September 2010 Issue 102

by Rodney Gascoyne

New Year is a time to reflect and plan. This one more than most – we’re on the cusp of major worldwide changes and challenges, in uncertain times, given the economic situation and environmental and political state of affairs. So what sort of future do we face?

I’m an optimist, but you must be pessimistic for the future decade, after the Great Wasted Decade of George Bush. We are starting to pay for excesses started then.

The US recovery is not what we are told – there’s an endless optimism from Wall Street and Washington,  I just can’t believe. They think they can talk everything into a positive state. The Economic Crisis and Financial Collapse have left Americans overblown – one fourth of all mortgages are greater than the related home value – most are deep in debt from mortgages and loans still due and their credit and cards are being cut back heavily – millions have lost their jobs and many still fear losing theirs or a severe pay cut – and yet economists claim American consumers will soon spend again, in the old style, to rescue the economy and restore normality.

Industries and businesses are still operating in restrained mode, keeping inventories within bounds of expected, downgraded, possible sales for the medium term, and have cut their own costs and expenses to the core, until they see firm evidence of positive changes. Even with the stimulus, they are not going to be chancing any bets, by ordering new plant and equipment yet. The main impact of the stimulus has been poorly-aimed Government spending that will soon have to slow down, or the deficits will grow too large and lead to serious inflation. States and Cities are still retrenching services and laying off staff, as their own deficits balloon, and they are finding it harder and more expensive to raise funding with new bonds, let alone refinancing the old ones coming due.

The Federal Reserve and US Department of Treasury will have to slow their support for bailout funds soon, given mounting deficits, that even China is questioning in terms of continued support and financing, given the inevitable loss of value to the US Dollar. All these reasons will require them by midyear 2010, or soon afterward, to show signs that interest rates will rise before too much longer, or inflation will be back in the hideous ranges we saw in the early 80s, when Paul Volker raised interest rates to high levels to fight galloping inflation then. These are all hard judgment calls, while they continue printing money.

Europe and main developed countries will face similar situations, as many were almost as badly damaged as the US economy last year. Added to this, the EU will likely face major problems of its own making, having grown to 27 nations, a bloated size they cannot manage and that now is showing signs of strain, from imbalances amongst members. The Euro could also be under pressure, and could even collapse, under these pressures, as it is now plain that Germany or others will not bail out the Greeks. What will that do to their collective currency?

The only source of positive outlook for the moment seems to be coming from China, India, Brazil and a few Asian countries, that seem to be recovering better than the West. But they have problems of their own too. As for Africa and most of the rest of the developing world, they will have to continue to pick up the crumbs from what’s left over by the major players.

Much of this coming new decade could turn out to be a gradual recovery, with slow growth each year, what is being referred to as a “hockey stick” recovery. There is also a risk that some geopolitical or other disaster or major events, could upset the tentative re-establishment of stability we see started, and then all bets will be off. Just think of the impact of Russia stepping up action, and not just rhetoric, of threats to cut off or limit energy supplies to Europe, or new countries obtaining nuclear capabilities in an unstable region, or a major conflict erupting in, say, the Middle East. Into all this throw the complex issues of global warming, and the need to start finding actions aimed at a solution, plus possible widespread food shortages, if we cannot slow down the impacts of climate change.  As the Chinese curse could go, we are going to be living in Interesting Times – hang onto your hats.

© Rodney Gascoyne 2010

This entry was posted by rgascoyne on Monday, February 1st, 2010 at 12:00 am and is filed under Rodney's Ramblings. You can be notified of any comments on this entry through the RSS 2.0 feed. You can leave a comment in the box at the bottom of the post.

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