Jeremiah Hypothesis

It has not taken long for the supporters of free markets to gather themselves and come out fighting, in defence of the of laissez faire economics. A number of economists adept at being experts in the reading of entrails have recently attacked the prime minister, G. Brown’s stance in attempting to use public finances and higher PSBR to pump prime the economy out off, or reduce, the impact of a recession. A recession which if we are all lucky will be of manageable and short proportion yet may only delay the horrendous future problem if public finances are not substantially reconstruct from now on. Their open letter to the Times had all the hall marks of professional protectionism and offered little practical value in solving a problem that the same laissez faire attitudes created. Their argument seem to be that loading the PSBR will do little to reduce a recession and will simple put a large tax burden on the following decade and undermine the value of the pound. Some elements have suggested that the market should do what it does best, let it sort it’s self out and work through the losses and industrial / commercial pain of defaults and reduce taxes. This coarse attitude extension of lasisez faire in the face of this financial confidence crises problem was mirrored by a conservative MP, (later quickly retracted) to do nothing and the market will solve the current problems. From a academic economist point of view this may be true but to do nothing in the face of , what is becoming clear, a massive retrenchment by industry in response to the credit crises, banks ‘rebuilding’ of their balance sheets and a consumer lack of confidence with a rapid rise in unemployment, is not acceptable.

The difficulty is that this time a recession is a notable world affair, with all the major economies from the USA, Germany, China, Europe, GB and oil producers all coming under pressure to respond to a down turn in consumption. There is hardly anywhere of note that is not feeling the effect of this sudden recession. This is not like a other recessions which have tended to flow slowly and move from country to country with some being in a down turn and others not, this something much more serious.

Why is it that the current credit crisis is always being attributed to the housing sub prime market crash? It was obvious over 18 months ago that with the rise in the oil price which was originally being pushed by ‘the market’ to feed off demand supposedly taken up by China and India, that it would have an impact on food crop production switching to bio fuel for higher created price; that the trading market was driving up the cost of oil, food, inflation and interest rates. It is this that prompted the actual rise in overall commodity prices and the fear of higher inflation with a reflexive sudden rise in interest rates that exposed the sub prime market and the financial instrument exuberance. The blame for the current situation is to be placed on those in the corrupt market.

The continuing short hand description of the current financial debacle: sub prime collapse and credit crises, is attributed to the American market, and its housing sub prime collapse that has affected the banks and their willingness to lend generating the credit crises is a small part of the picture. As much as G. Brown wants to wrap the UK difficulty up in the issue of this problem of a recession as being a world effect caused by the sub prime credit crises is risible. The destruction of financial stability was exposed by the pin prick of the sub prime into the bubble of financial mismanaging on a stupendous scale by all the key participants; governments, banks, future markets, et el. Personal individual borrowing were of course optimistic but not of such a nature to destabilise the worlds banking system.

No doubt the problem has been created by unbelievable foolishness in financial circles See Credit Crises Depression. 1.5.08 & Money, Money, Money 25.9.08 but be that as it may, it is here and now and must be resolved without placing stricture on its possible eradication. As an example of what is complete foolishness is the pronouncement of G. Osborne the Cons spokesman on economics, with his diatribe on the likely reduction in the pounds value raising a spectre of a “run on the pound” defies any rational explanation. So far the cons have been completely at a loss to identify any alternative solution to the current financial crisis and have relied on consistently lambasting any attempt by the government to control the unfolded credit crises or recession.
There is developing a raft of lay offs and short time working with some exposed companies taking pre-emptive action and shutting for a period. Once consumers no longer have resources to spend a massive retrenchment takes place. The housing market is flat, consumer spending has dropped; there is a distinct air of uncertainty which in its pernicious way is becoming self reinforcing so corrective actions have to be taken.

Such action as is being taken by all governments is to re-finance financial institutions in the hope that an easing of credit will follow and this is then matched by a proposed short term fiscal changes; is only doing what is necessary. It may prove to be too little, yet there is no arguing the veracity of the rights or wrong of such action but the essence is to be doing something; to trust that one still has some control to influence action, which is what is being done. It is a fact that the whole financial system, primarily in the west, in the guise of markets got out of control, leading to fast money generating blind spends by government, bank and consumers. For now a short shallow recession is being hoped for by governments and that fiscal action will have an impact. One thing seems certain you would not have wanted the cons to be at the helm at the time this problem broke, their policy would no doubt to have been slash and burn providing their business and city cronies don’t get too hurt.

So some economist and the cons are propagating a doom laden scenario were the UK falls into a depressive state, with low or zero growth, huge public sector debt, high cost of imports especially on energy, low manufacturing exports and high a interest rate to repay interest on government bonds and eventually more taxes. A picture of an economic downward spiral that results in one conclusion for the country severe austerity or bankruptcy! It seems that one element of opinion is in denial at the scale of the problem while the other is trying to stem the flow of doom. No one seems able to mitigate vitriolic expressions in favour of one of rapprochement that do have an impact on public opinion. There will be time for Tax or be dammed, that is without doubt for the future but there is no choice but to borrow and spend now and pay up later.

Will there be a recovery and “Return to growth”? Probably. But the problem is that the financial system has taken such a shake that growth will be curtailed for some time and the danger is that the west will not be able to break out of the pit it has fallen into, perhaps the financial supremacy of the west is broken. In which case how is going to obtain or manage the reduced resources that it will need in the future to tackle the environmental and energy investment that are to be needed and fight off the pandemic to follow now?

