It seems like all commentary on the situation of America today is put into the context of post-WWII. That's like studying the history of Rome, but ignoring the 500 years of history that happened before Ceasar's armies crossed the Rubicon. If you intentionally limit your vision of the world then you will eventually be caught off-guard by larger trends.
This problem is especially true in the field of economics.

The fact is that the financial system, as it was structured in 1944, was an experiment. No one knew if it was sustainable, and it certainly wasn't intended to last forever.
That world has been slowly, and increasingly, breaking down for the last several decades, but because no one looks more than 65 years into the past no one can imagine a different world. Everyone is terrified of the "unknown", when in fact is isn't unknown at all. It's just different.

If we took off our blinders and looked at the history that existed before 1944 we would not only stop fearing the past so much, but we would actually learn valuable lessons that we could apply to the economic crisis of today.

"Although capitalism is not a Ponzi scheme, credit-based economies, sic capitalism, and Ponzi schemes share the same fatal flaw. Both must constantly expand or they are in danger of collapse."
- Darryl Robert Schoon

British Prime Minister Gordon Brown warned the world today.

"Unless we come together to address these problems in a coordinated way, the world is at risk of a damaging spiral of de-globalizing. It is fueled by a combination of deleveraging and national-only policy solutions," Brown said.

That sounds pretty darn scary, doesn't it? Except that globalization isn't either a good or bad thing, so it retreating isn't necessarily something to be afraid of.
Historically the world goes through cycles, and it being more or less globalized is based on factors unrelated to trade itself. For instance, world trade as a percentage of global GDP hit a peak in 1913 that wasn't reached again until the 1970's, but the 1950's and 1960's aren't considered some sort of Dark Ages.

Sometimes people's timeframes get so small that they are largely useless. For instance, today EU Economic and Monetary Affairs Joaquin Almunia had this to say about rumors of a break-up in the Eurozone.

"I am not worried at all by those who have announced for 10 years in a row that the euro area will split. Honestly, I don't think that this is a real hypothesis," he told reporters in Brussels.

This is called " the official denial". The reason why this is being discussed is because the sovereign debts of Spain and Greece just got downgraded, with Italy, Ireland, and Portugal in the queue.
What Mr. Almunia is ignoring is that the Euro currency was an untested concept currency and it is only now getting its first real test. It will probably survive, but not in its current form.

Another problem with ignoring the facts of history is that people tend to invent "history" to fill in the blanks. The best example of this is the free trade fundamentalists. To them all trade is good, and the fewer the barriers to trade the better off everyone will be.
The reality, OTOH, is that trade is largely unrelated to the overall welfare and health of an economy. There are just as many example of lower trade barriers hurting a nation as helping it.
The free trade fundamentalist like to point to Smoot-Hawley as some sort of biblical decree against all trade barriers, in the same way that neocons look at Chamberlain's Munich Agreement as a sign of how all foreign policy should be conducted.
Choosing to focus on only one example and ignore all contrary data is called dogmatic, and it will always get you into trouble.

Debt and forgiveness through the ages

Speaking of biblical decrees, I was surprised to read this today.

There is no guarantee that the measures will succeed. The vast scale of government borrowing may exhaust the stock of global capital. Markets are already beginning to question the credit-worthiness of sovereign states. The Fed may find it harder than it thinks to disengage from colossal intervention in the bond markets.

In the end, the only way out of all this global debt may prove to be a Biblical debt Jubilee.

Jubilee is an interesting tradition that hasn't really been practiced for centuries, but for thousands of years it was an accepted part of middle east tradition. In today's world the idea of a periodic wholesale canceling of debts and the restoration of land to the poor seems utopian and anachronistic.
Unlike today's world, the ideas of morality and religion wasn't excluded from economics. In fact, unlike today, morality and religion was infinitely more important than profit and personal property.

What was radically disturbing in archaic times was the idea of unrestrained wealth-seeking. It took thousands of years for the idea of progress to become inverted, to connote freedom for the wealthy to deprive the peasantry of their lands and personal liberty.

"Land must not be sold in perpetuity, for the land belongs to me and you are only strangers and guests. You will allow a right of redemption on all your landed property."
- Lev. 25:23-28

I first got interested in the concept of Jubilee, not for religious reasons, but for economic reasons. The person who introduced me to the idea was my favorite economic historian, Michael Hudson.

