Floor of the New York Stock Exchange, Thomas J. O’Halloran, 1963
How can we make sense of volatile global stock markets? Economists explained this week’s dramatic falls by pinning responsibility on China. They are at pains to assure us this is not 2008 all over again. I beg to disagree.
Even though data is not reliable, it appears that China is slowing down. By 2009, the Chinese authorities were embracing the Western economic model that had just brought down much of Western capitalism. Undeterred, they launched a massive credit-fuelled investment programme. Growth soared at 10 per cent per annum. Investment recently peaked at an extraordinary 49 per cent of GDP. Total debt (private and public) rocketed to 250 per cent of GDP – up 100 points since 2008, according to the IMF. Property and other asset markets boomed, as did consumption. The Chinese should have been warned, for they won accolades from Western economists for their “Goldilocks” economy.
China’s stimulus helped keep the global economy afloat in the years following. But there are economic, ecological, social and political limits to a developing country like China continuing to support richer economies. And there are limits to Beijing’s willingness to abandon control and adopt in full the Western neoliberal economic model; the Communist Party has begun intervening. It is this intervention, we are led to believe, that spooked global markets.
I appeared on Al Jazeera’s ‘Inside Story’ yesterday to discuss Greece and was joined by Greek Journalist Matina Stavis and Political Analyst George Kapopoulos. During the panel discussion I stated that:
“The Troika are trying to ensure that the money goes straight to the creditors to prevent Greece from defaulting, but in doing so they are stripping Greece of her economic and political sovereignty. They hope to stabilise the situation and make sure that the bankers and hedge funds get paid, and that pensioners and the poor don’t take priority over them.”
This week I appeared on Newsnight with Gillian Tett of the FT and Louise Cooper of BGC Partners. We discussed our graphs of 2011 (see mine below) and wider questions around the global financial crisis this year – and how ecnomists and policy makers need to respond.
'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.
“I have just returned from a lecture tour of Australia where I came across the story of the Sydney Diocese and what the Aussies call the GFC – the Global Financial Crisis.
The Sydney Diocese, far from chasing the money-lenders from the temple that is their faith, invited them in, borrowed money against the diocese’s collateral, and used the borrowed money to invest – some would say gamble – on the stock market. When the financial crisis broke in 2008, stock market losses were amplified by the church’s huge borrowings. Archbishop Dr. Peter F. Jensen broke the bad news while addressing the church’s annual Synod in 2010, and according to ABC, said that the synod’s “losses total more than $100 million.”
As mayhem breaks out on stock markets; as Eurozone banks freeze up; and as the global financial system approaches a frightening ‘danger zone,’ the champions of the globalised ‘free market’ and of the Euro are in search of a scapegoat.
Instead of accepting that it is the broken banking system; the de-regulated financial Eurozone, and the deflationary monetarist policies of the Maastricht Treaty that are the roots of the crisis, the Troika (the IMF/EU/ECB) want to identify a convenient whipping boy.
Instead of going after the real culprits — un-regulated bankers that lent recklessly, confident they would always be bailed out by taxpayers — the approach of the Troika is to scapegoat Greece. The implication is that the whole fabric of the Euro, and with it the global economy, is torn apart because one poor country, Greece, will not enforce ever-deeper austerity on her people.