What happened was an economy based on paper profit and consumer borrowing. The banks serviced and inpart grew fat on this.
Correct in the first sentence - that's exactly what I was saying: asste values grew, and lending was based on that. Money expanded. Now money is contracting.
the UK is in *such* a mess because our economy has been allowed to become so dominated by financial services. As we are post industrial the only thing we could make is money out of each other. Which, as you point out, has a distinct air of inevitability about it. The result it, we reaping what has been sown since the final death throes of our manufacturing based economy in the 1970s.
If you have a look at Japan - they are back in the sh*t having not long moved out of it. They abandoned heavy industry in favour of technology in the 1960s, and had an economy that grew until a banking crises put it into stangation for years. They've had some growth in the last decade, but are now in real trouble - current figures suggest that the Japanese economy is "offically" in depression (greater than 12% shrinkage on an annualised basis).
We're looking like we're going the same way as Japan. The economy is shriking rapidly. While the governent tries a new version of the Keynsian "spend your way out" solution, it is also having to prop up the basis of the economy (banks have the money, people need the money) by buying up failed financial institutions. These institutions have failed, not because of the general populace, but because of the core decisions taken by those banks - they have epitomised greed and avarice, and now we're paying the price.
Anyway, our next stop is probably deflation , which should totally f*** us over: no-one will spend, and the economy will, at best, grind to a halt.