A Trembling World, Part Two

 A TREMBLING WORLD
 Part Two

 WEDNESDAYS WITH DR. JOE

In earlier blogs, I have referred to my own fascination with the turning of zeroes, how every fin de siecle results in a fruit basket-upset of all the values by which society lives.

Well, the last eleven years have proved that my assumption remains valid.  Almost nothing is the same as it was back in the 1990’s.

For one thing, never before has our planet been more interconnected, with national borders meaning less than today.  The world wide web has nailed the lid on that old order.  Thanks to this web, dictatorships are falling like so many dominoes in the Middle East.  But what takes their place is anyone’s guess.

Perhaps the supreme question is this: Is democracy possible in the Muslim World?  Or does the theocratic nature of Islam preclude the establishment of a true democracy.  As I write these words, thoughtful Egyptians are extremely apprehensive about what may follow Mubarak.  No one knows if Tunisia is capable of establishing a free society.  The same is true of Libya.  Turkey has been tilting backwards from a secular free society towards theocratic governance.

What we do know is that all across the Middle East there is a yearning for the freedoms we westerners take for granted.

STAGGERING TOWARDS A NEW TEMPLATE

What is coming at us, no one knows.  All we know is that there are ominously deep cracks in the old one.  According to famed economist, Kenneth Rogoff, “Europe and the U.S. are not experiencing a typical recession or even a double-dip Great Recession. That problem can ultimately be corrected with the right mix of conventional policy tools like quantitative easing and massive bailouts.  Rather, the West is going through something much more profound: a second Great Contraction of growth, the first being the period after the Great Depression.  It is a slow-or no-growth waltz that plays out not over months but over many years. [Quoted by Rana Foroohar, in “The Decline and Fall of Europe (and maybe the West),” Time, August 22, 2011].

In the U.S., as elsewhere in the world, what is desperately needed is not politicians but statesmen: men and women who put the good of their country over mere re-election.  In times like these, weakness at the top will inevitably prove fatal.  Not a temporizing Chamberlain but a Washington, a Lincoln, a TR or FDR—a Winston Churchill.  This is why so many current “leaders” are going to be “weighed in the balances and found wanting.” (See William Broyles “Oval Office Appeaser” (Newsweek, Aug. 22, 29, 2011).

Foroohar is anything but optimistic in her analysis: “The euro is the only viable alternative to the dollar as a global reserve currency.  The British pound is history, and emerging-market currencies are still too small, volatile and controlled.  And while plenty of investors are fleeing into gold, the world gold market isn’t big enough to accommodate serious dollar diversification without massive inflation in gold itself. . . .  It is unclear at this stage whether the euro will even survive the debt crisis that has engulfed Europe, one that is in many ways worse than the one we’re experiencing in the U.S.”

So, will Germany be the white horse that rides to Europe’s rescue” Foroohar is doubtful: “Even in good times, it is never easy to balance the fiscal needs of a high-cost exporter like Germany with those of cheap and cheerful service economies like Greece, Spain, and Portugal.  In bad times, it’s impossible.”

What about the U.S., are we likely to be the white horse again like we were after World Wars I and II?  Foroohar’s assessment of that likelihood is bleak: “both Europe and the U.S. will continue to struggle with the crisis of the old order.  Populations will have to come to terms with no longer being able to afford the public services they want.  Investors will have to cope with a world in which AAA assets aren’t what they used to be.  Businesses will deal with stagnating demand, and workers will face flat wages and high unemployment. . . .  It’s the end of an era in which the West and western ideas of how to create prosperity succeeded.  The crisis in Europe and the challenges yet to come on either side of the Atlantic take us into a whole new era.”

So, with Japan still reeling in the East, does that leave China as the answer?  Not likely.  China’s current growth rate of 8% will inevitably stall, and ominously its people are pouring billions into a housing bubble that may be even worse than those experienced by Japan and the U.S. (See Niall Ferguson’s “Gloating China, Hidden Problems,” Newsweek, August 22, 29, 2011).

So what are our options?

Next Wednesday, we’ll discuss some of them.

