A few weeks ago when the US Congress approved the US$700-billion bailout plan, some people were comparing it to FINSAC, as the plan at the time was to use the funds to purchase bad assets, as well as take some equity stake in some of the failed companies. This comparison was even more highlighted with an equity stake in AIG. This newspaper had asked the question if this action was a vindication of the action taken by the Jamaican government in the 1990s and some professed that it was in fact so, and even suggested that the US consult with some Jamaicans.
I pointed out in an article around that time that I was of the view that the action plan proposed by US Treasury Secretary Paulson at the time was not going to make much difference to the economic downturn and that it was rather premature to be talking about vindication of the Jamaican 1990s actions, as the US plan had not been put in place, much less to see what the results were. My view that the plan would not have worked was that buying bad assets and equity stakes in companies would not have solved the underlying problem of real loss of wealth. Shoring up a company's capital base will not increase economic activity.
Flip-flopping
In fact, the action by the Europeans, to state publicly that they would guarantee bank deposits, had a much greater effect on stabilising the financial markets than the truckloads of money committed by the US Congress. So maybe there was actually some consulting with the Jamaican players at the time by the US government why their ship still seems to be sinking. I have not heard anyone who came out and professed vindication follow up with a story about how it has worked as yet, and am still awaiting the discussion on it so I might be educated on how to solve a financial crisis.
The fact is that Paulson seems to have learned the art of flip-flopping from not only John Kerry, but some of our local politicians also. He has now come out and said that he will not be using the "bailout" money to buy bad assets anymore, as he first proposed, as market conditions have changed. This is one of the most flawed arguments I have heard and is an indication that Paulson did not have a plan in the first place. The fact is that the fundamental problem with the US economy has not changed, and obviously what he is aiming to address are the symptoms and not the underlying problem.
So here we are again, with Paulson changing his approach to solving the crisis, and the US automakers are the next group standing in line for a bailout, which based on the economic fundamentals, will not be the last group. So the great US is turning into a socialist state, and this is going to lead to a significant slowdown in global growth if they are not careful.
I have no doubt that the US will be the last economy to crawl out of the economic downturn, and this is for the following reasons.
1. The US economy is over 75 per cent services and only 25 per cent in industry and agriculture. Other economies such as China and India are only about 60 per cent services, and the economies that are more geared towards industry and agriculture will be the first sectors to recover;
2. The US authorities dealing with the crisis don't seem to have a proper plan, and the approach to bailout companies in an attempt to stem job losses will not lead to a resolution. It will only slow down the decline, which is going to play out anyway, and cause the pain to be protracted, much like Jamaica's failure to address the fundamental problems in the 1990s caused a long spiralling downward trend for us;
3. The US does not realise that in order to deal with the economic situation they need to change their habits, and are only changing because they are being forced to do so. This will result in another looming crisis, which may be of greater significance, as it affects the real economy directly. That is the credit card bubble. A lot of persons are using their credit cards to maintain a lifestyle that is impossible to maintain because real wealth has been lost; and
4. The full unemployment hikes have not fully hit the US as yet, and is expected to reach between eight to 10 per cent by 2009, up from the current 6.5 per cent.
Would not have worked
So unlike what the proponents of the FINSAC-type solution were saying, the plan that was originally proposed by the US was never going to work effectively. Paulson himself has realised his flawed reasoning and is trying to use changing market conditions to argue away his flawed thinking. In any event, even with its similarities, the US plan did not even go as far as the FINSAC solution, as they were still trying to allow the private sector to run the companies there.
One of the challenges the US faces also is that they are in real danger of losing their position as a reserve currency. I believe that short term, into next year, the US dollar will appreciate some more against the major currencies, such as the Euro and British pound. But as the economic downturn sets in more, and the confused regulators, throw "printed" money at the crisis, it will dilute the value of the US. If they are not careful next year we could see a significant depreciation of the US dollar, as we saw before. The long-term trend is still for the depreciation of the US dollar.
