Economics at West Indies College

It was during my time at West Indies College in the late 1970’s I fell in love with economics, especially macroeconomics. My tutor was Miss Edna Parchment (affectionately known as Miss P.)

She had a way with the subject that I connected with straight away and one book that she recommended changed my viewpoint on the subject, Economics by P. Samuelson.

How many of us really pay attention to the financial and economic news around us? This current economic crisis is being played out right in front of us; it’s like being at the front seat of a boxing fight. What makes this crisis so different from others is that we have no “play book” to refer to we are in unchartered waters. Who could believe last September we witnessed the near collapse of the world’s banking system, Lehman Brothers, the fall out of AIG and the trillions of dollars being pumped into the system to keep our way of life alive. It was my grounding in Miss P’s classes that I could understand and comment as to the events around me. We have a duty to understand finances and not just bury our heads and hope for the best. Many people have lost fortunes and through desperation have killed themselves rather than face up to financial ruin.

Jamaica in the 1970’s and 1980’s had a rollercoaster of a ride with Balance of payments deficits, currency devaluations, IMF agreements added to this a brain drain as some of the best minds took refuge abroad. Put simply that period of time was my economics lessons the real world Jamaica style.

President Obama advised the American people whilst in California he would be making some tough economic choices, however he encouraged them to attend town hall meetings, engage him through the internet and challenge his policies, we should therefore not be surprised when unpopular choices are made if we have not at least raised concern to these choices.

I don’t have a gift where I can see the future but at some stage paper money (Fiat Money) will basically have little value as inflation erodes the value of our currencies be it Dollars, Pounds, Yen, or Euro. Try and move some cash into precious metals such as Gold, and silver for these my friends cannot be replicated by man, they can’t be printed like Dollars and pounds. Look back in history and remember where we have an expansion of the money supply we have inflation. However what is being stored up for the future will probably be like no other inflationary period we have witnessed. The UK government through the Bank of England are prepared to print £150 billion pounds of which £75 billion is about to go into circulation via the banks. The US has also been using the printing press creating in excess of $1,500 billion dollars as of Jan 2009. So you see once the Gold Standard was abolished in 1971 paper money creation has to kept under tight control, its not if but when will this almighty inflationary bubble burst.

Because the banks are not lending the idea by central banks is to create enough money for banks to recapitalize and any excess to loan to the wider economic community, however as I mentioned before the banks are in denial some are in very bad shape. Fix the banks and you go some way in fixing the problems in the economy.

Growing up as a teenager in Jamaica in the late 1970’s taught me a valuable lesson. I was a student at the then called West Indies College and having come from England saw things different. Having grown up in a society where I was spoilt for choice as to what I could eat, access to technology and a very good transportation system lets say I was not ready for life in the Caribbean or as the Western world called it the 3rd world. Jamaica was going through a painful time both politically and economically but what grabbed me most was the resourcefulness and ingenuity of Jamaicans, led by the popular phase “Tun your hand mek fashion” So you may be saying Eric get to the point, ok the point is in today’s terrible economic downturn more and more Americans are discovering the inner resourcefulness within. It’s called the Do It Yourself (DIY) economy; cars are kept longer and not being replaced in fact the car parts industry has been reporting record sales as more and more owners now repair their own cars. Michelle Obama has started “the grow your own food” trend, and we hear of countless other stories as we face the harsh realties of this recession. One area Jamaica needs to look at is Honey production, with entire bee colonies being wiped out in America and around the world this has never been a better time to become in the industry. The US FDA dumped 200 million tons of tainted honey from China into the pacific ocean so you can see the potential for the honey export market.

With the gains in the financial sector being lost due to Bank of America’s $25 billion dollar provision for bad debt we need to understand just how fragile the banks are. The IMF just reported in its Global Financial Stability report that banks globally have lost in excess of $4,100billion dollars they are urging governments to take “bolder steps” to shore up institutions – including nationalizing them where necessary. This could be a problem for President Obama who has come under a bit of pressure lately for the bailout policy he is overseeing. Business journalism is a tough area but we should do more to understand the financial markets and trends.

One sector in denial is the banking sector; yes Bank of America made a provision for $25billion but why? Well unemployment is still rising and people will default on mortgages, car loans and credit cards. What they won’t admit is that the whole sector is being held together by TARP and tax payers’ money the banks in reality are insolvent we won’t be seeing any major recovery for years. They need trillions of dollars of Recapitalization money and are still sitting on trillions of dollars of “Toxic assets” however if Tim Geithner gets his way soon the banks will be dumping them on the poor tax payer in return for more government and private money. The only loser is the tax payer hoping that these bad assets will one day make some kind of profit.

The UK has its budget tomorrow April 22nd and already Chancellor Darling has a provision for £50 billion pounds due to government involvement in 5 failed banking institutions. The worry is that this will rise to £200 billion by 2011 a staggering 13.7% of UK GDP it just goes to show how heavily leveraged the UK is with debt. The debt covers consumer, company and government debt; sorry my friends’ things seem to be getting worse.

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