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4 Cold turkey for financial
addiction By James Cumes
personal fortunes would disappear.
There would be a whole reordering of societies and
of relations among countries that might offer the
most terrifying outcomes in terms of conflict of
all kinds, including wars - civil, regional and
worldwide.
Some analysts have been
contending that the prospect of a depression -
another great depression of global dimensions -
has been feared for so long now that it will not
be allowed to happen. That is too optimistic.
Governments and central bankers will not
want
it to happen, but they have so far failed so
miserably to prevent or deter us from stampeding
to the brink that, whatever their motives may be,
they seem now unlikely to be able to stop us from
going over the edge.
Therefore, the best
that we can hope for now may be that governments,
central banks and others will apply such
palliatives as they can without allowing their
support of speculation to add further to
destruction of the global economy and financial
system, while at the same time embarking on
national and international measures to restore
primacy and vigor to fixed-capital investment,
productivity and production in the real economy,
national and global.
That raises the
question of the impact and its extent that
financial collapse will have on the real economy -
the productive economy. The short answer is that
it must inevitably be somewhere in a range from
severe to devastating.
The immediate
depressive effect of what we have already is
likely to be sharp and severe. Employment in the
United States appears already to have moved down
sharply. This is largely in housing and
construction, which contributed so much to growth
in the recovery and boom years after 2001, and in
associated industries such as durable goods,
retailing and distribution, real-estate agencies
and associated professional and legal services.
Consumer demand, which drew so much of its
vitality from the housing boom, will be severely
hit. Credit-card debt will have to be wound down.
Auto credit is likely to diminish both in demand
and supply, and the auto industry could suffer
severely. So the impact of credit problems will
flow through the US economy and must also impact
on the trade that the United States will be able
to conduct with the rest of the world.
The
dollar is almost certain to decline in value,
perhaps precipitously, especially in gold and
key-commodity terms, and force a reduction in
demand for imported goods. This will be in part
beneficial for US exports; but domestic
industries, especially in the more basic consumer
sectors, are unlikely to be able to replace, at
least in the short term, supplies from overseas.
No longer the consumer without limit, the US will
almost certainly infect other countries with its
slowdown, recession or depression, and that in
turn will reduce growth, investment, employment
and output around the world.
Even the boom
in commodities, though it might survive more
robustly than other sectors, will certainly be
affected and diminished, as demand collapses in
other sectors. In other words, we are likely to
see the characteristic snowball effect on trade
and growth that we have experienced in similar -
though almost certainly less devastating -
circumstances in the past.
Some countries,
such as China, which have more effective
regulatory control of their economies as well as
the inherent size and strength to "go it more
nearly alone" may transit the worst of the coming
crisis less painfully than some others.
To
emerge from this crisis or complex of crises, we
will need to resume attitudes of mind and policy
that we had after 1945. After 20 years of world
depression and world war, there was then a
widespread passion for rebuilding national
economies and the world economy on a sound basis
of stability and growth, through multilateral
cooperation for peaceful change.
Now we
need to restore value to what produced real income
and wealth for us in the past. We will need
national institutions which can help us restore
that value; and we will need to rebuild our
international institutions. The United Nations and
the host of associated or independent
international institutions have proved to be
useless or worse than useless, especially over the
past three to four decades.
Their
achievement has been to bring us to the brink of a
tragedy - economic and financial in its outward
aspects, but with deep political and strategic
implications - which threatens to be the most
cataclysmic to confront us during all the years
since the advent of the Industrial Revolution.
So in a sense, the task that confronted us
in 1945 is the task that confronts us again: to
rebuild the world to a better pattern of economic
and financial policies and practices, and to do so
cooperatively and imaginatively, with the
participation of all those of whatever backgrounds
who share our objectives of positive and peaceful
change. It is a huge task. It calls for
cooperation among all countries and all regions,
all races and all faiths if we are to see our way
through it safely.
In tackling that task,
we must start now. We have just seen an
Asia-Pacific Economic Cooperation summit in Sydney
that has been an exercise in futility, both in
discussing vital issues in ways that could serve
no purpose and ignoring issues whose neglect could
bring us to the brink of self-destruction of much
of human civilization. The APEC meeting reflected
the impotence and irrelevance that a plethora of
international gatherings and self-styled "summits"
have displayed in recent decades. We must not
persist in flagrant indulgence in this empty,
exhibitionist futility.
The process of
building new and effective international economic
institutions was set out some years ago in my
proposals for "Victory Over Want" (VOW). These
proposals have been developed further in my
proposals for a World Economic Authority and a
World Development Authority put forward in my
latest book, America's Suicidal Statecraft: The
Self-destruction of a Superpower. There are
other proposals being put forward, many of which
are worthy of careful and urgent consideration.
However, with the best will in the world
and with the utmost cooperation among the world's
major powers, creating effective international
agencies will take time. Until then, it seems
inevitable that we cannot avoid some elements of a
"cold-turkey" detoxification from the addiction to
which our economic and financial policies have
delivered us.
That "cold-turkey" detox
threatens to be the most painful experience that
the national economies and the world economy as a
whole have suffered in the two or three centuries
of the Industrial Revolution. It must be our
objective, therefore, to keep this phase as short
as we possibly can and to move to the phase of
rebuilding through effective national and
international measures and institutions as soon as
may be practicable.
That is the imperative
that we should now acknowledge and should seek to
satisfy with all the energy, creativity and
urgency we can contrive.
Dr James
Cumes is the author of America's
Suicidal Statecraft, as well as
other fiction and non-fiction works. Please click
here
for more information.
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