Credit Crunch 2009:
The Eventual Outcome of Capitalism.
Finally, someone in a National newspaper identified the so-called credit crunch as an economic ‘crash’. I reckon pretty much everyone is now familiar with the notion of large banks, institutions no less, disappearing down the plughole of their greed-filled troughs. What everyone may not be thinking about – or indeed ready for – is the price we will have to pay for all of this in 2009. If you want to know more about what to expect, please go to my article ‘The Barbault Scale’.
So often we hear politicians bemoan the problems of ‘boom and bust’ economics, politics and so on. We the electorate suffer often at the hands of short term political gimmickry designed to help a political party to win an election. But boom and bust is an inevitable effect of capitalism and will remain so long as the system remains in its present format.
No-one will complain about millionaires, the likes of J. K. Rowling for making a fortune from an idea. Yes, I bought the books, got the videos and will be the first person in the cinema line when the next film comes out. Neither do I believe that we should complain about all the possible merchandising that emanates from successful franchises. People go into business to make money.
What I do object to is when the demand for profit becomes greedy. That is what happened to the banking industry. The next monsters will be our utilities, gas, electric and water; all of whom will cry for the need to reinvest to improve the service they offer (not that we can afford it) and the market forces of supply and demand.
Capitalism has a very simple outcome. Eventually the world will be owned by two companies, mutual in their size and sensible enough to encourage some reasonable competition as a platform to advertise their goods. In reality they will be able to charge you whatever the hell they like. Don’t believe me? Look at the utility bills now. Gas prices are regulated by the price of oil. There is no gas shortage so why has the price rocketed to stratospherical proportions? It is the demand by those who smell the opportunity to bigger and better profit to charge extortionate amounts of money from the consumer that generates the bust. Too often it is blamed on – but has little to do with – rising manufacturing or production costs. Capitalism can work …but only if it is managed steadily and sensibly. If it isn’t, then the answer sits in front of us today.
New business, new technology and new products will arise from time to time, which is a good thing as it can stimulate the world economy. But demand for u8nreasonable profit will almost certainly contribute to the need for a ‘correction’ to occur. How big a correction depends on how far we allow greed to overfill the pockets of fat-cat bosses and overly optimistic share-holders.
Look at the most expensive industries around you and it is easy to see where products and services are too expensive. Often it is the case that we have little or no control over them. Essential supplies such as food, water, heating and lighting have spiralled beyond people with modest but fixed incomes to afford. Some elderly people in first-world countries are having to choose between heating and eating. This is terribly wrong and is caused, not by war and instability but by greed and profiteering. Another greatly expensive item is housing, whether you buy or rent. A car is hardly essential but the alternatives, i.e. bus and train, is just as expensive. So whether you drive or not, the need to travel – especially for work – is also essential.
The list goes on and I have no desire to labour the point. The simplicity of this explanation is that when people can no longer afford to pay their bills there will be a demand for higher wages, which in turn will fuel inflation, which in turn makes everything more expensive. The only thing that can stop this spiral is for manufacturing and services to remain within Mr and Mrs Average’s financial ‘comfort zone’.
I do not possess any credentials in economics or finance, which suggests that perhaps I am not qualified to speak on the issue of world economics. All I can say in my defence is that those who do have the credentials were among those who have almost brought the world economy to its knees. Would you listen to any of them at this point?
I also do not own any shares. I did in the past but I soon found out that unless you were able to invest a substantial amount of money into shares, your annual dividend would hardly seem worth the effort. Some political parties encourage the notion of a ‘nation of shareholders’ but one might want to consider the parity of resource between the rich and the poor. People rich enough to purchase golf club membership, yachts, second homes and other such luxuries may well have sufficient funds to benefit from being a share holder. My responsibility was to pay my mortgage.
The one thing I do possess, as everyone else does, is the potential to grow old enough to retire from work. What would worry me is whether the financial plans I make for when I am bound to a fixed income will be sufficient.
In the UK there are pensioners prepared to go to prison rather than pay the extortionate local authority council tax, which seems to rise above and beyond their ability to pay an ever increasing percentage of their fixed pension. Governments will always advocate the sensible practice of living within ones means. I wonder how many Governments want to acknowledge why some of our older people are dying within their means? When the cold winter comes and there is just not enough money to heat a room and have a bowl of soup? Perhaps we should encourage savings like removing the TV, lose the telephone - perhaps the only form of entertainment or contact with the outside world, live in a small room and eat only food that doesn’t have to be cooked. Some people might think I am being silly here but the scary thing is that it already happens today.
You don’t have to have a degree in finance or economics to know when the system you are in isn’t working. The United States Senate are currently trying to rescues their financial institutions with a $700 billion package. You might want to work out the mathematics of how much money that would mean to every U.S. voter. Surely the maths alone would suggest that something within the capitalist system has to change; and in my opinion it must be something to do with the realistic expectations of businesses and share-holders. The American Dream looks more like an American Nightmare right now. Even the most freedom loving of countries has to acknowledge the need for a few sensible ground rules. Perhaps there needs to be some kind of safety valve that allows for only a certain percentage of profit, including payouts to shareholders, expansion of a company and additional money for research etc, before the Government revenue system is entitled to claim a windfall tax and redistribute it back to the people. With such a ‘correctional measure’ in place, businesses might consider quality rather than quantity, better service, affordable goods. Utilities and essential services should be tied to a sensible percentage of the minimum wage, as should travel and the cost of modest housing. Luxury goods are optional, of course, but their fate would be decided through what people can afford.
There is only a finite amount of money in the system and because of this it cannot be expected to go all one way. Putting more money into the system only delays the inevitable. There has to be a reasonable parity between the money coming into the average household and the money going out. The same must apply to financial institutions. We’ve all played Monopoly, so you know what happens when one person ends up with all the money; game over.
The World’s financial system must not work the same way and Governments need to act now to stop this crazy scenario from happening ever again. I sort of knew that something like this was going to happen so I hope that my preparations mean I am not going to suffer as much as some who couldn’t see it coming. The trouble with my means of foresight is that, scientifically, there is little evidence to support the possibility of knowing; in short, astrology doesn’t figure in either Governments (at least not admittedly) or corporate business. Obviously what has happened so far is all within 2008 but what is important is that the people will suffer for it in 2009. The Wall Street Crash occurred in October 1929, which was a year that didn’t really figure when history talks about the great depression of the 1930s.
And it is with this in mind that I forward my humble opinion to you at the beginning of October 2008. We have an opportunity at this point to build something new, not just rebuild the same old system with its same old practices and, inevitably, the same old outcome further down the line. We really do have to learn something about what has happened and what should we do about it. Saving people’s savings and investments is quite right and proper. What is not right and proper would be to risk them all over again by allowing business to return ‘business as usual’. It is business as usual that got us here in the first place.