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I’ve spent the last few weeks overseas at Board meetings, various self-indulgent seminars and think tanks in Europe , the Middle East , Mexico , and Canada .  I don’t know how anyone can get any work done in London , such is the quality and analysis of the newspapers.  The financial crisis takes up pages and pages of newspapers, and is now dominating every board meeting and conversation.  There’s carnage everywhere, and even former Federal Reserve Chairman, ‘Saint’ Alan Greenspan’s reputation is in tatters, especially after he confessed to being ‘shocked’ that the market could misbehave, and that greedy people, the bonus babies,  were selling debt without regard to their own self-interest, long term. 

Bear Sterns had $33 debt for every dollar it owned.  Stock markets have tanked (‘Yuppie’ for ‘crashed’).  Billions of dollars written off, the Russian stock market down by 80%, others by 30% to 50%.  Governments have acted swiftly, committing trillions to back up banks and to build confidence, most central banks have cut interest rates, even the Japanese for the first time in 7 years.  Trade protectionism is, so far, largely rhetoric with Nations holding to their World Trade Organisation obligations.

So, it’s not like the 1930’s where trade collapsed by 70% over a few years because of tariff increases and competitive devaluation of currencies.  So far, so good.  Some Leaders, who were earlier derided as just ‘politicians’, are showing steel and stepping up to the plate with familiar arguments of how to reorganise the global rules of finance.  President Bush has become the great nationaliser, and has taken control of large slices of the US economy, following the lead of UK Labour’s Gordon Brown, and the Europeans.  This will not be like the 1930’s, but the world is in recession and the real model to look at is Japan, which has lost more than a decade of growth due to its banking crisis and the deflation that its policy responses have bought about.. 

My generation was brought up knowing our real economic enemy was inflation, (it was, then), few have an experience of how to avoid deflation.  What happens when policies to stimulate spending, tax cuts, bank guarantees, are instituted?  This usually means the banks sit on the money, fearful of lending, or people just save and pay down their credit cards? The Brits were offering 120% mortgages, credit cards were posted to people who had no chance of paying their debts back, now famously, and tragically, conservative Iceland has uncovered bank debts that have reached 10 times her National GDP.  Commodity prices have collapsed, oil prices are a good indicator of how business regards future economic growth. From a food price crisis in many places, policy makers fear some food won’t be worth getting to market.  I bet some of our dairy boys will be cancelling some purchases.

I’m with a group that’s considering what should be the global response in terms of trading and economic rules and institutions.  It’s just laughable that Belgium has more power at the InternationaI Monetary Fund (IMF) than China . The IMF, in its present configuration, cannot take the lead, or do much,  its resources are about $300 billion.  The famous ‘Mrs Watanabe’, the Japanese housewife’s savings and investments, are $15,000 billion.  China has more reserves than Japan , Abu Dabi has more reserves that the Bank of Japan.  Russia is a creditor nation now.  The world has changed and now needs standard rules that govern the transparency of banks, their write-offs, common accounting rules and disclosure.  National rules don’t work when so much business is done beyond domestic law, and financial institutions lend and swap with each other.

Yet, when reading about the NZ election campaign, I hear little of this. It’s the ‘dog that’s not barking’.  No politician can really promise a lot because, on their desks, will be new problems of a magnitude and scope beyond our experience and present capacity to resolve, we can only do our best. The few policy responses I’ve read sound like someone yelling “Fire” during Noah’s flood. 

Most political stories are about style, not substance, the Prime Minister ‘tripping’ or National’s team looking like the Keystone Cops, running in all directions. 

All good sport - corruption and silly promises are newsworthy, but I do hope someone, somewhere, is thinking of next year.....   Alas, I fear that whoever wins the election will spend their time over the next few weeks trying to stitch up a deal with minor parties, all of which have, in the past, further compromised sound, economic management. 

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