www.stand4islam.blogspot.com: The Mirage of Economic Recovery

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In recent times a plethora of misconceptions, misrepresentation and myths have been forged about Islam
and Muslims. Many western influentials from politicians, policymakers to judges have taken it upon
themselves to undermine the Islamic beliefs, values and rules so to make it palatable to their
egotistic minds and the secular liberal thoughts.

This blog is dedicated:-

1. To argue the point for Islam in its belief and systems and to refute the misconceptions.
2. To expose the weakness and contradictions of all forms of secularism.

31 Dec 2009

The Mirage of Economic Recovery

On the 60th anniversary of the Great depression the US Commerce Department Bureau of Economic Analysis released advance estimates that the US economy (GDP) had grown after four consecutive quarters of decline. If correct the US economy has posted economic growth for the first time in a year.America joins Japan, China, Germany and France as the world’s leading economies that appear to have emerged from recession and averted economic collapse. Some are arguing that this signals the end of the ‘great recession’ and a return to economic growth.

In order to assess this one would need to look at the factors that caused the recession and then analyse if they are still present or have they been replaced by economic conditions that will bring new and sustainable growth.

The growth in Western economies in the last decade was driven by the real estate bubble which ostensibly US led but which also stimulated other major western economies.The bubble reached exceedingly colossal proportions because banks were able to create various financial products from debt which were then sold to other banks based upon the assumption that the housing bubble will continue to expand.

The collapse of the worlds largest Sub prime company – New Century Inc in April 2007, the collapse of Northern Rock in February 2008 and then AIG, Lehman brothers and a whole host of other banks brought to the forefront that the boom of the last decade was unsustainable and built upon speculative assumptions that real estate prices will continue to rise.

The subsequent collapse in housing prices exposed gaping holes in lending practices of the worlds largest banks; many banks were forced to write off billions in debt, which on mass were being defaulted upon.As banks collect customer deposits and lend to new business and projects all of this came to a grinding halt and because of this a crisis that was inherently financial, shifted to the real economy, production dropped, many companies collapsed and unemployment increased. Hence the economies of the West were driven by real estate which had now run out of steam.

To avert catastrophe Western governments intervened on a colossal scale to save their economies from collapsing.The idea being, that whilst many would not be able to spend and hence stimulate economic activity, the state would provide the necessary money to stimulate the economy and this would bring back confidence and kick start the economy.Western governments took three key approaches to the crisis: nationalisation, stimulus packages and the printing of money.

Analysing the Economic Recovery

Many economists and policy makers are arguing that the world’s premier economies have now shown economic growth between April and June 2009 and this marks the end of the great recession.

Germany lost 6.7% of national income over the course of the recession. Germany is the manufacturing heart of Europe. It relies upon exports to fuel growth. So its biggest problem has been the huge fall in global trade, which the World Trade Organisation predicts will have contracted by 10% this year.

However populist polices by Chancellor Angela Merkel and the agreement to supply Russia with German automobiles shows that growth in the German economy at best based upon temporary factors and not underlying economic fundamentals.

In February 2009, the country approved a 50 billion euro (£44bn) stimulus plan, Germany also launched a car scrappage scheme in February 2009 where drivers receive a cash incentive to scrap their old car and buy a new one – to boost the ailing car industry.The scheme has been widely deemed a success, with more than 1.7 million applications.

The peak-to-trough decline (the beginning of the first quarter of decline to the last) for France was 3.5%.The French government announced for a 26 billion euro (£23.5 billion) initiative designed to revitalise the economy. France and Germany have come out of the recession because their financial sectors, account for a smaller proportion of their economies.

The total decline for Japan has been an enormous 8.4%. Government stimulus measures totalling $260bn (£159bn) helped to boost the economy, including cash handouts and subsidies to buy energy-efficient cars and home appliances.

