This is what we found interesting from the current issue of the “The Economist” (March 6th - March 12th 2010).
Finance & Economics:
- “Who pays the bill? Throughout the rich world battle lines are being drawn in the coming fight over deficit reduction. “ (12)
- “Although Britain has a lower debt-to-GDP ratio than Greece and its debt has an average maturity of 14 years, sterling also wobbled this week, with investors spooked by the prospect of a hung parliament. True, the three biggest rich-world economies, the United States, Germany and Japan, are under less pressure. But Japan has high debt levels and America has the government bankrupting cost of ageing baby-boomers.” (12)
- “The main fault-line is often intergenerational. Some promises, particularly on public-sector pensions and health care, may impose too great a burden on the next generation. Middle-aged Americans have written cheques on the accounts of their children. Scaling back those promises, for example by raising the pension age, is a prerequisite for getting public finances in order just about everywhere, even if it will not do much to reduce the deficit in the short term.” (13)
- “In the past some governments have dealt with debts by walking away from them. Iceland is voting on a milder form of that solution this weekend. The graver threat this time is that countries are tempted to diminish their debts through higher inflation. But that would be a dangerous option to adopt and may not even be possible, given that markets can see such policies coming and demand higher bond yields.” (13)
- Whichever path governments choose will be hard. As a period of loose credit gives way to an era of austerity, the social cohesion of many nations will be put to test. Not all countries will pass. Over the next few years the careers of many politicians will be made and broken in the bond market.” (13)
Conclusion:
One must recognize that greedy and dishonest speculators are the main causes of the current deficits. The central bankers and the politicians have totally lost control over the macro economy ignoring the fact that today the economy is behavioral and micro based. Capital flows do not care for value. They pursue momentum at the cost of quality.
The solutions suggested by this issue of the Economist also need re-thinking. This is because the deficits today are the outcome of printing money to finance the present costs and the future costs to be incurred are not provided for. Thus, because these future costs are growing at a very rapid rate, deficit reduction becomes almost impossible.
From: Eckhart Tolle: A New Earth:
“When faced with a radical crisis, the old way of becoming in the world, of interacting with each other and with the realm of nature doesn’t work anymore, when survival is threatened by seemingly insurmountable problems, an individual life-form—or a species—will either die or become extinct or rise above the limitations of its condition through an evolutionary leap.”
Your feedback is welcomed at nitisp@gmail.com and sampat@capitalideasonline.com
Back