Doom and gloom predictions of global economy have been in vogue since the onset of financial crisis. Expressions like double-dip recession, the Great Recession, anaemic growth, two-speed recoveries, and 15-year bear markets, have caught on with economists and non-economists alike.
One recent entry in the mainstream media is German Finance Minister Wolfgang Schaeubles prediction of "seven lean years". "There might well be seven lean years ahead for the world economy," he said while referring to the trade-off between short-term pain and long-term gain as a result of the much-needed fiscal consolidation.
The solution to this seven-lean-years problem could be found in religious scriptures where the Pharaoh appointed Joseph as someone wise and discreet and gave him the power to ensure that yields from the seven-fat-years were best utilised to survive through the next lean years. But is there any Pharaoh to appoint the new-age Joseph? Three-year into the crisis and world is yet to see a leader to steer the global economy away from the shores of fragility. The EU block is in trouble as euro crisis looms; the US economic hegemony and dollar dominancy is being questioned; whereas China, tipped as the next big thing, is shying away from taking a leadership role in global economy. Even if China did try to take up the position, chances are it will face harsh headwinds, given absence of democracy in the country and global political compulsions. Some had pinned hopes on the G20. But to this date, the G20 faces deadlock on a majority of economic decisions; from the failure to commit to a detailed and coordinated programme of tax cuts and spending increases to farm talks aimed at creating a pool of farm data to help curb volatility in food prices. In the meanwhile, rising food prices and consequent populist pressures, are forcing governments to loosen their kitties and provide subsidies - clearly a no-go area for those already laden with debt. In fact, even if there were some kind of leadership to guide through the seven lean years, it would have faced tough times dealing with the current predicament. Unlike the Joseph of the religious scriptures, who benefited from increased savings made in the seven fat years, todays manager faces falling or otherwise unchanged stock-to-use ratios of key commodities (despite rising yields), and reduced level of gross savings as a percentage of output. No wonder everybody is thronging to safe havens like gold and other precious metals. But little do they know, as Nasim Nicholas Taleb, the famed quant trader turned essayist on financial market problem, says, that eventually central banks would come dumping their gold. In times like these, increasing and preserving the harvest might be the only road to salvation.
Comments
Comments are closed for this article.