Chances of a world war or a recession
Tuesday, 23 September 2008
Maswood Alam Khan from Rockville, Maryland, USA
A few weeks back American political scientist Bernard Lewis, who is more known as the US authority on the study of Islam and President George Bush's favourite historian, predicted: "Our world is on the brink of another World War and it will originate on August 22 in the Middle East". August 22 has passed away. Bernard's ominous prediction has been proven sensationalist and baseless.
A few days back the sky had broken loose from above the world out of fear that the truest recession is just around the corner with Lehman Brothers filing for bankruptcy. Financial experts including Allan Greenspan, the former chairman of the US Federal Reserve, expressed their fears that more money market funds could plunge in value as other major firms will have to fail.
But the American administration, though they vowed that they would no more babysit and spoon-feed each and every sick institution, suddenly changed their policy relaxing their will of iron. Now it seems the American administration will not only bail out AIG, which is absolutely necessary, but also everybody, whether they need it or not.
The US government will offer retroactive insurance to money market funds to assure they don't lose money on the risky assets they bought. As a consequence stock markets around the world are soaring.
Bush administration on Saturday formally proposed to Congress what could become the largest financial bailout in the United States history: requesting authority for the Treasury Department to buy up to $700 billion in mortgage related assets, an attempt to transfer the bad debts of Wall Street into the obligation of American taxpayers and an amount, if divided across the US population, would mean more than $2,000 for every man, woman and child in the United States ostensibly to save many Americans---not all---who have savings invested in money market funds, which would be at risk of unexpected losses and also to save many American home owners from the disaster of unprecedented foreclosures.
It seems the American government has abrogated their laissez faire approach towards markets and adopted socialistic pattern of economy. Whether, however, such relaxation is the administration's iron hand in a temporary velvet glove to appease the nervous markets on both sides of the Atlantic is yet to be seen.
Poor Lehman Brothers! The administration could have saved this 158 years old investment bank had this decision of gigantic bailout been taken before Lehman Brothers decided to file for bankruptcy.
Now the question is: How such $700 billion worth of bailouts would equate the cost to the real benefits to society? Who will foot the bills of such Himalayan bailout? Should only the rich, who benefited disproportionately during Bush presidency, be levied with raised tax for the bailout of Wall Street? Or, will all the US taxpayers have to defray the cost? Or, the people of Iraq or Iran through purchases of weapons made in the USA? Or, from a mysteriously discreet source people will never know?
People talk on and on, of an impending world war. In fact, Bernard Lewis is not the first person to propagate theories about a new world war. It was clear to many that the world was on the eve of World War III as USA attacked Iraq and Afghanistan.
But the question is: Are not we already in World War? Have all the factories stopped manufacturing weapons of war? Was not the Cold War in fact World War III?
There was a time humans committed homicides by sticks and clubs. Then knives and guns emerged as lethal weapons. Afterwards poison and proxy murders were deemed time efficient and cost effective. Now the latest lethal weapon to kill people is in the form of economic exploitation.
Though there is no war visible in the style and magnitude of World War I or II, primarily because of nuclear deterrence, there is of course a perpetual war in the method of "seek and destroy", defeating countries one after another.
Since the end of World War II, the US and its allies have been engaged in wars: in North Korea, Vietnam, Grenada, Libya, Panama, the Gulf, Kosovo, Afghanistan and Iraq. American guns would probably soon be pointed towards Iran and North Korea. In today's world only Americans, who did win two world wars and one cold war, are capable and brave enough to continue a world war on piecemeal basis---today in Iran and tomorrow in Guatemala.
The next question: Are not we the people of the world already in a recession? Most middle-class workers' real wages have declined along with the loss of a lot of jobs. Food prices are spiralling up and up and fuel prices are in a mocking behaviour---spiralling up and then plummeting down, though never to a point when people first shouted at the abnormal hike.
Everybody already knows what is happening. They know it is recession. Recession refers to a period of more than a few months of declining gross domestic product. Though there is general consensus in the USA that the country is already hit by a recession a national recession can't be confirmed until the National Bureau of Economic Research (NBER)---a private research group on whom economists, academics, and investment analysts rely---provide the "official" timing and severity of recessions.
