

The world economy

Mountains to climb

August was a nerve-racking month for the world economy. September and October will be no better

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To climb mountains needs collective leadership of world as large it is otherwise some steps lead no where and ultimately bound to fall more than today's standing of developed world along with some down steps of developing world.


Regarding what I just said and using the USA as an example, household wealth was over 54 trillion dollars in the USA in 2009, of which about 47 trillion was owned by the richest 25%. Hypothetically, if the tax was levied at 1% on the richest 25% it would generate around 470bn per year. That would provide a potentially massive stimulus, equivalent to nearly 1% of global GDP.


QE3, and the Quantitative easing that has already been done is likely to result in very substantial inflation down the track as it greatly expands the money supply. It is in effect a politically viable wealth tax.

I have a better solution. Why doesn't the USA and the Governments of the highly indebted nations of Europe implement an actual wealth tax like France does, an adjustable annual tax levied on say, the wealthiest 10% at perhaps between 0.1% and 2% of total wealth depending on the needs of the Government at any given time. Anyone seeking to leave the country would still be subjected to the tax.

This tax could greatly increase taxation revenue, which could help to stimulate aggregate demand, reduce unemployment, improve the overall economic outlook and ease the worries of banks (allowing them to lend more liberally). When the economy is in a healthier position, the wealth tax could be removed, but implemented again if needed. The option to do so would greatly improve consumer and business confidence in the worst of times.

Sure, the rich would lose some money because of a wealth tax, but if extreme measures aren't taken to put the economies of the USA and Europe in sustainable positions, they stand to lose a LOT more - stocks, commodities and the property market might crash profoundly in a double dip recession. I think it's gotten to the point where the idea should be seriously entertained, as hard as that would be to do for a country that values individual liberty as much as the USA.


"Dusting off America’s crisis-management ideas makes sense: they were effective."

I beg to differ; Bernanke the Printer just kicked the can down the road. Potential side effects of such strong medication are unknown. Hyperinflation is a massive danger.

I have great trouble understanding why, in recent years, my opinion differs so much and so strongly, to the views being posted here and elsewhere. Because this is IMHO the only outlet that truly deserves respect, I still take time to comment, and sometimes to go back a read other commentaries and responses.

From my angle, Bernanke the Printer, and central banks in general, have proven quite definitely to be disastrous in centrally planning an economy, and leading it to an "era of great moderation". I believe the great historical moment of debt-credit may has fueled the realm of finance to those giant disparities in wealth creation. But that was just a moment of economic history. It's over now. Times change.

What's coming up (to me at least) is the great unwinding of this mess. Check out the usdebtclock (google it) and ask yourself if it is sustainable. To me it's not. The time has come for giant financial conglomerates to die; the US has decided to inflate its way out of it. The ensuing inflation would not be a giant problem for any other country--but for the USA it is, because their currency is the world's standard. Once the real panic starts (this historical moment has just begun in the last ten years, with the complete collapse of the US political system, now overtaken by hysteria, lobbies, and most crucially overconfidence bordering on delirium tremens).

To look at economists finding easy solutions that are not really solutions in the serious sense of the word (print more; "ease it up"), I stand flabbergasted. They completely miss the historical moment. Finance is returning to the mean; it's going to be a much smaller sector than it has been these last decades.

There are so many instabilities lying around right now that one quickly becomes dizzy when trying to believe in a "solution". The USPS is dead (and holds 500.000 US jobs). If the BOFA leak comes up and if it's dirty as Assange said it was, hell will brake lose. A serious spike in the price of oil can halt supply chains. The US didn't get out of any war and costs continue going their way. Any middle sized country that starts dumping the dollar will create a panic--and all of them have started, in tiny steps. This is just of the top of my mind, if consulting a few sites I could give a list larger than the Titanic we're all in.

When "Rich Dad Poor Dad Guru" starts advising to buy gold, ak47s, and a year's stock of food, either that eternal optimist has gone mad or something deep has changed.

When the secret (but fortunately leaked to the WSJ) Goldman Sachs report from Mr Brazil expects things to go down, and GS has all the info one can possibly have, expect things to go down.

Times change. The financial sector is never going to be as large as it is. Hyperinflation is a menacing threat. There will not be growth in the US to sustain Bernanke the Printer's shenanigans for much longer.

I never quite bought the implicit analogy with high-tech, in which banks had "talent" and "innovation" among other soothing words.

The era of fake prosperity is no more. We were witnesses to it.

May we witness in safety (if not prosperity) what will come after it.

Yukon Dave

It is embarrassing that foolish people think the economist is crying “the sky is falling”, or that as Mr Audacious states “grim as TheEconomist depicts is often debatable”. Its like people that play roulette with a loaded revolver because they have not been shot yet. We are not safe and the danger is real.

It took 5 years for the great depression to go to 25% unemployment and it lasted over 10 years. It caused the rise to power of leaders that led to the death of over 60 million people in the Second World War, the single largest loss of life in the history of mankind.

World War Two is how it fixed itself last time and that was a terrible solution. Get to know the facts and hold your leaders accountable.


For the last 3 years that I've been reading TheEconomist, I have come across countless weekly articles that discuss the large threats that face our advanced economies, the unfavorable political and economic situations in which they find themselves in, unable to agree on a solution to solve their messes.

Whether or not things are truly as grim as TheEconomist depicts is often debatable and subjective - but such reporting is expected from the publication, TheEconomist, is afterall, an economic-centric magazine.

However, the constant pessismism and ominous projections have began to tire and wear me down. Its gotten to the point where I've taken my perspective back to basics and stopped overanalyzing the politics.

All of which entails this - Economies experience 'boom' and 'bust' cycles, this is well known, the US recovered from the Great Depression in the 30's, a hole much deeper than this. If TheEconomist is right and political gridlock in the US and half-hearted efforts by an German-led EU can't seem to find a solution - then perhaps there will not be a man-made one.

We may just have to let the economy play its role, to return to a 'boom' period. We may not be able to pick ourselves up, perhaps then, we'll have to wait for the economic cycle to do it for us.


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