Much water under the bridge, many tons of newsprint in the recyling bin and many million bytes through the gates later, where do we find ourselves?
Bang in middle of the cesspool, I’m afraid. Its a quagmire! you say. Its quicksand, say the traders. Whatever you do, you cannot extricate yourself from this mess that free markets have landed us in.
Free – bosh, free with MY money, they were. That was the banks. And now, what are the governments doing? Spending my tax money from the future! Money I havent even earned to be taxed on yet! And given the redundancies, do we know if I will have tax to pay?
So,what should we do?
First, educate ourselves and face up to the truth. One, all spending is not evil. What is spending for one, is income to another. Two: capitalism is not evil, just went down the path of greed and forgot to balance that with fear. Three: We are stuck in a vicious downward spiral, with overspend as our only paddle. Four: We have to think and make our way out of this mess, governments alone cannot do it.
Governments have started flooding the markets with money. Quantitative easing they call it. So, instead of us overspending on our credit cards and flooding the market with money, the government does it. How does this help? One perspective says that all that is happening is that consumer choice is being replaced by government control. Conventional wisdom says that the market is always right and the consumer is king.The consumer will always reward true value with custom and this will determine the survivors. Darwinian, in the sense of survival of the fittest. Replacing this with government control only centralises the decision making, making it so that bigger chunks can be dished out. So, big boss decides who gives value and who gives not.
The freedom tribe may have problems with this (and I count myself amongst them), but this is not the time to voice that (I hope others do). For I see the logic here. You cannot save them all, and small drips of funds may not be enough. It is better to consolidate and save the more worthy ones. So squeeze individual credit and splurge as a nation.
There are problems with this approach too, some very serious. First, who decides which company or area is a deserving recipient of our collective funds? Who can decide which ones are fit enough to survive and will deliver value on our investment? Both the jury and the candidates are under my doubting microscope here.
Then, there is the more serious issue of where the money goes. Deflation (especially in a recession) plus new money supply does imply inflation, but not in a good way. Economists fear stagflation,for the way out of it is steep, long and painful. The big fear here is that prices will rise faster and before jobs and paypackets revive. Which will leave many racing between the dole queue and the vegetable patch. This is a very serious concern and should be keeping policy makers awake nights.
Is there a way around this? Maybe.
It is going to be a tightrope walk, but the guys in charge have to balance credit with inflation, which is what they are supposed to do anyway – but this time they have to actively manipulate and manage it. Easier credit will help businesses survive, but ease it too much, and prices will start to rise. The mantra for this, handed down from the gods of economics, is – inflation is more money chasing fewer goods.
The first part of that has been implemented. More money is being pumped in. Now – to make sure that it does not chase a stagnant level of goods and services. Revival depends not upon the amount of money sloshing around. It depends upon what we do with it.
And what we do with this money depends upon how it is doled out. The governments are calling the shots, so it is now up to them to ensure that it is put to productive use.