Much media blather about positive economic data from the USA and the prospects of 'green shoots' in the the EU, notably a recording of the fact that Germany and France had stopped shrinking in growth terms, ignores the fact that so much of the steam now apparently being picked up by the world economy is driven by entirely artificial 'monetary and fiscal easing'. This is in fact a posh way of describing the process of 'printing money'. The problem is, what will happen to this 'recovery' once it is no longer sustained by this artificial stimulus.. The stimuli will have to be curtailed, its just a matter of timing. Leave the money presses rolling for too long and you will certainly generate inflation, stop too early and the sickly weak recovery shoots will wither.
Two notable economists, Nobel prize winner Joseph Stiglitz and Professor Nouriel Roubini of the New York University, have alerted us to this prospect...
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In addition , Joseph Stiglitz, winner of the 2001 Nobel Prize in economics, has warned that the global economy could suffer a double dip, a pronounced rebound giving way to another slide.
'It is difficult to know whether or when there will be a W,' as such a course of events is often described, Stiglitz said.
Stiglitz, a former World Bank chief economist and an advisor to US former president Bill Clinton, said household balance sheets had been 'destroyed', which has meant that savings have gone up from zero to 7-9%.
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A rising savings rate cuts into consumer spending, which is responsible for roughly two thirds of US economic growth. An 'inventory adjustment' is under way, as companies build up their stocks, Stiglitz said.
But 'because of the uncertainties, people are not hiring, unemployment is very high and foreclosures are likely to remain high,' he said.
Stiglitz has been a sharp critic of policies advocated by the International Monetary Fund, contending that they aggravate crises and impose public hardship.
Gore Vidal writing in the 1980's made the observation that Reagonomics was nothing more than the expression in policy terms of the fact that
"The US government prefers that public money go not to the people but to big business. The result is a unique society in which we have free enterprise for the poor and socialism for the rich."
This insight has been impossible not to recollect this week following the nationalisation of American International Group, the world's biggest insurer, immediately following the dramatic rescue of the Fannie Mae and Freddie Mac housing companies and of the Bear Stearns bank.Robert Reich's described the process as 'socialised capitalism' . It has reached an astonishing new height with the announcement by the Fed, hurriedly backed by a thoroughly spooked Congress, and White House, that it would in effect underwrite the entire creaking US financial system to a tune of $1 trillion, thats a $1000 billion to you and me, courtesy of an increase in the US national debt, which of course is ultimately serviced by the US taxpayer. "Gains privatised and losses socialised" was the more pointed comment by Nouriel Roubini Professor of economics at the Stern School in New York University. Professor Roubini is known in the economics trade as a "permabear" because of his repeated claims over the last six years that a financial system based on self-regulation, non-deposits, highly leveraged subprime housing debts and globalised derivatives trading was unsustainable and would collapse.
Roubini argues that the AIG should have been bankrupted rather than nationalised, and the $85 billion of taxpayers' money loaned to the firm could have been used instead for debtor-in-possession financing. This would have allowed for a more fair process for allocating losses between shareholders and short-term and long-term creditors of the firm. Nationalisations like this are prejudiced in favour of those responsible for the trouble in the first place.He is scathing about the Bush administration's actions. In RGE (Roubini Global Economics) Monitor, he wrote: "Fanatic zealots of any religion are always pests that cause havoc and destruction with their inflexible fanaticism; but they usually don't run the biggest economy in the world. But these laissez-faire voodoo-economics zealots in charge of the USA have now caused the biggest financial crisis since the Great Depression and the nastiest economic crisis in decades.
"So let them be shamed in public for their hypocrisy and zealotry that has caused so much financial and economic damage."
Roubini appears to be underwhelmed by the Feds bail out however, writing on the 19/9/08 in RGE Monitor he said
""At this point a severe recession is unavoidable; the only question is how severe and protracted it will be. Debt reduction and public recapitalization of banks will not instantly resolve every problem and will not prevent a painful recession that – at this point – will last at least 18 month."
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A Fact Which Must Never Be Forgotten......
"Putin paid tribute to the veterans of all Allied nations, but emphasized that the greatest sacrifices of the war were paid by the citizens of the Soviet Union, who persevered despite the deaths of 27 million."
