HERE'S an update on the worldwide recession.

TEXT/ILLUSTRATION: LARRY HAVERKAMP AND MAROO

In Japan, suicide rates are up another 15 per cent this year. Blame it on the recession.

In January this year, Japan recorded 2,645 suicides. It averaged about one every 15 minutes, the world's highest.

America's outrage

In America, the despair shows up as outrage and it's growing fast.

Americans haven't been so angry since President Bill Clinton got a haircut on Air Force One while other planes had to sit on the runway and wait for the barber to snip the last hair on Bill's head. It offended their sense of fairness.

The most recent outrage is life insurer AIG's bailout of US$170 billion ($260b). The company used a small part of it to pay US$165 million in 'retention' bonuses to its top 418 employees. Of those, 52 had already left the company but they got US$33m anyway.

A total of 73 employees received more than US$1m each.

The government said it would deduct the US$165m from the US$170b it gave AIG. It is also looking for a way to impose a 90 per cent tax on employees who won't return the money.

Actually, the bonus money is small potatoes. It comes to less than $1 per $1,000 of the government's US$170b bailout money.

But it has offended people's sense of fairness since most bonuses went to employees who created the mess in the first place. They insured debt they thought would never default.

Boy, were they wrong. The defaults cost AIG US$62b in the past three months alone, a new world record for losses.

AIG didn't have the money to pay all the claims so the US government bailed them out and took an 80 per cent stake in the company.

The dust is about to settle but the central question remains: 'Does AIG have enough assets to sell in order to repay the US$170b it owes the US government?'

I added up the numbers and it comes to less than US$170b. I am guessing the company will have to declare bankruptcy.

Don't take my analysis too seriously though. The stock market disagrees and sent AIG shares up an incredible 300 per cent last week.

Printing money is good

THE US Central Bank surprised us last week. On Wednesday, it promised to buy US$300billion ($455b) of long-term US treasury bonds over the next six months.

It will boost the money supply by 20 per cent and is the same as printing money. I am one of the few who thinks it is a good idea.

Why? Because there isn't much the US Central Bank can do any more. It has already reduced its key interest rate to zero per cent.

Printing more money provides an almost magical encouragement for an economy. History shows it works beautifully if it doesn't boost inflation. The chances of that are low since we are stuck in a price deflating recession now.

Printing money also provides a cheap way for the US government to pay its bills. After all, it is free!

To me, the biggest shock is that this isn't a change in policy at all! I found the US Central Bank has been quietly doing this since 15Sep last year when Lehman Brothers failed and depression suddenly appeared more likely than recession.

In the past six months, the US has doubled its money supply. Outside of Zimbabwe, few countries print money so rapidly.

Not to worry. On the outside chance that inflation shows up, the US can easily undo the money supply increase by selling back the debt.

The US is following a bold and brilliant policy that has little risk. If the Japanese had done this, they could have avoided their 'lost decade' of near zero economic growth in the 1990's.  Back to Columnists