Forum Post: The Vatican Response 2

Presupposition Every individual and every community shares in and is responsible for promoting the common good. Faithful to their ethical and religious vocation, communities of believers should take the lead in asking whether human family has adequate means at its disposal to achieve the global common good. The Church for her part is called to encourage in everyone without distinction, the desire to join in the “monumental amount of individual and collective effort” which men have made “throughout the course of the centuries ... to better the circumstances of their lives.... This human activity accords with God’s will.”

1. Economic Development and Inequalities The grave economic and financial crisis which the world is going through today springs from multiple causes. Opinions on the number and significance of these causes vary widely. Some commentators emphasize first and foremost certain errors inherent in the economic and financial policies; others stress the structural weaknesses of political, economic and financial institutions; still others say that the causes are ethical breakdowns occurring at all levels of a world economy that is increasingly dominated by utilitarianism and materialism. At every stage of the crisis, one might discover particular technical errors intertwined with certain ethical orientations. In material goods markets, natural factors and productive capacity as well as labor in all of its many forms set quantitative limits by determining relationships of costs and prices which, under certain conditions, permit an efficient allocation of available resources. In monetary and financial markets, however, the dynamics are quite different. In recent decades, it was the banks that extended credit, which generated money, which in turn sought a further expansion of credit. In this way, the economic system was driven towards an inflationary spiral that inevitably encountered a limit in the risk that credit institutions could accept. They faced the ultimate danger of bankruptcy, with negative consequences for the entire economic and financial system After World War II, national economies made progress, albeit with enormous sacrifices for millions, indeed billions of people who, as producers and entrepreneurs on the one hand and as savers and consumers on the other, had put their confidence in a regular and progressive expansion of money supply and investment in line with opportunities for real growth of the economy. Since the 1990s, we have seen that money and credit instruments worldwide have grown more rapidly than revenue, even adjusting for current prices. From this came the formation of pockets of excessive liquidity and speculative bubbles which later turned into a series of solvency and confidence crises that have spread and followed one another over the years. A first crisis took place in the 1970s until the early 1980s and was related to the sudden sharp rises in oil prices. Subsequently, there was a series of crises in the developing world, for example, the first crisis in Mexico in the 1980s and those in Brazil, Russia and Korea, and then again in Mexico in the 1990s as well as in Thailand and Argentina. The speculative bubble in real estate and the recent financial crisis have the very same origin in the excessive amount of money and the plethora of financial instruments globally.