THE just-ended month of August will go down as one of the most tumultuous in the financial markets over the last decade.
I recall watching CNBC a week prior to August 1 when the majority of the US government payments would start to be due.
The Democrats and Republicans were at loggerheads and seemingly no side was willing to make a concession.
This uncertainty caused unprecedented up and down movements in the markets.
I remember my attention fixed on the stock-ticker and on any given day major corporations were losing capitalisation in double figure percentages and the next day make up these loses.
On the morning of August 1, which was incidentally a Monday, the good news started to hit the airwaves.
The politicians at Capitol Hill had come to their senses and raised the debt ceiling, and the biggest economy in the world would not default on their debt payments. Good news, right?
Not quite.
On the same weekend when this deal was being thrashed out by the politicians, the economists and financial engineers at Standard & Poor (S&P) — a credit rating agency, decided to downgrade the United States’ credit rating from an elite AAA-status to an AA-status.
In the real sense this downgrading should really have meant nothing, and the markets should have gained impetus from the raised debt ceiling.
But financial markets are driven more by sentiment than real events.
As my financial idol and the world’s greatest ever stock broker Jesse Livermore once put it, at the end of the day the complicated algorithms and time-series graphs come to two things: fear and greed — those two things being the cornerstones of human psychology.
The following weeks of August have since become folklore in the finance world.
The up and down movement of the markets across the world led to the suspension of financial speculation in some of the top bourses in Europe.
The gold price reached new heights nearing the US$2 000 (about M14 200) an ounce mark.
I had personally predicted that the price would breach this mark but it has steadied at $1 800 in recent days.
The upward trajectory of tangible and precious assets is common in times of uncertainty and turmoil which has meant the demand for gold, silver and other commodities has raised prices thereof.
In the same vein the value of diamond exports may increase which may help Lesotho offset some of our current account challenges.
The current economic uncertainties in my opinion are still the remnants of the financial crisis which itself was a derivative of the sub-mortgage crisis a few years earlier.
The truth of the matter is that we are in this mess globally because of the mistakes of a few.
The culture of credit and instant gratification is what caused the sub-mortgage crisis in America.
The “intelligent” bankers borrowed the oblivious public money they themselves did not have.
Furthermore the creation of new and more complicated financial instruments meant an easy way to unlock and create cash on the part of the bankers, but it also meant that intricate designs in the world economy were made to be even more elaborate, to levels the bankers themselves could not have fathomed.
For the first time we really caught wind of the drawbacks in globalisation — America sneezed and the rest of the world actually caught a cold.
It is in these times that fundamental changes have to be made and it all begins with our thinking.
As the great 20th century scientist Albert Einstein once put it: “We cannot solve our problems with the same thinking we used when we created them.”
As has been clearly seen politicians have to be fiscally responsible and only take decisions that have positive outcomes for the majority, now and in the future.
This is easier said than done as our political office bearers have to worry about re-election at the next polls.
Sustainable long run growth can only be realised through further deepening of a country’s human capital, and this means involving the vast majority of the populace in the mainstream economy.
In recent weeks we have seen nationwide strikes although mainly driven by textile workers.
Over the last decade this sector has become important as it has absorbed the majority of Lesotho’s workforce. It’s understandable to argue that the union’s wage demands are out of touch with global happenings and will probably not be met. But the more crucial question is what happened in the booming years of 2004-2007 where record profits were realised?
More violent youth strikes were also seen across the United Kingdom, which we assumed was immune to such troubles as a developed economy.
Clearly, the world at large is in a state of flux and social cohesion is under threat because the passed economic problems always have accompanying social effects.
Economic downturns almost always hit the poor and marginalised harder and expose the structural imbalances within countries.
It would seem that we can expect low growth globally and locally for the next year or so at the least and so it is my opinion that strikes and social upheavals could yet still become the order of the day.
The key to easing the uncertainty will be for politicians globally and at local level to give fiscal direction that is focused on the long-term and not the just short-term.
Matela Lechesa is a freelance
writer based in Maseru
