Over this autumn weekend in Washington DC the leaders of a group of nations are meeting to plot the recovery of the global economy. I am impressed that they are taking ‘a’ weekend to solve a problem that appears to be bigger than all of us and continues to grow at an alarming rate. I want to remind you that the Earth turns ever so slowly in the grand scheme for things – 24 little hours to be exact, and I don’t see how so much can be accomplished over the weekend. What, does everybody have to be back behind their presidential desk on Monday?
Why is it with things that have been discovered to be terribly wrong do we feel that this gives us the expectation that it can be righted in a period of time that is shorter than the time that it took for the problem to get screwed up enough that we recognize it as a problem? It is as if no one was paying any attention to the situation until it became impossible to do business as usual, after which; everyone became cognizant of a problem and now we have to rush and fix it. The problem that prevails now is how are we going to fix a problem that we never knew was a problem.
Am I confusing you? Good, because that is the problem. Everyone is confused as to how to fix it! As a boy, my Grandmother would send me into the garden that my grandparents had on the back forty with instructions to pick all of the ripe fruits and vegetables that we were going to use for the rest of the week. Being a city boy, I picked everything that resembled a ripe fruit or vegetable and returned to the house in five seconds flat. Of course, some of them were terribly green and my Grandmother took me to task regarding the picking of fruits and vegetables. She said that you must only pick what you need keeping in mind that there is a tomorrow.
The economies of all of the nations, both rich and poor are enlaced. Somebody drops a vase in Djibouti and an attendant is sent to clean it up in Kansas City, or Cartagena. What one country does regarding its trade policy effects all of the others trading around the globe eventually. Protectionism, a practice that helps one, is done at the expense of all others who would trade goods with that country. Transactions between countries afford one an advantage over the other if a trade imbalance can be sustained based upon the value of each country's currency. Countries that do not allow their currency to float on the market can be suspected of manipulating the market if they continue to support large trade deficits with trading partners China is a good example of this practice.
Since the dollar is the standard by which all other countries set the value of their currencies, it stands to reason that the best way to hedge the market to your advantage is devalue your currency in relationship to the standard. Another method of taking advantage of the market is to extract a profit at the expense of those with whom a country trades – OPEC has done just that. The down-side of these tactics is what the global market is experiencing today. The monopolization of the market by individuals interested in dominating the supply and demand equation is apparent. Greed is the other name that would fit well in explaining the current global situation.
As each entity squeezes the market to gain market share at the expense of all others, the flow of cash slows and credit expands. The exchange rate for the payment of debts due cannot keep pace with the amount of money owed. The trade deficit rises to the point that the country suffering from the trade imbalance can no longer make substantial payments against the deficit. The balloon eventually will burst; creating a financial situation that we are currently experiencing.
Many methods and remedies will be applied to this global economic situation with little success. The devaluation of the dollar is inevitable. The continued loss of jobs world-wide will indicate the lost of battlefront after battlefront. Without exception, the onset of recession will touch each country in turn as the Earth slowly turns. Just like day turns to night, so will the progression advance.
Prepare yourself as best you can…