Great Depression 2.0 …and how it has exposed western hypocrisy

February 4, 2009

As the dust surrounding the global financial crisis settles, 19 million houses stand repossessed–in the US alone (with bank losses amounting to a trillion dollars to show for it!). We have witnessed total collapse of an entire country–Iceland due to the crisis. Unemployment rates in the rich world are at an all time high.  Spending and production are low. The overall gloom is nothing like the world has seen since the 1930s. ‘Recession’ is the euphemism used everywhere, but deep down we know better than that. It’s a full scale crisis. A ‘Depression’ it is. Yet no simple solutions can be foreseen.

Frantic efforts by rich-world governments to stay afloat have included lowering of interest rates and provision of fiscal stimulus. Desperate voices are even calling for nationalisation of banks (So much for liberalisation!).

That’s all good. Until you are reminded about the advice given to Asian countries during their financial crisis a decade ago. At an IMF meet in 1997, Malaysia’s then leader Dr Mahathir Mohamed had blamed their situation on speculation and shortselling. He blamed deregulation but was dismissed as ignorant. The IMF chief, then Michel Camdesus, had disputed this and argued that speculation was normal in free markets. The west had instead blamed the crisis on poor management, cronysm and corruption. They prescribed raising of interest rates to counter inflation and attract investment. The unexpected result was a full recession and dampened investor confidence. Contrarywise, when the US, Britain and other rich countries now find themselves in a similar situation, they have banned shortselling of financial stocks. And that with current IMF chief Dominique Strauss-Kahn’s blessing! While the Asian nations were forbidden from assisting failing companies and banks with claims that that was a waste of money, the same western countries are falling over themselves in offering capital injections as they purchase banks’ toxic asset/loans and guarantees for new unsecured loans!

Talk of double standards!

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