Europe, the UK, China, and India will start to see a recovery before the US and their currencies will appreciate against the US dollar. The US companies will have to look to these other economies for their growth, as US consumers will be hurt badly and there will be no more growing on credit. The "Cash Plus"-type US economy cannot continue anymore.
The US is now at risk of seeing deflation, as consumer prices have dropped the most since the data was being recorded in 1947. This as a result of reduced consumer spending, not because costs are going down and competition is increasing. In addition mortgage applications have fallen off again. The writing is on the wall that the real economic slowdown in the US is just beginning, and should go well into 2009.
As demand in other economies start to turn around, especially in China and India, we should start to see a recovery in commodity prices. So as the US economy continues its slump, and other economies start to recover, we could see commodity prices starting to increase again. As I indicated last year on the radio, what we are witnessing today is the beginning of the changing of the guard to a new world economic order. The US will still continue to be the main economic force for a while but this is the start of a changing of world economics. A lot is riding on Barack Obama.
So in my view the US bailout plan has failed to do anything positive for the economy. The way it was handled has clearly shown that the US authorities have not really come to grips with what the fundamental problem is and the Treasury secretary has shown that he does not have a well-thought-out plan. I really wonder if they had sought advice from Jamaica on how to address the crisis?
Friday, November 21, 2008
Friday, November 07, 2008
Yes we can Jamaica
The historic victory of Barack Obama for the presidency of the United States of America (US), demonstrates to the world not only that anything is possible but is an indication of the greatness of the US. This is a country that only a few weeks ago was written off by the whole world as a dying superpower and an economic failure. I still believe that the worst of the economic downturn is yet to be seen in the US, as the crisis continues to hit the earnings of Main Street and more jobs are lost. But the wave of hope that has hit the US and the world demonstrates how important confidence is, as there is now a feeling that the US will rise like the Phoenix from the ashes and retake its rightful place as the leader of the world, not only economically but also morally.
There is no doubt that the Bush presidency has seen the US go through the worst time in its history as a superpower. The economy is in shambles; the spread between the rich and the poor is greater (the middle class is disappearing); international relations are at their lowest point and the US is engaged in armed conflict all over the world and is in a war it cannot win. During the Bush presidency the US lost its moral authority to be called the leader of the world.
The rise of Obama
The rise of Barack Obama is not only a positive for the US but also confirms the idea that capitalism and democracy are the best economic and political systems to date. It is these two systems that have made the US great, as it always gives the power to the people to do what the US seems to do time and time again: renew itself. Only with democracy and capitalism can this renewal happen. The US has gone through many economic recessions and some presidents who have not been seen favourably, even though the time under Bush seemed like the worst.
The real power of the US, however, is the will of the people that is facilitated by the political and economic systems they have. These systems give the people of the US the opportunity to make changes to what is not going right, and this is what makes them such a great nation. Government for the people and by the people in its truest sense. This historic victory shows us that in the US the urge to better itself is even more important than the remnants of racial or party divide, as the people will always put the US first.
I never thought that in my lifetime I would see a Black president of the US. I thought before that experience I would have seen Jamaica stop on the destructive path we are on and start a real process of economic and social development of the people. This has been my real passion and I am yet to see that happen. Instead I continue to see worsening economics, crime, police brutality and social deprivation in the country that I am a citizen of. So while the US has again made history, and we praise what has happened there, we also need to realise that of the 6 billion people in the world, only 280 million (or less than 5 per cent) live in the US. There is also a little country named Jamaica with 2.7 million people who have been crying out for a miracle.
And even with our reputation as having the most churches per square mile, it seems as if the church has failed to bring any morality to Jamaica. I could not believe my ears that a clergyman, and pastor of a church, could call for the resumption of hanging. This gives the impression that the church is not in the business of saving souls, but has joined the ranks of the gunmen who condemn souls. Or is it really the souls that they are trying to get at and not the flesh? What is even more disheartening is that the media, which has disappointed Jamaica with their own corruption and inadequate leadership on opinions, could continue to give credence to this ridiculous statement by covering it. How can we promote capital punishment in a country where the organs of the state, which should be controlling crime and maintaining discipline, are corrupt and inefficient? This would only provide the corrupt and inefficient system, which we have created, with the opportunity to hang innocent people who do not agree with their views.
