Monday, March 16, 2009

Are they thinking what I'm thinking?

Seems they might be at last.

The country is displaying early symptoms of being trapped in a so-called “debt deflation trap” where families find themselves pushed further and further into the red every month, according to a Bank report published today.

As the article points out, there are remarkable parallels with the Great Depression, but - like all the other published articles about this current economic crisis - fails to point out that the motivating factor behind both this current dilemma and that of the Great Depression was the illusion of affluence created by globalisation.

Until this is recognised then there is not the slightest possibility that we can recover from it. The longer we leave it, the harder it will be.

A national economy when managed in a national context is a self-sustaining thing. You have a population with needs and wants - food, power, goods - and a national economy will build up to provide for the needs and wants of its population. This creates agriculture, manufacturing and industry. Supporting that infrastructure will be the service side of the economy - retail, banking, insurance and so on.

It should be recognised that the service side of the economy is nothing more than a supporting structure for the main part of the economy - production - and not a self-sustaining entity of its own, unlike production. This is why it was always a foolish gamble to place so much emphasis on turning Britain into a service led economy and one that was bound to fail.

Not only are nationalised economies self-sustaining, they are self-correcting as well. As long as you keep managing the economy within the national context and maintain a healthy productive sector you will always be able to manage downturns and keep them relatively modest - but as soon as you try to become part of a globalised economy you are heading for a major and spectacular failure and it is this that we are now seeing come to fruition.

Globalised economies can not work for a number of reasons. First there is the disparity between working conditions and wages which creates market distortions which national governments can not manage (whereas, within the national context, they can).

Those market distortions and the lack of national controls on imports means the loss of the productive sector in your own nation and a flood of very cheap imports. At first, this seems like a good thing as we can buy more with less - but as we are seeing it also feeds a consumerist boom.

The consumer led boom leads to the financial services sector seeing the opportunity to make lots of money and that leads to the kind of irresponsible lending which we have seen over the last decade. This irresponsible lending leads to even more debt - personal, corporate and national - and creates a self-inflating bubble which, eventually, goes pop.

Well, that bubble has now popped - as it always does - and the consequences will be dire for most of us. Those countries which will be least affected by this will be those countries that still retain a productive economic sector as the main part of their economy which allows them to manage their economy within a national context.

Those that will do worst will be those countries that have given up their productive sector in the misguided belief that they can be the service capital of the world. Guess which category we fall in to?

Is it any wonder then that Gordon Brown is doing his utmost to ensure that the world does not turn to protectionism. He'll fail - they will. They'll have no choice eventually and many of them - our EU partners included - are already doing so.

As I've said before, the result of this and previous governments (the Tories are just as culpable) misguided economic beliefs which were driven by their equally misguided political beliefs of progressive liberalism will be the ruin of Britain.

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