Turmoil in Europe

The current crisis in Europe should not take us by surprise, I have been stating for some time now that the investors have too optimistic a view of the recovery.  When you experience the type of financial meltdown that the world experienced recently, then the process of recovery will be slow.  In any recovery there will always be casualties, we should not be surprised if some countries default on their debt obligations because the crisis affects some countries worse than others.  I have been viewing the recovery in the world’s stock exchanges and I am seeing prices that are as high as or higher than they were two years ago before the crisis began. 

The market expectations are too optimistic and people’s outlook need to be tempered by good sense.  Yes, the situation has improved but we are a long way from being out of the problem and we will never return to the previous situation because that situation was based on profits that did not exist.  It is time to accept lower rates of return and slower growth in the world’s economies.

The crisis in Europe has been sparked by the huge stimulus packages that were granted in Europe along with the many years of budget deficits.  Sooner or later it always catches up with you, the basic philosophy is that one should not spend more than what one earns. 

When a country is heavily indebted it becomes a slave to the parties to whom it owes money.  These parties can effectively bankrupt and destroy your economy by setting the rates for new borrowings or by refusing to lend the country money.  This message has been lost on the leader of the opposition Mrs. Portia Simpson-Miller. 

During the debate she argued that the Prime minister should have borrowed more money and used it to stimulate the economy.  I believe that what we are seeing happening in the world’s economies proves that this is not the way to achieve growth.  Real growth can only come from production not from spending what you do not have.

The message is clear, if we want to see Jamaica move forward we will have to balance our budget and generate real growth in the economy.  There is simply no other way!

Tags: Carl Wilson