Dishonourable leadership
And while over the years Jamaica, and in particular the common Jamaican, has sunk deeper and deeper into poverty (I disagree with my friends who claim that , more cell phones and used cars indicate progress of a country), the politicians who have been responsible for the last thirty-six years of decline do nothing more than shower themselves with honours, which have now become meaningless as there is nothing honourable about the actions of our leaders.
I was at a lunch meeting recently with some Jamaicans who have sought to improve this country, and they also still hold out hope for Jamaica but all agree that only a change, as proposed by Obama, can do any good, that is, a fundamental shift in the way we do things. If the house is structurally unsound then a new coat of paint will not fix the structural problem. It will only cover up the obvious cracks in the wall. Most Jamaicans cannot build a new house, as some Jamaicans can do through migration, they have to continue to live in the structurally unsound and rat - infested house. It is up to the leaders of this country, in the private and public sector, media, and academia, to rebuild the house on the foundation we call Jamaica for the good of the Jamaicans who cannot afford to do so.
For those who have said to me that Jamaica has proved in the 1960s that it can develop, I just have one thing to say. Like maybe about three or four generations of Jamaicans, I was born after independence and grew up in Jamaica during the 1970s to 1990s. So excuse my cynicism and urgency for a better Jamaica. I have never known what it is like to be in a Jamaica that is prosperous and is looking towards a brighter future. So while you all reminisce about the hope in 1962 and the good times of the 1960s, remember that all I know about Jamaica is the state of emergency in the 1970s, the 1980 election, the black market and foreign exchange restrictions in the 1980s, the financial crisis and high crime rate of the 1990s, and the anaemic growth and fiscal deficits continuing into the new century of the 2000s. This is the reality of most Jamaicans today, which you are responsible for developing into an aggressive set of people by the experiences you have left us with.
Jamaica, yes, we can make a change too. But it will not come by doing the same things we have been doing over the years and expect different results. It can only come though a revolutionary change. A different way of treating our people with the respect they deserve. A fundamental shift in how we approach our economic, political and social relationships. It won't come from constantly trying to destabilise the government in power, which seems to have been the purpose of much opposition over the years. It only comes from accepting that we are all Jamaicans and have a responsibility not only to each other but to working with the government of the day to achieve a better Jamaica. One thing about the US is that no matter how bitter the political contests have been, they always unite in the end for the good of the party and country. This is because they realise that the purpose of political power is to build the US and not line their pockets with the proceeds of debt.
So while we celebrate this historic victory for the world, in the election of Barack Obama, Jamaica should also believe that yes we can change, but this takes deliberate actions by Jamaicans and our leaders to transition from "yes we can" to "yes we will".
There is no doubt that the Bush presidency has seen the US go through the worst time in its history as a superpower. The economy is in shambles; the spread between the rich and the poor is greater (the middle class is disappearing); international relations are at their lowest point and the US is engaged in armed conflict all over the world and is in a war it cannot win. During the Bush presidency the US lost its moral authority to be called the leader of the world.
The rise of Obama
The rise of Barack Obama is not only a positive for the US but also confirms the idea that capitalism and democracy are the best economic and political systems to date. It is these two systems that have made the US great, as it always gives the power to the people to do what the US seems to do time and time again: renew itself. Only with democracy and capitalism can this renewal happen. The US has gone through many economic recessions and some presidents who have not been seen favourably, even though the time under Bush seemed like the worst.
The real power of the US, however, is the will of the people that is facilitated by the political and economic systems they have. These systems give the people of the US the opportunity to make changes to what is not going right, and this is what makes them such a great nation. Government for the people and by the people in its truest sense. This historic victory shows us that in the US the urge to better itself is even more important than the remnants of racial or party divide, as the people will always put the US first.
