If you are not exporting, you are part of the problem

I went to a lecture yesterday evening at St John's College, Cambridge given by Professor Sir Mervyn King.  You may have heard of him.  He is the Governor of the Bank of England.  One of the conditions of entry was that it was a private meeting, whose contents were not to be divulged, so for your benefit dear reader let me draw your attention to a speech Professor King made in Liverpool, with the BoE have posted on their website here and you will find here.

The essence of the speech in Liverpool is quite simple.  Ever since the fall of the Berlin Wall, Asian economies have realised that the route to prosperity has lain with developing export driven economies, selling mostly to the more prosperous developed nations.  The developed nations have run consistently large trade deficits funded mostly the same Asian countries that have a strong saving ethic (or ridiculously large cash flow in the case of oil states).

Central bankers have met every year at G20 meetings and in Basle/Basel/Bâle and talked about the unsustainability of trade deficits, but nothing was ever done.  Now, the politics hae been overtaken by the arithmetic.

"Let me sum up. From the very beginning of the global crisis there has been a reluctance by governments to face up to the underlying solvency problems generated by apparently unending trade deficits with no mechanism, whether flexible exchange rates or some other means, for correcting these disequilibria. Those solvency problems have shown up on country and bank balance sheets. The initial reaction has always been to provide liquidity: through central banks or an extension of official lending by governments. Providing liquidity to buy time to devise and put in place a coherent response to the underlying problem can be not only valuable but necessary. But liquidity can never be the answer in itself. And if the time bought is not used then the size of the debt problem becomes larger and its cost is gradually transferred from private sector creditors to taxpayers."

The solution is long and hard.  It requires a transformation of the economy and will take years to correct.  From now on, if you ain't exporting, then you ain't worth a fig. If you are a diversity co-ordinator, NHS manager or even domestic house builder, expect to get paid your true worth, which is going to be a lot less until the west can get its act together.