INTERNATIONAL. I have travelled to 16 different countries over the past year. They are all very different, with different systems, starting points and cultures, but they all share the same burden of inequality. I realised that the real loser since the financial crisis began in 2008 has been the middle class.
Its purchasing power has been diluted through higher energy prices, higher commodity prices and a lack of pricing for labour, and debased through the global printing of money. Since 1980 – and particularly over the past three years - we have leveraged more and more, and policy makers have lowered the cost of capital to finance this. Now we are at a zero percent interest rate and over-leveraged. The problem is real!
The politicians love to print money, as it is off-budget, off-balance sheet and most importantly off accountability for them. The central banks are effectively performing the dirty job of crisis management in stealth mode while politicians continues to play a blame game which at best is entertaining and at worst makes the politicians look as if they lack any sense of reality.
The surprise element comes from the lack of understanding on how we today globally only have markets, credit and to a large extent growth through public intervention. The animal spirit has been killed and replaced by the false premise that if we did not intervene the world would be in worse shape.
Tell that to Main Street and to the unemployed across Europe. From where they sit, the world is in worse shape than in 2008, which was confirmed by a new record for Eurozone unemployment this week of 10.7 percent.
Pundits will have you know that we are witnessing capitalism and the free market running amok. Where? There is not a single market working according to capitalistic rules.
European markets are only functioning through intervention from governments. Governments and public sectors at large are now well in excess of 50 percent of GDP in all major global economies including Germany, the US, and certainly Russia and China.
The main policy response in this time of crisis remains one of buying time. This solution will not last however; it will only make social inequality more severe.
The source of income and wealth equality is an equal right to capital and to work. Currently the only parties with free access to capital are overburdened banks and governments. Simply put, governments are eating an ever increasing slice of the pie, leaving only crumbs behind for private capital.
Sadly, this is not just a question of the crowding out of private capital. Governments are terrible allocators of resources, prices and values. Only a freely functioning market can allocate properly. We are witnessing this truth right now: in today’s world the Keynesian model based on “state intervention” mixed with semi-controlled marketplaces is failing enormously.
Ironically, pundits have dubbed the current crisis the running amok of capitalism. I would argue that we are witnessing governments and politicians running amok.
Today’s world has record-high private savings and record public sector dis-saving. From an economic point of view the solution is simple: Get private capital involved instead of increasing taxes and discouraging risk taking/seeking through regulations, which further restrict markets.
Private capital is not only being crowded out by public capital, but new measures are forcing private capital even further away. This is a catastrophic path to follow. We must invest in education, secure free markets, competition and long-term tri-party agreements on education, salary and working hours. This is the path towards more equality.
About Steen Jakobsen
Steen Jakobsen was appointed to the position of Saxo Bank’s Chief Economist in March 2011.Mr. Jakobsen returned to the Bank after two years’ absence. During that time he has been Chief Investment Officer for Limus Capital Partners. Prior to his departure in early 2009, Mr. Jakobsen was with Saxo Bank for almost nine years as Chief Investment Officer.
Mr. Jakobsen has more than 20+ years of experience within the fields of proprietary trading and alternative investment. In 1989, after finishing his studies in Economics at Copenhagen University, he started his career at Citibank N.A. Copenhagen from where he moved to Hafnia Merchant Bank as Director, Head of Sales and Options.
In 1992, he joined Chase Manhattan in London as VP, Head of Scandinavian Sales, and then the Chase Manhattan Proprietary Trading Group. 1995-1997 he worked as a Proprietary Trader and Head of Flow Desk at Swiss Bank Corp., London. In 1997, he became Global Head of Trading, FX and Options at Christiania (now Nordea) in New York until he joined UBS in New York in 1999 as the Executive Director in the Global Proprietary Trading Group.
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