Is there a world inflation threat, Zimbabwean-style?

The idea that the world can possibly soon face a Zimbabwean-style inflation condition is gaining ground among economists. Dominic Lawson's article in London's The Sunday Times was entitled 'Obama's new deal is the same old blunder'. It was obviously not the expression of ideas of just one man. It happened to be the closely forged economic attitude of two of the world's most prestigious newspapers, The Sunday Times and The Economist on the present hyper inflation threat.

The Lawson article was written in close contact with The Economist. A denigrator would speak of 'collusion' or 'conspiracy' between the two papers. In both, the words of US President Barack Obama have been treated with serious apprehension. It is not unusual for a politician to be elected to the highest office and to be ignorant or careless about facts on his country's economy. These can only be analysed by a patient shifting of events in this case those relating to the Great Depression.

Harold Macmillan, British Prime Minister of the 1960s, used to speak about the overwhelming significance of events in the taking of a decision. The 'event' in question, which came up in the Lawson piece, was that massive American and European 1930s unemployment, was only controlled when spending for World War II began in earnest. The unemployment rate in the US in the early 1930s was 25 per cent. Lawson points out that: "The unemployment rate in the US was still 19 per cent in 1939. Over the following four years, the number of unemployed workers declined dramatically, by more than seven million. This had a particular reason: the number of men in military service rose by 8.6 million."

Obama's stimulus package has all the ingredients of failure, if not of disaster for the world economy. It has massive 'protectionist' overtones; it is prescriptive in that his House Democrats will write his cheques, and is totally deficient in detail. What about 'Silicon Valley'? Protectionism will bring about a massive contraction of world trade. The Arab oil price rise in the early 1970s shocked the world economy causing it to contract by 10 per cent.

This time round the world has been shocked by the unregulated doings of men like Bernard Madoff ($50 billion lost) and the billionaire Sir Allen Stanford who is charged with massive ongoing fraud.

It will not be impossible for the US to change the corruption culture which, for a time, seems to have gained the upper hand. Obama is a poor economist trumpeting the most primitive reading of Keynes' theories: that governments can never waste their monies. This was the sort of nonsense I used to hear in Mr Mintoff's Economic Planning Office in the early 1960s.

Those who cannot remember the past are doomed to repeat it. American innovative leadership will win the day in spite of Obama's all-too-obvious untutored approach.

Alan Greenspan, the one- time self-confessed funny tennis companion to Zarb, proved to be not all that funny in his speech last week at New York's Economic Club of New York. He is by no means afraid of a little inflation, which if administered now will save us all from a Zimbabwean-style inflation.

The conclusion of Greenspan's almost universally shared opinion is that the Fed must pump more money into America's beleaguered banks; the US can only be saved at the cost of the utter discrediting of the dollar. This is flagrant money printing which is resulting in gold becoming one of the few remaining major asset classes where a case could be made for it to rise in a parabolic fashion. Another warning sign has been that central banks feared counterparty risk for the first time in 20 years and massively cut gold trading and sales. No less a man than Mark Faber of Singapore has declared that bullion gold will outdo equities in the next 10 years. Yes, gold is back with vengeance.

Mr Azzopardi Vella, economic consultant with DBRI Investments Ltd, has promoted the Malta Development Fund and advised S&P.

johnazzopardivella@hotmail.com