The Sunday Reflection #38 - Celebrating the last day of the old normal

 Now I have a rule that I don't use this feature to discuss politics or current affairs, but rules are made to be broken and tomorrow sees the inauguration of Donald Trump. I'm not going to discuss this, or how I think it will pan out, but I suspect that the world will be a different place in four years time when the next President is sworn in. It seems to me that since 2008, when we saw the credit crunch, we've been in a  holding period, a time of change, a time of flux and a time where much of what we considered "the old normal" passed away.  I am no historian or economist, but I've come to the conclusion that the financial shock of the credit crunch was the pivotal moment of the century. The financial meltdown ushered in an age of austerity. This austerity meant that it became nigh on impossible for ordinary people to realise their dreams. As a business owner, 2008 was the last year that our studios made what might be deemed a good profit. We went to Los Angeles and San Francisco for our holidays, taking the family for two weeks. During this holiday, my Mum passed away. I became an orphan and a constant in my life went. I have always thought of this as a happy release. A week before she passed, I'd been in Lourdes, France with her. She was not happy. She told me she'd come to say her goodbyes. I told her not to be stupid. We brought her home, flew out to America and she passed away suddenly.

This coincided with the start of the development that saw our new studio block built. Our old shop and two studios were demolished. It wasn't completed until 2012, due to difficulties raising finance. Had we done it two years earlier, the banks would have lent us ten times as much with no guarantees. By the time it was finished, people had less money in their pockets. The trust in the old political order was gone. Our music heroes were passing, many say the moment Bowie passed in January 2016 was the moment it all went wrong, but in truth, it was the credit crunch that did that. When people saw the banks getting baled out, whilst ordinary people were punished, they became disenchanted. To me, the Brexit vote was as much ordinary people sticking two fingers up at an establishment that failed them as a desire to be out of Europe. In many ways, I see the rise of Reform in the same way. Last week, I went to John Sullivans funeral. John was a highly principled man, respected by people all over Barnet. I was chatting with a couple of friends who were members of the Barnet Alliance for Public Services. We discussed the rise of Reform. When you have seen fourteen years of Tory failure, followed by a Starmer regime, which seems happy to put the boot into groups such as pensioners, and gives the impression that it doesn't understand economics, it is hard to make a positive case to dismiss Reform. Personally, I think Reform, run by Nigel Farage who is a commodity trader by trade and has been a professional politician for decades, are really peope who have the working classes of England in their heart, but that is a blog for another day. The fact is that none of the parties have a story to tell. 

One aspect of Brexit that is never discussed is the damage the departure of the UK has done to the EU, both economically and politically. Losing the third biggest economy and the second biggest donor to the budget was a massive shock. I have a friend who is an economist, who once told me that the best thing that ever happened to the EU from an ecomic perspective was Margaret Thatcher. Her belief in  free trade and removal of tarrifs reshaped the EU and made it far more economically vibrant than the Franco/German hegemony ever envisaged. Britain also championed the smaller nations and pushed for EU expansion. Thatcher saw this as the only way to ensure that the organisation delivered for all, not the great powers. I am not a Thatcherite, but her effect on the EU, the Single European Act etc are historical facts. She realised that removal of trade barriers would mean all of Europe would become more prosperous. As a business that buys musical equipment from EU states, we saw a huge benefit from the removal of trade barriers and subsequently have taken a huge hit as the barriers have returned. Sadly, after Thatcher passed, there was no one on the right who had the gravitas of the intelligence to see the benefits for the UK of the EU, if we dug in for our interests. Thatcher was never a leaver. She was a pragmatist, who understood how to play the game. She passed away in 2013 and with her death, for some reason, the right started the myth that she was a leaver. If she had been, there was no way that the UK would have remained as part of it for her eleven year Premiership. Whatever you may think of Thatcher, if she set her mind on something she did it. Her passing allowed a myth to become the currency of the hard right. The new era starts with the EU being a much diminshed organisation from before 2008. From the perspective of the new US regime, that sees the EU as a major economic rival, this is a very good thing, when it comes to brokering deals. The US can play the UK off against the EU, which really only benefits the USA.

We also seem to be at a crossroads in the middle east. Today, a ceasefire has started between Hamas and Israel. I don't believe that the full implications of what has happened in the past two years has been understood, but there has been a sesmic shift. When Hamas attacked Israel and took the hostages, they did so for one reason. They believed that the Israeli response would unite the Arab world against Israel and they would reclaim the land they believe they own. The hard line religious regime in Iran have long believed that this would be the powder keg that finally persuaded Muslims across the world to rise up and that a billion people would be able to erase Israel from the face of the planet. Not only did this not happen. The Arab nations sat on their hands and their population did not rise up and throw out their 'corrupt leaders'. The opposite to what Iran hoped happened. Israel destroyed the leadership of Hamas and Hezbollah. Assad fell in Syria. Rocket attacks on Israel were met with devastating responses, to which Iran had to backdown in a most humilating way. What Iran believed would be a decisive moment in the destruction of Israel has turned out to have been a humiliating defeat, on a scale few could imagine. Not only has it undermined Iran, it also humiliated Russia and Putin, who were the other main backers of Assad.

This brings us to Ukraine and Russia. I've read thousands of articles on the subject and few have been astute enough to tell the true story. Russia has had to get troops from North Korea to shore up its forces. They have air superiority, more equipment, more men and for much of the period have been able to act with impunity within their own borders. Despite all of that, they have failed to tame a much smaller nation. Putin has a nuclear arsenal, which is his trump card, but that has proven to be useless in trying to enforce his will on Ukraine. The new US adminstration will not be entering power thinking Putin is a direct threat. I don't want to try and foretell the future, but it looks pretty clear to me that whatever happens, hundreds of thousands will have died, Russia will have seen its economy crippled and Putin is a diminished figure, both at home and abroad. It's not a bad position for a US president to start from.

Top ten nations by GDP in 2024

And what about the other major powers, who the US has to consider when considering their economic and political strategy. China is the most difficult problem. America is reliant on China for much of the domestic products in its shops. The growth in this has been astronomical since 2008. The flow of cheap goods has contributed to the feeling of wealth in America. Trump can bang huge tariffs on. This will cause massive inflation and hit ordinary people in the pocket. Then there is India, which is rapidly catching China and has a middle class that is bigger than the population of the USA. Unlike China, India is not a controlled society and it has huge internal markets. It has not featured in the rhetoric that has been directed at China, because the it is well down the list of US perceived threats, but India has a space program and a massive IT industry. It is rapidly moving up the table of national GDP. 

This graph from Forbes, is most enlightening. 

Whatever you may or may not think, at the end of the day money rules the roost in this day and age, this is the graph that matters. A new era is starting.