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.
Last week I gave a talk in Brussels at a debate moderated by Pierre Defraigne, Executive Director of the Madariaga – College of Europe Foundation. It was ACitizen’s Controversy with Lars Feld, Professor of Economic Policy at the University of Freiburg and Member of the German Council of Economic Experts.
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.
As bank shares and stock markets plummet, and investors flock to the safety of government bonds; as obstinate EU leaders crucify their countries in a futile struggle to defend today’s equivalent of the gold standard; as British and American politicians adopt austerity policies and drive their economies closer to the cliffs of depression; and as most professional economists stand aloof from the escalating crisis – what lies ahead for ordinary punters like you and me?
First, let’s take look at the big political picture. This crisis is already sharpening the divide between left and right in both the EU and the United States. Studying a precedent – the implosion of the 1920s credit bubble in 1929 – we note that four years after that crisis erupted, the political divide sharpened decisively. The United States and Britain moved to the left. Germany chose a different path. After 1930, Germany’s Centre party under Chancellor Brüning adopted austerity policies that resulted in cuts in welfare benefits and wages, while credit was tightened. At the same time the German government engaged in wildly excessive borrowing from the liberalised international capital markets. The ground was laid for the rise of fascism.
Tonight, Wednesday 3 August 2011 at 08.00pm BST (GMT +1), BBC Radio 4 will broadcasta debate which took place at the London School of Economics (LSE) on 26 July. This broadcast will be repeated on Saturday, 6 August, at 10.15 p.m BST (GMT +1).
Along with my colleagues Prof. Victoria Chick and Douglas Coe at PRIME we have written the following response to the debate:
On the one hand we are pleased that the BBC and the LSE now acknowledge rival positions to the present austerity policies of Western governments. On the other we are concerned that the debate might have served mainly to reinforce existing prejudices, rather than to clarify the substance of the matters under discussion, matters which – there can be no doubt – are of the most profound importance.
Lord Skidelsky provocatively but justly reminded the audience that in the early 1930s, the same orthodoxy driving western austerity policies directed the actions of Germany’s 1931 Bruning government and paved the way for the rise of Nazism. These actions – vigorously opposed by Keynes – were the final straw for a Germany crushed by defeat and the disastrous boom-bust cycle that followed their return to the gold standard. Reparations were easily circumvented by wildly excessive borrowing from financial interests around the world, in a manner that even Keynes did not anticipate. It was these financial and fiscal policies that brought Hitler to power.
With financial interests still firmly in the ascendency and reactionary right-wing forces increasing their grip in the United States and much of the Western world, we must not forget these lessons from history, which formed the background to the original debate between Keynes and Hayek themselves. The stakes are high indeed.
(Photo: REUTERS / Yiorgos Karahalis ) A Greek riot policeman stands in front of graffiti written on the wall of a bank during violent demonstrations over austerity measures in Athens, May 5, 2010. Greece faced a day of violent protests and a nationwide strike by civil servants outraged by the announcement of draconian austeristy measures.
Dear readers….Recovering from ‘flu and a trip down to Hay on Wye…Thought you might be interested in this piece I have written for Prime.
“We should note recent developments in political economy, that – while understated – are, we hope, of significance. Last week, the OECD published their latest World Economic Outlook, which features chapters on each developed economy as well as an assessment of the world economy as a whole.
The report is schizophrenic. It clumsily offers an outlook of excessive optimism; makes a selective assessment of ‘risks’; but continues adherence to an economic policy doctrine that is clearly making OECD economists very uncomfortable.
While the OECD report contains the expected justifications and support for the ‘austerity’ approach, nevertheless the organisation’s ‘cold feet’ are becoming apparent, even before the full extent of austerity programmes has begun to impact. There is no better example of this unease than their approach to the UK.
The report commends UK policymakers for their “current fiscal consolidation (which) strikes the right balance and should continue.” At the same time, OECD economists hedge their bets by urging the UK government to embark on “higher infrastructure spending (that) would lower the short-term negative growth effects of consolidation without affecting its pace.” At a press conference last week, the OECD chief economist warned that the UK should be prepared to cool austerity in the wake of weaker growth.
the mortgage fraud which led US banks to rush through foreclosures without proper process and evict people from their homes;and their decision reported in the WSJ to offer a miserly $5 billion to settle claims by federal and state officials of these fraudulent mortgage-servicing practices;
HSBC’s threat announced today to cut thousands of jobs
… can be explained by the need for banks to urgently raise money to fix their balance sheets. Unfortunately their activities are akin to the little Dutch boy with his finger in the dyke. Just as they raise funds from e.g. commodity speculation to shore up balance sheets, those funds may be drained from some other part of the bank by e.g. a rise in mortgage defaults or company bankruptcies as economic activity stalls, house prices fall, foreclosures are held up by legal arguments, and the over-borrowed fail to repay.
This explains why the banking system may be broke, as well as broken.
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.
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.”