Austerity in the midst of financial abundance

| March 5, 2018

Social contributor – Dickson Igwe

Physical and economic recovery for the Virgin Islands, post the natural disasters of September 2017, requires a fitting of the country’s economic restorative models into the molds of the twin western economic cultures of stimulus and austerity.

The western world is overflowing with cash. This is a consequence of quantitative easing, and monetary stimulus, combined with fearful and debt laden consumers. This excess cash, brought about by the convergence of the preceding factors, should have been good for these Virgin Islands. The territory requires billions of dollars in stimulus to rebuild, recover, and develop, after a September 2017 disaster and tragedy.

However that global ocean of cash is unavailable for recovery for the present, so it appears. Why? Because of 4 factors: first, the UK and mother country is an economically austere social culture. Second, the UK, despite being a very wealthy developed country is a frugal society that frowns upon ostentation and extravagance. Then, three, the UK governs the Virgin Island’s financial management, albeit remotely and indirectly.

The Fourth factor is well understood. For years people in the territory have called for full transparency and accountability in the political culture. This never happened. Secrecy in high places, over the past 20 years, is part of the governing culture of the Virgin Islands.

But, had there been a culture of transparency and accountability, then maybe, key global stakeholders and investors would have been much more willing to offer the territory the billions of dollars required for a full and swift recovery post Irma and Maria.

Investors like transparency and accountability as this eases their concerns over how their assets are managed. One click of the mouse offers them easy access to important charts, indexes, and reports on matters governing their investments. This is impossible in an opaque and non transparent culture.

OK…One of the recent paradoxes in economics is that Stimulus saved the world from depression after 2009. However, the Stimulus period was short lived. After economic growth driven by stimulus was restored- albeit it was very weak growth- and the world saved from a terrible depression, the love affair with austerity was too ‘’hot’’ to ignore. In Europe Austerity was ‘’sexy.’’ Austerity even became ‘’cool.’’ Stimulus was abandoned.

The beautiful Road Town, British Virgin Islands. Photo courtesy

But Austerity was the ‘’last thing’’ the global economy needed after the financial crisis of 2007-2009. So, the gains from stimulus were reversed. Consumer demand which was already weak before western governments intervened to stop a depression began to decline once more. The result was a further decade of economic stagnation, especially in the UK.

Deflation meant that products and services remained on shelves. The world was awash with cash that sat in banks seeking borrowers who were reluctant to take on new debt. Consumer demand contracted. Prices refused to move upwards. Controlled inflation is a sign of satisfactory economic growth.

In the USA and UK working class voters were pummeled further by automation, robotics, and the wholesale export of manufacturing to South Asian shores. The way was made for Donald Trump and Brexit. This was ironic, as both developments, economists argue, are not good for low paid workers in both countries.

Now, at the start of the stimulus program of 2009, and in order to stave off a global depression, central banks in the western world created money out of thin ear to stimulate spending and growth. Central banks are very powerful financial organizations backed by superpower hegemony. Superpowers such as the USA have the ability to create money at will. The reason is investor confidence. The US may be in debt to the tune of 20 trillion dollars with huge annual deficits of half a trillion.

However, global investors still view the US as a safe haven owing to its military clout, an insular geography, a value system that protects private property and that values free enterprise. Consequently the US dollar remains the supreme global currency. US instruments, treasury bonds, and financial assets, are thought to be a safe bet in a very unsafe and unpredictable world.

And central banks hold huge sway over the global economy. They can influence economic trends such as inflation and economic growth by their financial activities. For example, what the Federal Reserve in Washington DC decides can impact these Virgin Islands and the wider Caribbean in terms of economic growth and the cost of borrowing.

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Category: African Caribbean, Culture & Society

About the Author (Author Profile)

Dickson Igwe is an education official in the Virgin Islands. He is also a national sea safety instructor. He writes a national column across media and has authored a story book on the Caribbean: ‘The Adventures of a West Indian Villager’. Dickson is focused on economics articles, and he believes economics holds the answer to the full economic and social development of the Caribbean. He is of both West African and Caribbean heritage. Dickson is married with one son.

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