If the US has come out of recession its loss in income will have been 3.7%. Third quarter GDP data reveals that August retail sales surged a seasonally adjusted 2.2% over the previous month, producing the largest monthly percent increase since January 2006, However the surge in August was driven primarily by an 11.6% increase in automobile sales, which was a direct result of their Cash for clunkers scheme.The end of this scheme saw retail sales fall 1.5% in September.

Distortion of Stimulus Leg up’s

At the peak of the economic crisis many Western states developed Stimulus packages in order to save their economies from collapse, the most infamous being the US $1.2 trillion stimulus package in 2008. However any stimulus is a high-octane boost and a temporary measure.They are designed to kick-start stalled economies, not to fuel sustained economic growth. Hence the current growth seen in some nations are the inflated results of stimulus measures achieving their intended effect to be temporary.

Government initiatives such as Car Scrappage schemes, the reduction in the general sales tax in the UK and tax credits for first-time home buyers as seen in the US and France contributed to the respective 1 percent and 0.5 percent portion of the total GDP increase attributable to increased motor vehicle sales and residential investment. As these programs end, so will the contribution to the economy.

Brian Bethune, economist at IHS Global Insight said with regards to the end of the recession: “It’s good to have the economy growing again, but we don’t think that rate of growth is sustainable because it is distorted by all the government stimulus.The challenge here is to get organic growth – growth that isn’t helped by fiscal steroids.” Unemployment is currently 9.8% in the US, that is over 15 million people.

When looking at the quality of growth much of the economic factors are temporary and not driven by any factors that can be considered sustainable. Dana Saporta, an economist at Stone & McCarthy Research in Skillman, New Jersey confirmed this: “Much of the strength in the US economy is due to temporary factors such as fiscal stimulus initiatives like the home-buyers credit.”

In fact the leg up provided by governments around the world shows the importance of government aid to the emerging economic recovery, when this is removed – which eventually governments will have to as they cannot continue with expensive stimulus plans, it is very much possible that Western economies will fall into recession again.

The stimulus packages have driven artificial growth, once Western states remove the leg up they have provided we will need to see if the free market can function on its own.With the busiest shopping season of the year approaching – Christmas, the coming quarter will provide a good gauge of ‘unstimulated’ consumer activity.

However with unemployment at its highest, national production at best premature and debt still very high this quarter’s turnaround is in no small part due to government stimulus measures, and is therefore most likely artificially inflated and not sustainable.

Conclusions

Whilst the US, the worlds largest economy appears to have moved out of recession its economy is dependent on consumer spending, which makes up approximately 70% of its GDP, exports make up only 11% of its economy. So sustained consumer spending will be essential for the US and consumer spending shows no signs of recovering.

The leg up provided by the Capitalist world in no way dealt with the underlying economic problems of unsustainable growth, debt driven spending, casino finance and bubble economies.What such stimulus packages have done is kept Capitalist economies afloat when unemployment, repossessions and bankruptcies have all increased.

So whilst statistically Capitalist economies maybe coming out of recession the reality on the ground is much different. Socialist intervention by Capitalist governments have for the moment halted a complete economic collapse, however once all the temporary initiatives are removed from the free market it is highly unlikely the market will stand on its own feet. Hence the world economy in reality is in the same position it was a year ago.

Whilst the majority of Capitalist societies face the grim prospect of unemployment and repossessions, they will not be receiving any handouts to ease their situation; the recent bonuses announced by some of the worlds largest investment banks shows where the bailout packages have gone.This shows the agreements made at the G20 summits were really only for public consumption.Western governments have still failed to pass legislation to stop bonus excesses.

In this scenario Muslims have little to be positive about.Although the disasters of recession/depression are wholely avoidable under the Islamic economic system with a stable gold/silver based currency, prohibition of usury and the wanton creation of fiat money, clear company ownership and trading rules and perhaps most importantly the clear distinction between public, state and private ownership assets.

