Vodacom Park Rugby Stadium (Aka Free State Stadium) – Cheetahs vs Brumbies, originally uploaded by Just_Ice..

One can’t but be impressed with all the construction evident all over Gauteng and the Free state. It’s a bit chaotic yes, but it’s everywhere.

The World Cup has at last galvanised the lead footed South Africa into action.

The Centurion Gautrian bridge is truly impressive. And judging by how bad the traffic is now, you can see even the motor loving South Africans round these parts taking to it out of sheer desperation.

I’ve been staying at my sister’s in Pretoria East. And here at least a few things are apparent. Pretoria East looks to be very wealthy. It looked like that ten years ago. But it certainly has not gotten poorer. If anything it’s wealthier, and its sprawl is spilling wider.

Now it encompasses Irene, and former Prime Minister Smuts’s modest home, seems to be even more modest in comparison. No sign of the poor white problem in Pretoria East.

On to Bloemfontein, and the countryside is lush and green.

Here too there’s construction work everywhere. And the benefit of being a World Cup Host more self-evident. The stadium is being linked via the canal to the station via a public walkway.

Why it takes a World Cup to goad the city council into building such a basic public space and thoroughfare is beyond me. But at least Bloemfontein has that now.

Next-door is the Sand du Plessis theatre. An impressive building, but the grand institution is nearly bankrupt, it’s equipment gone or broken and its creative output dwindling dramatically.

South Africa’s twin gods of shopping and sport (bar God himself – who is BIG round these parts) are right next-door, and is suffering no such problems. It’s temples; the mall and the stadium are both having a massive facelift.

In Bloem you notice many more poor whites than in Pretoria East. Still Bloemfontein looks relatively affluent.

No service delivery problems then? My little sister says that the municipality is considering farming out its services, electricity, water and garbage collection to a private company. In my three days there, we suffered (only) one day without water.

Apparently one irate Bloemfontein burger dumped his garbage inside the municipal headquarters, the glass encased Bram Fischer building, after it had no been collected.

Everybody expects municipal services to be more expensive after it gets privatised, but hopefully better.

Related deployments:

1. Where the English have football the South Africans have politics
2. Die Blou Bulle in Orlando, Soweto

But I’m happy to be home.

The arrivals hall at Joburg International is dressed up in a garish MTN yellow. Welcome to World Cup Country. The new arrivals hall is gigantic. Shiny, plush.

But the highways of Gauteng are in turmoil. The R21, N3, N1, all of them are undergoing roadworks. A race against time. They need to be finished by June. I was listening to RSG – the National Afrikaans radio station, an ad pimping the world cup pops up every few minutes, it’s in Afrikaans and ends in an English jingle. A high gloss “Freedom – it is here” in a “Coke is life” kind of way, but not as authentic.

But you can’t but notice that South Africans are not that free. As we pulled up the fake Tuscan security villa where my dad now lives he said, welcome to our prison. He is right. Guards at the gates, a very high wall. We are safe.

This time round I’d like to record the news that I can’t get when I’m overseas. I want to hear what the people on the ground is saying. I mean from my vantage point in England it seems that the country is falling apart. Perhaps I’m very wrong.

First anecdote. My dad tells me that in Ermelo, the town where my mother and grandmother went to school some Nigerians have moved in and that they are responsible for sex trafficking. I queried him whether there’s been any reports of human alien inter species sex. He looked puzzled. Anyway I thought I’d Google it tonight and it’s true! Sorry dad.

Otherwise my dad seems as fit as one can be at 75. But he is a little worried. My little bro, whose getting married tomorrow, he and his wife has applied for a mortgage. They have been waiting to hear back from ABSA for two months now. News just back apparently is that they can’t get a mortgage. The reason? His wife to be does not have a landline telephone number at her place of work.

She has a good excuse mind you. The school where she teaches close by Broederstroom, is a plaasskool. And the school’s phone lines have been stolen. The schools only phones are mobile phones. I kid you not. And ABSA won’t have that. No land line no mortgage.

Yes my dad said, this kind of theft is quite common. When they were driving to the Natal South Coast in December they stayed over is the famous triangle houses in the Drakensberg. But the hotels phones were down, because the phone lines had been stolen.

OK, here is some news that’s not from the people.