If all the negative aspect of the current and future economy is true, that a massive retrenchment leads to much greater problems, can the UK economy or that of the west gets over this retrenchment in time? To theorise about what the future will look like after this economic setback with too much negativity can hypothetically create a much bigger problem of a long deep depression or a worst situation and at time when the movers and shakers are in no position to do anything about it. An economic war is more preferable than an actual one.

Some people are bent on concentrating on the truly negative aspect of the current financial crises, looking at what has caused this issue to the extent that they are not giving much creative action to how to resolve it. Politically the conservative seem to be bent on placing as much blame on the current government as the proponent and instigator of the whole mess rather than see it as one that all governments have been complicit in building up for 100 years and one that has to be challenged now. Most sensible people will see and understand the awful predicament that has been unwisely created; it is one that has little to recommend the bickering that political fraction want to wallow in and perforating any action with destructive hyperbole is not helpful. Warn of the dangers; examine the suppositions, yes, but offer and prepare for the solutions.

Buy the pricking of my thumbs something wicked this way comes?

© Renot 2008
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Epistle to America

On the 5th of November 2008, the people of America, perhaps not with an overwhelming popular majority vote, but never the less, decided to create a visible transformation in the way of looking at themselves through the prism of politics. The battle between the Democrats and the Republicans was finally concluded in a popular vote, enough of a vote to note the date as a momentous occasion. For a country like the USA with its rapidly create deviant ethnic mix, irresolute of its world direction, hampered by its cavalier independent foundation and uncomfortable with the state of the union as depicted in Washington; gained the 1st non Caucasian President. Some say the obvious statement as black president, using the term as political ethnic statement as in the first black president; rather than ignore the skin colour and admit to the occasion as being one that has hopefully elected the most promising, educated and intelligent American into office for decades. In some way the event is similar to that which carried John Fitzgerald Kennedy to the white house, carried forward on a spirit of optimism for a future, a future for America cut short by his assassination from which act stemmed the following decades of progressive generating decline and corruption in politic life culminating in the Bush years.

Now, using President elect senator Obama's word, “change” is in the offering against a time when it is more urgently required than ever before. Apart from the difficulties that are already laid out, the greatest challenge will be; will America allow change to take place? Or will it once more destroy its opportunity to change in even a limited myriad of ways and slid further into decline, something that it cannot truly afford to do.
The great strength of America is its resources unity under its flag however within this there is multiplicity of views, race dynamics of hopes and expectations for the different ethnic mix that increasing is the make up of the united states. Such strength though is wrapped up in the self delusion that this translates into the belief that it is and is seen as, a superpower. That the USA is tactically a perceived superpower may only be due in no small measure to its military might but it is not a superpower. It has the structures and potential stature to become one and one in the future may be needed but its time latterly has been running out.

There is now a window of opportunity. It is one thing to elect an unusual person but it is entirely a different thing to change an administrative and organisations inertia from one that has been shaped by the philosophy of miscreants infecting the direction of state resources and the imperceptible resistance that a number of individual can defy change in implementing policy shifts. Attempting to change the indolence of the administration that has been moulded to bend to the will of a few placed individuals, will be a challenge to both democrats and republicans that do not want to give up their mind locks of how they view what is best for America. It will be a battle that the president has to win and it is likely that with Obama what you see is not what you get, behind that educated eloquent balanced air may well be a determined and forceful ego that could verge on being dictatorial if events do not match expectations. The political and corporate establishment may find themselves under pressure and scrutiny they have never had before and they will be held accountable to an electorate that may choose not to be so un-represented in the affairs of Wall Street and Main Street again.

So for the sake of change what are his first’s tasks likely to be? Clearly he has to appoint staff of like persuasive minds and have the tenacity to push for a change in the negative policy inertia that has stalled the progression of the USA to be a truly integrated sophisticated powerful country that has also the potential to become a superpower. In order to do so it must generate success in changing the perceptive social differentials that pervades the whole culture of American life. Those that have an abundance of resources are only out number by those that do not and cannot obtain even the aspiration to become resources positive. The inequality of American life is comparable with the poverty of a 3rd world country like India or china. It may have some of the superficial trappings of superpower but it is some way away from the essence of that term which it will need to sustain it in the future by taking on the challenge to address fundamentals like:-

Economics: The USA is the biggest debtor in the world with productive capacity that will not be able to match the competitive shift in the global market. The current plea by the big car manufacturers to provide’ investment’ funds or sees them enter chapter 11 and possible collapse is just a small sample of what could be in store from its own created problem.
Education: The education attainment of students is falling with different states and region within states offering widely different quality of tutorials. Most America have poor grasp of world affairs and in overall educational terms do not match the average of EU, Chinas or Indian breadth
Health: it does not have a unified health provision, is held to ransom by the avaricious medical profession and health insurance industry, increasingly its population is falling out of any adequate medical provision and its population is notably obese.
Defence: The military spends has become a financial Damocles handicap of a use it or loose it stratagem, one it can not afford to continue without generating greater economic strength.
Energy: As the largest user of carbon fuel it is the largest producer of waste gases. It needs to decouple it reliance on carbon fuels faster than any other country, hydrogen and nuclear may be its best options.
Infrastructure: Bridges, roads and railways are falling apart, there is no central federal policy to invest new or rebuild for a low carbon future.
Social Integration: With its internal divers ethnic mix, that is coalescing into cultural and language enclaves which although acknowledging a flag unified country, there is very little actual allegiance to an American cultural whole.

Little of this is new, it is all well known but the difference now is that there is likely to be a president that knows and wants to do something about it, it may be the beginning of America’s epiphany and we wish it well but it will need a good decade to see if it can raise to the challenge of ‘change’.

© Renot 2008

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