Global Agenda: Denial

The same worn-out, stop-gap,band-aid, kick-the-can-down-the-road temporary fixes are being used – needless to say, to no avail whatsoever.

traders watching stocks (photo credit: Rafael Marchante/Reuters)
traders watching stocks
(photo credit: Rafael Marchante/Reuters)
Yes, you’ve read it here before, and no doubt elsewhere as well. Many times. That’s the whole problem.
Three years have passed since the great financial crash of 2008, and – despite the expenditure of vast sums of money by governments around the world on bailouts, stimuli and assorted interventions in every possible shape and size – nothing substantive has changed.
The reason that is so is because all those governments share a common problem. Irrespective of their political stripe and ideological hue, they are all in denial. So are their advisers and senior officials; if any of them held the kind of views that allowed them to face up to reality, they would not have been selected for their posts, nor would they continue to hold them.
That explains why though there are more and more economists and assorted experts in the US and elsewhere researching and publishing interesting ideas and proposals relating either to specific aspects of the crisis and how to deal with them or to the overall systemic imbalances and how to redress them, none of their ideas and proposals are being implemented. Only the same wornout, stop-gap, band-aid, kick-the-can-down-the-road temporary fixes are being used – needless to say, to no avail whatsoever. The basic truth that a debt crisis cannot be solved by borrowing more will not go away.
As an aside, for those interested: Jeffrey Sachs has written a new book, The Price of Civilization, and a two-page piece in Time magazine summarizing his main ideas.
They are well worth reading, especially if you are a believer in the Republican mantra that cutting taxes will solve all our problems; but then again, if your mind is closed, don’t bother.
In a different direction: An outfit called the New America Foundation brought together three experts – one of whom, Nouriel Roubini, is famous, the others not – to write a paper called “The Way Forward;” it’s only 35 pages long and hence easily readable and also worth reading. Again, you don’t have to agree, but you do have to think about real solutions for the very real problems facing every country and the world as a whole.
But if you are a head of government, then apparently you don’t have to think. You just have to spout drivel – or so it would appear. Take the most recent instance as a classic example of the process at work: Yet another Sunday “emergency” conference between French President Sarkozy and German Chancellor Merkel concludes with yet another press conference. The entire financial and business world waits to hear what they will announce, because everyone knows that “time is running out‚” etc.
But what they actually announce is a firm promise to announce something substantive before November 3 – which is when the G-20 ( the world’s largest economies, including the rising ones, as opposed to the G-7 or G-8, which includes only the declining ones) will next meet.
In other words, Merkozy have no plan. If they had one, they would announce it. If they had an outline, they would leak it. If they had ideas, they would float a trial balloon. Instead, they pretend that sometime soon they will present something. Meanwhile, more or less as they spoke, a large Belgian bank was being bailed out.
Since it was too big for little Belgium to save, France had to help out. Perhaps it was a trial run for the French, who will have to bail out some of their own giant banks soon.
Meanwhile 2: Last Friday, before the Merkozy powwow, Italy and Spain were downgraded, the latter by two notches.
Meanwhile 3: On Tuesday, the newest member of the euro club, also the poorest and one of the smallest, Slovakia, arrested the world’s attention because one party in the four-party coalition refused to approve the plan to boost the euro-zone bailout fund (called the EFSF, but never mind) that was announced at a European Union summit on July 21. That proposal is now hopelessly out of date, as reality has raced ahead and the 21 percent “haircut” it envisages (i.e., write-down) of the value of Greek government bonds is far too small: 60% is now being reluctantly admitted to in official circles, so it will certainly be more.
Meanwhile 4: The risible idea that China will bail out bankrupt European countries – still widely believed in European official circles – was further exposed as plain silly, when China announced that a state-owned investment fund would start buying shares of the biggest Chinese banks, to stop or at least slow their rapid fall on the Chinese and Hong Kong exchanges.
There are more meanwhiles, and it’s still early in the week (have to file this early because of Succot). But they all add up to the same thing: Meanwhile, denial reigns supreme, the problems fester and the pressures in the financial system mount, while the credibility of leaders and institutions sinks ever lower.