Last night I watched ETV’s news, ANC youth league leader Julius Malema is speaking to SARS about a possible lifestyle audit and him settling matters with Mr Taxman in private. As long as he pays his dues I suppose.

And this morning ETV featured a clip the Afriforum march where they tried to hand a list of farmers that have been murdered to the ANC. The context of course is the singing by Julius Malema of the ‘Kill the Boer’ song. Steve Hofmeyr, the Afrikaans crooner lothario (think Che Guevarra with a guitar), was also there, wearing a very cool t-shirt. There was also some footage of ANC youth league members stamping on said list of murdered farmers, while Afriforum members were crawling on the floor trying to salvage as much as they could of said list.

Nice shirt Steve, where did you buy it? It’s a black t-shirt with a big red star, and in the middle of the star, a big black African continent. Steve is cool. Much cooler than that suurgat Breyten Breytenbach, even if he does not have Breyten’s way with words. I just don’t get why Die Antwoord does not like him.

When I saw Steve there in front of the ANC offices I was reminded of the excellent interview Perly Joubert did with him. Steve said:

“I’m not a rightwinger. I’m not a Vierkleur type who believes that the boere must own the country again. But I do have political ambitions because I’m politically homeless. The right is disappointing because they’re so stupid and the left is so dogmatic and judgmental.

“My job here is not only to sing. I’m very involved and participating in what happens in our country because I love this bloody fucked-up place. I love all the people who live here. This mess is my home, but we have to sort it out and the boere must be part of the solution.”

I wish Steve and Zachie Achmat would team up and form a political movement. I mean all my other South African hero’s have been such disappointments. Absent, chasing money, just silent. Cyril Ramaphosa, Van Zyl Slabbert, Breyten Breytenbach wtf? Only Steve and Zachie never disappoints.

OK, so Breyten has been making noises of late. But your a bit late Breyten, and a little out of touch. And you are a pain in the arse.

So today I’m with my sister in Pretoria. Another anecdote. The neighbours next door have been robbed at gunpoint in their house. My sister and her husband have been trying to persuade them to build a fence around their property for years. But the victim couple next door, whose getting on in years, did not want to. They said they had been living like that, fence-less, for 30 years. They have been fine all this time. Not this year though.

Anyway when I was listening to RSG on the radio today they also reported that Andre Lambrecht, the senior state prosecutor in the West Rand have apparently been demoted for refusing an order from Menzi Simelane, head of the National Prosecuting Authority (NPA). Why? The top prosecutor was told not to oppose bail in the case of hip hop artist ‘Jub Jub’

Just to recap for those of you who have not been paying attention to South African news. Jub Jub went drag racing in Soweto and managed to hit 6 school children with his Mini, four of whom died.

To thicken the plot, South African style, one day before Jub Jub’s bail application was set to begin, he received a visit in detention from none other than Julius Malema, yes the president of the ANC Youth League.

News24 reports that Lambrecht “has been chief State prosecutor of the West Rand for the past ten years. The prosecutors of Krugersdorp, Soweto, Randfontein and Roodepoort, among others, fall under him.”

They also reported:

“The orders were that he should not contest bail for the musician Jub Jub.

André (Lampies) Lambrecht, 60, chief State prosecutor of the West Rand, was given the order three times.

Gladstone Maema, acting director of public prosecution (DPP) in Gauteng, phoned Lambrecht twice to say Simelane had given the order. Maema repeated the order to Lambrecht for the third time in person.

Lambrecht refused to execute the order unless he received it in writing, which he did not receive.”

Now Lambrecht has now been told that he is relieved from his managerial duties and that he has to work as an ordinary prosecutor. While I was driving Maema (not to be confused with Malema) was on the Radio defending his decision to demote Lambrecht. Apparently Lambrecht had been ‘redeployed’ in accordance with a new policy of using the most experienced prosecutors in the ordinary courts.

Lastly, an yes, not a personal anecdote, I saw on Twitter today that its now illegal to sing kill the Boer or rather ‘dubula ibhunu’ in South Africa, after a high court decision. But apparently the ANC will take the case to the Constitutional Court, because… its not entirely clear, but apparently because it is part of ANC history.

No related posts.

This photo was taken by Shayne Robinson in Thokoza two days ago. It is part of a series of protests against the governments inability to deliver basic services to the poor and for failing to deliver on their – admittedly grandiose – election promises.