It is the public wealth of the Ummah including oil, gas and minerals which is still under the jealous guard of those that will use it for their own selfish ends in support of the status quo.This will not change until we see wholesale change in the Muslim world with the re¬establishment of an Islamic economy under the Khilafah. Until then recovery will remain a mirage.

[Article written by Adnan Khan]

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What they said...

“Islam represented the greatest military power on earth…It was the foremost economic power in the world…It had achieved the highest level so far in human history, in the arts and sciences of civilization...Islam in contrast created a world civilization, poly-ethnic, multiracial, international, one might even say intercontinental.”

[Bernard Lewis, Professor of Near Eastern Studies, Orientalist and Historian, 2001]

"There was once a civilization that was the greatest in the world. It was able to create a continental super-state that stretched from ocean to ocean, and from northern climes to tropics and deserts…the civilization I'm talking about was the Islamic world from the year 800 to 1600… Although we are often unaware of our indebtedness to this other civilization, its gifts are very much a part of our heritage"

[Carly Fiorina, ex-CEO of Hewlett-Packard, 2001]

"For the first three centuries of its existence (circ. A.D 650-1000) the realm of Islam was the most civilized and progressive portion of the world. Studded with splendid cities, gracious mosques and quiet universities where the wisdom of the ancient world was preserved and appreciated, the Moslem world offered a striking contrast to the Christian West, then sunk in the night of the Dark Ages."

[Lothrop Stoddard, Ph.D (Harvard), American political theorist and historian, 1932]

"Medieval Islam was technologically advanced and open to innovation. It achieved far higher literacy rates than in contemporary Europe;it assimilated the legacy of classical Greek civilization to such a degree that many classical books are now known to us only through Arabic copies. It invented windmills ,trigonometry, lateen sails and made major advances in metallurgy, mechanical and chemical engineering and irrigation methods. In the middle-ages the flow of technology was overwhelmingly from Islam to Europe rather from Europe to Islam. Only after the 1500's did the net direction of flow begin to reverse."

[Jared Diamond, UCLA sociologist and Author, 1997]

"No other society has such a record of success in uniting in an equality of status, of opportunity and endeavour so many and so varied races of mankind. The great Muslim communities of Africa, India and Indonesia, perhaps also the small community in Japan, show that Islam has still the power to reconcile apparently irreconcilable elements of race and tradition. If ever the opposition of the great societies of the East and west is to be replaced by cooperation, the mediation of Islam is an indispensable condition."

[Hamilton Alexander Rosskeen Gibb, Professor at Harvard University, 1932]

“The Muhammadan Law which is binding on all -- from the crowned head to the meanest subject is a law interwoven with a system of the wisest, the most learned and the most enlightened jurisprudence that ever existed in the world.”

[Edmund Burke, British Statesman and Philosopher, 1789]

"The Exile here is not like in our homeland. The Turks hold respectable Jews in esteem. Here and in Alexandria, Egypt, Jews are the chief officers and administrators of the customs, and the king’s revenues. No injuries are perpetuated against them in all the empire. Only this year, in consequence of the extraordinary expenditure caused by the war against Shah Tahmsap al-Sufi, were the Jews required to make advances of loans to the princes."

[David dei Rossi, Jewish Traveller 17CE, quoted by Norman A. Stillman, The Jews of Arab Lands]

"The notable religious tolerance towards Christians and Jew under Muslim rule had given way to the uncompromising zealotry of Spanish Inquisition. Jews and Muslims thus fled Spain with large numbers of Jews immigrating to the Ottoman Empire which was known for its tolerance to the Jews."

