'Standard & Poor’s is just following events, not shaping them.' Photograph: Stan Honda/AFP/Getty Images
This is a piece I wrote for the Guardian in response to the S&P threatened downgrade of the Eurozone’s ‘core’ economies. The Guardian wanted a maximum of 600 words, delivered in a short time, so this was written hurriedly, and in the back of taxis ferrying me to TV stations. For this reason I have made a few changes this morning:
So European politicians want to shoot the messengers? Sure, ratings agencies haven’t always been reliable, decent or honest. And sure, like Eurozone politicians Standard & Poor is just following events, not shaping them.
But on this occasion S&P’s analysis, if not their solution, is right. Credit Crunch 2.0 is fast accelerating and squeezing life out of the real economy. The global (not just Eurozone) banking system faces insolvency. This private financial crisis impacts disastrously on the real global economy, and incidentally on the Eurozone.
But politicians – in the Eurozone and elsewhere – are not fixing the broken global banking system.
The Autumn Statement reveals but one thing: the Chancellor and his advisers are both ill-advised and dangerously ill-prepared for the forthcoming prolonged Depression. (And if you think I exaggerate, let me remind you that 20 years after the Japanese debt bubble burst, Tokyo house prices are still falling, and the stock market is worth 60% less than 20 years ago. And the Japanese economy was in a healthier state then, than the UK is today, thanks to an export surplus.)
Today’s penalising of the innocent – public sector workers, pensioners and those hundreds of thousands of young people entering the labour market – is a result of a deeply flawed economic analysis by the Chancellor of the causes of the global financial crisis.
George Osborne was presumably aiming at himself and his friends, when he vowed “to speak truth to power and wealth” at the Tory party conference this week, but dare he speak economic truth to the rest of us? – simultaneously published on Left Foot Forward >
On the narrowest of bases, he might still claim he spoke “truth” to the weak and powerless when in the House of Commons debate on the economy on August 11th he made this challenge:
“Those who spent the whole of the past year telling us to follow the American example, with yet more fiscal stimulus, need to answer this simple question: why has the US economy grown more slowly than the UK economy so far this year?”
It was a ‘brave’ claim when he made it, and it’s looking even ‘braver’ – and more disingenuous – now.
Read about my speaking tour of Australia below – from the SEARCH Foundation:
The SEARCH Foundation is currently touring eminent British economist and author Ann
Pettifor around Australia and she is visiting our shores with a warning; the GFC inducing credit
crunch is not over and Australia’s banking sector is vulnerable.
Ms Pettifor is visiting Adelaide, Sydney, Melbourne, Canberra and Brisbane for speaking
engagements over the next fortnight.
“Before the Credit Crunch of 2008-2009 Brits and Americans were convinced that the good
times could last forever. Our orthodox economists, central bankers and politicians encouraged
us in that delusion. Today millions of the unemployed, homeless and bankrupt are paying
a heavy price for the failure to understand the role of the private banking system in causing
systemic and widespread economic failure.” Ms Pettifor said.
“Australians would be well advised not to fall into the same trap.
The piece below was posted on the “Left Foot Forward” website on Monday, 8th August, 2011
“It is important that we understand the events of last week not as a new outbreak of crisis, but as a continuation of the banking crisis that first came to the public’s attention in 2007-9.
It is now just four years since the ‘debtonation’ on 9 August, 2007, when banks lost confidence in the viability of other banks, and stopped lending to each other. After a year when the fuse of huge debts endured a ‘slow burn’, the 2008 Lehman bankruptcy exploded the financial system and threatened systemic failure.
Without consulting taxpayers, central bankers and politicians rushed to the aid of bankrupt financiers. Private losses were socialised, and attempts at recovery were nursed by central bankers who pushed interest rates down to very low levels. Thanks to the weakness of politicians and central bankers this nationalisation of private losses was offered almost unconditionally to an immensely wealthy, and unaccountable elite.
RBS chief executive Stephen Hester Source: Getty Images
Dear readers…This is my blog posted on the New Statesman website today, 7 August, 2011 – with one minor correction in the fourth sentence.
“Let’s get one thing clear: this is not a crisis of, or for governments. This is first and foremost a banking crisis.
EU governments do not need a fragile, reckless and immensely wealthy private banking sector. However, as the financial markets made clear last week, the fragile private banking sector urgently needs Eurozone taxpayer largesse.
It was wonderful to be, first of all at such a professionally and well organised event (congrats to Mark Letcher and his team). It was also fantastic to be amongst such an interesting array of speakers including John Gapper ‘the secret gardener’ who has spent the last 35 years propagating wild flowers in Brighton and Hove (watch his talk here) and Alice Ferguson and Amy Rose – two mothers with a simple but brilliant idea to get children playing outside (watch their talk here).
My talk was on how we can afford to finance the Green Transition – watch below:
The statisticians, clutching at straws, blamed the victims – the British people – for the measly 0.2% growth in GDP. It turns out we are too fond of holidaying (the royal wedding effect) and basking in “warm weather”.
But this cannot explain the fall in manufacturing by 0.3% and the 3.2% fall in electricity, gas and water supply. Nor does it explain the rise by 0.7% in “business services and finance”. The fact is the economy remains unbalanced, and the coalition government is doing very little to restore some balance, and with it the potential for recovery.
And without economic recovery, there can be little hope for the public finances. The fact is, the chancellor cannot cut the deficit if the economy does not recover. Today’s numbers offer little succour. GDP is still lower than it was in 2006 – four years after the crisis “debtonated” in August 2007.
The chancellor’s budgetary outcome depends on the plans of the entire economic system and its reactions to the Treasury’s policies. Right now the British economy is responding to the government’s determination not to provide a stimulus to the very weak private sector – by faltering.
The argument is that Britain “cannot afford” a fiscal stimulus. That we “cannot afford” to boost the private and public sectors, create jobs, generate income and restore hope to 2.5 million unemployed people.
But we could, apparently, afford to bail out the banking system.
The coalition government’s determination not to stimulate the creation of employment, and with it the income that will generate recovery – will be viewed negatively not just by the powerful rating agencies, but by the British people too.
The fact is that just as work makes things affordable for individuals, so employment makes recovery affordable for the economy as a whole. And until the chancellor eats humble pie, and absorbs this economic lesson, neither the economy, nor the public finances will recover.