The AWB of course never governed South Africa. But no matter. This is meant as an gross insult, and the illustrate the measure of disrespect people feel the government are showing them.

This should surprise nobody.

Two years ago, on a BBC documentary by Fergal Keen, he interviewed township dwellers that quite happily volunteered that life was better under the old Nationalist government.

And during last May’s xenophobic riots in South Africa, president Zuma was warned by a man in Bakerton:

“We are looking to make you our president (in 2009 elections) so beware. If you are a stumbling block, we are going to kick you away,” the man warned, as the crowd erupted with deafening support for the sentiments.”

President Zuma will have he work cut out for him. And it has to be said, without the skilled and dedicated personel he has zero chance of delivering. We know what that means.

Related deployments:

1. The Afro pessimists are restless

It’s rare that I agree with one person on so many things, and then this person happens to be the world’s most powerful president. Below you’ll find a reason why I say this. It’s an excerpt from his speech to the Ghanaian parliament.

If this speech had been delivered in the South African parliament it is safe to say it would not have gone down well. Not at all.

Some extracts below, with my emphasis.

But despite the progress that has been made – and there has been considerable progress in parts of Africa – we also know that much of that promise has yet to be fulfilled. Countries like Kenya, which had a per capita economy larger than South Korea’s when I was born, have been badly outpaced. Disease and conflict have ravaged parts of the African continent. In many places, the hope of my father’s generation gave way to cynicism, even despair.

It is easy to point fingers, and to pin the blame for these problems on others. Yes, a colonial map that made little sense bred conflict, and the West has often approached Africa as a patron, rather than a partner. But the West is not responsible for the destruction of the Zimbabwean economy over the last decade, or wars in which children are enlisted as combatants. In my father’s life, it was partly tribalism and patronage in an independent Kenya that for a long stretch derailed his career, and we know that this kind of corruption is a daily fact of life for far too many.

Of course, we also know that is not the whole story. Here in Ghana, you show us a face of Africa that is too often overlooked by a world that sees only tragedy or the need for charity. The people of Ghana have worked hard to put democracy on a firmer footing, with peaceful transfers of power even in the wake of closely contested elections. And with improved governance and an emerging civil society, Ghana’s economy has shown impressive rates of growth.

This progress may lack the drama of the 20th century’s liberation struggles, but make no mistake: it will ultimately be more significant. For just as it is important to emerge from the control of another nation, it is even more important to build one’s own.

This is about more than holding elections – it’s also about what happens between them. Repression takes many forms, and too many nations are plagued by problems that condemn their people to poverty. No country is going to create wealth if its leaders exploit the economy to enrich themselves, or police can be bought off by drug traffickers. No business wants to invest in a place where the government skims 20 percent off the top, or the head of the port authority is corrupt. No person wants to live in a society where the rule of law gives way to the rule of brutality and bribery. That is not democracy, that is tyranny, and now is the time for it to end.

In the 21st century, capable, reliable and transparent institutions are the key to success – strong parliaments and honest police forces; independent judges and journalists; a vibrant private sector and civil society. Those are the things that give life to democracy, because that is what matters in peoples’ lives.

Make no mistake: history is on the side of these brave Africans and not with those who use coups or change Constitutions to stay in power. Africa doesn’t need strongmen, it needs strong institutions.

You can find a whole transcript of the speech here.

Related deployments:

1. The Obama era
2. Mhambi’s 2008: Twice bitten by South Africa, once comfortably numb

The New York Times’s Barry Bearak have done a great job reporting on rampant crime in Diepsloot Johannesburg. He points out how policing is being privatised. The poor organise themselves into vigilante groups. A frightening outcome to a frightening situation.

Even Jacob Zuma, the new president, says that citizens cannot be “blamed if they take the law into their own hands.”

In one way or another, most already do. Among the wealthy, private security is the substitute for police protection. The open veldt surrounding Johannesburg is filling in with one barricaded development after another, fortified with electrified fencing, cameras and armed patrols.

Depressing but excellent journalism.

No related posts.

The love affair with Thabo Mbeki endures.

Kameraad Mhambi attended a talk hosted by the Commonwealth Journalists Association (CJA) in London Thursday night. South Africa: Which way forward was the title of talk.

