Occupy till I come

By Graham Brophy in Sydney, Australia

11 November 2011

The word occupy has suddenly come into vogue following the protests on Wall Street, which are now spreading to other parts of the world. The protests are intended to draw attention to the greed that consumes our financial system.

The word occupy reminds me of an old church sign with the words “Occupy till I come.” The words come from a passage from the Bible — part of a parable Jesus told to his followers.

“Occupy” in the biblical text and the call to occupy the streets are not unrelated. A modern translation of this biblical passage is “Put this money to work until I come back."

The protesters on the streets are essentially saying the same thing: By all means gain a return on capital, but those returns should be fair, and opportunities should exist in society for all to share in commensurate rewards.

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The big issue in American society at the moment is unemployment, currently 9.0 per cent, with jobs eliminated through technological change, cheap labour in other countries, and an undervalued currency in China. To make matters worse, the greenback is still regarded as a safe haven for people outside the US to park their money, thereby strengthening the dollar. This in turn, makes imports to the US cheaper and exports more expensive.

In the lead up to the presidential election in 2012, voters are divided on strategies for getting the economy going again and reducing the trade deficit. Democrats want to raise more funds by increasing taxes to support increased services whilst Republicans opt for smaller government and lower taxes.

With interest rates already at very low levels, lowering rates further is not a viable option. Focus has turned to introducing further trade tariffs with the Senate’s October 11 passing of the Currency Exchange Rate Oversight Reform Act by a vote of 63-35. The bill is especially directed at China’s currency.

So to whom do the “occupiers” address their protest? Arguably, the occupation is a blunt instrument, but nonetheless the protests do have resonance in a number of quarters.

Off the streets, in recent times shareholders of corporations have become increasingly alarmed at the salaries, incentives and bonuses paid to CEOs and board members, even when the companies perform poorly. At annual general meetings, shareholders are voting against remuneration reports and proposals for remuneration increases.

Perhaps fewer fat cats occupying the boardrooms of under-performing corporations will help propel a change in the US economy. That, coupled with reform that sees the well-off paying their fair share of tax on their wealth, may result in an economic stimulus. Then, the current unemployed 9 per cent of the population will become the occupied, and have no reason to occupy. A new New Deal!

How long will we have to wait till it comes?

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Are the spin-offs worth it?

By Graham Brophy in Sydney, Australia

21 September 2011

Should America focus more on its own business and be less of a world policeman?

The costs of war and benevolence to other countries are high in monetary as well as in human terms. Was Vietnam, Iraq, Afghanistan, or Libya worth it? Will America intervene in other emerging trouble spots around the world, at huge cost and probably receiving little thanks at the end? Should America act like China — highly focused on its own domestic issues? America risks becoming more isolationist, especially if it continues to intervene as a third party.

First the global financial crisis, now Standard and Poor's has downgraded America’s credit rating. It is impossible to overstate the importance of the US ratings downgrade. The loss of a AAA rating hurts America psychologically because it is specific to the US and leads to higher borrowing costs. US debt is 90 per cent of gross domestic product, unemployment is around 9 per cent, and possible stimuli, such as lowering interest rates or cash injections, will only make the debt level worse. America’s main banker, China, is signaling to the world that over the long term, they are going to take action to replace the US dollar as the world’s trading currency.

Republicans may have done the country a favour in putting obstacles in the way of further borrowing, albeit for the wrong reasons. America must either decrease government expenditure or generate more revenue. Interest payments on the debt were $196.9 billion in 2010 — approximately 1.4 per cent of GDP. Some would say America is exceptional and, therefore, can push the boundaries further and work its way out of the current situation. In comparison to other countries America is different in size and economic importance, but it is risky to presume that America can handle this increasing level of debt without some catastrophic financial rupture occurring.

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So why should America continue its huge expenditure on military and aid projects outside the homeland? America may see "spin-offs" in helping other countries, resulting in positive outcomes to itself and the world at large. Superman used to boast of being an agent for "Truth, Justice and the American way’. Cynics would argue that the spin-offs are highly intentional and selfish because they are focused on US desires such as natural resources — for instance,  oil — and trade opportunities. Other fortuitous spin-offs flow from military and aerospace research resulting in advances in science and technology. The unintentional discovery of Teflon is an example of such a flow-on from research in space technology.

The question therefore is: Are the spin-offs worth it? Or should America withdraw from the wider horizon and focus on domestic needs as a primary focus. Either way, a new dynamic equilibrium needs to be established. Time is running out!

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