open Democracy News Analysis - The G8 in a global mess, Ann Pettifor - Comments

diet on "The G8 in a global mess: 1920s and 1980s lessons"

diet — Fri, 07 Nov 2008 17:52:23 +0000

"The coming first world debt crisis" (1 September 2003)

"Ethiopia: the price of indifference" (19 February 2004)

"Gleneagles, 7/7 and Africa" (4 July 2006)

"Debtonation: how globalisation dies" (15 August 2007)

"Globalisation: sleepwalking to disaster" (11 December 2007)

"The G8 in a global mess: 1920s and 1980s lessons" (7 July 2008)

"America's financial meltdown: lessons and prospects" (15 September 2008)

"The week that changed everything" (22 September 2008)

By this action they helped precipitate the crisis now engulfing economies like Hungary. Hungarians, like many east-central European citizens and companies, were lured by EU promises into buying mortgages and loans in euros and Swiss francs. These borrowers have now been hit by the fall of the currency in which they earn income (Hungary's forint), relative to the currency (the euro or Swiss franc) in which they owe debts.

The borrowing costs on their euro-denominated debts were increased by the decision of the European Central Bank (ECB) to raise rates. Its governor, Jean-Claude Trichet, somewhat embarrassed by the negative impact of that decision, now offers to "rescue" Hungary, by dumping another €5 billion ($6 bn) on an already debt-burdened economy. High interest rates and heavy economic conditions will further undermine Hungarian economic independence, and could cause social, political and ecological dislocation.

The policies of the ECB, of other central banks, and of finance ministries and treasuries mean that the world is now embarked on a debt-deflationary spiral that destroys the value of assets, wages, incomes, goods and services - and will lead to political and social upheaval. The threats are very grave.

The IMF's predatory lending has been rebuffed by emerging markets ever since its policies first caused and then exacerbated the southeast Asian crisis of 1997-98 and the Argentinean crisis of 2001. It seems not to have learned its lesson: for now it is pouring more debt down the throats of bankrupt countries like Iceland and struggling economies like those of Hungary, Ukraine, Pakistan and Argentina. The IMF is also encouraging central bankers to play the speculators' game by raising interest rates (in Hungary, for example, they were raised on 22 October 2008 to a staggering 11.5%.

This is unbelievable good luck for those hedge-fund managers facing major losses elsewhere, and roaming the world for gains; but this luck is predicated on the now inevitable bankruptcies of small and large businesses in Hungary's domestic economy, and on the livelihoods of those who are amongst the lowest-paid in Europe. It will come as no surprise if people in Hungary and elsewhere of all classes become disillusioned and angry at the failure of their central-bank "guardians" to protect their country's interests and finances; the chances of a populist backlash are thereby strengthened (see Andrew Dobson & David Hayes, "A politics of crisis: low-energy cosmopolitanism", 22 October 2008).

The IMF will further oblige international speculators by injecting billions of dollars into the bloodstream of central banks drained of hard currency. This transfusion of capital will enable international investors and speculators to make a quick "smash, grab and getaway" - leaving central banks with even more debts, owed at high real rates of interest to the IMF. To repay these debts, without any change in basic structures or operating modes, will require even greater exploitation of labour and the ecosystem.

The orthodox economic policies that aggressively deregulated lending and encouraged borrowing, also held down incomes while boosting consumption. In the context of prevailing industrial and commercial patterns, both had the effect of inflating greenhouse-gas emissions and contributed further to the creation of a global "debtonation".

When high real rates of interest raised borrowing costs, making debts unpayable, the collapse of the Ponzi scheme was inevitable. Now the chaotic deleveraging of debts is leading to the deflation of asset prices, particularly property prices, to bankruptcies, stock market falls and unemployment – with no end in sight.

The increasingly desperate actions of central bankers and finance ministers - and the silence or irrelevance of academic, neo-liberal economists - are evidence of the flawed nature of the past generation's economic orthodoxy, and of the intellectual bankruptcy of the world's ruling elite.

A democratic deficit

What strategy and policies should democratic citizens and progressive forces around the world adopt to help the global economy recover and challenge the destructive policies of these elites? (see Paul Rogers, "A world in flux: crisis to agency", 16 October 2008). It will not be easy, but three processes are essential

First, it will be important to divert popular anger away from bankers and their bonuses towards the institutional failings of the real transgressors: the central-bank governors, regulators and the political legislators that created the framework for the giant house-of-cards that is global debt. It was politicians and regulators not private bankers or other oligopolistic businessmen who legislated for, facilitated and permitted the creation and growth of easy (but never cheap) debt that has fuelled both consumption and greenhouse-gas emissions.

