We just needed more money!
14 April 2009
You can’t move these days without tripping over an expert on the economy.
Everyone has an opinion now that it seems everyone, globally, is affected – in the past the creaks and groans of the economy would be passed off as fiscal ineptitude by individual incumbent governments.
The latest rescue package proposed by the G20 was to print a trillion dollars – new money boosting the global economy. Critics quickly rounded on the idea citing pre-war Germany and modern day Zimbabwe as examples of inflation running out of control and money becoming meaningless. A last desperate measure that would plunge us into a decade long recession.
On that cheery note, also toying with the idea of subsidence farming, to support my malnourished family – I stopped and tried to take a simplistic but broader look at the world economy.
I thought that over the last decade the population of the world has risen from approximately 6 billion to a current estimate of 6.7 billion. Some 700 million new mouths to feed is one way of looking at it, but 700 million more consumers is another. On top of that, I heard a prediction last year that the number of ‘middle-class’ workers (by US standards) would top 400 million by 2010. While this figure may have been affected by the current downturn it is a huge number of, largely new, entrants to the world of consumerism.
If you then build a bit of inflation into the equation it could just be that the world’s finances had reached breaking point – not from the point of view of raw materials, food, or even manufactured goods; just that the existing pot of money is no longer big enough to cover all the transactions that we want to make. There are more of us wanting more money to spend on more things – but in general terms the overall quantity of money is not increasing.
It should therefore make sense then that inflation not only slows but reverses and that the aspirational lifestyle, which lead people to borrow beyond their means, are natural consequences. The sub-prime fiasco then, without excusing the greed of the lenders and borrows alike, could be seen as an obvious symptom rather than the cause of the recession. This global recession is therefore a predictable realignment given that we have inadvertently set restrictions that prohibits economy and population to grow in tandem.
So maybe the ‘quantitive easing’ – the G20’s one trillion dollars – is a logical realignment of the realignment, as it were. A necessary step in allowing the global economy to satisfy the needs of a growing consumer population. Put in these simplistic terms, recovery should just be around the corner; the electronics industry to the fore!
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