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The IMF according to Keynes?

Stephanie Flanders | 13:10 UK time, Tuesday, 14 December 2010

Is the International Monetary Fund up to the job of fixing the global economy? That's the question I've been thinking about for a radio documentary which will be broadcast on Radio 4 on Tuesday evening.

Dominique Strauss Kahn

Over the past six months we've spoken to a lot of people inside - and outside - the institution, including several interviews with the Fund's ebullient Managing Director, Dominique Strauss Kahn, and the IMF mission chief in Greece.

I came away thinking that the world probably has more need of a muscular IMF now than at any time in its 65 year history. But I'm not sure big players like America or China are ready for the kind of loss of national sovereignty that a strong IMF would require.

When we first started thinking about the programme, at the start of 2010, the Fund had already played a key role in the global financial crisis. But few would have predicted that there would be two massive IMF programmes under way in the eurozone before the year was out. (There's a couple of weeks left - who knows, maybe Portugal will be make it three?)

When the G20 had trebled the Fund's resources - to $750bn - at the London Summit in 2009, everyone thought the money would be lent to emerging economies, so they didn't get sucked into the financial maelstrom in Europe and the US. They didn't think it would be used partly to bail out the euro.

When we spoke to him, Mr Strauss Kahn was uncharacteristically humble about his role in pulling together the $750bn rescue programme for the single currency in that fateful weekend in early May, when most European governments were still kidding themselves that another $50 or $60bn would stop the rot.

But I am reliably informed that Mr Strauss Kahn and the US Treasury Secretary were central to turning $60bn into $750bn - in less than 24 hours. The Fund's managing director did joke to me that it had been "good pay per hour".

If we had not had an IMF, we would probably have had to invent one in the past two years. But the Fund isn't supposed to be only fighting financial fires. It's also supposed to be helping to prevent them from breaking out, banging heads together to stop a return to the massive global financial imbalances that built up in the years before the crisis.

I've written endlessly on that subject in the past few months: suffice to say, it's a lot easier to say what a more balanced global economy would like than to explain how we get there from here.

In a sense, it all goes back to the original debates about the IMF at the Bretton Woods conference in 1944. That was when the Allies came together to create a new world economic order - the experience of the 1930s still firmly in their minds.

John Maynard Keynes

Famously, John Maynard Keynes, was the British mastermind at the meeting. He wanted to create an International Payments Union, which would literally manage global trade and capital flows, to keep a lid on surpluses and deficits - and prevent a return of the costly trade battles of the 1930s. But the key US advisor, Harry Dexter White, had different ideas. The Americans didn't want anything that would be a counterweight to US power.

Predictably, the US won. The Americans even objected to the word "union" - because, for them, being in a union meant giving up real power. Instead of a grand International Payments Union, the world got the International Monetary Fund.

All it was supposed to do was to help countries stick with the new system of fixed exchange rates. And bail them out - when they came unstuck.

A lot has happened in the global economy since then. But we still seem to know a lot more about responding to crises than we do about preventing them.

Mr Strauss Kahn thinks the world might now be ready to re-visit Keynes' more ambitious vision of the Fund. Intriguingly, he even thinks the eurozone has shown the way - by demonstrating just how important it is for countries to work together, to keep imbalances in check. Perhaps. But Europe's governments have not yet shown they are ready to put the greater European good consistently ahead of their own.

My worry is that the two sides of the Fund's job - the fire-fighting, and the prevention of fires - are not entirely complementary. In fact, some would say it's the firefighting that the Fund did in the 1990s (egged on by the US) in Mexico and elsewhere that helped give investors confidence that government  would always be bailed out, and contributed to the mess we are in today.

By introducing ever more elaborate safety nets for countries that get into trouble - and "precautionary facilities" for the ones that haven't -  the risk is that the Fund is adding to the mountain of moral hazard that many fear will be the result of all of the bailouts of the past few years. It could thus be helping to make the next crisis more likely.

Perhaps we would not worry quite so much about that, if the Fund were also in a position to make sure the economic policies of the largest economies make up a coherent whole. That would lessen the scope for massive global financial imbalances, and the crazy financial bets that tend to accompany them. But so far there's not much evidence that the great powers are ready to be told what to do - by the IMF or anyone else.

Comments

  • Comment number 1.

    Questioning the strategic validity of nation state based economic pretend autonomy is fine and ripping up the text books on international trade and economics is long overdue in a globalised system but the political flesh is weak. Perhaps China will facilitate a more planned and coordinated world economy but it will needed a weakened US economy to remove the road blocks.

  • Comment number 2.

    SF wrote: But I am reliably informed that Mr Strauss Kahn and the US Treasury Secretary were central to turning $60bn into $750bn - in less than 24 hours. The Fund's managing director did joke to me that it had been "good pay per hour".

    If we had not had an IMF, we would probably have had to invent one in the past two years. But the Fund isn't supposed to be only fighting financial fires. It's also supposed to be helping to prevent them from breaking out, banging heads together to stop a return to the massive global financial imbalances that built up in the years before the crisis.