It's true that private bankers or oligarchs have effectively ensnared politicians. But in the end it is regulators that draft policy and politicians that sign and agree legislation; only regulators and legislators, prompted by citizens-voters informed with democratic arguments and ideas for change, who can implement a system-wide fix.

Second, citizens all over the world need to build the political parties and movements that will rise to the challenge of climate change, peak oil and the current global financial meltdown.

In liberal-democratic countries whose democratic systems have withered or which still have inbuilt unfairness (such as Britain, with its centralised and winner-takes-all electoral system), this will mean an energetic work of reform. Democratic political parties in the past decades have been hollowed out of political content and power. The signs of revival around the Democratic Party in the United States - if they continue and are consolidated in practical results - are an encouragement to all those wishing to challenge the status quo in democratic economies.

To succeed, political parties must be rebuilt from the bottom-up. Such initatives as Moveon.org provide clear evidence that by exploiting the openness, plurality and uncensored reach of the web - and combining these strengths with down-to-earth, face-to-face "townhall meetings" - activists can reclaim the political agenda.

This major task of democratic revitalisation will take time, but it is an essential process if the policies needed for restoring balance to both the economy and the ecosystem are to be informed by the active discussion and engagement of citizens.

A radical agenda

The heart of such policies are a series of principles that if followed would lead to a more stable, strong and sustainable political economy that can begin to meet the tests of debt, peak oil, and climate change:

* unpayable debts must be recognised as unpayable, and written off. This needs to done as far as possible in an orderly, structured manner, and with due attention to principles of fairness and awareness of the causes of high levels of debt

* the monetary system must be managed in the interests of society as a whole, not just the finance sector

* debt/credit-creation must be carefully regulated

* capital flows must be regulated, and the power to fix the key levers of the economy (interest-rates and the exchange-rate) must be restored to elected, sovereign governments- accountable to labour and industry, and accountable to the ecosystem

* publicly accountable central banks must be free to a) inject debt-free money into the economy, and b) keep the cost of borrowing low, so that loan-expenditure projects can be easily financed

* incomes must be raised, to restore the balance between an economy burdened with debts and stripped of pensions, and people starved of income to repay those debts or unable to live in dignity

* there must be no eviction of people from their homes because of unpayable debts

* new forms of social, cooperative housing and housing finance should be developed

* resources must be raised to create jobs, by using the monetary tools above and by filling tax-loopholes and closing tax havens

* a "carbon army" of green-collar workers must be mobilised to insulate homes, transform every building into a power station, and build alternative sources of energy

* trade must be localised and regionalised in order to limit the impact of emissions, to cut oil consumption and to end trade imbalances, with only exceptional items traded internationally (when war-memorial panels in northeastern England containing lists of names of the fallen are stripped for the metal they contain to feed a ravenous global commodity-market, the destructive consequences of the dominant form of globalisation are vividly revealed)

* a new global and independent central bank should be established - based on JM Keynes's International Clearing Union - to manage and stabilise trade between countries, and to create both a trading currency and a reserve asset that is neutral between countries. This should be on the agenda of the G20 summit in Washington on 15 November 2008 as part of the discussion of a "new Bretton Woods" settlement.

In other words, the way beyond this period of severe crisis and multiple threats lies in a green new deal.

___________________
Submited by : Descargar Libros

Not logged in on "The G8 in a global mess: 1920s and 1980s lessons"

Not logged in — Wed, 09 Jul 2008 19:51:04 +0000

So now we can get used computers for a few hundred dollars that have more power than mainframes that cost millions in the 70's but our economist don't suggest mandatory accounting in our schools. If everyone know accounting maybe we would not need these "guardians of the nation's finances".

Kiddie Acctng

Maybe we have a problem with our economists also who don't talk about what we lose on depreciation of automobiles and other durable consumer goods every year.

psikeyhackr

Not logged in on "The G8 in a global mess: 1920s and 1980s lessons"

Not logged in — Wed, 09 Jul 2008 08:47:01 +0000

This interesting article about interest rates seems to conclude that the answer is not really about interest rates at all. I agree. The current crash is different to the two described since these had cheap oil to fuel a recovery. Now the era of cheap oil has passed and, with it, the possibility of a business-as-usual recovery irrespective of interest rates.