Odd, I never heard of many of these talks when Mbeki came to power. Yet its with the presidency of Jacob Zuma, that talks about the countries future occur every second week.

There were 4 panelists.

The first – Mark Ashurst – The director of the Africa Research Institute, identified Mbeki as a largely benign force. Simultaneously liberal and a guardian of rules. I kid you not.

Yes, Mbeki opened the South African economy, allowed it to flourish, but respected rules and regulations and institutions. Ha! And this from a guy who had read and reviewd Andrew Feinstein’s After the Party for the New Statesman?!

For the government of President Thabo Mbeki, his finance minister, Trevor Manuel, and the former minister of trade and industry Alec Erwin insisted – shabbily – that was all clean. These are no ordinary villains, however. The same triumvirate has been widely credited with the liberalising economic policies that have brought the longest boom in South African history. None is accused of benefiting personally from the arms deal. A likely explanation for the cover-up is that the arms deal fuelled an ANC slush fund for the 1999 election campaign.

That’s ok then. And wrong.

He went on to bracket Zuma as the last of a long line of liberal ANC leaders. After Zuma were in big trouble apparently.

Next up – Audrey Brown – South African journalist (now at the BBC world service) & documentary maker. She lamented the recent spate of Xenephobic attacks and wondered about South Africa’s place in the rest of Africa using football as a metaphor. I have blogged on this subject a lot, and you can read that here.

John Battersby, ex editor of the Sunday Independent in Johannesburg claimed he was not speaking in his capacity as the UK Country Manager of the International Marketing Council of South Africa. He was telling fibs me thinks, and that is the kind reading of his lame defence of South African foreign policy and high praise of the Mbeki economy.

“The world is hypocritical”, “look how dreadful Israel behaves, flouting security council resolutions” like clockwork.

Conceding that inequality had risen, he countered that so too had GDP per head had risen, while poverty was down as a percentage of the population. (He quoted a report which I could not remember.) Service delivery, like housing and water delivery was very good he continued. Really?

Onyekachi Wambu a Nigerian journalist and television producer offered much of the same. But also added this little gem. Mbeki’s approach on Zimbabwe will be proven to be right one. Really?

Lets deal with Mr. Wambu first. Mbeki’s Zimbabwe policy that started with the burying of a critical report by two judges he had appointed himself.

Mbeki commissioned judges Sisi Khampepe and Dikgang Moseneke to observe the controversial Zimbabwean election in 2002 – which the opposition Movement for Democratic Change (MDC) still claims was rigged.

On their return, the judges wrote a scathing report on the conduct of the election and submitted it to Mbeki.

This report was never released. In fact the South African government endorsed the election.

Since them the Zimbabwean people had to endure Operation Murambatsvina, violence, abduction and intimidation, cholera and more for seven years.

At all junctions Mbeki tried to protect Mugabe.

As Audrey Matshiqi noted:

“And what about the idea of a government of national unity? My concern is that Africa may be entering a period of “despocracy”. Despocracy means that dictators can avoid the implications of electoral defeat by imposing a climate of violence which leads to the installation of a government of national unity. Any such government must, therefore, be just an interim measure.”

Zimbabweans deserve democracy as much as the Romanians did under Ceaucescu. Why this loyalty to African big men Mr. Wambu?

You should know better than most how Thabu Mbeki’s deference to African leaders is counter productive, murderous even. Ken Saro Wiwa’s execution is another child of Mbeki’s inaction.

But what about all this praise by Mr Ashurst and Battersby for Mbeki’s liberalisation of the South African economy?

Firstly, the South African economy has consistently underperformed similar economies during the greatest commodity boom in recent memory. The government’s Trade policy has decimated the Cape’s Textile industry.

Neither do their numbers chime with this report by the South African Institute of Race Relations, where it is claimed that poverty has more than doubled.

A survey released by the SAIRR this month (Nov 2007) showed that poverty in the country increased “dramatically” between 1996 and 2005, said researcher Marius Roodt in a statement.

“Using the globally accepted measure of poverty, of people living on less than one US dollar per day, poverty has increased in South Africa, both in absolute numbers and proportionally.

“In 1996, some 1,9 million South Africans survived on less than one US dollar per day. This had increased to 4,2 million by 2005,” said Roodt.

The institute concedes that there are signs that the governments massive income grants are making a difference. I applaud that. But these measures were only introduced after severe pressure was placed on the Mbeki government by the likes of Cosatu. Hardly a product of his brilliant liberalisation.

