Ann Pettifor: 31st January, 2009

“Davos” said a delegate to me as we sipped champagne in the art-nouveau-style lobby of the Schatzalp Hotel “is full of  men gnashing and wailing, dazed and confused by the debt-deflationary spiral.   As the newspapers have faithfully recorded the Davos sessions have provided little in the way of strategic direction out of this black hole…Instead there have been lots of rather hapless suggestions: ‘lets try this…No, hang on,  why don’t we try that….? by the very men appointed and elected as stewards, managers and guardians of the financial system.

On a panel entitled “the values behind capitalism”  Mrs Indra Nooyi, CEO of Pepsico conspicuously distanced herself and her company  from ‘the financiers’. The capitalism of “main street”, she said, was being declared guilty by association “with the other street” – Wall Street.

Good for her.  Later, just as the US stock market tanked again….she appeared as a ray of light at an event billed ‘An Important Dinner for Women’.  Present were 100 of the world’s most effective women, including Arianna Huffington, Melinda Gates, Christiane Amanpour of CNN, Shriti Vadera (overseeing the British bank bail-out) Dr. Margaret Chan,  Head of WHO, Mrs Sarah Brown wife of the British Prime Minister,  Ngozi Okonjo Iweala of the World Bank – and yours truly.

We were gathered together, courtesy of Matthew Freud, to strategise and organise to save the lives of millions of mothers.  In other words, to recognise that unlike financiers, mothers lay sound and lasting foundations for any nation’s economy.   While we can do without financiers stripping us of our savings and assets, we can’t do without mothers. For without their prudent management generations would not be fed, clothed, nursed, loved, educated, civilised and sent out into the world.

Ann Pettifor: 29th January, 2009

On Monday, 2nd February, the London-based Guardian is organising an event at their imposing new building in York Way. There the Queen’s question will be posed: “Why did no one see it coming?”

This event is now sold out.   The panel features:Nouriel Roubini, Professor of Economics, NYI; Chairman, RGE; Niall Ferguson, Laurence A. Tisch Professor of History at Harvard University and author of The Ascent of Money; Ann Pettifor, Fellow, New Economics Foundation; Rt Hon John McFall, Chairman, House of Commons Treasury Committee. It will be Chaired by Larry Elliott, economics editor, the Guardian.

Any useful hints, sources and references from readers of this column would be gratefully received…especially any howlers. Particularly looking for optimistic predictions made a year or two before ‘debtonation’ exploded on 7th August, 2007.  Cheerful predictions made by economists post August, 2007 would also be welcomed.

Ann Pettifor: 23rd January, 2009, 13.00PM

The election of a wise, astute and dignified man as US President; the sight of a happy loving couple, with a pair of well-behaved children taking over the reins of the White House; the power and dignity of Aretha Franklin’s voice, her glorious hat; the radiant faces of Americans in the Mall – all these sights and sounds lifted my spirits and warmed my soul this week. For just a moment.  Then this week’s economic events chilled me to the bone.

It is hard to over-state the gravity and extent of the collapse of the global economy. I can barely find the words to fill a blog that I fear you, dear reader, may weary of.  It is even harder to find an economy escaping the carnage, or to avoid politicians dashing for the cover of bail-outs.  But one can still encounter economists confident and chipper in the face of such massive, global destruction – and the threat of sustained economic failure. One such is Jim O’Neill, chief economist at Goldman Sachs who in my presence advised a BBC World Service audience in August, 2008 that he had “lived through five such economic shocks” – and that this one was no different. He turned up on the BBC again on Thursday 22nd January, this time to advise listeners that Chinese consumers can be trusted to take up the global slack.

Another optimist is Mr. Bini Smaghi, a Chicago-trained economist that sits on the board of the European Central Bank. (see Wall St. Journal Friday, 23rd January, 2009). Mr. Smaghi is so confident that Europe will overcome this crisis, that he is devoting his energies – and the ECB’s interest rates – to preparing for the future, and ignoring today’s threats to the working men and women of Germany, Greece, Italy, Ireland, Spain and Portugal. He argues strongly for keeping the ECB rate well above UK and US rates. This helps keep the Euro high, and in the process crucifies the export sectors of EU countries. Nevertheless Mr. Smaghi, who like Jim O’Neill is confident that this crisis is nearly over, is voting to keep rates up he tells us in order ‘to prevent the next crisis’. Oh, the luxury of such a worry.

Lets set the delusional optimism of these orthodox economists in context.

Where shall we start? With Microsoft’s decision to lay off 5,000 staff?  Surely Chinese consumers can be trusted to continue buying software?  It seems not. Microsoft estimated that the market for personal computers fell by between 7% – 10% in the final quarter of 2008. “That’s vast” said Steve Ballmer, Microsoft boss, “for something that’s always grown a lot….We’re not used to down markets.” He went further: “The perspective I’d bring is not one of recession. It’s that the economy is resetting to a lower level of business and consumer spending”. Nice to hear a company boss telling it straight for once.

Another contender for worst news of the week is The Royal Bank of Scotland’s £20 billion losses in 2008, the biggest-ever in Britain’s corporate history. Gordon Brown must truly regret his patronage of Sir Fred ‘the Shred’ Goodwin – RBS’s CEO – and his decision to elevate this reckless (and by all accounts heartless) man to a knighthood.  I remember vividly the desperation of my last encounter with a soon-to-be-sacked and close-to-tears  NatWest ‘relationship manager’, who in 2005 had his commission cut, his attention to customers curtailed and his focus on further unsustainable lending sharpened by -  Sir Fred.

