see, Insha'Allah, provides an inherently more stable and just system, not pandering and fuelling the greed of human nature, coupled with the responsibility to help the poorest in society such that wealth does not remain the monopoly of a few.
Source: Theunjustmedia
Kavkaz Center
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