1800’s
In the middle of the nineteenth century, the term ‘economics’ was given to the various studies of the use of human resources and money. At the time many of these studies were undertaken by individuals who had an interest in a particular event and were helped by the fact that they were living in a time when people and governments were measuring everything. Indeed some of the early works of inspiration in the field of economics were undertaken before the collective term had gained common usage.
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Great Depression
Prior to the Great Depression the economy was not always considered to be a responsibility of government. After the Great Depression, economic management was almost universally a government responsibility. In effect, under pressure from their citizens, governments took on a responsibility for avoiding something that they did not know the cause of.
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Post War
After the conclusion of the Second World War the world economy experienced an unprecedented level of growth for nearly three decades. So much so that at the beginning of the 1970’s economists and governments believed that they could manage the economy through a natural rhythm of boom and bust using Keynesian economic principles. By the mid 1970’s this was no longer true – many national economies all over the world were in disarray.
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Floating Currency
In the 1970’s Richard Nixon, floated the US dollar so that the market could decide its value. Other countries soon followed suit. This subsequently allows a government to print as much money as it likes. The only restriction is that the market will determine the relative value of the money. To reduce the temptation of governments to print their way out of debt, most foreign debts of governments are held in another currency. The US dollar is the preferred currency for the vast majority of global trade, even when there is no involvement of the US in the trade. This is why the media constantly refers to the value of the local currencies compared to the US dollar.
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Economic Rationalism
Through the 1980’s the economic focus was on trying to untangle the combination of high inflation and high unemployment. It was a combination that earlier economic theories had said was not possible. High unemployment was thought to be deflationary and subsequently it took some time for various governments to uncover the right combination of government and fiscal policy to address the issue. Unfortunately for more than a decade many countries suffered through the pain of economic rationalism, or as the British would know it Thatcher-ism.
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Japan – Deflation
While the rest of the world was trying to find the key to unlock the combination of high unemployment and high inflation in the 1980’s, Japan provided a beacon of economic hope. It was an economic powerhouse with very low unemployment, high savings and modest inflation. Unfortunately, it was sowing the seeds for what would become two decades of stagnation from 1995. By this time, its finance system was carrying high levels of debts on assets that were over- valued. At the same time the underlying structure of the Japanese economy was shifting, in particular the workers that had dedicated their lives to organisations were reaching retirement. The economic cycle was turning and Japan was only prepared for going straight – so they crashed straight into deflation.
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Asian Financial Crisis
The Asian Financial Crisis was a precursor to the Global Financial Crisis. However there were some fundamental differences. The critical one being that the Wall Street Money Men intentional created the Asian Financial Crisis by using financial tools to wage financial war on sovereign states that were trying to peg their currencies value against the value of other key currencies. That is the sovereign states were trying to provide a constant exchange rate between their own currency and their main trading partners. They had publicly held currency positions, and so they were effectively gambling against the currency traders with an open hand. The currency traders simply kept raising the stakes until the broke the sovereign states. In doing so they also broke the last links between the valuation of money and reality.
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Global Financial Crisis
The global financial crisis was a standoff between the governments that had created the play money, and the financial institutions that were playing with it. The governments blinked first, knowing that to save the money they also had to save the institutions. This is because for most people money is not coins or notes, but ‘numbers at the bank’. So the governments did what they did to protect money as a concept and keep the catalysts of trade functioning. They bailed out the institutions.
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Post Global Financial Crisis
It is interesting to note that in 2008 when the global financial crisis stuck, there was a coordinated global response that resulted in governments bailing out private institutions and taking other measures to ensure financial liquidity. While nobody liked it, everybody knew it needed to be done. In 2010 cracks began to appear in this unity. It was as though everyone in the village had contributed something in response to a disaster and now they wanted their things back – with attitude. A particular favourite around this time was, ‘Why are we making sacrifices when the fat cats that got us into this mess are not even getting punished?’. It was clear that people really did not understand what needed to be done. Certainly each house in the global village took a different approach.
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