News
 International
 National
 Embassy News
 Arts & Living
 Business
 Travel & Hotel
 Medical Tourism New
 Taekwondo
 Media
 Letters to Editor
 Photo Gallery
 Cartoons/Comics/Humor
 News Media Link
 TV Schedule Link
 News English
 Life
 Hospitals & Clinics
 Flea Market
 Moving & Packaging
 Religious Service
 Korean Classes
 Korean Weather
 Housing
 Real Estate
 Home Stay
 Room Mate
 Job
 English Teaching
 Translation/Writing
 Job Offered/Wanted
 Business
 Hotel Lounge
 Foreign Exchanges
 Korean Stock
 Business Center
 PR & Ads
 Entertainment
 Arts & Performances
 Restaurants & Bars
 Tour & Travel
 Shopping Guide
 Community
 Foreign Missions
 Community Groups
 PenPal/Friendship
 Volunteers
 Foreign Workers
 Useful Services
 ST Banner Exchange
  Business
Solutions to Europe’s On-going Debt Crisis
By Clem Chambers
Senior Market Correspondent
Solutions to Europe’s On-going Debt Crisis

Austerity as we know it is out, meanwhile austerity-via-stealth-inflation, or financial repression, is in, writes Clem Chambers, of the solutions to Europe’s on-going sovereign debt crisis. Clem is a global markets commentator, CEO of ADVFN.com and author of investment titles and novels. (www. clemchambers.com)

As a solution to the current economic crisis, ‘austerity’ is now most definitely out of favour.

Apparently, what is needed instead is ‘growth’. Growth is not a bad thing. However, unlike austerity, growth cannot be implemented by government.

If austerity is based on a structured program, then growth is based on barely more than a wish and a prayer.

Future years spent on ‘the austerity program’ will mean the very same people that got us into this mess will likely get thrown out of their jobs - austerity gets politicians fired; bureaucrats laid off. It cuts the budgets of those in the wealth redistribution sector.

And turkeys don’t vote for Christmas.

Alternatively, how exactly are we going to magic up growth? Interest rates can hardly be made any lower. Are consumers meant to take on more debt and go on a spending spree? Where is this ‘growth’ coming from?

~ Which could lead one to ask, ‘where did the previous growth come from?’

The answer is a lot of it came from public sector growth and the creation of credit and money supply through property booms.

Take this away and you won’t find much growth in the US and Europe.

These old, growth drivers are dead. The property bubble is over and the public sector can’t fund itself.

Growth must therefore come from the private sector; real growth always does.

~ So what are the chances for the private sector?

Firstly, much of the large enterprise powering Western economies is heavily indebted. There is said to be over US$45 trillion dollars of debt that needs to be rolled over during the next four years, for example. This makes Greece’s funding problems shrink in comparison.

However, business is resilient. Its diversity is a strength.

Ten trillion a year is a lot of money however; this cash will need to be in the system to lend.

In effect, there will need to be lots of liquidity in global markets to keep the private sector afloat, let alone thriving. As such, ‘government’ will have to work hard to keep the private sector alive before it can address the creation of growth.

It will have to do this via all kinds of Quantatative Easting (QE).

~Yet the real key to growth is… austerity!

Public and private sector both have equilibriums. Too higher proportion of either can be a bad thing. North Korea - where everything and everyone is in the public sector - isn’t a good place to live . Conversely, neither is a place like Puntland, Somalia, where anarchy reigns.

The optimal balance is somewhere in between.

Right now, the public sectors of the West are too big. Consequentially, they have gone broke. Less public sector and more private sector is what is needed.

To create this, you have to cut back on government and regulation and let the chaotic forces of ‘laissez faire’ have more space. Some of the formal gardens of central planning have to be turned back to nature.

Once again, just as ‘Turkeys don’t vote for Christmas’, this is unlikely to happen - only the bravest countries will take this route.

What is likely instead is an economic clamp-down. This clamp-down will be an effort by the public sector to extract more money from the private sector to fund their costs. The golden goose will get plucked, too. This, of course, will hurt further hurt growth.

With no growth and no austerity there remains one solution: financial repression. That’s not an emotive phrase, by the way, it’s an economic technique.

~ You will recognise financial repression.

A country keeps its base interest rate low. The government creates a banking environment where it forces the economy to lend to it, because there a few other options. It controls domestic banking to enforce the reality that government debt is the only saving mechanism and it requires banks to hold large reserves in government debt. The gap of interest rates below inflation causes the savings value to be transferred from the lender to the borrower. This technique is good for 2-5% of GDP a year. In the past, it has been worth up to 20% of tax revenue for countries like Mexico and India.

It’s a stealth way of soaking the populace for money that can’t be taxed upfront.

Once again, the solution of the public sector is driven by inflation.

~Without some sort of austerity there can be no real growth.

And without real growth, the debts can’t be repaid in real money. The solution is to repay in ‘funny money.’ Without shrinking the public sector, which is after all, the core plank of austerity, the only way out is to devalue money.

The public sector tells us there is low inflation in most of the West, but this is an illusion. If you look into an electronics store, you won’t notice rising prices yet if you check your groceries you will see plenty. There is plenty of inflation if you measure the things they tracked in the 1970s when inflation ran riot.

My point is not to rail against inflation or put forwards alternate solutions. It’s just to point out that inflation is the key thing an investor in today’s market needs to guard and hedge against.

Until the public sectors have rebalanced their overheads and debts, the spectre and reality of inflation will remain.

Meanwhile the misery of recession will go on.

~Visit ADVFN.com for free, real-time stock prices

~ Check out all Clem’s latest news and articles at www.clemchambers.com

~Follow Clem on Twitter: @ClemChambers



Related Articles
    "A Falling Euro Means Serious Reflation"
    4 Trillion Needed to Fix Europe Crisis
    If Japan Can Survive for Generation on 200% ...
    Finger of "Euro Doom" Is Now Pointing at Spain
    Yawning Trade Imbalances Are Driving the ...
    Money Flows Like Water
    Policy, Money Flow Are Driving the Market
    Resetting the Debt Mountian
    Three Questions Facing Capitalism
    New Year Will Bring More Volatility in Market
    Markets Remain Volatile as Europe Seesaws ...
    If Germany Is to Avoid Financial Collapse, ...
    World’s Economy on Course for a Crash
    With Italy Now Teetering on Cliff Edge, ...
    Last Week’s Episode of Saga That Is Euro ...
    As Euro Crisis Rises to Finale, Economic and ...
    EU Must Follow UK's Lead for Credit Crisis
    Political Inertia Edging Europe to Economic ...


Clem Chambers serves as Senior Market Correspondent for The Seoul Times. He has been writing investment columns for a number of international media including Wired Magazine, the Daily Mail, the Daily Telegraph, the Daily Express, the Scotsman, and Forbes. He can be reached at aliceh@advfn.com His website is advfn.com

 

back

 

 

 

The Seoul Times Shinheungro 25-gil 2-6 Yongsan-gu, Seoul, Korea 04337 (ZC)
Office: 82-10-6606-6188 Email:seoultimes@gmail.com
Copyrights 2000 The Seoul Times Company  ST Banner Exchange