Ann Pettifor: September 24, 2009

As world leaders meet in Pittsburgh and then Istanbul (for the World Bank and IMF meetings) expect much self-congratulation and back-slapping for having got the world through the post-Lehman crisis.

But behind the cacophony of self-praise, watch out for three alarms flashing red:

• The escalating foreclosure and rising mortgage delinquency rates in the US
• The dramatic contraction of credit in the US over the summer – putting paid to any hope of the US acting as the ‘engine’ of a global recovery
• That big accident waiting to happen to the European economies –Spain

With the help of a great new book – about to be published in the US – let’s take a look at why there is no room for complacency.

“No way to run an economy” (Pluto Press, 2009) is by a man whose research and analyses I have come to respect and rely upon – Graham Turner of GFC economics. While the book is full of solid facts and data – it is eminently readable for those prepared to unleash their inner wonk.

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I could not put down  Liaquat Ahamed’s riveting biographical account of ‘the bankers who broke the world’ – the central bankers, that is. (William Heinemann, 2009).  Those that lorded it over the global economy during the Great Depression were Montagu Norman of the Bank of England (1920-1944); Benjamin Strong of the Federal Reserve (1914-1928), Horace Greely Hjalmar Schacht of the Central Bank of Germany (1933-39) and Aime Hilaire Emile Moreau of the Banque de France (1926-1930).

It is sobering to discover that Montagu Norman had the first of many nervous breakdowns in 1906. In 1913 he consulted Dr. Carl Jung in Zurich – who informed that he was suffering from “general paralysis of the insane” – a term then used to describe the onset of mental illness…..The diagnosis was flawed, as in fact Norman was probably a manic depressive.  In 1931, at the height of the financial crisis he had another breakdown, and headed off to Canada on an ocean liner. His mental fragility did not however, prevent him from continually being re-appointed as governor – until 1944.  Such are the filial bonds of the British establishment. They are no less strong than the establishments bonds that ensured Ben Bernanke’s recent re-appointment – despite his role in cheering on the vast credit bubble that fuelled the asset bubble that finally burst on the 9th August, 2007 – arguing all along that the boom “largely reflect(s) strong economic fundamentals.”

Hjalmar Schacht and Montagu Norman were on good terms during the 1930s when Schacht was financing the expansion and militarisation of Nazism – with a good deal of help from the western banking system.  Such was the bond between them that as late as 1939 Norman visited Berlin to attend the christening of one of Schacht’s grandchildren.

This and many other powerful insights to be found in this book, which I strongly recommend.

Ann Pettifor: September 3rd, 2009

I have just listened to the excellent Dr. Paul Woolley on Radio 4’s the Today programme…He of the aptly named Centre for the Study of Capital Market Dysfunction – like it.  But what bothered me was his remark that the finance sector only acts as ‘intermediary’ between those with savings and those needing investment….

The truth that will not speak its name is that banks do not even do that….I learned all this at the feet of Dr. Geoff Tily, author of an important book on Keynes as first and foremost a monetary economist.

Because banks are licensed to create credit, and because bank money is such a wonderful human invention – there is no need for an investor to dip into someone else’s savings – or to  hire an agent to act as an intermediary…..as I explained in a recent letter to the Guardian. (below my unedited version). I was responding to a piece by J Freedland, urging us all to join Zopa, and share our savings with those needing to borrow…..

“While I welcome Jonathan Freedland’s determination to sideline the banking sector, his remedy – the exchange of savings and loans via Zopa at interest rates in the region of 8% – is based on a profound misunderstanding of bank credit (Don’t howl with rage. Try an idea that does away with banks altogether, 19 August).

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The Motley Fool, September 2nd, 2009

Motley Fool blogger TMF Sinchiruna spotlights the Times interview, describing me as “once ridiculed, later vindicated…” TMF Sinchiruna goes on to say: “Peter Schiff, Jim Rogers, Niall Fergusson, Ann Pettifor … these are the voices that I believe investors need to hear. Turn off the tv and look deep into the events of last year and consider for yourselves whether anything more than a hail-mary reflationary maelstrom has been heaped upon the fire that started it all.”

Read the Motley Fool article >

Also just did an interview for You and Yours on Radio 4 which was broadcast Wednesday. You can listen to it here.

From The Times: September 1st

Phil Thornton’s Times interview with me on the economy today.

“The economy is no longer in freefall and, as a result, there’s an enormous amount of complacency from politicians, in particular, about what will happen next. I believe politicians have given away the opportunity to restructure the banks and reconfigure the system.”

Read the interview >

September 1st, 2009

Correction – I  will be now be appearing on Thursday September 3rd on Jeff Randall Live on Sky News at 7.30pm