Double Dip Recession?

Global stock markets take a nosedive again and its reported to be the worst for over two years or since the banking crisis of October 2008. The blame is apportioned to the European debt crisis and the faltering US economy. May it also just be an economic reality of modern  stock market  manipulation?

Over recent weeks price of gold has surged, and many companies have announced massive profits.  Share prices have also been steadily going up and the markets have been bullish. There are rumours from the investment world that hedge funders have sold heavily to make a quick return on their recent investments.  No fear, therefore, that they will be buying cheap again soon with a view to the next recessive dip when they take their profits.

Whether it is the European debt crisis and the faltering US economy or the hedge funders, the global governments are following economic policies that are bound to inhibit economic growth. In a time of excessive economic growth and increased affluence among the lower and middle earners this type of policy may be appropriate to stop the economic bubble from bursting.  However, in a time of recession this type of policy is wholly inappropriate. It will not only retain the current recession but also promote further dips along the way. The few rich will get richer and the majority low and middle earners will become poorer.

The policy must change and governments must take control of the situation.  Quantitative easing in real terms needs to be applied and spending power for the majority must be facilitated to promote growth. State expenditure must grow instead of being retracted. The State should be investing more in public services and at this moment in time we need big States instead of big societies. The private sector must also be helped to invest more through government support. Mr Gordon Brown, former Prime Minister of the UK was nearer the mark than what is currently happening.

What is needed is spending power for the vast majority instead of the few. For every dollar spent by the few rich people, at least a, million is spent by the majority lower/middle income earners; but they have to have it to spend it.  They are the people who keep the wheels of industry turning by working in it and buying from it. The others just oil the wheels.

What needs to be done, therefore, are tax incentives for the lower and middle earners and a reduction in value added tax for everyone, rich an poor, to promote spending.  What is needed is not a reduction in spending but an increase.  This was evidenced by the last British Government's reduction in VAT to 15%; the economy was actually growing in Britain.  The current Government policy has actually reversed that trend and the next set of figures are likely to show a negative growth factor. Wages also need to be going up to promote spending and fall when the economy starts to boom.  These can be achieved by increased government borrowings during this period of recession.

The economic policy must be reversed.  In times of recession we need higher wages and lower taxes and in times of  economic boom we need lower wages and higher taxes, and not vice versa. By doing so we shall prevent this continuous boom and bust trend.

Good Bye and Good Luck until the next time.

Knight Owl