Coming soon: another global financial crash? Capital mobility and the commodity mania

Tin produced at a Glencore plant in Vinto, Bolivia

“Experience shows that when policies falter in managing capital flows, there is no limit to the damage that international finance can inflict on an economy.”

Yilmaz Akyüz, “Capital Flows to Developing Countries in a Historical Perspective: Will the current Boom End with a Bust?”

Today, as speculation and leverage in global, financialised commodity markets reach manic levels; as we witness an ‘epic rout’ (FT 5 May, 2011) in commodity prices, and as the boom in capital flows peaks, is another crash inevitable? And is it coming soon?

I know from experience that while it may be possible to analyse fundamentals, it is always difficult to predict precisely what dynamic will trigger the next crisis, and when it will happen. Back in 2003, together with colleagues at the new economics foundation in London, and with very little funding, I assembled and edited a series of essays on the ‘outlook’ for the global economy. We titled it: ‘Real world economic outlook’, and added a subtitle, ‘the legacy of globalization: debt and deflation’. We intended the report to be annual, and to act as a counter to the IMF’s annual World Economic Outlook, which in our view was irrationally optimistic about developments in the global economy.

We were pretty pessimistic about global imbalances, and predicted a crash. Sadly, our timing was way out: the crash was four years away. It does not always help to be right on the fundamentals. Given the inevitability of the then forthcoming crash, we argued that there was once more a need for a ‘great transformation’ of the global economy. The starting point we wrote ‘will be to reverse the most pernicious elements of the ‘globalization’ experiment’ by the ‘taming of financial markets through the re-introduction of capital controls; restraints in the growth of credit; the establishment of an International Clearing Agency; and a Tobin Tax’.

Back then it was hard to talk/write about these matters – and be heard. Our cheerfully-titled report and predictions did not hit the best-seller lists. Funding for the project was withdrawn, and the project wound down. It’s major flaw? We had breached areas of economic debate that at the time were carefully circumscribed. It took the financial crisis of 2007-9 to loosen the intellectual chains to which orthodox economics had so heavily tied economic debate.   Today the Tobin Tax, or Robin Hood Tax is a high-profile issue, with some signs that EU governments are considering implementation of such a tax. (See point 8 of Euro leaders’ statement, March 11, 2011). So that taboo has been broken.

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A tale of two presidents

5th January, 2010

Sorry about the delay in posting, but this is my latest blog for the Huffington Post.

“One is president of a country of about 300,000 people — Iceland — a country about the size of Virginia, President Olafur R. Grimsson. The second is president of a country of about 300,000,000 people, the United States. President Obama.

Both their presidencies have been scarred by the financial crisis. Both have had to balance the interests of their people against the interests of their bankers.

President Obama has allowed that balance to tilt in favor of the bankers.

President Grimsson yesterday took a stand against bankers and international creditors, including the British and Dutch governments.

Instead, he stood up to defend the interests of his people.

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No way to run an economy

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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