Anne is wise to point out the systemic dysfunction of an unsustainable global economy. Here is the only available option for recovery (of either growth, climate, nature, security or food affordability). The global economy needs to be able to prevent problems as vigorously as today it causes them. Problems must be reversed, not just tinkered with as attempted over past decades.

In a culture of muddling through, few people know there is even such as thing as systemic economic tools. These are the corrections which if applied globally, could switch the basis of local, national and international trade from unsustainable to sustainable. They could work fast and they could match the scale and urgency of the multiple systemic problems we all face.

An introduction and examples of 3 such tools was presented (and no doubt ignored) by government ministers at an international sustainable development meeting in New York last week. See the article on pages 5 and 6 of http://www.stakeholderforum.org/fileadmin/files/AMR_2008/AMR-Outreach-080703.pdf.

James Greyson

Not logged in on "The G8 in a global mess: 1920s and 1980s lessons"

Not logged in — Tue, 08 Jul 2008 12:11:03 +0000

Surely a timely "historical" recall not to be ignored. Bank policymakers and politicians will not say that they are not being informed in attempt to help them shape the direction of future world and sustainable progress!

Lawrence Efana [Finland]

Not logged in on "The G8 in a global mess: 1920s and 1980s lessons"

Not logged in — Tue, 08 Jul 2008 05:45:16 +0000

Refer to cd3wd.com/SEEV/ - a fraud-proof voting system that will - if and when implemented - result in a transfer of power from the West and China towards the 3rd world. Mr Alex Weir, Harare, Aleppo and London

Not logged in on "The G8 in a global mess: 1920s and 1980s lessons"

Not logged in — Mon, 07 Jul 2008 22:39:45 +0000

Thank you, Ann Pettifor, for this article pointing to the lessons our "leaders" should be learning.

One thing I'd like to learn is this:

Why are the ideologues of neo-liberal economics, the "hard men," predisposed to perceive a "need" to inflict pain on populations around our world? Is their stance a reflection of the "Strict Father Model" described by George Lakoff?

The G8 in a global mess, Ann Pettifor

Mon, 07 Jul 2008 14:01:00 +0000

Japan hosts the G8 summit in the northern island of Hokkaido on 7-9 July 2008 at a time when its prolonged period of deflation and economic failure have rendered its politicians impotent. Philip Stephens notes that - despite Japan's still considerable role in the global economy - the country's politicians are the weaklings of global geopolitics. "Where is Japan?", he asks. "The question is one of psychology rather than geography. Japan is still the world's second most powerful economy. Politically, it is all but invisible" (see "Japan goes missing: invisible host at the summit", Financial Times, 4 July 2008).

Ann Pettifor is executive director of Advocacy International. In the 1990s she helped design and lead the international campaign Jubilee 2000. She is editor of The Real World Economic Outlook (Palgrave 2003)
and author of
The Coming First World Debt Crisis (Palgrave, 2006). She blogs at debtonation.org
Also by Ann Pettifor on openDemocracy:

"The coming first world debt crisis" (1 September 2003)

"Ethiopia: the price of indifference" (19 February 2004)

"Gleneagles, 7/7 and Africa" (4 July 2006)

"Debtonation: how globalisation dies" (15 August 2007)

"Globalisation: sleepwalking to disaster" (11 December 2007

It was not always thus. Until as recently as 1990, Japan was booming. The earlier financial deregulation and low interest policies of the Bank of Japan had encouraged those Japanese who owned assets (such as property) to borrow against these assets. The ensuing excessive lending and borrowing fuelled a property bubble, which further enriched the wealthy. In 1987 alone, house prices rose in Tokyo by 67%. During the bubble years, "easy money" financed purchases of assets like stocks and shares, race horses, jewellery, art, New York's Rockefeller Center and Hollywood's Columbia Pictures (see the excellent book by Graham Turner, The Credit Crunch: Housing Bubbles, Globalisation and the Worldwide Economic Crisis (Pluto Press / University of Michigan Press, 2008).

