Sunday, March 27, 2011

Britain's dud budget

Craig Murray writes:

...nobody denies that this appalling financial situation was caused by the collapse of the banking sector. Nor does anyone appear to deny that the collapse of the banking sector was caused by a system which hugely rewarded individuals for short term gains on multiple high risk speculative transactions, in a way which made a "Bubble" inevitable.

While the perpetrators -- a whole class of them -- took massive rewards for the short term gains of the complex bubble scheme, they did not get punished by its collapse. ...

Bankers were merely doing what all business people do, maximizing profits. The problem was inadequate regulation that resulted in a bubble economy. Bubbles collapse, and when they do, banks collapse too. Since the bubble was created by government decision to deregulate the financial services industry, it made sense for the government to shoulder the cost of the disaster that followed. The alternative would have been to ruin, among others, bank depositors, something that no government could hope to allow without itself becoming the target of a lynch mob.

The deeper problem faced by managers of western economies is to maintain a position of permanent disequilibrium between their own high wage, high cost markets and the low wage, low cost markets of the emerging Asian giants. The method adopted has been to outsource manufacturing to Asian sweatshops, while attempting to close the resulting trade gap with export of financial services, high-tech weapons systems, and infrastructure projects to oil producers subservient to the NATO powers.

This solution is now failing because, first, the Asians are developing their own financial services industries, and second, the Asians, particularly the Chinese, are offering much better deals than the West can provide on infrastructure development. What's more, the Chinese will soon be selling high-tech weapons systems as well as everything else.

Hence the war for control of Libya's oil and gas wealth. The aim is not to steal it outright, but to ensure that the revenue is recycled in the West, not to China or other low-cost industrial competitors.

The overall Western strategy is failing, as evident from the ten-year recession we've already experienced. The alternatives are (1) the protectionist option of tariffs and state subsidized industrial re-development, or (2) restoring the natural global market equilibrium through massive devaluation of western currencies to bring wages in the West and the East into line. Option 2 is odious to many people because it would reveal what is in fact the case, that the West in not vastly wealthier than the East, even on a per capita basis. However, it would restore full employment and re-establish the incentives that are necessary if the West is to restore its fast dissipating industrial, scientific and technological skills.

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