For some weeks our media has been distracted by various sideshows. Worth, Swineflu, Mt Albert, Flight 447 and of course David Bain, have all in turn captured our national psyche… but meanwhile the most pressing political issue, the global fiscal crisis, grinds on with little comment.
The crisis response more or less worked. Historians will argue about the Paulson-Geithner-Bernanke reaction, but the economy seems to be stabilizing. And now attention turns to the task of the next decade: slowly unwinding the debt that has built up over the past generation.
The staggering growth in credit since the Reagan/Thatcher deregulation 1980’s era has come to an end, now the piper demands to be paid.
* World industrial production continues to track closely the 1930s fall, with no clear signs of â€˜green shoots’.
* World stock markets have rebounded a bit since March, and world trade has stabilised, but these are still following paths far below the ones they followed in the Great Depression.
* There are new charts for individual nations’ industrial output. The big-4 EU nations divide north-south; today’s German and British industrial output are closely tracking their rate of fall in the 1930s, while Italy and France are doing much worse.
* The North Americans (US & Canada) continue to see their industrial output fall approximately in line with what happened in the 1929 crisis, with no clear signs of a turn around.
* Japan’s industrial output in February was 25 percentage points lower than at the equivalent stage in the Great Depression. There was however a sharp rebound in March.
Is this depressing enough?
German exports fell 28.7% in April compared with April 2008, according to the Federal Statistics Office.
And so on. Essentially consumers in the West are grossly over-leveraged:
For about a generation, the U.S. surfed on a growing wave of debt. The ratio of debt-to-personal-disposable income was 55 percent in 1960. Since then, it has more than doubled, reaching 133 percent in 2007. Total credit market debt â€” throwing in corporate, financial and other borrowing â€” has risen apace, surging from 143 percent of G.D.P. in 1951 to 350 percent of G.D.P. last year.
Over and again we can see that excessive debt is the fundamental. This is not a normal business cycle recession caused by a normal liquidity squeeze, it is solvency crisis that can only be solved one way. This is what Joseph Stiglitz is now saying:
We need to break up the too-big-to-fail banks; there is no evidence that these behemoths deliver societal benefits that are commensurate with the costs they have imposed.
Even within the context of New Zealand’s relatively stable and prudent banking sector, it is apparent that they are more powerful than the Government or Reserve Bank. The exact numbers are hard to come by, but many commentators have stated NZ is one of the most indebted OECD nations… as a result we no longer have control over our economic and social destiny. For generations we have been acting collectively like delinquent teenagers, burning up our environmental heritage and binging on cheap easy credit that over-stimulates economies like P drives an addict.
The dinosaurs economies are writhing, thrashing about in their death-throes; little proto-marsupial NZ needs to be nimble and have it’s wits about it. Any sign of this from Key’s govt?