Published on The Malta Independent¸ Sunday 11th September 2011
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The past weeks have seen a negative sentiment in shares around the world¸ with stock markets enduring falls of a magnitude not seen since the global financial crisis of 2007-8 so is the recent Obama job plan a desperate ploy or the elixir that US badly needs to revive it’s economy? It looks very much a political step by a president who shall be facing a tough job to secure a re-election next year. Drawing a parallel with what is being proposed by President Obama to our own political scene one may be tempted to recall the last two years of KMB regime in the late eighties. True that the percentage of registered unemployed in US at 9% was not much higher than what KMB was then facing. KMB change of tact in pursing a Keynesian philosophy to spend vast sums to upgrade the ailing infrastructure did not result in the Labour party winning re-election .But the number of workers on the dole diminished ( not to mention the abrupt employment of thousands within the government departments and state controlled agencies ). So can we say that the recent Obama scheme to put the millions of unemployed back to work on vast US public projects a tried and tested or a worn out solution?
The Republicans who oppose it say it is blessed with temporary economic benefits but does not solve the underlying problem of a dysfunctional economy. Still something has to give and for the worker who has a family and a mortgage to support anything will do whether it is a permanent job or a stop gap solution. Given the worsening jobs outlook this has forced President Barack Obama to announce a bold $450 billion jobs package before a joint session of Congress. Will this idea work if implemented across Europe? One cannot pontificate on it’s merits given the opposing theory in Eurozone of cutting public debt through austerity measures which in part is crippling the patient and making recovery more painful. Another US measure to address the deficit is to sue the banks for their alleged involvement in the sub-prime scandal which many believe has triggered the global recession. Can the perpetrators of such profligate bank speculation in shoddy mortgage bonds be called to account? Banks face the prospect of being sued by US government mortgage agencies for mis-selling home loans during the housing boom.
Typically we read in the Financial Times how Deutsch Bank headed a list of banks being investigated in the Serious Fraud Office for similar mis-selling in the UK. Only lately the market saw shares Royal Bank of Scotland fall by12.3%¸ Deutsch Bank 8.9% and Societe Generale 8.6%.and it is no surprise ( with exception of Malta banks ) that major banks in the US and Europe have lost about half of their value over the last six months. Quoting Deutsch Bank’s outgoing chief executive¸ Josef Ackermann¸ he said that some European banks would go bust if they were forced to recognise in their accounts the existing losses on government debts they hold. As an example French banks have come under particular pressure as they hold more than 40bn Euros of dubious Greek bonds.
What is more¸ Brussels is taking an active role because a meltdown of the euro zone as a whole would be unbelievably scary and usher in a double dip recession. The crisis affecting the 17 countries that use the euro has created a political vacuum at the heart of Europe which has taken a further beating due to the troubles in Middle East and North Africa. Investors are also worried that growth in the US