“First they ignore you, then they denounce you, and then they say that they knew what you were saying all the time,” said Gandhi. The same might be said of today’s overhang of debts in excess of the economy’s ability to pay. First the policy makers pretend that they can be paid, then they denounce the pessimists as spreading panic, and then they say that of course students have been taught for four thousand years now how the “magic of compound interest” keeps on doubling and redoubling debts faster than the economy can squeeze out an economic surplus to pay.

What has ended is the idea that “the magic of compound interest” can make economies rich without having to work and without industry. I hope we have seen the end of derivatives formula seeking to make money by playing in a zero-sum game. A debt overhang always ends either in foreclosure of the debtor’s property, or in a debt annulment to preserve the economy’s overall freedom and equity.

This means that the postmodern economy as we know it must end – either in financial polarization and debt peonage to a new oligarchic elite, or in a debt cancellation, a Jubilee Year to rescue society. But when the government says that it is reviewing “all” the options, this reality is not one of them.

The Federal Reserve has attacked the current financial crisis as if it were a problem of liquidity (not enough money is available to borrow and loan). In fact the problem is the levels of debt in the world today.
To put it another way, it's not the financial system is illiquid. It's that the world's banks are insolvent. Some officials recognize this to be the case.

"This biggest worldwide economic crisis arose by getting into debt," Josef Proell, Austria's new finance minister, said. "You can't fight a debt crisis by getting into more debt."

Which brings us to the root of our problem today - debt.

Understanding peonage

"The rich rule over the poor, and the borrower is servant to the lender."
- Proverbs 22:7

"Owe no man any thing, but to love one another."
- Romans 13:8

In my personal opinion the average American's attitude towards debt is probably the most bizarre disconnect from reality in society today.
I find myself amazed and incredulous every election when the voters will consistently turn down a one-cent sales tax to fund their schools, but approve each and every school bond measure that makes it to the ballot. Do people not understand that they end up paying more than twice as much for the same services by doing it this way?

It's the same irrationality people have over their credit cards. With all the problems of privacy, usery interest rates and charges, and the immoral business practices of the credit card companies themselves, shouldn't people be more concerned with learning to live without their plastic?
What it basically comes down to is a widespread ignorance of how debt works.

Let's start with Michael Hudson explaining compound interest.

The eighteenth-century philosopher Richard Price identified this miracle of compound interest and observed, somewhat ruefully, that had he been able to go back to the day Jesus was born and save a single penny—at 5 percent interest, compounded annually—he would have earned himself a solid gold sphere 150 million times bigger than Earth.

This should demonstrate in no uncertain terms that a debt-based economy, with the compounding interest that comes with it, cannot exist permanently. The world simply doesn't have the resources to cope. Something has to break.
Either the debt is defaulted on, the debt is forgiven, or the most popular method in recent years is for the debt to be inflated away through monetary inflation. Inflation generally acts as an instrument to transfer wealth from those removed from the source of money creation to those close to it. Banks are always close to the source of money creation, while the working class is always removed from the source.

Yet the world exists on a debt-based currency right now. Every dollar created was loaned into existence and has no value other than the ability to pay off that debt. This is not a situation that existed in world history before this past century. We pay interest on those dollars by creating more dollars, which also must be loaned into existence.

In theory its possible to grow an economy faster than the debts accumulate. However, in practice this doesn't work. Any significant recession will push an economy behind the curve, and with the magic of compounding the economy can never catch up. Once the interest rate curve goes parabolic the debts become unpayable.
We have passed that point.

Odious debt

Another concept of debt that I recently discovered is the concept of Odious Debt.

In international law, odious debt is a legal theory which holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, such as wars of aggression, should not be enforceable. Such debts are thus considered by this doctrine to be personal debts of the regime that [are] incurred [by]them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under coercion.

While odious debt is not as widely found in industrialized nations, it is widespread and almost universal in the developing nations of the world. Throughout modern history those debts are almost always held by 1st world banks, and enforced by the armies of 1st world nations. This is particularly true for British and American history, where the poor of the 1st world are used against the poor of the 3rd world for the benefit of the ruling class.