Neither does their argument not take into account the failing schools, the privatised police force or the neglect of the water and power network I have written about before.

Mr. Battersby is mesmerised by the charm potential of his positive numbers. It’s the quality of the South African experience that I am interested in. He would be well advised to read this assessment by Ferial Haffagee of the state of the nation.

“Our Gini coefficient, the measure of the wealth gap, is now the highest in the world, an ignominious honour that we spend far too little time understanding and fighting.

Our children are less bright in the freedom years, our schools possibly worse than they were under the dead hand of Bantustan administrators. Our public hospitals are so bad that not a single provincial minister of health uses them.”

When times for questions arose, I declared that I did not agree with the panel. Mr. Wambu and Amhurst conceded a point here and there. Mr. Battersby refused to respond.

No related posts.

Last weekend I found myself walking through London Fields, Hackney real early at 7am.

I had had two nightmare’s. In one my friends and I were trying to escape from a war zone. The other one was just bizarre. Anyway, I was wide awake, got up and went for a walk.

It was clear it was to be a gorgeous day.

I thought I’d be alone. Europeans, unlike South Africans are late risers. But to my surprise I heard singing – quite good female singing – by the park goal posts.

There I found Roni & Linn. Singing & drinking their hearts out. Linn had just lost her job, like many other Londoners.

But “there’s more important things in life than money” she said.

Related deployments:

1. Financial fools day – the start of the summer of riots?

Protests had rocked international meetings in Seattle and Genova. The anti-globalisation movement and allied groups were making their voice heard.

When a protest was organised in the city of London, I went to have a look.

I wanted to see what a riot in a western country was like, and how the police will deal with it.

I was not disappointed. The rioters caused a couple of millions pounds of damage to the Natwest tower and the police were surprisingly hands off. Nobody was shot!

I spoke to a couple of the young protesters. A lot – not all – seemed very naive. A lot of what they were protesting for would hurt developing countries. Things like farm subsidies.

Why were they not protesting against multi-national corporations – that do business globally – listing and registering and therefore paying tax – in developed countries only.

A large part of the protest just seemed to be a venting of frustration at a society where individuals were subjected to endless rules and regulations. Where life is just too easy and not a little boring. It was an occasion to let a little bit of hair down. A mock battle to remind the kids that they are alive.

I attended one more protest in Oxford street. The police contained any possible damage very successfully by illegally surrounding and effectively detaining the protestors.

That was the last protest I saw.

When September 11 happened the world’s focus shifted away from the global economy and poverty to a bogey war on terror. Not that Islamic terrorism is not a threat. It’s just not really very important in the bigger scheme of things.

But the credit crunch changed all that.

How the world works and is structured is back on the agenda big time. And that is great news.

But protesters are back as well. Now they were always a broad church this lot. Not all are career trouble makers or contrarians. And most of them have laudable ideals, even if many are clueless and overly romantic and simplistic in their views.

Last night Mhambi was in the Dove on Broadway market and got handed a flyer by an old guy that not only resembled but also had that nasal twang of ex London mayor, Red Ken.

The flyer is funny, it invites all to congrugate at 4 points on April the first.

On 1st April at 11 a.m. parades will join up at four railway stations around the edge of the square mile – Liverpool St, London Bridge, Cannon St and Moorgate – and snake their way though the City to converge at the Bank of England for 12 noon.

Each procession will be headed by one of the Four Horsefolk of the Apocalypse, commanding their forces against:

1) Climate chaos (Green horse, Liverpool St); 2) War (Red horse, Moorgate); 3) Job/savings/pensions losses (Silver horse, London Bridge); and 4) Home repossessions (Black horse, Cannon Street).

G20 Meltdown calls for as many people as possible to join us for Banquet at the Bank, bring food, fun and games to share – a very rare delicacy will be served, bankers brains! If you want to Eat the Bankers join the Silver horse in a zombie block!

To top it all off. None other than Barack Obama will arrive in London that morning. That is together with other world leaders of the G20.

As the A team’s leader would say, “I love it when a plan comes together”. I predict a riot.

I’m not a genius either. Weeks ago London’s top police officer has warned that this could be a summer of riots.

