THE GREAT RECESSION OF 2008?
By Craig Butler
Tuesday, September 23, 2008.
I know what you must be thinking. 'The new normal', what in heaven’s name is he talking about? Well, the other day I was in Florida listening to talk radio.
There was a director from the International Monetary Fund, an economics professor, and a few others. They were talking about the global economy and what the future holds. The professor was the one who used the ‘new normal’ phrase, and he did so in reference to the high prices that we are experiencing worldwide.
He said that, as he did not expect a significant strengthening of the dollar any time soon; coupled with the fact that the price of oil was likely to remain high and the war in Iraq was ongoing, he believed that the current high prices are going to be the norm.
Most of the panelists agreed that some experts have given folks a false sense of security by suggesting that prices will come back down once the price of oil drops. But all on the panel were of the view that the price of oil will never again be under $90 to $100 per barrel.
This was partly based on the weak dollar and partly on our dependency on fossil fuels and the lack of resolve shown by politicians to fully develop alternatives. They also noted that the oil lobby was one of the most powerful in Washington, which was a leading factor in the stalled development of renewable energy.
And the price of breadbasket items and other basics has not been helped by climatic change, which has led to falls in wheat and rice production over the last few years. Add to this the diversion of corn for use as a fuel (ethanol), and we have the new normal.
My views tend to be conservative so my first reaction was that these are some leftwing liberal nuts talking. However, on reflection much of what was said is correct.
Why should we expect to see a reduction in the price of oil? Producers are making so much money it's not realistic to think they would relinquish that. And the high price affects so many other industries that have had to pass on these increases to the consumer. Just look at the airlines. And all the solutions being put forward to wean us off our dependency on oil will take at least five years to have any kind of impact.
The panel went on to say that there will be a widening of the income gap - something we are already seeing in the Bahamas. Many people who I know in the middle class are struggling so much that they can now be classified as the working poor.
I say that because they are now living from pay cheque to pay cheque. All their savings have been depleted; and things that they once could afford are out of the question now.
Think about it - how many of the people you know around you have their houses in foreclosure; have lost their car to the bank; have had to take their children out of private school; or have been unable to take a vacation this year?
Look in the newspaper this week and I’m sure one of the leading commercial banks will have a double page ad featuring distressed properties. The other week two banks had ads back to back.
I have written before about misguided priorities and how, despite all that is going on, we still prefer the materialistic rather than seek what is important.
I remember from my youth a song by Eddie Minnis called the ‘Finance Man’. I loved that song, and the words to one of the verses bears repeating: ‘See him there he poor as me and you but he driving round in Malibu. His car sleeps in the road at night, Lord you know that just ain’t right, He is living in the hands of the finance man…’
I apologize to brother Eddie if I did the lyrics an injustice. But it demonstrates how we have lived on credit for a long time. We have maintained a lifestyle well beyond our means without a thought as to what might happen in hard times.
As a lawyer I can see first hand what has happened to many in the middle class. You see, it was important for them to have the grand house with the two European cars parked in the garage, kids in the best schools and all the trappings that went along with it. And I will be the first to say that there is nothing wrong with wanting to attain your desires.
However, the bank loans were in many instances predicated on both the husband and wife maintaining $50,000 a year salaries, as well as some creative financing to help the couple get the loan.
Now that many offshore companies have closed or downsized, one of those pay cheques has disappeared and so has the dream, because the severance package is not going to last long and there is a distinct shortage of similar jobs available.
So what we are facing here is now being experienced all over the world. The radio panel noted that there will have to be a reclassification of the status of many people as the poor are going to be poorer, the middle class are going to be the new poor and only the very rich will be able to sustain themselves.
Dark days are ahead, and this means we need our politicians to get their collective heads out of their rear ends and devise a comprehensive plan for the next 25 years that takes all of the current factors into consideration and ensures our viability.
But there I go dreaming again - most of the time they can hardly get out of their own way let alone see past the next general election. So lets wait for the eventual anarchy that is to follow.
Craig Butler studied law at the University of Wolverhampton, England, and at the Norman Manley Law School in Jamaica. He also has a degree in economics from Rollins College in Florida. Mr Butler's column runs in the Nassau Guardian, the Bahamas, on Mondays and he also hosts a weekly political talk show on Bahamas' Island FM.
He is the grandson of Sir Milo Butler, the first governor-general of an independent Bahamas. He blogs at Bahamapundit and can be reached at email@example.com.
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