system two

system two
start-up thinking in the enterprise

Saturday, 22 August 2009

This is a rich man's recession....

In a post recessionary environment, the interests of the rich and the middle class often align, on one critical issue - inflation.

Both tacitly accept an inflationary environment on the basis that creating real value is never going to be a realistic way of jump starting a stalled economy (it rarely is in the boom years so it sure as shit ain't going to work when the power's out!).

Inflation becomes the lesser of 2 evils.

But this time things are different. For the first time, pretty much since the emergence of a middle class, they have no savings. They have less to lose in a hyper inflationary environment.

Money in the past that was squirreled away (and then partially eroded by a prolonged period of inflation) simply isn't there. Those rainy day stores our parents or grandparents might have had, have long been spent on foreign holidays, school fees and new bathrooms. Forget the pension crisis of people like me in their mid 30s. Its the near future I'm worried about!

Without savings a shift occurs. The interests of the middle class become decoupled from those of the rich. Inflation is the friend of the indebted and will be greeted as such this time, not just by the poor, but by the middle classes as well.

Frankly, the middling classes have little to lose. The school systems in the funky urban hotspots they moved to, turn out to be zoos and as unemployment rises, the crime rate ain't looking too pretty either. We're not going anywhere. We may as make the debt we're in smaller....

My prediction is by caging their demands in altruistic terms, morally insulated from the cries of feathering their own nests, we'll see middle class commentators increasingly calling for hikes in interest rates to be postponed.

Unfortunately - the rich, who at least finished this crisis off, are likely to avoid a long overdue comeuppance - they have little political mandate to counter this drive - but their money is mobile - we may well see the effects of a downturn magnified as they move what's left of their capital east.

At the very least, we must assume an inflationary environment in the west is not an impossibility now.

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