19th September, 2008: My comment for the Guardian’s site, part of a debate on the Credit Crunch organised by the new economics foundation, of which I am a fellow…

Bankers have gone to great lengths to damage our confidence in the banking sector. And loss of confidence and trust on this scale can’t be fixed by banning a few short-selling speculators or by nationalising a bank here, an insurance company there. Nor is confidence restored when ministers meet up with bankers on the quiet, and grant them monopoly powers (as with Lloyds).

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In Ten tactics to brighten the gloom, the Guardian invited ten experts to give advice to the Chancellor and Prime Minister on how to lift the economic gloom – and to do it in just 100 words. Other contributors included Howard Davies, Robert Peston, Irwin Stelzer and Bill Emmot. Here is Ann Pettifor’s contribution:

Don’t crucify the economy on the cross of inflation. In the 1920s, central bankers crucified debt-laden economies on the cross of gold. In the 90s Japan’s finance ministry crucified that economy on the perceived threat of inflation. Ending the creditor-driven policy of inflation targeting frees up the Bank of England to cut interest rates and immediately helps debt-laden banks, companies and consumers. Inflation is feared most by creditors, grown rich on financial deregulation policies. The greater threat to the poor is a debt-deflationary spiral leading to high unemployment – made more certain by high real rates of interest.

The precedent of the United States’s great depression and Japan’s post-bubble collapse should haunt today’s G8 summiteers, writes Ann Pettifor in Open Democracy.

Japan hosts the G8 summit in the northern island of Hokkaido on 7-9 July 2008 at a time when its prolonged period of deflation and economic failure have rendered its politicians impotent. Philip Stephens notes that – despite Japan’s still considerable role in the global economy – the country’s politicians are the weaklings of global geopolitics. “Where is Japan?”, he asks. “The question is one of psychology rather than geography. Japan is still the world’s second most powerful economy. Politically, it is all but invisible” (see “Japan goes missing: invisible host at the summit“, Financial Times, 4 July 2008).

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The Commentariat are spooking themselves themselves with ‘frightmares’ about the “spectre of inflation”. The charge is led by the BBC’s economics team with Hugh Pym warning in his News At 10 report (17th June) that inflation was “haunting the economy….” . Tonight Michael Crick of Newsnight piled on the horror by flashing images of the strikes and inflation that brought down Callaghan’s government……

The Governor of the Bank of England, dismayed by the shock-horror his earlier inflation-hype has caused, has belatedly tried to calm nerves and contradict these irrational fears in his now famous ‘Letter to the Chancellor’ of 16th June. Recanting of his earlier assertions he wrote: “there are good reasons to expect the period of above-target inflation we are experiencing now to be temporary” (my italics). (More about this inflationary squeeze being temporary in my next blog.)
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