Friday, November 19, 2010

The Debtor

"The wildest urban legends are readily believed. There is said to be a two-month backlog at the abattoirs, as families abandon the expensive pets, including Thoroughbred racehorses, that they bought in the fat years and now can no longer afford to feed. One hears stories of the return of bartering: a yacht swapped for a mobile phone, a Harley-Davidson exchanged for a bicycle. There are moments of giddiness and breathless panic when it feels as it must have in the last days of the Weimar Republic. 

At first, when the poor beast began to sicken, we Tiger cubs set up a great roaring and ranting. Who is to blame for our sudden travails? we demanded — somebody must be to blame. The bankers? Them, certainly. The politicians? Well, the politicians are always to blame, so nothing new there. The markets, those shadowy entities that seem to operate by whim? Ourselves, perhaps? — now, there was a sobering possibility".
John Banville's sad comment in the above provides a stark glimpse of possible economic turmoil ahead, not only for Ireland, but for the overall global economy. A whole lot still depends how the American economy goes. Unemployment still is too high, and core inflation "is running at 0.6 percent, the lowest level ever recorded." In this economic downtrend, shouldn't the political parties, irrespective of their constricted ideologies, come to their senses, and take the necessary resuscitative steps? The Federal Reserve it seems is taking the prudent steps through their quantitative easing proposal, that is actually buying long term debt, because short-term debt has negligible interest rate.

Nobel Laureate Paul Krugman points to the axis of depression, the strange combination of China, Germany and US Republican Party, who are dead against the quantitative easing. China and Germany are against to protect their trade surpluses, but "for some countries to run trade surpluses, others must run trade deficits — and, for years, that has meant us. The Fed’s expansionary policies, however, have the side effect of somewhat weakening the dollar, making U.S. goods more competitive, and paving the way for a smaller U.S. deficit. And the Chinese and Germans don’t want to see that happen".

No surprise in China and Germany's opposition. They are trying to protect their respective nations' self interest, though one may argue whether it is good for their long term interest at all or not. But the most surprising part Paul Krugman presents is the reason for Republicans who are also dead against this policy, though this quantitative easing theory was once enthusiastically supported by prominent economist Milton Friedman, who is revered by the conservatives around the world. A budget expert Stan Collender provides a plausible reason for this surprising Republican somersault,"with Republican policy makers seeing economic hardship as the path to election glory,” they would be “opposed to any actions taken by the Federal Reserve that would make the economy better.” In short, their real fear is not that Fed actions will be harmful, it is that they might succeed."

That just sounds so bizarre to the least. There is an old proverb I used to know from my childhood, in Bangla it is: Khal Kete Kumir Ana. In English it is translated like this: The envious being cuts a canal on his own land to bring a crocodile to harm others. 

Paul Krugman surmises: "China and Germany want America to stay uncompetitive; Republicans want the economy to stay weak as long as there’s a Democrat in the White House."

Like Mr. Krugman, this twisted GOP colored logic is beyond my ordinary comprehension.


References:
  1.  The Debtor of the Western World by John Banville 
  2. Axis of Depression by Paul Krugman




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