With bankers like Sir Fred, and the derivatives department of global insurance giant AIG walking away with millions after ruining their institutions and part of the world economy – there will be much sympathy for the protesters this time round.

Kameraad Mhambi will be there.

Read more about the day G20 meltdown in the city here. And follow them on Twitter here.

Related deployments:

1. The summer of discontent

Mhambi’s favourite two economic journalists – Martin Wolf and Robert Peston – chatted at Davos. Listen to the audio recording.

Wolf says that most world leaders now get that were in a massive downturn, but he is unsure they get that there will have to be a structural change in the world economy I wrote about last leek.

He also reckons the IMF needs a lot more resources.

Related deployments:

1. British jobs for British workers
2. A year of change – 2009

When I read another brilliant piece by Martin Wolf during my Christmas holiday break in Spain I knew I was reading something significant.

It’s weird how one learns a lot about something we take for granted, when it breaks down and dumbfounded commentators pick up old text books on how the economy actually works.

Kameraad Mhambi has been absorbing economic theory of late. It’s fascinating. It’s terrifying.

That were in the biggest economy upheaval since the second world war has become fact.

We reached the point where even arch free marketeers begrudging accept that without government protection of large banks the world would be facing an economic nuclear winter.

Some financial gurus are calling for governments to nationalise banks completely now so as to insure enough lending – essential to economic activity – is maintained.

And of course governments are talking about ‘quantitative easing’ or so-called helicopter theory. An emergency tactic whereby central banks splurge cash to get people spending again. Martin Wolf explains how that works behind this link.

But this is not what worries me. Lets presume with or without nationalisation governments manage to save the banks and maintain lending. Let’s say that vasts amounts of capital is injected in economies and consumers actually use it to spend, and not to save.

Everything will be fine? No.

Yesterday I listened to the radio as news broke of ever wider wild cat strikes breaking out over the UK. The strikers mantra? British jobs for British workers.

We face a situation where the open world economy is under a high risk of ever tigther spasms, eventually to choke. Why?

Kameraad Mhambi has been listening and reading to a number of economic commentators over the last few weeks. Most persuasive of the all has been Martin Wolf. Where Robert Peston is wonderfully didactic, Wolf is just ominous.

“To understand this, one must understand how the world economy has worked over the past decade. A central role has been played by the emergence of gigantic savings surpluses around the world. In 2008, according to forecasts from the International Monetary Fund, the aggregate excess of savings over investment in surplus countries will be just over $2,000bn.”

That is more than 7 times the market value of all goods and services produced or rendered (the GDP) in South Africa for 2008. A number which came to $283bn.

“The oil exporters are expected to generate $813bn. Remarkably, a number of oil-importing countries are also expected to generate huge surpluses. Foremost among them are China ($399bn), Germany ($279bn) and Japan ($194bn). As a share of gross domestic product, China’s current account surplus is forecast at an astonishing 9.5 per cent, Germany’s at 7.3 per cent and Japan’s at 4 per cent. In aggregate, the oil exporters, plus these three countries, are forecast to generate 83 per cent of all surpluses.”

Both Germany and China have surpluses of savings over spending larger than the entire South African economy.

Wolf notes that these countries accuse others of profligacy:

“But it is impossible for some countries to spend less than their incomes if others do not spend more. Lenders need borrowers. Without the latter, the former will go out of business.”

Who are the borrowers? In 2008 they were mainly the US, Spain, the UK, France, Italy and Australia.

“The US is far and away the biggest borrower of them all. These six countries are expected to run almost 70 per cent of the world’s deficits.”

For Wolf the most interesting feature of the global imbalances has been the corresponding pattern of local (domestic) financial imbalances. This is because:

“The sum of net foreign lending and the government and private sector financial balances must be zero.”

Foreign lending does not happen if a country has enough excess money to fund its needs.

First housing booms helped make huge household deficits possible in the US, the UK, Spain, Australia and other countries. House buyers needed cheap money. It came from outside their borders.

But during recessions, the private sector retrenches and the government deficit widens as the government spends more on social security and gets less tax income.

Currently government deficits in countries like the UK are exploding. This is because,

“businesses uninterested in spending more on investment than their retained earnings, and households cutting back, despite easy monetary policy”.

In other words, businesses are not investing, people are not buying stuff, despite the government lowering interest rates. Tax receipts are falling. On top of this governments have to pay benefits and social security for a larger number of people. Explosion.