Another contender for worst news of the week, and a sobering counter to Jim O’Neill’s optimism was Japan’s dramatic 35% fall in export sales this last quarter. As China is a major destination for Japanese exports, these numbers tell us a great deal about the ability of Chinese shoppers to take up the slack in time to prevent a further downward push on the debt-deflationary spiral engulfing the global economy.

But for me the most shocking chart of the week, thanks to the grand research of Graham Turner of GCE economics, is of the yield (effectively the interest rate) on bonds issued by non-investment-grade corporations. In other words the cost to ordinary, if a little risky, companies of trying to raise capital. At 25%  I call these rates usurious. What other term is there to describe this massive extraction of assets from entrepreneurial companies, struggling in a historically unprecedented downturn?  Things are not much better for such companies in the US, where yields have dropped from about 20% to 16% but remain, as Graham Turner argues, “punitive”.

It is these yields, or interest rates that explain better than any economist seems able to do, why companies are choosing bankruptcy and massive layoffs over usurious rates of interest on not just mountains, but mountain ranges of debts that under these terms are clearly unpayable.

What are politicians and regulators doing to stem this flow of bad news? And can our new hero in the White House plug the holes? Ah, those are thoughts for another column.

11th January, 2009.

Dashed across to Dublin this week-end, to address the Irish Green Party Conference, and met up with Richard Douthwaite of FEASTA – the excellent Irish think tank.  I was shocked by what is happening to our neighbours.   One newspaper headline declared yesterday that in this country of just 5 million people, 5,000 are being laid off every week. According to the Economist Intelligence Unit, “in October there were 260,300 claimants on a seasonally adjusted basis, up by a mammoth 57.1% on a year earlier, and by 6 .5% on the previous month (the largest ever monthly jump in claimant numbers.)”

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Ann Pettifor: 9th January, 2009, 17.00PM

Simon Jenkins writes for the UK Guardian,  and has a splenetic piece in the paper today. Its an attack on the economics profession which “has collapsed in ignominy and if there were any justice the profession would be sacked en masse”.  Could not agree more.  But he also has a pop at bishops. “The Church of England” he writes  “feels we had it coming to us, though it unfortunately omitted to warn us beforehand.”  That’s not true, nor is it fair.  The then Bishop of Worcester, Peter Selby wrote a powerful and insightful book in the early 1990s, titled “Grace and Mortgage” in which he both condemned the ‘hegemony of the finance system’ and warned it would end in crisis.  And he was not alone.

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Ann Pettifor: 8th January, 2009, 23.45PM

With grateful acknowledgements to both the Financial Times and Thomson Datastream, am delighted to reproduce this very important graph of interest rates – UK, US and EU over the past decade.

They clearly show how high real official (i.e. base) rates were before the 2001 dot.com crash and the ‘debtonation’ of August 2007. Please note that this graph refers only to base rates. The important longer-term rates – for Mortgages and in particular corporate loans – were often higher. And if investments were risky – as many vital investments are – the rates were much, much higher.

What would be really excellent would be to have a representation of all rates – short and long, real, safe and risky, and including of course, LIBOR rates.

This graph reveals very clearly that the fall in interest rates in 2001 was a reaction to the Credit Crunch of 2000 – 2001. In other words, without those dramatic cuts in interest rates of the Greenspan era – the Credit Crunch would have unfolded in all its agony back in 2001. In the event, the dramatic reduction in rates eased the crisis then (just as Japan’s cut in rates had eased the 1987 bond market crisis) and helped to propel the global credit bubble’s girth ever outwards – until the rising rates of 2005-6 finally, like a dagger, burst the bubble in 2006. It was this bursting credit bubble that then caused the deflation of the many other asset bubbles that credit and creditors had inflated – the property, stock market, hedge fund, private equity, football clubs, race horses, veteran cars – to name but just a few.

Ann Pettifor: 6th January, 2009, 08.00AM

A thumbs-up for the great work we (me and my mates, Colin Hines, Andrew Simms, Richard Murphy etc. ) did on the Green New Deal in an editorial in today’s Guardian discussing green new jobs, plus how to reconcile environmental sustainability with providing a cushion in a recession.

Ann Pettifor: 4th January, 2009, 11.00AM

First of all apologies for the long break. Like many others, I have been re-charging batteries, spending time with friends and loved ones, sleeping a great deal and briskly walking the wild, windswept and often freezing Suffolk coast. Highlights? Christmas day walk and picnic with my beloved on a windswept beach, celebrated with a flask of tea, a flask of brandy, a slab of last year’s Christmas cake, a candle in a tin, and two crackers.  And on the next, Boxing Day, at dusk, a startlingly beautiful  murmuration of about 10,000 – or was it 20,000? – starlings flying in unison and is if they were just one organism over North Warren, Thorpeness.

Awesome, humbling and very good for the soul. Good too for thinking and re-thinking our collective fates. Under globalisation we hang together pretty much as a murmuration of starlings do……..  Which brings me to the big question: where are our leaders taking us to roost in 2009?

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