It’s disappointing that Crikey, like others in the liberal media, have fallen for the nonsensical line that the so-called “financial crisis” is either real or requires urgent action. Anyone who disputes this claim, which is advanced with evangelical fervour by its advocates, is howled down as a heretic and a “denialist”. The days of the witch-hunt are truly back.
Put simply, there is no evidence of a human-induced financial crisis, regardless of the hysterical claims advanced in trendy films like Al Gore’s Inconvenient Loot. The financial environment moves through cycles unrelated to human activity. Financial records from the distant past demonstrate that key indices have previously been much lower than they are today, and move up and down of their own accord. Man’s contribution to these movements is dwarfed by the natural rise and fall of markets.
The following graph shows that the long-term financial trend is — inconveniently for crisis fanatics — resolutely upwards:
And to anyone objecting that the market is now declining — what happened yesterday?
Another rise. So much for the purported, so-called, alleged myth of anthropogenic financial collapse, which is not real at all, but actually made up.
Any recent, temporary falls in the Dow Jones Index are nothing to do with human-induced crises. Quite apart from natural ups and downs, recent sun spot activity has increased the cash burn rate, contributing to a mild reduction in credit availability, but again it is a wholly natural cycle, unrelated to human activity. The current cycle of solar activity is due to end in the next couple of years, returning credit availability to normal.
If there is to be any attempt to mitigate this wholly fictional crisis, it should be done with moderate, balanced measures that take into account the needs of businesses and the importance of maintaining job growth and profit share. The fanatics urging us to take immediate action must be rejected.
We should take no unilateral action, but await a comprehensive international agreement that includes the big financial emitters like China. To do otherwise would be to risk our own economy without having the slightest impact on the problem we’re trying to fix. Local jobs will be lost due to “bailout leakage” as firms simply move offshore to countries where taxpayer money is not being wasted propping up uncompetitive firms.
Other industries will simply be wiped out due to massive increases in their costs arising from the additional tax burden. Our LNG (Lots of Noxious Gits) industry is particularly vulnerable.
If we are foolish enough to take unilateral action then we must ensure full compensation for affected companies so that they are not required to contribute to the bailout. A special Bailout Liability Underwritten Banking certificate (BLUB) crediting firms with the amount of money contributed to the bailout must be provided to all trade-exposed industries, particularly those in bailout-intensive sectors.
But before we proceed, further work needs to be done on an appropriate bailout target. Setting too high a bailout target risks imposing a massive burden on the economy. A low bailout target would provide a sensible transitional pathway to stabilising the financial sector at $550 million ppm (payouts per manager) by 2050.
This prudent, moderate, sensible, balanced course of action, while opposed by trendies and financial crisis fundamentalists, will ensure we protect the very jobs and businesses most at risk from this new secular religion.
With a global recession looming, international efforts to curb greenhouse gas emissions may be in jeopardy, as concerns are voiced in the US, Canada and Europe about the wisdom of adopting measures that would impose an additional cost burden on already fragile economies. Such thinking is misguided, and it is dangerous. A recession may in fact ease the introduction of carbon emissions trading schemes.
At the recent EU summit in Brussels there was widespread reluctance to meet pledges all EU governments made last year to cut CO2 emissions by 20% by 2020. Eight Eastern European countries – including Poland, Hungary, Romania, Bulgaria, Slovakia, Latvia, Lithuania and Estonia — released a joint statement urging the EU to balance the wish for cleaner air against “the need for sustainable economic growth” at a time of “serious economic and financial uncertainties.” Italy threw its weight behind these countries, threatening to veto the proposed EU plans.
Likewise in the US, top power industry executives seized the opportunity to lobby for delaying carbon emissions legislation, at the recent New York Utility Conference. More dramatically in Canada, the Liberals were dealt an electoral defeat on Wednesday largely on the basis of their strong advocacy in favour of a carbon tax (see story here).
All this backtracking is akin to forfeiting the forest for the tree. Financial crises are short-term phenomena, global warming on the other hand is with us for the long haul, and the window of opportunity for addressing it is fast narrowing. The prospect of economic recession does not in any way reduce the magnitude or the urgency of the climate problem, nor does it provide any compelling reason for delaying action. Or as EU President Barroso put it:
“Saving the planet is not an after-dinner drink, a digestif that you take or leave. Climate change does not disappear because of the financial crisis.
