 No doubt there has been some concentrated brick polishing over the past few days. The more intelligent will be preparing their debating brickbats to argue the merits or otherwise of the G20 meeting. Those who may be somewhat more intellectually challenged will no doubt be reverting to the physical brick over the metaphorical. I am sure that the protestors will vary from the well meaning demonstrators through to the usual suspects of radical anarchists. Actually though, for once I think that a large proportion of the population would like to have their own brick, albeit a rubber one, to lob at a bank – or come to that any representation of capitalism. Such anger is quite understandable – such behaviour is totally unacceptable.
There is no denying that the world is angry and this frustration is certainly not just restricted to extremists but rather to the “reasonable man” on the “Clapham Omnibus” who feels both let down and misled by a failed system that has destroyed savings, investments and jobs. From Clapham to Canton the language may be different but the feelings will be the same. Perhaps I should camouflage my red braces this week?
What the leaders of the G20 must ensure is that they do not waste the event. Those who use it as a moment of parochial populism will have failed their citizens. Those on the other hand who take this moment to stand up and take the global view of a responsible statesman should earn our respect. This is the moment when the world needs some leadership to build on the actions already taken by certain nations.
The one figure which I would like them to consider is that of global trade – or more to the point the lack of it. Just over a year ago global trade was growing at 6% per annum which was certainly very respectable. However, within the space of a few months the World Trade Organisation has estimated that it will decline by 9%, which is an astonishing turnaround and in fact the worst since the end of World War 2. We seem to have gone from globalisation to “de-globalisation” in a matter of months as demand has just fallen away.
The key therefore will be to rebuild confidence in such a way that demand can be nurtured again. This is no quick fix - especially with a barely functioning finance sector. Perhaps then we will see a greater focus on domestic and regional trade where local competition is seen as being more acceptable within the group – as opposed to those damn foreigners from the other end of the globe. This is easily achieved within areas such as the EU, and the USA and even with a less bound group as ASEAN. So, from globalisation to potential regionalisation? This of course could only be made worse by allowing further protectionist measures, but this is the cowardly politicians’ route out. In this case it would be true that “Patriotism is the last refuge of a scoundrel”. The US went through this in the 1930’s where, in the face of all logic, their populist politicians wrapped themselves in the stars and stripes and passed the Smoot-Hawley Bill which effectively condemned the world to a decade of depression.
***
God Save Ireland – Well he might just be required to because the once vaunted Celtic Tiger has just turned feral. After years of exciting growth, the Republic has found itself in a vicious place at the wrong time in the cycle. To quote Brian Lenihan the Finance Minister “The economy has fallen off a cliff”. A ballooning budget deficit which could rise to 11% of gross domestic product has shattered their requirement to keep it within the Eurozone’s tight corset of a mere 3%. Tax receipts are falling and inward investment is vanishing - the picture is poor. The risks were of course made all the higher by the government’s somewhat foolhardy (or just reckless) decision to guarantee all their banking system last year (although few asked the question as to what the guarantee was actually backed up by?) which may still come back to haunt the government as some of those banks are foreign. Guaranteeing somebody else’s banks is just what they don’t need to be doing right now.
Of course Ireland is not alone in this position. Being in the Euro means that they do not have the luxury (that we have in the UK) of being able to devalue their currency by 30% as we have done. Rather, they are left with a painful choice of how much deflation they are willing to apply to their economy and are able to suffer. The Irish government has bravely decided to confront this head on and act to cut their deficit: compare that with Greece’s position where the problem is not only barely recognised, let alone being dealt with. The Greek government debt as a percentage of GDP is over 100%; Ireland’s is just 30%.
So the Irish are doing the right thing whilst others are frankly just being irresponsible. Even “Perfidious Albion” isn’t helping them either as the fall in Sterling has led to a cross-border shopping spree into Ulster and a consequent loss of VAT income. Time to find some luck of the Irish.
***
And finally.... It may be home to the Manure Bank but there is something rotten in the state of Vermont. Seven year old Joshua Boothe has won the 34th national “Odor-Eaters Rotten Sneaker Contest” for owning America’s most malodorous trainers. I really don’t want to know about the judging but given the amount of bacteria and potentially useful penicillin concentrated in the contestants’ shoes, I am surprised it wasn’t sponsored by Glaxo. The offending shoes will now be on display for posterity, hopefully in a sealed cabinet, in the Odor-Eater Hall of Fumes in Vermont - now known as the Rotten Sneaker Capital of the World.
Have a good week,
Justin A. Urquhart Stewart
Director
Seven Investment Management Limited
[i] Quoted from Grant’s Interest Rate Observer
[i] Quoted from Grant’s Interest Rate Observer
|
