It's not the public, but the private finance sector, stupid.

Image: acknowledgements to the BBC.

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.

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Argentina/Greece: De-fault lines?

So, five of the world’s biggest central banks have decided on co-ordinated action to bail out – once again – the European private banking sector. In other words, central bankers are hoping to shore up private bankers, help their defer their losses, and prevent them being disciplined by market forces for their reckless lending to EU sovereigns.

Shareholders and investors in these banks must be delighted. Once again, reckless speculation and lending has paid off. Once again the world’s taxpayers have ridden to the rescue.

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Capital flows, financial crises & implications for poor countries


Last month I was invited to join the ‘Labour Party Policy Review: Making growth work for the poor and generating resources for development’. The overall group was led by Harriet Harman, and the development section was chaired by Rushnara Ali MP.

Below is my short background note on mobility of capital flows, financial crises & implications for poor countries:

Capital Mobility: what others are saying

“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?”  South Centre:Research Paper 37, March 2011

“..capital flows, it’s like with fire. Fire can be used to turn raw meat into a wonderful steak. But it can also burn your house down.”

Jagdish Bagwhati, Professor of Economics, Columbia University, on Big Think, 17 November, 2007.


“Looking back on the crisis, the US, like some emerging-market nations during the 1990s, has learned that the interaction of strong capital inflows and weaknesses in the domestic financial system can produce unintended and devastating results. The appropriate response is…to improve private sector financial practices and strengthen financial regulation, including macroprudential oversight.”

Ben Bernanke, governor of the US’s Federal Reserve in speech to Banque de France February, 2011.

“So we have to make some choices. Let me be clear about mine: democracy and national determination should trump hyper-globalization. Democracies have the right to protect their social arrangements, and when this right clashes with the requirements of the global economy, it is the latter that should give way.” (Author’s emphasis)

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A wake-up call from Vultures

24 February, 2010

In the international financial system, the Rule of Law seldom applies.

It is in this context that a wake of vultures (for that is the collective noun) hovers over weakened debtor nations as diverse as the Congo, Iceland, Greece and Portugal and operate within weak international law.

They are international creditors, and their presence reminds us once again of the urgent need for governments to co-operate to devise international law to protect effectively insolvent sovereign nations from rapacious creditors. In just the same way that e.g. the US’s Chapter 11 protects insolvent companies from creditors.

Professor Kunibert Raffer of the University of Vienna has long argued for a framework for sovereign nations that simulates Chapter 9 of the US Legal code by protecting American governmental bodies (such as City governments) and their citizens from predatory creditors in the event of insolvency.

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