Recession in the US is spreading worldwide, despite talks of "de-coupling," and other vague terms to camouflage the reality. What is stagflation? The word 'stagflation' was coined to describe the combination of rising prices with declining growth. It happened in the 1970s.
The price for oil heads the list of factors causing inflation every where. Food is next, but for the teeming millions of humanity, that is the single most painful of all. Spectres of deaths due to starvation or malnutrition, food riots, ugly demonstrations in most African and Asian lands (home to more than 60 percent of the world's population), South America, and even some slums and ghettos in Europe and North America, are a nightmare haunting the administrations everywhere.
World Bank (WB), FAO, bankers, agriculturists and economists, unanimously predict a return of the Great Depression of the 1930s. The IMF, in its World Economic Outlook, has lowered its previous forecasts of global economic growth. 'Risks to the global projection are tilted to the down side, especially those related to the possibility of a full blown credit crunch". The dislocation, which began last August, was "the largest financial shock since the Great Depression".
In the words of the Managing Director of IMF, Dominique Strauss-Kahn, 'there was only limited time to repair the financial system'. There are points of difference between the Great Depression and the position now. In the late twenties, US stock prices were high and rising, and then the bubble burst. The stock market in New York plunged on October 21, 1929, and it was not to regain its previous level until 15 years later. The crash was triggered by an Englishman, a financial crook, who sold fraudulent stocks and was caught, leading to several bank failures in England and across the Atlantic, and the entire financial world collapsed.
Sounds familiar? The last eight months have witnessed enough bank failures or near-collapse (propped only by massive government intervention), fresh in the memory of every knowledgeable person, to need a recount. In the context of Pakistan, the Stock Exchanges are soaring high. Is the bubble about to burst?
In the twenties, Wall Street banks floated new investment trusts that often invested in each other. This was known as 'pig on pork'. Then the prices fell and caused the crash. Now the prices are rising beyond the reach of common men for food and other essentials, and inflation is high with no end in sight. Speculators and "wealth funds" are cornering the commodities market, raising the prices to eerie heights.
FOOD SHORTAGES ARE CAUSED BY:
(i) Scarcity of water and drought conditions,
(ii) farm-land usurped for house building for a burgeoning population,
(iii) food crops replaced by bio-fuels on arable land,
(iv) change in patterns of eating habits, particularly China and India, leading to extra consumption,
(v) cereals and grains required for animal and poultry feed diverted to other uses (mainly bio-fuels), leading to shortage of milk products and meat, and;
(vi) extra costs of transportation and distribution of food items, due to rising oil prices, and so on.
Thus, inflation is a contagion that is spreading and afflicting all spheres of human consumption and endeavour.
The tragedy in Pakistan, contrary to most other countries, is that the low-income groups do not get an automatic raise in wages and salaries commensurate with the cost of living. The rising food costs deprive the sick of medical treatment, the children of nutrition and educational opportunities, the wage earners of the tranquillity necessary for optimum performance and output. Thus a vicious circle spreads, engulfing the entire middle and lower class citizens, with no hope for a better future. The frustration leads to anti-social behaviours, violence, or suicide.
Deaths due to starvation and famine conditions are a familiar phenomenon in the least developed or developed world.
THIS DEPRIVATION LEADS TO:
families selling their possessions to feed hungry mouths, followed by fall in housing prices (in some cases) and a static housing and construction industry, laying-off of workers, high unemployment, increase in street crimes, arson, and looting, failure of banks and insurance companies and a recession over shadowing the entire spectrum of trade, industry and services.
Such a gloomy picture is not palatable to the new arrivals in the administration. They simply blame the previous governments for every ill afflicting the body politic. Of course, that is not the answer to the problems facing the nation, and unless positive action is immediately initiated, it may be too late for quite a few.
Constraints such as falling revenues, increasing expenditure and rising imports and falling exports notwithstanding, the government is required to focus on water, power, gas supplies, food (wheat, rice, sugar, milk, cooking oil, meat, vegetables, fruits etc-etc), health and educational services, law and order situation, unemployment, and a host of others without any loss of time. Merely blaming others is not the answer.