The governors of the Bank of Japan were and are supposed to share with central bankers worldwide an obsession with inflation. Yet they stood by and allowed asset-price inflation to rip. Soon it became a massive bubble, and Japanese politicians - especially Yasuhiro Nakasone, prime minister from 1982-87 (and buddy of Ronald Reagan) - were able to adopt a more confident pose upon the world stage.

As with all bubbles, bursting was inevitable - and in this case, as so often, painful. The property boom began to implode in 1989, and at that point the hard men of the Bank of Japan set out to prove their virility by concentrating on a different threat: wage inflation. The fear that wage inflation would lead to flaccid economic growth led them in May 1990 to inject their economy with the "viagra" of higher interest rates. But even after the stock market had crashed violently by the end of 1990, not only did interest rates stay up, but the bank pushed them up a fifth time to 6%.

Remarkably, rates stayed high throughout the ensuing turmoil, as non-performing loans piled up on the balance-sheets of banks; homeowners watched house prices fall; companies failed; and the "salarymen" of Japan began to lose their jobs. The social consequences were enormous: families suffered, marriages broke down, and many treated their pain with alcohol and drugs. Japanese politicians returned to their more familiar pose of caution and discretion, and were now near-invisible at global gatherings.

The bubble was brief and the reckoning long. But what is relevant in the global context is that the Bank of Japan's macho behaviour in exacerbating the nation's crisis was far from unique.

An American echo

A long way back, by early 1929, the governors of the United States Federal Reserve had begun to worry that their earlier limp regulation of the banks and of credit had fuelled the dysfunctional stock-market bubble. They had been happy to watch the rich growing very much richer on the back of lax lending, but were now concerned that those with jobs might demand higher wages - a threat they called "inflation". They resolved to address this threat with higher interest rates. On 9 August 1929, they raised interest rates from 5% to 6%.

Also in openDemocracy on the G8 and the global economy:

Ehsan Masood, "The aid business: phantoms and realities" (18 July 2006)

Michael Hopkins, "Sustainable development: from word to policy" (11 April 2007)

Stephen Browne, "G8 aid: beyond the target trap" (6 June 2007)

Paul Collier, "The aid evasion: raising the ‘bottom billion'" (11 June 2007)

Kweku Ampiah, "Japan and Africa: a distant partnership" (6 June 2008)

Simon Maxwell, "Development in a downturn" (4 July 2008)

Interest rates, as they were to do in Japan in 1990, stayed high throughout the crisis - in this case, the chaos and widespread panic of the 1929 stock-market crash. Because prices were falling, real rates of interest were much higher than the nominal rate of 6%, thus inflicting severe pain on stock-market borrowers. Nevertheless the hard men of the Federal Reserve kept rates up, forcing debtors into default, companies into bankruptcy, and people out of their jobs and homes. Their actions are widely acknowledged to have been responsible for the prolonged economic failure that became the "great depression".

By coincidence it was on the same day seventy-eight years later - 9 August 2007 - that the global economy "debtonated" (see "Debtonation: how globalisation dies", 15 August 2007). The Bank for International Settlements (the mother of all central banks) has confirmed in its (seventy-eighth) annual report that on that day "turmoil in financial markets came to the boil...and central banks felt compelled to take extraordinary measures to restore order in the interbank market" (see the introduction to the Bank for International Settlements report, 30 June 2008).

It was central bankers - those "guardians of the nation's finances" - that had been responsible for the turmoil in the first place. Again, central bankers - like the governors of the Federal Reserve in the 1920s and the Bank of Japan in the 1980s - had been persuaded by the ideologues of neo-liberal economics that if they repressed wages and prices, and simultaneously deregulated the finance sector, perpetual economic growth would be guaranteed, hedge funds would prosper, and the rich would be a whole lot happier. And so it proved - until, that is, 9 August 2007.

Today, decision-makers in the United States, Britain and Euroland are confronted by the same threats which faced their predecessors in America in 1929 and Japan in 1990. Although unemployment is starting to rise sharply in some countries - notably Spain - the European Central Bank (ECB) worries that wages might rise. So, on 3 July, the ECB applied a dose of interest-rate "viagra" to the weakening Euroland economy by raising interest-rates to 4.25%.

As Angela Merkel, Nicolas Sarkozy, and Gordon Brown stand alongside Yasuo Fukuda and other colleagues in Hokkaido, they might usefully ponder the impotence of Japanese politicians - and begin to look for better ways to repair the systemic dysfunction of an unsustainable global economy.

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