In the 1920s, Social Credit founder C. H. Douglas proposed that what is physically possible and desirable ought to be financially possible. Yet here we are in 2009 with people being laid off work, plant underused and stockpiles of unsold goods piling up. There is no physical reason for this.
In 2000, when there was a recession in America, I asked a respected economist, whether he thought the recession would spread. He said “No.” Europe had a bigger economy than America, so it would carry on without incurring major damage. Yet here we are in 2009 with global economic contagion.
Numerous economic studies of the 1930s depression concluded we would not again have such a global meltdown because protectionism wars are precluded by World Trade Organization and regional trade agreements. Yet here we are in 2009 with Europe’s and other nations’ blatant or underhand flouting of the rules. Anyway you can’t make people buy imports, nor is a ‘buy local’ campaign illegal.
This recession, like many others preceding it, is the result of an extended period of debt funded consumerism and real estate booms. Sweden in 1936 was the first country to emerge from the Great Depression. In fact their suffering was relatively minor. The Swedish government borrowed to fund social welfare and consumer expenditure which helped the business sector. A period of deficits was followed by high taxes as the economy recovered. Businesses accepted this as they enjoyed healthy turnover.
The differences with America today are: 1.America has a huge government debt which looks to be unpayable. 2. Obama is committed to tax reductions.3. There has been little deflation so far, which borrowing could reverse. 4. Unlike Sweden then, America has a floating exchange rate which overvalues its currency.
I expect America to suffer a period of high inflation. Currency traders overvalue the US dollar, perhaps because of the nation’s military power. Some time the dollar must suffer a severe depreciation. At least Obama performs better than Coolidge and, for a time, Roosevelt, whose 1930s tight fiscal and monetary policies saw America with up to 25% unemployment and stagnation which dragged on until World War 2.
When recovery arrives we will be set on another cycle of boom and bust which is quite unnecessary. Only by fundamental monetary reform is this avoidable. What happens in America affects the world, including New Zealand.
- written by Allen Cookson, Oxford
This article first appeared in the March issue of 'Canterbury Farming'.