Both the British Chancellor, Alastair Darling and the shadow Chancellor, George Osborne, have been on the radio this morning, resisting the idea that interest rates are political. Instead they have argued, vehemently, that the Bank of England is independent, and that the Bank must decide whether or not to lower interest rates.
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 Tuesday 30th September, 2008.
Anglo-American finance ministers and central bankers, like little Dutch boys, try desperately to plug leaks in the bursting dyke that is the international financial system. In the US, treasury secretary Hank Paulson hoped for $700bn to plug the gaping hole in Wall Street’s banks. In the UK, the government is not just plugging holes, but setting aside competition rules to encourage the monopolisation of finance.
In this big bad world of the Credit Crunch, powerful central bankers – civil servants all – have bent over backwards to help powerful and rich private bankers.
Have been listening to debates about the conflict in Georgia over the week-end. There has been much wailing and gnashing of teeth about Putin’s disregard for democracy. In a similar vein, western commentary about President Hu Jintao’s Olympic Games is never complete without some tut-tutting about democracy and human rights in China. Yet these leaders have in reality much in common with Alan Greenspan, former chairman of t he US Federal Reserve, who is held in the greatest esteem by western commentators. He came to London recently to promote his book, and I “It has become hard for democratic societies accustomed to prosperity to see it as anything other than the result of their deft political management. In reality, the past decade has seen mounting global forces (the international version of The Guardian, 12th July, 2008
In Ten tactics to brighten the gloom, the Guardian invited ten experts to give advice to the Chancellor and Prime Minister on how to lift the economic gloom – and to do it in just 100 words. Other contributors included Howard Davies, Robert Peston, Irwin Stelzer and Bill Emmot. Here is Ann Pettifor’s contribution: Don’t crucify the economy on the cross of inflation. In the 1920s, central bankers crucified debt-laden economies on the cross of gold. In the 90s Japan’s finance ministry crucified that economy on the perceived threat of inflation. Ending the creditor-driven policy of inflation targeting frees up the Bank of England to cut interest rates and immediately helps debt-laden banks, companies and consumers. Inflation is feared most by creditors, grown rich on financial deregulation policies. The greater threat to the poor is a debt-deflationary spiral leading to high unemployment – made more certain by high real rates of interest. The FT reports today on a debate economists are having with the Bank of England (BoE). To summarise: the Bank of England does not seem bothered by falling house prices; economists are. This is a very important debate for all those that have debts – because while house prices are falling, the debts on those houses loom larger for owners. According to the Office for National Statistics in May, unemployment is rising, and unemployment makes it hard, if not impossible, to pay off any kind of mortgage. This is the context in which the BoE is preparing to raise interest rates above the current 5% and appearing relaxed about falling house prices. The Guardian reports today that one of Tony Blair’s key allies, Phil Collins, has bravely attacked Labour’s weakened leader. Collins singles out Old Labour’s ‘faith in the ‘benign’ power of the central state’ and suggests that Ed Balls’ policies for children will set the party on a path to tragedy. When the most ardent of ‘invisible hand’ ideologues are cheering on the bail-out of Britain’s private financial sector by the “central state” (i.e. the nationalised, albeit nominally independent, Bank of England) Collins argues that “‘the only hope for the party is to excavate its liberal treasure’. Tell that to Sir Fred Goodwin at RBS or to Ron Sandler at Northern Rock – or indeed to their depositers – all of whom have benefitted fromabout £150 bn of taxpayer-backed largesse provided by the Old Lady of Threadneedle St. By Jo Jamison, 20th May 2008. One in eleven people in the UK are in debt or arrears (that is separate from their mortgage) but for people with mental health problems, this figure rises to one in four says the Mind Campaign launched on 10th May, 2008. Worryingly, the research also found that banks are doing little to help. Of the 37% who told their banks they were suffering from mental health problems, 87% still faced payment harassment from those same banks. The report also shows that debt and mental health are inter-related; that one can cause the other. It is therefore a pertinent time in which these findings are released. As the credit crisis unravels, more people are missing debt repayments as banks raise their costs and tighten their lending due to losses on a massive scale. So, as the middle classes join lengthening queues seeking debt advice, the question is how will the crisis unfold further and how will you be affected? Furthermore, what are we the general public going to do about it? As the burden of debt and mental health problems play a greater role in our homes, communities and national budgets, difficult questions will be in need of answering. By Ann Pettifor, Open Democracy, 11th December, 2007 On 9 August 2007, globalisation’s rickety financial levees were broken by a storm-surge of debt, invisible to most punters, but scary enough to frighten bankers. This debt includes highly leveraged corporate debt traded on secondary markets, household mortgages, credit-card debts, car loans and other substantial outlays. But what scares financiers and other experts are the truly big debts racked up by financial institutions, including those that have insured against loan defaults. One of the least understood, but potentially most lethal financial products they have engineered – away from the regulatory scrutiny of central bankers and finance ministries – is called a credit default swap (CDS). In reality, they are not “swaps”, but a form of insurance (for illumination, read the blog of one “Hellasious”, of Sudden Debt). |
In the September 2003 edition of openDemocracy I wrote: 
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