This article is adapted from a piece which appeared in Syntagma in March.

That old pendulum is swinging again and at a speed that threatens disaster for banks and economies alike.

During the Thatcher decade (1980s) the politburo socialism of the 1970s was jettisoned all over the world — apart from in isolated outposts like Castro’s Cuba. Both the Berlin Wall and the Soviet Union crashed to oblivion, and Mao’s China turned to its own version of capitalism.

That long swing to market dominance over centralized control has continued for nearly 30 years. Until now.

It’s about to go into reverse because of the vast mountains of debt built up in the system — an indebtedness that threatens to bring down the whole financial setup, investment and retail banks, and the “real economy” too.

Bank regulators are even now sharpening their swords ready to cut into the once-impenetrable jungle of bonus-led speculation and rampant hedonism that defines the financial markets, once the Rolls Royces of any respectable country.

Should we allow the pendulum — which more and more resembles the scythe of the Grim Reaper — to retrace its path back to the 1970s? Have we learned nothing?

Let’s just glance at the current situation in the markets. A spokeman for French bank Société Générale, itself a victim of the speculation culture, is deeply pessimistic, “We expect global equity prices to fall by up to 75pc from their peaks as a deep global economic downturn unfolds over the next few years.” A 50pc collapse in earnings is on the cards, made worse by an “Ice Age derating of equities”.

A 75pc fall in stocks matches Japan’s Lost Decade in the 1990s when they fell around 80pc.

The danger is that ultra-low rates will fuel another credit bubble which will put the real problem — huge debt levels — off for another turn of the screw, when it will surely be even worse.

Ambrose Evans-Pritchard of the UK’s Telegraph believes, “The capitalist system is now so deformed by debt that it requires ever lower interest rates to keep going. It survives on perma-bubbles. Monetary rigour at this late stage would endanger democracy. How did we ever let matters reach this pass?”

The UK regulator — the Financial Services Agency (FSA), which failed dismally with Northern Rock, has just published a report on the affair which highlights the problems regulators have. The FSA simply lacked the up-to-the-minute expertise on the newest financial instruments of the people it was regulating. To make matters worse, it was grossly understaffed for the job it was asked to do by government.

Rather than going back to the Dark Ages of government control and draconian restrictions, it would be better to do a deal with the banking system to co-opt top bankers for a year to the regulators. They could be paid identical salaries and averaged bonus equivalents as the banks pay out. They would then return to their institutions to keep up with new developments.

This would be expensive and would probably cause outrage in the public sector, but it would be far cheaper and less demoralizing than turning the clock back to the bad old days of politburo socialism.

The depredations of the Sarbanes-Oxley Act in America, following the Enron collapse, is a measure of how to overdo regulation. Let’s learn from the past in order to safeguard the future.

In the meantime the vast columns of red ink splashing across the economies of the world will unwind fitfully and very painfully for years. There is no alternative.

We need to hold our nerve and steady the pendulum.