But this explosion of government money is not good enough.

“Even so, deficits have not been large enough to sustain growth in line with potential. So deliberate fiscal boosts are also being undertaken.”

Even with governments taking up the slack economic activity will be much lower.

Which brings us to the point where we are now. Governments announcing massive stimulus packages, pumping money into economies and increasing their deficits even further. The helicopter stuff.

“This then is the endgame for the global imbalances. On the one hand are the surplus countries. On the other are these huge fiscal deficits.

So deficits aimed at sustaining demand will be piled on top of the fiscal costs of rescuing banking systems bankrupted in the rush to finance excess spending by uncreditworthy households via securitised lending against overpriced houses.”

Got that? Read it again and take it in.

Goverments are throwing more money at the problem (to sustain demand for products in the economy) on top of saving the banks. And the Banks needed saving because they financed spending by people who did not have the money and were not credit worthy – that were secured against their properties, but they were over priced. Phew.

“This is not a durable solution to the challenge of sustaining global demand. Sooner or later – sooner in the case of the UK, later in the case of the US – willingness to absorb government paper and the liabilities of central banks will reach a limit. At that point crisis will come. “

Or in other words, at some point lenders of money to the UK and US governments will have doubts about their ability to repay their debts. Then there’ll be kak (Sorry).

One can avoid this. By the private sector in these countries lending again. But currently the private sector is in so much debt, so much strain, that this is unlikely.

The only other option is to rebalance. Smaller domestic deficits and an commensurate external surplus is the answer.

In normal times countries that produce more than they use, like China, can be useful. They suck in excess demand. But in times like these, times of deficient demand, its downright dangerous. They are effectively “importing” demand into their economies.

Countries like China need to create their own demand, because “importing” it is going to create political trouble big time.

“In short, if the world economy is to get through this crisis in reasonable shape, creditworthy surplus countries must expand domestic demand relative to potential output. How they achieve this outcome is up to them. But only in this way can the deficit countries realistically hope to avoid spending themselves into bankruptcy.”

“The world has run out of creditworthy, large-scale, willing private borrowers. The alternative of relying on vast US fiscal deficits and expansion of central bank credit is a temporary – albeit necessary – expedient. But it will not deliver a durable return to growth. Fundamental changes are needed.”

Don’t get it? Wolf goes on to illustrate the point he is making. The current huge US government stimulus (three times the size of South African economy at $760bn or 5.3 per cent of the US GDP) is not going to be enough to save many Americans from unemployment.

Assuming that the US private sector will now save more than they spend, and that America has a structural deficit of 4% of its GDP (it consumes 4% more than it produces every year) the government stimulus and deficit would have to be 10% per year indefinitely in order to keep Americans in their jobs at previous levels.

But Obama’s huge stimulus is only half of this level.

“Now think what will happen if, after two or more years of monstrous fiscal deficits, the US is still mired in unemployment and slow growth. People will ask why the country is exporting so much of its demand to sustain jobs abroad. They will want their demand back.”

In other words the US government will be getting deeper into debt so that the country can keep on spending more than it produces. And this spend will be going to excess production countries like China.

The US people will want their government to prohibit goods from China to be bought. They would want goods to be bought locally.

“The last time this sort of thing happened – in the 1930s – the outcome was a devastating round of beggar-my-neighbour devaluations, plus protectionism. Can we be confident we can avoid such dangers? On the contrary, the danger is extreme.”

Take note, Martin Wolf is not an alarmist kind of guy.

“Once the integration of the world economy starts to reverse and unemployment soars, the demons of our past – above all, nationalism – will return. Achievements of decades may collapse almost overnight.”

Poor Barack Obama…

“Yet we have a golden opportunity to turn away from such a course. We know better now. The US has, in Barack Obama, a president with vast political capital. His administration is determined to do whatever it can. But the US is not strong enough to rescue the world economy on its own. It needs helpers, particularly in the surplus countries. The US and a few other advanced countries can no longer absorb the world’s surpluses of savings and goods. This crisis is the proof. The world has changed and so must policy. It must do so now.”

Whether Obama fails or succeeds a big change is coming for South Africa. I will deal with that next time.

Related deployments:

1. A year of change – 2009
2. Martin Wolf and Robert Peston at Davos