Is Osborne right to be optimistic?

Britain’s economy grew at the fastest rate last year since before the financial crisis but output dipped in the final quarter of 2013, official data showed on Tuesday. Chancellor George Osborne said that overall, the data was “more evidence that our long-term economic plan is working”. Voice of Russia asked me if the chancellor was right to be optimistic.

Listen to the full interview here.

On how to break the despotic power of Finance

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I recently published “Just Money – How to Break the Despotic Power of Finance” (Commonwealth Publishing, 2014). RT TV kindly asked me to summarise my arguments in their show “Boom and Bust”.

To listen to the full interview please click here.

You can also download Just Money for £2.99 at www.primeeconomics.org.

On the Wonga Economy..

Money - Black and White Money

The Israelian Journalist Yoav Bornstein wrote this well-researched piece on the Wonga business and the Wonga economy.

We encourage our Hebrew readers to follow the link below. It was published by The Calcalist and featured on the frontpage by Ynet.

 

The Calcalist:

http://www.calcalist.co.il/markets/articles/0,7340,L-3621909,00.html

Money as a social construct and public good

“Everyone, except an economist, knows what ‘money’ means, and even an economist can describe it in the course of a chapter or so…” – A.H. Quiggin

Right now many of us are transfixed by a new kind of digital money that seems to escape the control of central bankers: Bitcoin and its new market challenger, Litecoin. There are two striking things about the ‘money’ that is Bitcoin. First, its creators (computer programmers) have apparently ensured that there can never be no more than 21m coins in existence. Bitcoin therefore is like gold: its value lies in itsscarcity. This potential shortage has added to the currency’s speculative allure, leading to a rise in its value. However, these rises and falls in value made it unreliable as a means of exchange.

Second, Bitcoin is not buttressed by any of the institutions that maintain advanced monetary systems. These include the rule of law, accountancy and criminal justice systems and central banks. It is these institutions that (try to) keep us honest. By contrast Bitcoin’s great attraction is precisely that it bypasses the state and all regulation. Indeed Bitcoin appears to be based on distrust. “Bitcoin was conceived as a currency that did not require any trust between its users” Jonathan Levin wrote recently.

Equally its scarcity means that unlike the endless and myriad social and economic relationships and transactions facilitated by credit, Bitcoin’s capacity to generate economic activity (trade, investment, employment) is limited – to 21 million coins. Like the architects of the gold standard, Bitcoin’s designers intend to deliberately limit economic activity to 21 million coins in order, ostensibly, “to prevent inflation”. In reality the purpose is to ratchet up the scarcity value of Bitcoin most of which are owned by originators of the scheme.

As this article is published, speculators have inflated to delirious heights the value of Bitcoin. The winners will be those who sell – just before the bubble bursts. In the absence of institutions that reinforce and uphold trust, the losers will be robbed. Continue reading… ›

The Autumn Statement 2013

The Guardian and the Center for Labour and Social Studies (CLASS) asked experts to give a short response to the Autumn Statement presented on the 5th December. Follow the links below and you will find my own contributions as well other commentaries on Chancellor Osborne announcements.

Osborne sees troubles ahead

by Ann Pettifor

Far from welcoming signs of economic growth, the chancellor opened his statement today with distinct uneasiness about the “Alice in Wongaland” recovery. In sombre mood, he referred to “spotting debt bubbles” before they burst, “unsustainable spending” and “effects on family budgets (from the crisis) still being felt”.

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The fact is that economic recovery poses a severe political threat to the chancellor and his party. The worry is that Britain’s consumers will be swept away by the rising waters of recovery and consumption, and then beached by soaring interest rates – before the next election.

Households are indebted to the tune of 140% of their income. But companies – accused of hoarding cash and not investing – are scarcely in better health. The corporate debt to income ratio, like that of the household sector, was at 140% in June 2013. No wonder firms are hoarding cash, and failing to invest. No wonder the chancellor today offered subsidies to exporters, the construction sector and white van lorry drivers – to add to the effective subsidies offered to bankers in the form of various lending schemes.

And while the chancellor expressed the hope that the Bank of England “can keep interest rates lower for longer and support the country …” he also knows that the bank has deliberately abandoned its control over rates of interest on the whole spectrum of lending Continue reading… ›

“The UK is plunging down a metaphorical rabbit hole into the fantasy world of easy (if dear) money”

The LSE blog British Politics and Policy asked me to give an interview for their “Five minutes with…” series. We ended up discussing much longer than five minutes and I thought I should share it with you. Enjoy the read.