I never thought that in my lifetime I would see a Black president of the US. I thought before that experience I would have seen Jamaica stop on the destructive path we are on and start a real process of economic and social development of the people. This has been my real passion and I am yet to see that happen. Instead I continue to see worsening economics, crime, police brutality and social deprivation in the country that I am a citizen of. So while the US has again made history, and we praise what has happened there, we also need to realise that of the 6 billion people in the world, only 280 million (or less than 5 per cent) live in the US. There is also a little country named Jamaica with 2.7 million people who have been crying out for a miracle.
And even with our reputation as having the most churches per square mile, it seems as if the church has failed to bring any morality to Jamaica. I could not believe my ears that a clergyman, and pastor of a church, could call for the resumption of hanging. This gives the impression that the church is not in the business of saving souls, but has joined the ranks of the gunmen who condemn souls. Or is it really the souls that they are trying to get at and not the flesh? What is even more disheartening is that the media, which has disappointed Jamaica with their own corruption and inadequate leadership on opinions, could continue to give credence to this ridiculous statement by covering it. How can we promote capital punishment in a country where the organs of the state, which should be controlling crime and maintaining discipline, are corrupt and inefficient? This would only provide the corrupt and inefficient system, which we have created, with the opportunity to hang innocent people who do not agree with their views.
Dishonourable leadership
And while over the years Jamaica, and in particular the common Jamaican, has sunk deeper and deeper into poverty (I disagree with my friends who claim that , more cell phones and used cars indicate progress of a country), the politicians who have been responsible for the last thirty-six years of decline do nothing more than shower themselves with honours, which have now become meaningless as there is nothing honourable about the actions of our leaders.
I was at a lunch meeting recently with some Jamaicans who have sought to improve this country, and they also still hold out hope for Jamaica but all agree that only a change, as proposed by Obama, can do any good, that is, a fundamental shift in the way we do things. If the house is structurally unsound then a new coat of paint will not fix the structural problem. It will only cover up the obvious cracks in the wall. Most Jamaicans cannot build a new house, as some Jamaicans can do through migration, they have to continue to live in the structurally unsound and rat - infested house. It is up to the leaders of this country, in the private and public sector, media, and academia, to rebuild the house on the foundation we call Jamaica for the good of the Jamaicans who cannot afford to do so.
For those who have said to me that Jamaica has proved in the 1960s that it can develop, I just have one thing to say. Like maybe about three or four generations of Jamaicans, I was born after independence and grew up in Jamaica during the 1970s to 1990s. So excuse my cynicism and urgency for a better Jamaica. I have never known what it is like to be in a Jamaica that is prosperous and is looking towards a brighter future. So while you all reminisce about the hope in 1962 and the good times of the 1960s, remember that all I know about Jamaica is the state of emergency in the 1970s, the 1980 election, the black market and foreign exchange restrictions in the 1980s, the financial crisis and high crime rate of the 1990s, and the anaemic growth and fiscal deficits continuing into the new century of the 2000s. This is the reality of most Jamaicans today, which you are responsible for developing into an aggressive set of people by the experiences you have left us with.
Jamaica, yes, we can make a change too. But it will not come by doing the same things we have been doing over the years and expect different results. It can only come though a revolutionary change. A different way of treating our people with the respect they deserve. A fundamental shift in how we approach our economic, political and social relationships. It won't come from constantly trying to destabilise the government in power, which seems to have been the purpose of much opposition over the years. It only comes from accepting that we are all Jamaicans and have a responsibility not only to each other but to working with the government of the day to achieve a better Jamaica. One thing about the US is that no matter how bitter the political contests have been, they always unite in the end for the good of the party and country. This is because they realise that the purpose of political power is to build the US and not line their pockets with the proceeds of debt.
So while we celebrate this historic victory for the world, in the election of Barack Obama, Jamaica should also believe that yes we can change, but this takes deliberate actions by Jamaicans and our leaders to transition from "yes we can" to "yes we will".
Subscribe to:
Posts (Atom)