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07 Problems

It would be wrong to say that there was only one problem with the economy in the last ten years and that that is now over. People say "the recession" is now over but the recession was only a symptom of other underlying problems which are still haunting us in varying degrees.

Pump and Dump

After the great depression high street banks were separated from investment banks. Investment banks were for people investing in shares or trading commodities while high street banks were for saving and lending the money of ordinary people and the building societies provided mortgages. This restricted the availability of loans for housing and thus stopped housing bubbles from forming. Financial instruments were, on the whole, understood by those that bought and sold them. Under Mrs Thatcher in the UK and Ronald Reagan in the US there was an erroneous belief that the free market would lead to stability and thus solve many economic problems i.e. the destruction of inefficient unprofitable subsidised enterprises thus making way for the new efficient and profitable enterprises. There are many testaments to the success of this strategy however one of the areas in which it has failed has been the financial markets which have become highly parasitic gambling houses rather than investment institutions.

Since the freeing of lending for housing the financial institutions have been able to create and inflate a bubble to financially milk the population and through them, their employers and industry in general.

Also because of the increase in the fluidity in trading afforded by computers and communications and the belief that trading in the financial markets was no different from trading in street markets, a new breed of trader has entered the market who is more willing to gamble. Rather than carefully selecting a share with an eye to the future of what is being invested in, these traders are looking to profit from daily fluctuations. It is in the interest of these traders to create waves of optimism and pessimism in the markets and to profit from them. Thus the free market in this case has lead to instability and a "pump and dump" mentality. See Speculator or Investor. So far governments have not provided regulation to stop this and so the financial enterprises are a heavy burden on the productive enterprises and the people.

In their efforts the banks have been behind the introduction of new trading schemes such as carbon trading and in Enrons case energy trading.

Banking does have an important role to play in facilitating investment but at the moment this role has been largely perverted. 

The Housing Bubble

The housing bubble is still with us and is politically very difficult to remove. The government in the UK has chosen not to allow the free market to deal with it but in order to maintain popularity it has lowered interest rates and promoted inflation.

The Credit Crunch

The credit crunch is largely over as I write in 2013 through quantitative easing of one form or another which has lead to inflation in countries where money was given or loaned indefinitely by central banks and has lead to stability where the money was only loaned by the central bank such as the European Central Bank.

The US has made every attempt to demote the Euro against the USD but that propaganda campaign is now largely over. Key figures that protected Europian interests have been removed, Strauss Kahn, Jean-Claude Trichet and they did try to remove Christine Lagarde but that attempt failed. We now have people with Goldman Sachs connections in high places in Greece, Italy and the ECB.
The Independent: What price the new democracy? Goldman Sachs conquers Europe
To what extent their loyalty to Europe will override their loyalty to Goldman Sachs is not clear. Another moral hazard.

The New Un-working Classes

Employment of the key questions that remains is the huge amount of imports from China and the lack of manufacturing in the West with key exceptions in high technology and car production. However we currently have little use for unskilled labour. The real working classes have become the un-working classes who are seriously undercut by the Chinese working classes in all forms of production that can be effectively done abroad.

In order to mitigate this problem the government in the UK has supported the move in to white collar jobs leading to a surplus of lawyers and the like touting for business, social workers looking for reasons to move children about, and health and safety inspectors many of whom do not understand that 2 foot of water isn't "Deep Water".

© Tom de Havas 2011. The information under this section is my own work it may be reproduced without modification but must include this notice.

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