Friday, October 24, 2008

Solutions to the Global Financial Crisis

No one seems to be talking about solutions to the Global Financial Crisis, other than printing more money, authorizing more spending to the people who caused the problem, and "maybe" slipping into deficits here in Canada.

At present, some people are looking at this, and going "Why are the rich getting bailed out?" as now the financial markets have stabilized but when one see's the allocation of the U.S. bailout, its to major banks, one of whom has recently taken over another with the obvious question: does this money provide money for such takeovers and merger and acquisition deals to go on and on ... ?

Back to Canada, we are likely to slide into deficits and big ones at that, as revenues dry up. This is not the way to get into a deficit when one is facing twin ills of deflation (recession/depression) and inflation in the price levels by money based injections.

In my UofT days, I called this monetary inflation, "non-natural" inflation, as this price level rate of change was merely from the absence of the Bank of Canada controlling the rate of growth of physical money.

Similarly, I called natural inflation, the phenomenon where people have to adjust to changes in relative and absolute prices, domestically.

The sum of the two, was evidenced in the rate of change in prices, with natural inflation very difficult to measure but implicit in the "inflation" rate we see in "numbers" and feel in our diminishing wages.

As such a theorist, internationally, we have had some reduction in natural inflation via "globalization" and strong work on creating an interdependent world amongst those that formerly were perceived as threats strategically to the Western world. The principal effect of this action was to reduce absolutely prices on some consumer goods, via the transfer of high paid labour to low paid labour, and low externality production, to production with high levels of externalities (pollution, plus).

Financial investments by the major banks and major corporations made this possible, encouraged by their respective governments.

Africa? No threat. No action.

Now a huge gob of non-natural inflation, to reflate failed financial markets, threatens to seriously overtake, and destabilize Canadian families into tightening their spending (and others' worldwide), as there is no relief in sight on the real wage front.

The effects of this are obvious.

Stagnant economies.

Extreme pressure on China to stop its mercantilism policy on its exchange rate instead of just considering further actions.

Higher unemployment from excess production capacity in Canada while likely China builds more capacity.

Where does it end?

A Conservative government supporting globalization, if elected in the U.S. will doom us, like Herbert Hoover.

In Canada, we recently elected a minority Conservative government that prefers to govern as if it had a majority. It hopes to avoid to slipping into a deficit by revenue shortfalls, by cutting government spending, with a threat made to the professional unions that wage increases or palatable settlements are off the table.

In a recession/depression, Keynes would encourage government spending and monetary control. Keynes? Lord John Maynard Keynes, was the genius behind reflating the Western world in the dirty 30's (1930 - 1939).

In our world now, we have the exact opposite policies, with a major mercantilist power disrupting free market economies.

I hate saying this, but it will get worse for many people over this financial crisis that underlies a real economic problem that will not got away simply with money flashed everywhere.

1 comment:

sakir said...

Politics aside- American needs only the truth- un-abridged, unadultered-

Let the world watch this video

Buzz it up