Lessons from Pops
Created on 8/1/2008
My grandfather was not an economist, he was a tailor’s presser, not far up the food chain in terms of macro economic theory, but he possessed more common sense in one of his strong fingers than our present government leaders have in their entire bodies. He used to whistle and sing little foreign songs as he skipped up and down his pressing table lifting the impossibly heavy iron for hours without end. Whilst he did this he dispensed little pearls of homespun wisdom that have stayed with me.
One of these was a favorite, and you need to imagine it being said with a strong East European accent, “If you owe the bank one pound you have a problem, if you owe the bank one million pounds then they have a problem!”
This from a man who never borrowed a pound from anyone was quite a theoretical leap, but it seemed clever and true to me. So how does it work when you’re the bank and you owe hundreds of billions of pounds; who has the problem then?
The answer is obvious; we will all have the problem. And we need to remember that this is the gift that will keep on giving. The bad smell from this gift is going to be with us, like an anchor on our longer-term aspirations for generations to come.
I wrote several months ago that we are living through the last days of the golden age of our society and that soon it would draw to a close. I feel like calling myself a seer, but then again it was so obvious to me I was surprised that many other columnists were not making the same predictions. Our society was creating a fair facsimile of the South Sea Bubble, and like all bubbles it had to burst.
This morning the UK leaders followed their peers in many other countries in creating a supply of capital liquidity to our banks so that they were propped up against imminent and possible total collapse. We would all prefer not to be where we are, but we have to start rectifying the situation and this was an obvious if somewhat belated step. The time to start taking such decisions was when the run on Northern Rock started instead the management of this crisis has been piecemeal and tactical instead of what we needed, which was bold, decisive and strategic decisions.
The USA and the rest of the world is suffering from the almost identical problems, and it was refreshing and very positive that the central banks and governments acted together today to reduce their interest rates by .5%. As I’ve said before we must act together for survival or sink separately.
It is democratic and correct that the US Presidential debates and election goes on throughout this period. It validates our system of democracy and confirms that it will survive this crisis. However, it would be even more encouraging if both the candidates stated that whoever won the election would be happy to work in a government of national unity until this situation was resolved and it could go back to business as usual. The same applies in the UK and elsewhere. This problem is economic but so profound that it could have the same impact as a major war or natural national catastrophe and we must use anyone with talent and ability to help sort the problems out.
The single biggest problem of this British government is that its leaders are OK with plenty of time to think but not great when the bullets are flying and they need to be diving for cover and firing back. Gordon Brown doesn’t do quick or slick. There is no other choice but to back all of our governments through this crisis as it is the only hope of getting through the debacle with as little damage as possible. The time for recrimination is later; right now we need steady nerves.
We are all going to suffer some damage resulting from this crisis. Some might gain financially but will see friends and family lose. This is going to hurt our society and the extent of this damage could change perceptions. Remember the hyperinflation suffered by the Weimar Republic led directly on to Hitler. We must remain vigilant against extreme thoughts and actions.
Perhaps the best place to be right now is in front of the mirror whilst we consider whether we should use this problem as a pause in which we re-evaluate our lives?
Tonight and tomorrow is the Jewish religion’s Day of Atonement, otherwise known as Yom Kippur. There will be no blog posted (or much eating!) by me until Friday. In my own inadequate way I shall pray for forgiveness for the sins of us all. Let’s hope that when we resume work there is better news for us all.