BY FABIAN LEWIS, Intern Columnist
The collapse of Lehman brothers in the United States of America (US/USA), heralding a new era of economic and social instability in the global economy right around the world impacts even on Jamaica. This instability has left thousands of people around the world out of jobs , destitute, homeless and hopeless. Governments such as the US, France and Great Britain to a lesser extent all have pumped millions of dollars, pounds and euros into their economies in an effort to stimulate economic growth and thereby grow themselves back to economic health. It has worked to various degrees but the global recovery is at best fragile, and one shock of any sort to the system could plunge it back into recession’.
The United States is showing good signs of recovery, which is good to see as there is a boost to the rest of the world. The US is the largest market in the world, at this time. As US recovers there will be a knock on effect for the rest of the world as they will; be importing more from other countries, thereby engineering growth in those countries they, the US are buying from.
US in debt affecting global economy
On the other hand, even though its showing signs of recovery there is still a large concern over the volume of debt that the US has accumulated over time that poses a direct threat to the global economy should the US default on its debt at any given point in the future. As we saw recently, that concern came to the fore when congress and the president where at loggerheads over on decreasing the high levels of debt as a percentage to GDP, and had the world on edge until the ninth hour when a deal was agreed and the debt ceiling was raised. That promoted the Chinese Governments to call for a new reserve currency be adopted to replace the US’ greenback. Why? The US dollar is the world’s reserve currency and any default by America on its debt would have negative consequences for the dollar, as it would inevitably lose a lot of its value thereby plunging the world into another recession and worse yet, economic meltdown. The US/American dollar is backed by faith in the American economy and once that faith is ruptured, by a default, their dollar will lose its value and leave investors, the currency market and central banks in a ‘no man’s land’, as there is no currency that has the power and prestige that the American dollar has, and the entire world economy is built around the US dollar. The budget deficit of the US is running into trillions of dollars-a budget deficit is the difference between what a country earns and what it spends-and is in urgent need of some corrective action been taken to remedy the situation as its not inconceivable that the US may default on its stock of debt at a future date, and that will have adverse consequences for the rest of the world. During that same period, the US lost its prized triple a rating and that in itself was enough to send shockwaves throughout the market then, albeit temporarily, but was enough to have investors `and Governments around the globe getting anxious.
Impact of recession
There are two main things of fundamental importance that came resulted from the recession that have and will have profound consequences for the rest of the world for a long time to come- austerity and a seismic shift in the balance of economic power from the west to Asia, most importantly and other developing states. The rise of China and India as the economic titans of the world, has been in the process for a long time, but the recession brought them front and centre, as they the countries of the west looked towards for their economic salvation as they were growing even in the height of their global down turn while the west went down south economically. There emergence has brought an end to the might of the US economically in many ways. How did America become so valuable economically that they hold in their hands the power to wreck the fragile recovery by not reigning in spending in live with what they earn?
At the end of World War 2, the once mighty British empire was in tatters, economically and socially, as the war has left the country bankrupt. It took the marshall plan that was drawn up by many people in a lend lease agreement to help Britain back to economic health. That came with a price, two- fold, Britian was told by the Americans to give up its empire, through President Roosevelt, in no uncertain terms in order to get the help they need. Churchill fought to keep the empire but the economics dictated that Britain has to yield. The other consequence is that it [recession] left a vacuum to be filled by someone else. With Europe and Asia under occupation or in economic ruin, or both, there was only one country capable to fill that void – the United States of America. They held that economic position until for the rest of the 20th century and into the 21st until recently because of the crisis they were replaced by china to a large extent. While the US was in the lead, these countries were catching up rapidly, as the Chinese undertook a series of economic reforms that made it attractive to investments, thus ensuring a constant supply of investors pouring in, as with the Indians. Then once the economic crisis hit, those two countries took up the economic mantle from the United States. During the recession those country was growing rapidly still, as they undertook massive infrastructure programmes and stimulate local demand. With a combined market of over a billion residents between them they were able to continue growing while the rest of the world wasn’t. The net substantive result of the economic downturn was the austerity drive undertaken by a lot of countries especially in the euro zone, as countries sought to rule in spending and balanced the books.
Cutting
This fixation with cutting rather than stimulating has come at a great cost to people living in those countries, as lots have lost their jobs, homes and living on the street. Throughout Europe especially in the euro zone, there is massive unemployment especially among the young and uneducated, and migrant workers. They are bearing the brunt of the downturn, in Spain, Italy, Greece, Portugal and Ireland. We, in Jamaica also have witnessed massive austerity packages that have brought sufferings to millions. In Greece, especially, there are running battles between protesters and the police as the government in order to get a bailout, has to implement stringent austerity measures, repeatedly. Interestingly though we have seen the emergence of Germany who has become the bank book of the euro zone and is literally backrolling all of the euro zone nations that is in serious economic problems. It has an uncanny air to it as it was through an economic meltdown in the 30s that brought Hitler to power and he led the world into the second world war. What this economic growth has given Germany is a power that it never dreamt it would have at the inception of the EEC way back in the late 40s early 50s, that of been able to direct the affairs of other countries to get them to do what Germany wants. This has given Germany a greater voice in the global arena stepping into usual American sphere of influence and dominance. Will it be a benign voice?
Around the world
The economic meltdown has caused untold sufferings for millions of people around the world, as with the downturn business downsized, or closed, thus laying off millions of people sending them into poverty hopelessness and despair. The many austerity drives implemented by governments, has worsened the problem even more as cuts to wages and salaries, restricted capital expenditures, and cuts to welfare payments all has combine to compound the hardships already been experienced by millions. As has been demonstrated in Greece and elsewhere by the riots people not taking such measures without putting up a fight, with the hardships mounting, crime extremism, suicides, prostitution have all gone up, as the hopelessness has increased. Governments have been kicked out of power as a sign of protest and oppositions then had been voted in. What is happening to millions of people needs urgent attention right now. Governments need to come up with solutions that will grow their respective economies, and the world economy at large. Yes deficits need reigning in, books need to be balanced but it must be done in a way that doesn’t bring untold sufferings on people. That’s the challenge they all must meet and conquer.
Fabian Lewis is an intern columnist and his views do not necessarily reflect those of the management and staff of this mediasite.
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