By Alec Hogg
It has taken eight years to manifest, but we can finally identify the true cost of Quantitative Easing. A bit too early to call it a New World Order. But without doubt the developed world is witnessing a populist revolution.
To recap, developed nations reacted to the Global Financial Crisis by turning on their printing presses, creating money at a rate unmatched since the Weimar Republic. At the outset many fretted about the consequences. Rational thought says it is impossible to create value out of nothing.
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Yet as the world escaped what had been predicted by the 2008 version of Project Fear pundits they started relaxing. Sure, QE had rocketed Government debt into the stratosphere. But with super-low and even negative interest rates, servicing those borrowings presented no great hardship. At least not while the can could still be kicked down the road.
Somehow the true consequences of policies that created money out of thin air got lost in an echo-chamber of self-congratulation. The only thing that seemed important was how the world had dodged a 1930s Depression type bullet.
With hindsight, it is now rather obvious that money created by QE did little at the level where it was really needed. It was channelled into and ended up in the financial rather than real economy.
Predictably, this flood of artificially-created cash drove asset prices ever higher, benefitting an already rich elite. Little found its way into productive, long-term investments.
And QE also further skewed the globalisation-driven advantage of the one major economy where state-sponsored fixed investment continued apace. China was the big winner, with this advantage supported by its hard-working, recently poverty-stricken populace that was deeply imbued with a savings culture.
Again, looking back, it’s easy to look outside of China and the elites, and see there were few other beneficiaries of the QE cash splurge. Even though growing income inequality warning flags were waved, pundits dismissed this as they often do the intellectual capabilities of common folk.
Indeed, it was the rank and file of society who nailed the cost of QE long before it became apparent to others. Because it was them who were at the sharp end of it. They were the ones paying the heavy price.
Youth unemployment has hit 50% in a number of countries, a scourge that’s exacerbated in the developing world. And in those nations where youth unemployment appears almost reasonable, that is often because graduates have accepted menial jobs like flipping burgers rather than doing what they are qualified for; or have simply given up looking hence eliminated in the statistics.
Viewed from that perspective, recent events are a lot easier to understand.
Brexit was a vote against both the elites and globalisation – twin demons personified by the super bureaucracy of the European Union perceived by many Brits as an expensive talk shop that has never managed to anything done.
Donald Trump’s election provided momentum to the populist revolution. We can expect it to accelerate further in Italy on Sunday. The country’s forthright young Prime Minister Matteo Renzi has called for changes in the Italian Constitution to give him the tools to reform an economy which has been in recession for five of the last eight years. But the Referendum has become a de facto vote on whether Italy should follow the UK out of the European Union.
The Netherlands is likely to be the next EU domino with its General Election set for March 15 next year and the Eurosceptics look likely to win. And just over a month later, April 23, is the French Presidential election where the political establishment is hoping to turn the tide by pitching hard line right winger Francois Fillon against the ultra-right wing’s Marine Le Pen. That too may not prevent another big name leaving the EU.
What does that all of this mean for Sunny South Africa?
As mentioned in yesterday’s Worldview, Russian President Vladimir Putin is now playing a key role in this global transformation. Having shored up his position at home through a succession of winning elections driven by unrelenting propaganda, Putin is now exercising his muscle on the world stage.
Whatever his other failings, the Russian President is fiercely loyal to his friends. Among them SA President Jacob Zuma. Provided he stands by a promise to deliver Russia a R1 trillion nuclear power project, Zuma will be able to count on Putin’s considerable support.
But you have to also wonder whether that will be enough for an increasingly isolated and dictatorial President. Events of the past few days show us a Zuma who has dispensed with the niceties of democracy to embrace full-blown dictatorship. He has been aided by an ANC power structure which allows him to use State resources to feed those he needs to.
That looks pretty bleak for a young democracy whose centre has struggled valiantly. And its protagonists will be encouraged by the reality that the biggest challenge for any dictatorship is keeping the general populace peaceful.
Doing so requires a growing economy. Or massive injections of financial support. Or the myth that suffering stems not from poor policies but external interventions driven by cruel manipulators.
South Africa, like the rest of the world, is hosting a battle of ideas. And like everywhere else, the victors will be those who respect the common folk. As recent events emphasise, one should never under-estimate the intelligence of ordinary people once they’ve been properly informed.
