Although its size remains a mystery, we are glad to be told that the mini-budget will now be bigger and more comprehensive. This is because we have now discovered that the crisis is “more serious than anybody anticipated,”
I wonder who this ‘anybody’ is, and what remote mountaintop he has been living on.
Let’s see if what happened within the month of September 2008 alone in the US was serious enough to wake anybody up:
- The US Government had to take over Fannie Mae and Freddie Mac
- Merrill Lynch, AIG and Wachovia had to be rescued
- Goldman Sachs and Morgan Stanley were turned into bank holding companies.
- Lehman Brothers submitted the largest bankruptcy filing in US history at USD639 Billion.
- The Dow fell 777.68 points in a day.
- There was a massive electronic run on the money markets, with 550Bn reportedly being withdrawn within one two-hour period.
- The financial crisis became the dominant issue of the US Presidential campaign
- Henry Paulson, the US Treasury Secretary, had announced a proposal for a USD700 Billion bailout.
By early October, the country of Iceland was bankrupt and the leading central banks of the world had taken the drastic step of making a coordinated interest rate cut. Global credit flows were paralyzed. The global free market system tottered on the brink of an abyss.
Seven months ago it was clear that the world faced the worst financial and economic crisis since the Great Depression.
The world’s markets for goods, services and finance are now tightly integrated by trade, distributed manufacturing and huge flows of capital. They are electronically linked. Globalization ensures that the crisis is evolving and spreading in ‘internet time.’
Back home our response to the crisis remains bound to bureaucratic and political timetables.
As I said in my last posting, the age of father-knows-best central planning is over. We need quicker, more responsive government. This implies a greater ability to gather and process information, formulate plans, put them into action and measure the results of that action.
We are still not sure if and how the first two stimulus measures have been translated into action.
Meanwhile, tens of thousands have already lost their jobs. The effects of the drop in manufacturing activity have spread to the retail sector as domestic consumption has contracted. Credit remains scarce. Our poor, especially our urban poor, are at high risk.
It now looks like the downturn will last not one or two but three or four years. We face a cascading series of difficulties at just the moment when our political system is broken and our basic institutions appear to be dangerously decayed.