Now is not the time to take chances

The global economic situation means that budgetary largesse should be avoided at all costs.

China is the world’s second largest economy. It’s a no-brainer to understand why we should be concerned when the Chinese economy takes a wobble. Obviously if and when its economy goes into serious decline, we need to be afraid. It is not there just yet.

Its economy had been doing really well for quite some time. Over the last few days it has suffered major tremors.

The Chinese government has been intervening in the market to try to shore it up. It has devalued its currency and reduced interest rates by 0.25%. These adjustments do not appear to be working. Confidence does not appear to be returning just yet. The ordinary punter is getting his and her money out as share prices plummet and putting it back under the mattress.

Tuesday morning’s headlines exclaimed ‘Another melt down in China’ and by Tuesday evening, the fall in stock market values continued.

Its stock market has tumbled since mid-June and concerns that growth is stalling and doubts about individual valuations continue.

So what’s that got to do with us? The simple answer is when one of the major world economies gets a cold there is a big risk that we could catch pneumonia unless we are well prepared.

On the macro level, markets dropped significantly right around the world in response to what was happening in China.

On Monday the Dow fell over 1,000 points, apparently the biggest ever points drop. Other stock markets across the world were taking a similar beating. Panic was in the air. Pension funds, which affect very many of us, were taking yet another beating.

On a micro level, in recent weeks, news stories have featured the impact of the slowdown of the Chinese economy on Irish emigrants in Australia.

Thousands of young Irish have emigrated to Australia to work in the mines of Western Australia, which have been largely supplying the Chinese markets.

Demand has slowed and many jobs have been lost. The lot of those who remain is in question. The prospect of further visas for those wishing to escape the still insecure Irish jobs market has more than likely vanished, at least for those with engineering and mining skills.

Writing elsewhere, US economist Paul Krugman has stated that policy makers need to ‘take seriously the probability that excess savings and persistent global weakness is the new norm’.

However, he also argues that neither stock markets nor politicians want to believe this because, in effect, it interferes with their own agendas.

Here in Ireland we are at a critical point in getting ourselves back on our feet. There are still hundreds of thousands of folk unemployed or underemployed. Now is not the time for our government to be taking chances with our future.

In the global fish pond we are but minnows, in fact even less than minnows in some ways. We can only prepare or react. If we choose the latter, it is already too late.

In the last few days we read the ‘good news’ story about the potential, even the possibility, of AIB paying back to the Government a sum close to €4bn as it prepares itself for flotation. It has been suggested that the payment might even be made before the budget. We can already hear the clamouring of ‘gimme, gimme’.

Government has already decided to reward its own employees, in the public sector, by awarding them pay increases despite the fact that it’s borrowing almost €10bn per annum.

It has talked about increasing old age pensions, reducing the USC, and a myriad of other little bribes to the electorate.

There’s an election in the offing and the auctions have started. Government would be well advised to look at its intent to bestow the largesse it’s already indicated. The last thing it should do is add the AIB stipend into the mix. That money should be used to reduce debt, not to increase recurring expenditure.

Fine Gael and Labour claim they have done this fantastic job in reviving the economy. Let them stand on that record, not on bribing us with our own money.