In other words, you and I have no authority to say that the economy is in bad shape unless NBER says so or to say that we are in World War III only when a superpower like the USA declares that the world is in a global war. No matter, the factories are manufacturing war machines in much larger scale than in during the World War II or not. It sounds like I am suffering from hallucination so misreading my thermometer, however feverish I may feel, and have no authority to say that I am suffering from fever unless or until a physician inserts his thermometer under my tongue and certifies my disease in black and white.
The fact is that a recession, though not easy to define mathematically, has already hit the world. Like Cold War, a cold recession is already crippling the people the world over. Such a cold recession tactfully prevented from spilling into depression by artificial interventions is more violent than the '30's recession that naturally turned into depression. People are dying not visibly spilling their blood but invisibly haemorrhaging deep inside their brains.
It is also true that journalists, who sniff around the Wall Street, keep hammering out the doom and gloom stuff mostly out of their guts feelings as they are or were never actively much involved in business. Though facts should create impacts in the markets the press holds a huge power to change the shoppers' psychology. It is unethical, nevertheless, on the part of the press to try to head off a downturn by cheerleading about how great things are or to try to convince readers that the sky is falling.
One might walk out the door, when the wind is blowing increasing the chilling effect when the exact temperature is 35 degrees Fahrenheit, and observe to a friend: "Wow, it's freezing out here today." But the weatherman won't use the word "freezing" until the temperature is 32 degrees (which is equal to 0 degree Celsius) or lower.
Consumer psychology plays an important role in the health of an economy. With consumer spending contributing roughly to 60 per cent of economic output of any country, the public's fear of recession---out of the news of Lehman Brothers' fall or out of gossip columns in a newspaper---can turn into a major cause of widespread recession.
History bears the testimony that it was not the gang of economists or financial analysts that declared the recession or the subsequent depression. It was public confidence in the economy that resisted recession and it was loss of people's confidence that brought down the economy resulting in economic depression.
How people view is more important than what economists derive from their mathematical computations. It is not the government's business to say tattooing on hands or piercing rings into tongues is weird when people take such fads as fashions. The government has to pay heed to the gentleman exclaiming, "Wow, it is freezing out today" when the temperature is 35 degrees Fahrenheit instead of calling the weatherman to know whether the exact temperature has fallen down to 32 or lower. This is people's power, or people's confidence, or people's psychology that matters.
The writer is General Manager, Bangladesh Krishi Bank. He may be reached at e-mail:
maswood@hotmail.com
A few weeks back American political scientist Bernard Lewis, who is more known as the US authority on the study of Islam and President George Bush's favourite historian, predicted: "Our world is on the brink of another World War and it will originate on August 22 in the Middle East". August 22 has passed away. Bernard's ominous prediction has been proven sensationalist and baseless.
A few days back the sky had broken loose from above the world out of fear that the truest recession is just around the corner with Lehman Brothers filing for bankruptcy. Financial experts including Allan Greenspan, the former chairman of the US Federal Reserve, expressed their fears that more money market funds could plunge in value as other major firms will have to fail.
But the American administration, though they vowed that they would no more babysit and spoon-feed each and every sick institution, suddenly changed their policy relaxing their will of iron. Now it seems the American administration will not only bail out AIG, which is absolutely necessary, but also everybody, whether they need it or not.
The US government will offer retroactive insurance to money market funds to assure they don't lose money on the risky assets they bought. As a consequence stock markets around the world are soaring.
Bush administration on Saturday formally proposed to Congress what could become the largest financial bailout in the United States history: requesting authority for the Treasury Department to buy up to $700 billion in mortgage related assets, an attempt to transfer the bad debts of Wall Street into the obligation of American taxpayers and an amount, if divided across the US population, would mean more than $2,000 for every man, woman and child in the United States ostensibly to save many Americans---not all---who have savings invested in money market funds, which would be at risk of unexpected losses and also to save many American home owners from the disaster of unprecedented foreclosures.
It seems the American government has abrogated their laissez faire approach towards markets and adopted socialistic pattern of economy. Whether, however, such relaxation is the administration's iron hand in a temporary velvet glove to appease the nervous markets on both sides of the Atlantic is yet to be seen.
Poor Lehman Brothers! The administration could have saved this 158 years old investment bank had this decision of gigantic bailout been taken before Lehman Brothers decided to file for bankruptcy.
Now the question is: How such $700 billion worth of bailouts would equate the cost to the real benefits to society? Who will foot the bills of such Himalayan bailout? Should only the rich, who benefited disproportionately during Bush presidency, be levied with raised tax for the bailout of Wall Street? Or, will all the US taxpayers have to defray the cost? Or, the people of Iraq or Iran through purchases of weapons made in the USA? Or, from a mysteriously discreet source people will never know?
