Calling all Foxes. Clem Sunter
do the same, particularly those from the Republican Tea Party.
Buffett’s statement has been lauded in many quarters already and has even been picked up by Obama in his current road show to get himself re-elected. Of course, it conflicts totally with Republican fiscal policy that the only way to cure the current budget deficit is through reducing expenditure. Any rise in taxes should be stoutly resisted, the conservative wing maintains.
In contrast, the reaction of our media and many informed observers to our own icon Desmond Tutu‘s call for a similar degree of shared sacrifice in South Africa – a country with a higher degree of inequality than America – has been extremely hostile. Admittedly, he should have couched his request in different terms and referred to the super-rich generally as opposed to whites in particular; but the point he makes about achieving a greater sense of justice and moral probity in our society is as valid here as it is in America.
Moreover, rather than linking any form of redress to the evils of apartheid, I would have preferred Tutu to have made his plea in the current context of the economic hard times we are experiencing. The riots last week in London and in other British cities could easily be repeated here if the poor get the feeling that they are disproportionately bearing the brunt of the downturn. Shared sacrifice means something different to what happened when the Titanic sunk and virtually all the seats in the available lifeboats were taken by first-class passengers. It means creating the feeling that rich and poor alike are in the same boat and must share the hardship.
I would propose two initiatives in South Africa to turn the principle of shared sacrifice into reality. Both initiatives would apply to people earning more than R1m a year, in other words, to the upper income group alone, regardless of race:
1 A compulsory annual contribution to an NGO of the individual‘s choice which carries out essential work in fields such as education, health, welfare, legal representation and enterprise development in either urban or rural areas. Such a move would offset the serious financial pinch that many of our best NGOs find themselves in as a consequence of declining corporate and international contributions. Obviously, like income tax, the contribution percentage could rise as you head into the heavens of millions of rands of income but it would start at an income of one million.
2 A one-off compulsory investment into a venture capital fund of the individual‘s choice which is devoted to creating a new entrepreneurial class in South Africa, the objective being to create one million new businesses in the economy by 2020. This will lead to the government‘s target of five million jobs by the same date. The size of the investment could be related to either a person‘s wealth or income but with the proviso that he or she is earning at least R1m a year.
Like Warren Buffett and Desmond Tutu say, the time has come for the super-rich to come to the party. The only modification I have made with my proposals compared to those put forward by Buffet is that, bearing in mind the difference in personal wealth between the USA and South Africa, the threshold for action should be millionaires, not billionaires.
What’s in a trillion? Lots!
When I was young, a million was a heck of a figure. As I grew older, it became a billion or a thousand times a million. Now it is a trillion – or a thousand times a billion – which raises people’s eyebrows. In these days of quantitative easing, which is a sophisticated way of printing money, it won’t be long before a quadrillion – or a thousand times a trillion – becomes the norm. Remember, it is all just paper money and the only thing that changes is the number of zeroes. Inflation is the name of the game. It helps governments accommodate their debt problems.
Every newspaper talks breezily about how many trillion dollars have been wiped off global stock markets whenever markets crash. The debt ceiling in America has just been raised to nearly $17 trillion which is a trifle higher than America’s current GDP. Their existing budget deficit, if you deduct government expenditure from all the taxes they collect, is around $1.4 trillion. In other words, they are still in a net borrowing as opposed to a net repayment mode.
Let me give you a feel, therefore, of what a trillion really means. There are nearly 32 million seconds in a year which translates into 32 billion seconds in 1 000 years and 32 trillion seconds in a billion years. Assuming no interest on the debt, to pay off the projected US debt at $1 a second or $32m a year – which would stretch the pocket of even Bill Gates – would take a period of 17 trillion seconds, which is roughly 531 000 years. Not much was happening on our planet that long ago; and, in over 500 000 years‘ time, we will need to have adapted to living in a microwave oven on the assumption that the climate change experts are correct.
Furthermore, if you add in interest payable on the loan of say 2% per annum, the magic of compounding has to be figured into the equation. For starters, 2% of $17 trillion is a mere $340bn in the first year. This has to be added to the $32m repayment to create a sum which is way beyond Bill Gates or even most countries to service. Moreover, should you miss out on repayments of interest and capital, the total amount doubles every 35 years, meaning that you could owe $34 trillion before the middle of this century in the event of habitual default.
These fantastic amounts should convince you about two things. Firstly, Americans must believe in an unbounded universe to have borrowed so much money and feel that they do not have to quit as long as there is more credit available. You have to be a debt junkie to get to $17 trillion or $57 000 per capita and keep your hand out. Secondly, the Chinese and other leaders must believe that America is too big to fail to close their eyes, lend more and to be prepared to accept lower interest rates as well. Risk is obviously not a consideration, even when a major ratings agency has downgraded the quality of the securities already in your possession. Cloud cuckoo land is a phrase that comes to mind for all players involved (other than the ratings agency).
What I find equally amazing is that none of the market experts or the political gurus on the global TV networks has recognised the enormity of the problem that America faces in getting its financial house in order. The idea that a weekend‘s worth of negotiation between the US President and selected Republican and Democratic congressmen would provide a solution is truly ludicrous. In fact, the outcome is exactly what I thought it would be. My favourite scenario two weeks ago was “Kick the Can“, namely put off any really dramatic moves in the hope that the problem will somehow disappear. The grand compromise was just that.
Of course, the size of the problem can be diminished through economic growth or inflation – the former being a virtuous solution and the latter being a dreadful one. I just hope that the superficial handling of the issue so far does not lead to the latter outcome, whereby all those who have shown some thrift and saved their capital for a rainy day end up being financially ruined by an inflationary tsunami, created by Western overindulgence. The probability of this scenario has just gone up a notch or two with the downgrading of US treasuries and the jump in the gold price.
Hence, the resolution of this crisis and the avoidance of a second financial crash will involve enormous pain, whether you follow the virtuous route of austerity in meeting the challenge of spending money you have actually got; or whether you go down the debt-driven path to inflationary hell. Remember, though, 531 000 years is an extraordinarily long time at a dollar a second! You should not let $17 trillion roll off the tongue so easily in the future. According to the song, it used to be a dime that buddy asked you to spare. Now it’s much more.
The royalty of rock ’n roll
One of the best responses I’ve ever had to writing an article on the Internet came from this one. One of the Juniors who supported Danny on the classic disc “At the Hop” wrote to me and thanked me for nominating the song as the fourth best rock ’n roll record of all time. He obviously has a sensor device on his computer which picks up any reference to the band. Elvis was always my favourite artist, though Buddy Holly came in a close second. Long live the late 1950s when it all started. You could hold a vinyl record in your hand: polish it when it got scratched. Now music is an abstract download. Something has been lost.
On a recent weekend radio show, someone asked what was the greatest rock record of all time. I think the answer given was “Bohemian Rhapsody“ by Queen.
It got me thinking because I was there when rock was rock