Economic madness continues

A few months have passed since there was en entry on this blog.  During this time, the global economic climate has continued along the same trajectory. Despite the occasional talk fests, the promise of politicians and assorted economic witchdoctors that we are on the threshold of the good times, has failed to materialise. More than this, those who persist on being upbeat are getting lonelier by the day. 

If a better future for Australia is going to be constructed, recognition must be given to the realities of today. Only by this means can the appropriate action be taken.  A head in the sand approach can only lead to more mistakes and worse fortunes on the horizon.

A major point of concern is the ongoing situation in Greece. Much of the comment is about the need for Greece to pay off its debt and cut back drastically in government expenditure.

Let’s look at the first one. The solution being applied to pay off the debt is for Greece to borrow more.  Europe has not given a cash grant. It has enabled banks and other institutions to buy bonds off the Greek government. Proceeds from the bond sales are then to contribute to paying off the debt.  It sounds good. The trouble is that all that is being done is to provide the means to pay off a debt by creating another debt. It’s no different than individuals paying off a credit card debt with the use of another credit card.  When the bonds mature, the Greek government has to repay the money previously put forward, with interest on top of that.

So why is this being done? Basically, because only a short term view is being taken, buying a little time, hoping that something will turn up to prevent the crunch. The Greek people are asking why are what are often the very same banks that encouraged and profited from the debt, are being rewarded so handsomely. Even with the acceptance of a little less, they are the only ones likely to benefit from the situation. It is causing a great deal of angst. Should this continue grow and manifest itself into ongoing high level social turmoil, all bets are off.

The situation in Greece threatens to spill over into Italy and Spain. And if this occurs, given especially that these are much larger economies than Greece, no corner of Europe will remain unaffected. Such a crisis will spill over into the global economy and affect every nation.

Then there is a situation in the United States. Its debt [problem is more extensive that Europe’s.  Here too, future prospects look bleak, even if there is at the moment a small amount of more economic activity. Remember that this is from a very low base. The economic misfortunes of many have not turned around. Dissatisfaction is growing, as evidenced by the Occupy Wall Street movement.  Poll suggested during its peak that most Americans sympathised with its arguments.

How does this affect Australia? Basically, because Australia happens to be part of the global economy. Not only this. We are also significantly integrated into the American economy. What goes on there comes down to us.

Add to this that we have our own problems. Australia’s manufacturing industry continues to decline. Sure, this is something we have in common with many other developed countries. Our problem also has its own unique characteristics.  This is o something I will talk about another time. It is a problem because in order to turn negative economic prospects to positive ones, in a real and long term sense, we need to create value.  Economic recovery does not come about through clever entries into ledgers. It comes about in the real economy, through increasing our capacity to make things. Only by this means will we be able to raise the wealth to pay our way. Doing otherwise is only robbing Peter to pay Paul.

This brings us to the futility of the austerity approach. It might provide a means to redirect money to pay off debts in the immediate sense. It also undermines the foundation of an economy by shrinking its market, and also, downgrading our capacity to get on our feet. What else could be in store, if we neglect to train the young in needed skills, provide them with opportunities and lay down the total infrastructure needs that a prosperous economy needs?

Could someone do something about the idiots making the decisions, before they completely wreck the place?

It is the inability to solve the reality of social crisis and the threat of social turmoil that is feared.