 

Can you explain what you meant when you said we are living in an ‘Alice in Wongaland’ economy?

I made the Wongaland-analogy on the Today programme because of my fear that the UK is plunging down a metaphorical rabbit hole into the fantasy world of easy (if dear) money. And that this will lead those Britons with falling incomes into easy shopping/consumption and a re-inflated housing bubble. Piling more private sector debt on to our existing burdens and using expensive finance to raise consumption further, cannot drive a balanced recovery.

So what will? Continue reading… ›

Labour must challenge the governor of the Bank of England

Saturday´s first Class conference was a great success. The dynamic of the event was inspiring and I highly enjoyed being on a panel discussion with outstanding economists such as Mariana Mazzucato, Duncan Weldon and Costas Lapavitsas. My speech addressed the recent statements of Mark Carney. Labourlist kindly supported me on their web blog. Enjoy the read.Banksy_dreams

Today’s CLASS-YouGov poll should be a confidence booster for Labour. I write ‘should be’ because Labour’s deafening silence in response to the provocative speech last week by Mark Carney, the new Governor of the Bank of England, indicates Labour’s continuing lack of confidence. This is dismaying given that the City of London is an industry that is as much loathed by the British public as the energy sector; an industry that “generates instability and rising inequality” – to quote Martin Wolf in the Financial Times. This is an industry that allocates 34 per cent of its lending to financial institutions and a mere 1.4 per cent to manufacturing. And as the economy struggles to recover, the City shrinks its lending to SMEs.

Frances Morrell, the wise and effective, if now neglected, Labour leader of the Inner London Education Authority back in the 1980 and 90s, once taught me a profound lesson. Leaders are not born, she said. They become leaders. It takes time. They grow into the role.

Ed Milliband ought to be feeling really confident about the way he has grown into his role. Continue reading… ›

Governments must fix financial imbalances

ABC3

ABC Sydney´s “The Business Programme” asked Ann Pettifor for an interview on the current situation in international finance.

Ann made a strong case that nothing is being done to fix the structural imbalances in the global financial system, in particular the high debts that have accrued in advanced economies across all sectors – government, business and households.

Pettifor argues that governments should create the economic activity that is now lacking, including via infrastructure projects. “We need monetary and fiscal policy to work together, rather than monetary policy working alone”, she says. Central banks were delinquent in their risk management duties leading-up to the financial crisis, and have essentially escaped accountability in its aftermath. As such, they are repeating past mistakes. And while central banks can continue to pump liquidity into the financial sector via their quantitative easing programmes, there are not enough people in the real economy looking to borrow and invest, which means the extra liquidity is flowing straight into asset values, causing dangerous bubbles.

Click here to watch the full interview.

How to manage financial sustainability..

Last week I was invited to speak at the World Capital Markets Symposium in Kuala Lumpur, Malaysia. I urged politicians and regulators to focus on the management of interest rates for more financial sustainability. The speech was kindly featured by the “Malaysian Reserve”:

 

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Pettifor: Onus on regulators to manage rates

Pettifor, a director of the Policy Research in Macroeconomics in the UK, is critical of regulators in both the developed and developing markets like Malaysia. She said the regulators are not doing enough to manage interest rates, which pose a critical impact on the economy.“At a time when most governments are complaining of fiscal pressure and investors are facing economic uncertainties, UK-based economist Ann Pettifor has brought forth a novel view of putting the onus on the states and not the corporate sector to manage financial sustainability in the economies.

“The interest rates, paid by people and corporate entities, are much higher than the base rates or policy rates that regulators decide,” she said in an interview with The Malaysian Reserve in Kuala Lumpur. She was in the city to attend the two-day World Capital Markets Symposium that ended on Wednesday.

Her prescription to the problem is simple — the government has to create assets like issuing long- and short-term bonds so that the people could invest in such assets.

“This way the interest rates can be managed,” she said.

Pettifor said she wants to see central bankers manage the interest rates in a much more active role than they are doing right now. “The interest rates are very important for the overall economy.”

Continue reading… ›

The US debt crises and the consequences of default

Cnn

Should the US default on its debts? Jim Boulder from CNN interviewed me on the advantages and disadvantages of default. Click here to watch video in full.