Moreover, as David Wheeler of the Center for Global Development argues, smart carbon regulation will be easiest, not hardest, to introduce during a recession, since a slowing economy emits less, and smart cap-and-trade regulation can “lock in” this head start on emissions reduction at almost no cost during the recession. His proposal for the US is to:
• Immediately pass a cap-and-trade bill that sets the initial total limit at the pre-recession emissions level, and schedule a progressive decline in the overall limit that will achieve the needed long-run goal.
• Establish an annual auction for 100% of the emissions permits.
• Set aside a healthy share of the auction proceeds to provide a compensating rebate for every American
In this way the consumer is shielded from cost increases, and the power provider incentivised to develop less carbon-intensive energy options for the future.
It is amply clear that big emitting developing countries such as China and India will not make significant commitments to curb their greenhouse gas emissions unless the US and EU lead by example. With only about a year to go before the new global deal to replace the Kyoto Protocol is due to be reached in Copenhagen conference, the US and EU have no room to falter. More than ever, political courage and leadership is needed to ensure global efforts to address climate change are not jeopardized.
So far, many observers and experts point out, developing countries seem to be holding out quite well amidst the global financial turmoil. In reality the current global financial crisis poses multiple and profound risks to development, which I will briefly outline.
Finance ministers from 24 developing countries (the Group of 24, or ‘G-24’) meeting last Friday at the IMF, noted that:
“many emerging markets and developing economies are not immune to the spillovers of the ongoing global financial crisis”
and that:
“preventing macroeconomic volatility from financial spillovers and sustaining continuous growth were key priorities for developing countries”
There are several ways in which the global financial crisis can impact on development. Impacts will be highly country-specific. Key factors include:
Cuts in international development aid – Jakaya Kikwete, President of Tanzania and Chairman of the African Union, expressed his ‘deep concern’ about the financial crisis dampening rich countries’ commitment to development aid (see news report here). And for good reason: development aid tends to be strongly pro-cyclical, in other words a nation’s generosity to other nations tends to be proportional to its own good fortunes.
Reduced access to international financial capital markets – The impact will likely be bigger for middle-income countries and some emerging markets (excluding China, given it is a super high saver). Much of sub-Saharan Africa had limited access to international private capital to start with, and will therefore not be strongly affected by this.
Possible reversals in capital inflows to developing countries – due to the global credit crunch and as investors’ appetite for risk abates.
The spread of stock market turbulence to emerging markets – in one day last week, markets in Brazil, Mexico, South Africa and Turkey plunged 10%.
Downturn in global demand for developing country exports.
Postponement of large investment projects. There is emerging evidence that large investment plans (e.g. in India’s power sector) are being delayed or cancelled as turbulence in capital markets undermine prospects for raising funds.
Remittances will be impacted by the economic downturn, as well as inflation and a weak dollar. See a recent news report on how remittances to the Caribbean are being hit.
It is of course unrealistic to expect that developing countries can be wholly insulated from the global financial crisis. However, the one very powerful instrument that rich countries do have at their disposal to help keep development on track is aid. A cutback in aid at this point can have severe impacts, as high food and oil prices justify increases in aid. Aid will be needed for countries with reduced sources of revenue and finance, as social expenditures are typically the first to get cut when fiscal resources tighten. Emergency support should be targeted to countries that are fiscally highly vulnerable (the IMF has identified 22 such countries).
As a long-time resident of Beijing, concern about food and product-safety is almost a chronic neurosis. Over the past year alone, health scares have ranged from carcinogenic textiles and toothpastes, to the sale of rancid pork from dug up pig carcasses, to hormone and pesticide-laden fruits and veggies and most recently, melamine-laced milk.
This latest episode of the tainted milk has caused particular outrage because of the life-threatening impact on a large number of toddlers (53,000 affected on the latest count). What appeared at first to be a company-specific incident quickly spread to engulf the entire industry, implicating an ever wider web of co-conspirators including the very people whose job it was to police the corporate malefactors.
The story that is unfolding tells of unbridled greed, political wrangling and high-level cover-up. It has thrown up searching questions about China’s own brand of über-capitalism, characterised by weak regulatory oversight, compromised public institutions and entrenched collusion between businesses, the media and government officials in the brazen pursuit of profit. (more…)
