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Financial Crisis Light 01

The Financial Crisis; Light at the End of Tunnel?
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Financial crisis
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The Financial Crisis; Light at the End of Tunnel?


Was the current financial crisis unpredictable or an accident as some have proclaimed? No, a number of prominent economists such as Joseph Stiglitz, Nobel economics laureate, had predicted it back in 1992 (p.19, Freefall).

But “special interest groups” out of their own desires for greed turned away from him and others like him embracing economists who could be bought to come up with fantastic unrealistic theories of sustaining an economy based on bubbles that never burst.

Stiglitz, in his prize lecture of 8 December 2001, refuted Adam Smith's 1776 argument that free markets led to efficient outcomes, “as if by an invisible hand” and that we can rely on markets without government intervention.

In another part of his lecture, he refers to the importance of information in economics. “... secrecy is a radically created scarcity of information, and like most radically created scarcities, it gives rise to rents, rents which in some countries are appropriated through outright corruption (selling information), but in others are part of a “gift exchange” in which reporters not only provide puff pieces praising the government official who has given the reporter privileged access to information, particularly in ways which are designed to enhance the officials influence and power, but distort news coverage....” - Joseph Stiglitz

Paul Robin Krugman, Nobel economics laureate, argues that often our politicians do not know the differences between economic policy on the national and international scale and business strategy on the organizational scale.

Real economists deal with the closed system of a national economy, whereas corporate leaders live in the open- system of world of business.

In addition, business leaders are forever in search of that particular brilliant strategy to maximize the profit of their corporations, whereas real economists know that an economy must be run on the basis of general principles.

Paul Krugman in his book: End This Depression Now!“ states: "Nations rich in resources, talent, and knowledge - all the ingredients for prosperity and a decent standard of living for all - remain in a state of intense pain." He states: “a quick, strong recovery is just one step away, if our leaders can find the "intellectual clarity and political will" to end this depression now.”

...In the Great Depression, countries tried to protect themselves at the expense of their neighbours. These were called beggar-thy-neighbour policies, and included protectionism and competitive devaluation.

These are no more likely to work today than they did then, they are likely to backfire. China's growth has been strong, but its consumption is still so much smaller than US consumption that an increase in China's spending can't make up for the reductions in the US – and only a small fraction of China's increase in spending will show up as increased American exports.

And given how badly the global crisis has affected many in the developing world, those countries that can will continue to set aside substantial sums in reserves _ weakening global demand...
” - Joseph Stiglitz (p.55, Freefall).

In 1999, in "The Return of Depression Economics", Paul Krugman surveyed the economic crises that had swept across Asia and Latin America, and warned that those crises were a warning for all of us: like diseases that have become resistant to antibiotics, the economic maladies that caused the Great Depression were making a comeback.

Many firms and households may be bankrupt. But the real assets are much as they were before – the same buildings, factories, and people; the same human, physical, and the natural capital.

What happens in a crisis is that confidence and trust erode, the institutional fabric of a society weakens as banks and firms go into or approach bankruptcy.

In a run up to a bankruptcy it becomes unclear who owns what, when ownership moves from shareholders to bondholders.

It is striking that when the bubble bursts most often wrong policies are applied resulting in massive wastage of resources resulting in unemployment.

When economics and ideology mix, the results often sound plausible, but in fact can be terribly wrong and lead to ill-conceived and sometimes dangerous economic policy.

Krugman writes, "But we should never be surprised when prominent people say foolish things about economics. The history of economic doctrines teaches us that the influence of an idea may have nothing to do with its quality--that an ideology can attract a devoted following, even come to control the corridors of power, without a shred of logic or evidence in its favour".

Krugman's cause is neither left nor right; rather it's the pursuit of clear thinking about economics that's unfettered by ideology.

European politicians have followed blindly the same lame theories coming from Wall-street to sustain their avarice. There needs to be strong regulations that allow no Corporation to become “too big to be allowed to fail”.

The law should apply to all in the exactly in the same way. “No double standards please, Mr Van Rompuy”.

The recent presidential election in France gives us in SID hope of a new Europe that understands that “Austerity” is no longer a solution. “...Dans cette bataille qui s'engage, je vais vous dire qui est mon adversaire, mon véritable adversaire. Il n'a pas de nom, pas de visage, pas de parti, il ne présentera jamais sa candidature, il ne sera donc pas élu, et pourtant il gouverne. Cet adversaire, c'est le monde de la finance...” - François Hollande .

The following quotation of François Hollande gives us hope that he has understood the problems of 1000 euro Generation, the UKUNCUT, FRUNCUT and the problems mentioned by Joel Bakan in his famous book :“The Corporation: The Pathological Pursuit of Profit and Power”. “...Je vais vous confier mon secret, ce secret que j'ai gardé depuis longtemps mais que vous avez sans doute découvert: j'aime les gens, quand d'autres sont fascinés par l'argent...

Finally, it is necessary to state that the administrative budget of EU is only one line of the EU budget. Politicians who have been bent on reducing the EU administrative budget and increasing de-regulations need to understand that by reducing the workforce here and by demoralizing staff they only play into the hands of corporations whose current existence is based on the pathological pursuit of profit and power and who pickup our jobs under different lines of the budget at much greater costs to the EU citizen and export them mainly to Asia.

References:

1, 2, 3, 4, 5, 6, 7, 8, 9, 10

Created by: admin last modification: Monday 11 of June, 2012 [12:18:56 UTC] by admin

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