Convergence of perception and reality may presage big changes in behavior. This could spark the second leg down in the GFC that began with the collapse of Bear Stearns and hit crisis mode with the failure of Lehman Bros. In the interim three years, the prevailing philosophy of TPTB has been "extend and pretend." Converging factors in the US, UK, EZ, Japan, and China are now conspiring to make extend and pretend no longer credible as the financial malaise further undermines the global economy and the hope of any sort of timely recovery is evaporating as a rescue plan.
However, the global ruling elite is still firmly fixated on perpetuating the status quo, making it impossible to address the causes of the crisis, which lead by debt overhang due to Ponzi finance. The ruling elite is still adamant about making themselves whole by squeezing the rest. This is not working as global effective demand dries up, along with confidence. Deflation threatens to set in, and it becomes established as money is hoarded, e.g., as a safety measure and in expectation of falling prices.
This appears to be the beginning of the next stage in unwinding of the Ponzi stage of the long financial cycle. If this is the case, expect debt deflation, recrimination, denial, rushes for the exit, and naked pursuit of self-interest to dominate at the top, with confusion, anxiety, and pain increasing at the middle and bottom, as well as political instability and social unrest rising due to this.
I wish I could be more positive about this, but it is not possible to be more sanguine given the prevailing narrative. As the situation worsens and panic sets in, the story is likely to devolve even more as everyone tries to improve their own position at the expense of others instead of increasing adaptive rate by exploring options cooperatively and attempting to coordinate a solution that benefits all. Of course, I could be surprised and would like to be.
One of the big factors in the difficulty finding solutions in this environment is the convergence of many factors involved in the causality owing to globalization. This crisis is therefore unique. We have not been here before, and there is no historical precedent for dealing with a crisis of this scope and this level of systemic risk.
The plan so far has been just to muddle along with ad hoc patches until the problem fixes itself. That plan is failing. Moreover, the situation is being exacerbated by the predominance of austerity in the current universe of discourse, not only by TPTB, but also on the part of a large swath of the population that equates household and government finance.
MMT shows that none of this is necessary, since there need be no lack of money in a global system based on non-convertible floating rate currencies to offset saving. However, due to both ignorance and narrow self-interest, this solution is neither being considered by TPTB nor advanced in the mainstream media, let alone implemented politically.