[Graham Fuller, Author and former CIA, 1995]

“If there is much misunderstanding in the West about the nature of Islam, there is also much ignorance about the debt our own culture and civilization owe to the Islamic world. It is a failure, which stems, I think, from the straightjacket of history, which we have inherited. The medieval Islamic world, from central Asia to the shores of the Atlantic, was a world where scholars and men of learning flourished. But because we have tended to see Islam as the enemy of the West, as an alien culture, society, and systems of beliefs, we have tended to ignore or erase its great relevance to our own history”

[Charles Philip Arthur George, HRH The Prince of Wales, 1993]

"...Not being subject to the Sharia, Jews and Christians were free to go to their own religious authorities for adjudication of disputes; but in many cases they went instead to the [Muslim] Qadi"

[Richard W. Bulliet, Professor of History and Author, 2004]

"Here in the land of the Turks we have nothing to complain of. We possess great fortunes; much gold and silver are in our hands. We are not oppressed by heavy taxes and our commerce is free and unhindered. Rich are the fruits of the earth. Everything is cheap and each one of us lives in freedom. Here a Jew is not compelled to wear a yellow star as a badge of shame as is the case in Germany where even wealth and great fortune is a curse for a Jew because he therewith arouses jealousy among the Christians and they devise all kinds of slander against him to rob him of his gold. Arise my brethren, gird up your loins, collect up your forces and come to us."

[In his book 'Constantinople', Philip Mansel quotes a rabbi in Turkey writing to his brethren in Europe where they were facing increasing persecution after 1453]

"Praise be to the beneficent God for his mercy towards me! Kings of the earth, to whom his [the Caliph’s] magnificence and power are known, bring gifts to him, conciliating his favour by costly presents, such as the king of the Germans, the king of the Gebalim, the king of Constantinople, and others. All their gifts pass through my hands, and I am charged with making gifts in return. (Let my lips express praise to the God in heaven who so far extends his loving kindness towards me without any merit of my own, but in the fullness of his mercies.) I always ask the ambassadors of these monarchs about our brethren the Jews, the remnant of the captivity, whether they have heard anything concerning the deliverance of those who have pined in bondage and had found no rest."

[Hasdai Ibn Shaprut (915-990 CE) Jewish physician, chief minister of Islamic Caliphate in Cordova, 'The Jewish Caravan']

"In Baghdad there are about forty thousand Jews, and they dwell in security, prosperity, and honour under the great Caliph [al-Mustanjid, 1160-70 CE], and amongst them are great sages, the Heads of the Academies engaged in the study of the Law…’"

[Benjamin of Tudela, Rabbi in Baghdad in the year 1168 CE, 'The Jew in the Medieval World']

"Those Eastern thinkers of the ninth century laid down, on the basis of their theology, the principle of the Rights of Man, in those very terms, comprehending the rights of individual liberty, and of inviolability of person and property; described the supreme power in Islam, or Califate, as based on a contract, implying conditions of capacity and performance, and subject to cancellation if the conditions under the contract were not fulfilled; elaborated a Law of War of which the humane, chivalrous prescriptions would have put to the blush certain belligerents in the Great War; expounded a doctrine of toleration of non-Moslem creeds so liberal that our West had to wait a thousand years before seeing equivalent principles adopted.

[Leon Ostorog, French Jurist]

"The debt of our science to that of the Arabs does not consist in startling discoveries or revolutionary theories; science owes a great deal more to Arab culture, it owes its existence"

[Robert Briffault, Novelist and Historian, 1928]

"The only effective link between the old and the new science is afforded by the Arabs. The dark ages come as an utter gap in the scientific history of Europe, and for more than a thousand years there was not a scientific man of note except in Arabia"

[Oliver Joseph Lodge, Writer and Professor of Physics, 1893]

“Thus, when Muslims crossed the straits of Gibraltar from North Africa in 711 and invaded the Iberian Peninsula, Jews welcomed them as liberators from Christian Persecution.”

[Zion Zohar, Jewish scholar at Florida International University, 2005]

“Throughout much of the period in question, Arabic served as the global language of scholarship, and learned men of all stripes could travel widely and hold serious and nuanced discussions in this lingua franca. Medieval Western scholars who wanted access to the latest findings also needed to master the Arabic Tongue or work from translations by those who had done so.”

[Jonathan Lyons, Author, Writer and Lecturer, 2009]