People talk on and on, of an impending world war. In fact, Bernard Lewis is not the first person to propagate theories about a new world war. It was clear to many that the world was on the eve of World War III as USA attacked Iraq and Afghanistan.
But the question is: Are not we already in World War? Have all the factories stopped manufacturing weapons of war? Was not the Cold War in fact World War III?
There was a time humans committed homicides by sticks and clubs. Then knives and guns emerged as lethal weapons. Afterwards poison and proxy murders were deemed time efficient and cost effective. Now the latest lethal weapon to kill people is in the form of economic exploitation.
Though there is no war visible in the style and magnitude of World War I or II, primarily because of nuclear deterrence, there is of course a perpetual war in the method of "seek and destroy", defeating countries one after another.
Since the end of World War II, the US and its allies have been engaged in wars: in North Korea, Vietnam, Grenada, Libya, Panama, the Gulf, Kosovo, Afghanistan and Iraq. American guns would probably soon be pointed towards Iran and North Korea. In today's world only Americans, who did win two world wars and one cold war, are capable and brave enough to continue a world war on piecemeal basis---today in Iran and tomorrow in Guatemala.
The next question: Are not we the people of the world already in a recession? Most middle-class workers' real wages have declined along with the loss of a lot of jobs. Food prices are spiralling up and up and fuel prices are in a mocking behaviour---spiralling up and then plummeting down, though never to a point when people first shouted at the abnormal hike.
Everybody already knows what is happening. They know it is recession. Recession refers to a period of more than a few months of declining gross domestic product. Though there is general consensus in the USA that the country is already hit by a recession a national recession can't be confirmed until the National Bureau of Economic Research (NBER)---a private research group on whom economists, academics, and investment analysts rely---provide the "official" timing and severity of recessions.
In other words, you and I have no authority to say that the economy is in bad shape unless NBER says so or to say that we are in World War III only when a superpower like the USA declares that the world is in a global war. No matter, the factories are manufacturing war machines in much larger scale than in during the World War II or not. It sounds like I am suffering from hallucination so misreading my thermometer, however feverish I may feel, and have no authority to say that I am suffering from fever unless or until a physician inserts his thermometer under my tongue and certifies my disease in black and white.
The fact is that a recession, though not easy to define mathematically, has already hit the world. Like Cold War, a cold recession is already crippling the people the world over. Such a cold recession tactfully prevented from spilling into depression by artificial interventions is more violent than the '30's recession that naturally turned into depression. People are dying not visibly spilling their blood but invisibly haemorrhaging deep inside their brains.
It is also true that journalists, who sniff around the Wall Street, keep hammering out the doom and gloom stuff mostly out of their guts feelings as they are or were never actively much involved in business. Though facts should create impacts in the markets the press holds a huge power to change the shoppers' psychology. It is unethical, nevertheless, on the part of the press to try to head off a downturn by cheerleading about how great things are or to try to convince readers that the sky is falling.
One might walk out the door, when the wind is blowing increasing the chilling effect when the exact temperature is 35 degrees Fahrenheit, and observe to a friend: "Wow, it's freezing out here today." But the weatherman won't use the word "freezing" until the temperature is 32 degrees (which is equal to 0 degree Celsius) or lower.
Consumer psychology plays an important role in the health of an economy. With consumer spending contributing roughly to 60 per cent of economic output of any country, the public's fear of recession---out of the news of Lehman Brothers' fall or out of gossip columns in a newspaper---can turn into a major cause of widespread recession.
History bears the testimony that it was not the gang of economists or financial analysts that declared the recession or the subsequent depression. It was public confidence in the economy that resisted recession and it was loss of people's confidence that brought down the economy resulting in economic depression.
How people view is more important than what economists derive from their mathematical computations. It is not the government's business to say tattooing on hands or piercing rings into tongues is weird when people take such fads as fashions. The government has to pay heed to the gentleman exclaiming, "Wow, it is freezing out today" when the temperature is 35 degrees Fahrenheit instead of calling the weatherman to know whether the exact temperature has fallen down to 32 or lower. This is people's power, or people's confidence, or people's psychology that matters.
The writer is General Manager, Bangladesh Krishi Bank. He may be reached at e-mail:
maswood@hotmail.com