A Trembling World

A TREMBLING WORLD
Part One

WEDNESDAYS WITH DR. JOE

In early August, our grandson Taylor and our son Greg, joined Connie and me on a whirlwind visit to Spain, France, Monaco, Italy, Vatican City, and Croatia. The day-trips were long (9 – 11 hours the norm for most of them) and the pace far faster than we’d have preferred [more on that in a later blog series].

I had the advantage over the other three in that I knew Spanish. Because of that, I understood some French and two-thirds of the Italian dialogue. Croatian, of course, was a different story.

Connie and I had been to Europe three times before. This time, however, the mood there was radically different from what it had been earlier. Gone was the assumption that united Europe (the Common Market) was a global powerhouse on a par with the United States and (during the 1970s, U.S.S.R.). Not so this time. As one Italian told me, “I am frightened, for the whole world is trembling beneath my feet.”

I found that perception reinforced by others I spoke with. Gone is their erstwhile euphoria and smug complacency; gone too the unspoken assumptions that the entire continent would bask in lolling on their beaches during the entire month of August and that the cradle-to-the-grave care they’d been promised by the state was a given. In their daily news, the dominoes continue to fall: first Greece, then storm clouds gathered over the likes of the U.K., Ireland, Portugal, Spain, Italy—and now, possibly France. No one knows what nation’s economy will come under fire next.

As for the U.S. and our part in the global fiscal mess, I found that, rather than anger they felt disillusioned, accompanied by a profound loss of respect. They clearly expected much more of us than for our administration and Congress to put their possible re-election ahead of the needs of the American people and the world. For it was our inexcusable unwillingness to come together for a solution to our national debt ceiling that has exacerbated and even precipitated the world-wide plunge of stock markets.

In this vein, deeply sobering is Time Magazine’s August 22 cover story: “The Decline and Fall of Europe (And Maybe the West).” It begins with these riveting words: “Its economic union is unraveling, London is ablaze, and the continent’s once dependable trading partner the U.S. is too feeble to save the day or the euro. Say goodbye to the old order.”

Rana Forgohar (the writer of the cover story) postulates that “This is no blip but a crisis of the old order. . . . It is a crisis that is shaking not only markets, jobs and national growth prospects but an entire way of thinking about how the world works–in this case, the assumption that life gets better and opportunities richer for each successive generation in the West.”

Dominic Sandbrook in his “Capitalism in Crisis (London Daily Mail, Aug. 6, 2011) begins his sobering essay with his conclusion: “Eighty years ago, a banking collapse devastated Europe, triggering war. Today, faith in free markets is faltering again. . . . But in the summer of 2011, with the euro zone in chaos, the British economy stagnant and the U.S. crippled by debt, with social mobility at a standstill and millions of ordinary families squeezed until they can barely breathe, it feels disturbingly familiar.”

Sandbrook goes on to point out that not since the global meltdown of the 1930’s has the gap between rich and poor been as great as today; “with bankers still pocketing gigantic bonuses and Europe swept with a wave of austerity, even the Right are beginning to wonder whether the system is intolerably loaded in favour of rich metropolitan elites.”

And what happened next eighty years ago? In Sandbrook’s words: “Many turned to the Right, swelling the rank of the Nazis and their allies. In Britain, a generation of intellectuals turned their backs on capitalism, placing their faith in the utopian idealism of Soviet Communism and closing their eyes to the horrors of Stalin’s barbaric regime.”

In that same issue of the Daily Mail, City Editor Alex Brummer penned these scathing lines: “There has been a terrible failure of politics in America and euroland, where leaders have shied away from bold decisions and the gritty determination needed to follow them through. Those who will suffer the most from this inaction are millions of households in Britain and the rest of the western world, who face dramatic falls in their living standards.”

Truly, we are faced with a global crisis of epic proportions, a subject I have referred to from time to time in earlier blogs: That no global template lasts. Sooner or later it wears out, and something entirely different inevitably follows—usually after years of world-wide trauma and upheaval.

We will continue to explore this subject in next Wednesday’s blog.