The global malaise

In my last post on Brexit, I had shared an email exchange with an erudite friend who straddles Britain and America.  The conversation continued.

Dear Ananth,

Cameron felt very confident after winning the Scottish independence referendum by scaring the Scots into submission.  This time the public, however, refused to be scared.  There are many dimensions to this—economic, social, racial, historical.  The Scots and Irish have always wanted independence and Anglo-Saxon oppression of the Celtic race goes back over 1000 years, so there’s a big can of worms there (I am a Celt, by the way—of Irish/Scottish extraction; my family fled from Scotland (maternal) and Ireland (paternal) to escape English oppression, in the 1780s from Scotland [to Nova Scotia (New Scotland), Canada] and in the 1840s from Ireland [to Boston]).  The Scots and Irish voted heavily for Remain.  There’s an educational divide and economic divide between the haves and have-nots, and this is a rare instance of “snobs and yobs” joining forces in an election to create a perfect storm of jingoism, negativity and isolationism with respect to the EU.  There have been a few ugly racist incidents since the Brexit vote and it is to be hoped that this result does not bring out the worst in people, because their worst is very bad.  It all goes to show that Trump is electable in the US, too, and one wonders what the economic fallout of that will be??!!
This was my response to him:
We will have a chat about the economic fallout – with or without Trump. I had just finished reading ‘The End of Alchemy’ by Mervyn King.
The economic fallout was seeded and nourished for a long time – since the Eighties. When the West ran out of organic sources of growth, it resorted to debt-fuelled growth, principally led by the United States, emulated enthusiastically by the UK. Other countries ‘had to’ follow suit, for fear of ‘losing out’.
That had resulted in frequent crises – Mexican crisis of 1994, Asian crisis of 1997-98, Brazil in 1999, Argentina in 2002 and then the global crisis in 2008. The message had not been heeded.
Financial liberalisation and the rise of Wall Street played no small role in this debt-fuelled growth.
Post-crisis 2008, debt accumulation had continued with gusto. But, with more and more debt, we have crossed its saturation point long ago. It had lost its effectiveness. Every dollar of debt added generates diminishing cents of growth. So, we have a sense of malaise.
So, Trump, Sanders, Brexit are manifestations of this malaise. They are not the cause of it. They may cause incremental hardship but the principal hardship has been in the making for quite some time.
Had they accepted the lessons of the crisis and ‘battened down the hatches’ in 2008, we would have had two years of wretched growth but we would have cleaned up the mess and started off afresh, just as the world did after 1945 and after 1980.
Now, we are ‘condemned’ to live through the consequences of debt bingeing – economic, social and political because the ‘baby-boomer’ generation lost (or, did not cultivate?) its appetite for pain. It opted for painkillers all the time. The result is that painkillers (debt) have ceased to have any effect and surgery postponed has to be done now.
The stock market reaction around the world this week after central banks promised doubling down on their failed policies in response to the Brexit vote confirms that the malaise is the new normal!
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