"No matter what the authorities do, this crisis will not stop. The only way to stop this crisis is to raise wages in relation to productivity. ...but this the govt will never do..."
- Ravi Batra Sept 2007.In the next part of the video : [Link] he described what will happen beyond the crisis we are seeing today. The central message is the current crisis is caused by the wage gap and cannot be fixed until a more equitable system is put in place. Several weeks ago a separate study by a British economist showed that the wage gap today is only seen once in 1929 before the Great Depression. Much of the demand in the past 10-20 years was driven by the growth of consumer debt in US and Europe. When this debt grew to an unsustainable level it collapsed and demand will not return until there are major economic and social changes put in place. In other words we are not in a garden variety recession that is easily cured by Greenspan style of easy money policy and encouraging more borrowing. The Americans are maxed out, they simply cannot borrow anymore ....we are seeing a collapse of demand, that will worsen as unemployment rises. According Ravi Batra, things will fall apart and Americans and others will start clamoring for major socio-economic changes...and until the wage gap is addressed, the system no recovery can be sustained.
My blog and many other socio-economic blogs highlighted the wage gap problem in Singapore for almost 3 years. There was no determined effort on the part of the govt to address this. The PAP govt believed that if the economy kept growing everything else can be solved. Ironically, we are the 1st economy in Asia to enter recession despite our govt's "growth at all cost" policies...and the economic growth of 2004-2007 did little to ease the pain of those in the lower income groups. Recession will only worsen the situation. Hopefully the recession compels the govt to act and change.