Financial Crisis

The Economies of the west are living dangerously. We are facing economic collapse not just in Greece and Spain but in Britain, France, Germany and even the United States. We are still suffering from the economic storms of 2008. Our governments do not know what to do. They are unable to stimulate our economies. They have allowed the bosses of Financial Markets to run economic policy for the last thirty years and this has been a disaster. Quite naturally these bosses think only of themselves not even their shareholders which  they are meant to serve. They cannot be expected to think of the common good.

We are now at the stage where the world could once again be plunged into a great depression similar to that of the late 1920's and early 1930's. The causes of the Great Depression of the 20th century were very similar to the present one: too much uncontrolled credit.

Quite rightly the governments of Europe and the United States are trying to reduce government budget deficits but our governments have done very little to ensure that private and corporate debt is reduced. To some extent private and corporate debt is a bigger problem than government debt, as it is very much larger. For instance the private and corporate debt of the UK is three times our gross domestic product. Only Japan, in the "western world" has a higher per capita private debt. The UK economy is in serious trouble if any nation in the western world goes bankrupt as our exposure is so great. The UK Financial Sector has made so many bad loans.

To try and aid recovery the Treasuries of all of our economies have practised quantitative easing  which is equivalent to printing money. The UK has printed 325 billion pounds. The European Central Bank has printed 1 trillion Euros , yes that is a million million Euros, 1 followed by 12 noughts. The US has also printed billions of dollars.

What has happened to this money? Well , it has been given to the very same Financial Institutions who got us into this problem in the first place.

In the aftermath of the Great Depression, in the last century, recovery in the USA was initiated by printing money as well. The difference was that  the money was directed at public works which generated employment and growth in the economy. The Banks which helped caused the the financial crash were not treated so generously.

Quantitative easing will eventually create inflation because of the extra liquidity which has been generated. But if this money is not put to good use it will not stimulate our economies and we could be left with increasing unemployment, stagnation and rising prices.

To give so much money to Financial Institutions was a mistake. Some of that money should have been invested in private and public enterprise.When will a government be courageous enough to rectify this error.

To rely on financial cuts alone will not solve our problems. Of course we must save money and improve the productivity of all our nations. Billions and billions of Dollars, Pounds and Euros are there to be saved.  But some of this saving needs to be re-invested in a programme to generate work in both the private and public sector. Money should be directed to projects which will create jobs. On the private sector side, I can think of a number of projects- broadband technology, aerospace and the revitalisation of the high street to name but a few.   On the public sector side we should invest in public transport infrastructure which will be genuinely directed to reducing the numbers of cars and lorries on our roads.  Why not to build the thousands of houses that are needed? This would apply to the UK only: Spain has got plenty of empty ones! We should also make it a national objective to make sure that every child leaves school being able to read and write properly, with, at least, a grasp of a foreign language and the ability to perform mental arithmetic.

All of our governments have the power to direct programmes aimed at reducing waste in the public and private sectors to free up investment to create jobs. Our Treasuries have become bookkeepers who are only concentrating on saving money. They should become real managers of the economy to ensure that the wealth of our nations is invested in productive activity. We need Treasurers with the imagination and courage to lead us out of a potential economic depression and deploy some of the saved money to reduce unemployment.

When there was no money at all, what did the community do when there was an economic problem such as a drought?  No doubt the whole community got together to build an irrigation system which was for the common good. The farmers then promised the people who worked on the irrigation project a share of the increased food production. There was the political will to get something done. This is how humanity had learnt to survive and prosper for many millenia before actual money was invented. Money is just a means of exchange which lubricates economic activity and for thousands of years humanity survived without it.  We now need a similar political will to revive our economies despite straitened times: there is no lack of money it is just in the wrong place. We need to release that money from the grip of the Financial Institutions and get it working for us again. Where is the political will to ensure that the Banks release working capital to the general economy? We the public allow them legally to operate as limited liability companies and we the public grant them the licences to operate as Banks. The public has the right to insist that all Banks consider the public good in their articles of association.

I propose a Four stage solution.

An immediate injection of cash flow to prevent Greece, Spain, Italy from going bust.

All western governments to invest some of their saved and printed money in private and public works to stimulate their economies and reduce unemployment to very low levels.

Immediate regulation of the Financial Services sector to prevent the problems of uncontrolled lending ever happening again.

A long term policy, to  reduce substantially our reliance on borrowing to finance public spending.

We need another Franklyn D. Roosevelt to inspire us. Unfortunately no one is stepping forward. I fear that only a really severe crisis will prompt action. Where is the new deal going to come from?