    --------------------------------------------------------------------

    The IMF was principally designed to help countries out of temporary balance of payments problems. It has come a long way from that now.

    So the US Treasury Secretary was instrumental in foisting an extra few hundred billion onto the Eurozone. I consider that to be one of the battles in the currency wars. Was this really a swipe at the Euro to bolster the already flagging dollar?

    The IMF cannot save the USA from itself except by ensuring other currencies are weakened. Look out for the unlikely evidence - take nothing at face value.

  • Comment number 3.

    Global hugs will help nobody because it'll never stick in the long run. That's the fundamental failure of all pacts - Europe included. You need to have balance built into the system.

    It strikes me that the simplest and most effective solution is for everybody simply to look after their own currency zone, restrict the amount of real goods and services leaving the zone to that required to purchase goods and services priced in foreign currencies and increase the amount of real goods and services flowing in as much as they can in return for their own currency.

    If everybody is trying hard to stuff everybody else, then that will ensure nobody does.

    It's always best to work with human nature than against it.

  • Comment number 4.


    Perhaps Keynes should have called it an Internation Payments Corporation? The US would probably have bought into that...

    So, would something like that stop us from buying more from China than we could sell to them?

  • Comment number 5.

    JMK did not, so far as I am aware, advocate deficit financing of a collapsing bubble as a solution to anything - yet this is exactly what QE is being used for. This is our present tragedy.

    We must de-leverage the debt BEFORE deficit financing a recovery - if we do not all that happens is that the bubble remains and it itself blocks the recovery. In a sense JMK was lucky in the 1930s as the debt bubble collapsed rapidly so economists could just consider how to recover.

    I haven't found JMK's writings on the Long Depression in any detail but I would be interested in his views - if someone could find any of JMK's own thoughts - not those of those who take his name in vain! (I've scanned 'Treatise on Money' with no success!)

    (I have long held the view that the present depression has a lot in common with the Long Depression of the 1870s.)

  • Comment number 6.

    The IMF and austerity measures.
    Here's an interesting link
    http://www.youtube.com/watch?v=jUmQbf1AyA8&feature=related

    But as many likely realise, with all money created as debt, for any money to be used as a bailout package, some nation and therefore someone, somewhere, has to go into debt to create it. Or someone somewhere has to print it.

    When excessive debt is created, and the creators of it are protected from paying the price, then someone else has to.

    And at the moment that ‘someone else’ is people like me.
    And the price for people like me is 7.2% of everything I earn.

    Retail price index (all items) RP02:
    Jan 2009: 210.1 Sept 2010: 225.3
    Price inflation = + 7.2%

    Average Weekly Earnings (Whole Economy) not seasonally adjusted:
    Jan 2009: £444 Sept 2010: £443
    Increase = – 0.002%

    Are these ‘bailouts’ and ‘safety nets’ really for countries?
    Or are they for banks, and the debt based monetary system?

  • Comment number 7.

    Where does the IMF get its money from in order to take-over these struggling countries? Members contribute to the IMF based on their relative size in the world economy, with the US being the biggest contributor. Isn't the US trillions of dollars in debt?!

    Isn't the IMF simply part of a mechanism to take-over soveign countries using imaginary money in order to steal their assets?

  • Comment number 8.


    Do you imply Ms Flanders that some countries, such as Germany and China, are acting selfishly ?

    And would such an attitude have irrefutable and devastating consequences ?

    I find it hard to read between the lines of your writing today. Diplomacy can sometimes hinder clairty, Ma'am.

  • Comment number 9.

    Is the International Monetary Fund up to the job of fixing the global economy?
    No.
    No one can fix the global economy until three things happen:
    1. investment banks are split from commercial banks,
    2. reform and regulation somewhat like the Glass-Steagall Act are imposed, preferably world-wide and
    3. break the 9-bank monopoly re derivative trading.
    A muscular IMF cannot compete with the nine (9) big investment banks in the United States that control American economics.
    There is no reason for countries to lose national sovereignty, but there is a need to bring those banks that have no respect for national sovereignty under control.
    Bail-outs don't work. Call them loans, call them Q.E., call them whatever you like, they do not tackle the real problems and therefore, they do not work.
    No amount of money can stop the rot that has been caused by such nefarious financial instrumnets as bundled derivatives, essentially worth nothing; yet rated "AAA". How does this happen?
    Mr Strauss Kahn and the US Treasury Secretary were central to turning $60bn into $750bn - in less than 24 hours. How does this happen? Did the gnetleman explain it to you?
    If we had not had an IMF, we would probably have taken much quicker steps to regulative and reform the investment banks and split off commercial lending.
    I am no fan of John Maynard Keynes. Revisit Keynes?
    Oh please!
    The solution lies in
    1. minimize risk by adequate capitalization
    2. commercial, investment split
    3. get control over those ugly derivatives.
    There is a legitimate role for government in managing the economy, but that role is not Q.E. and not bailouts. It is more lie managing the bankruptcy process.
    The men of just 9 banks exist to protect the interests of big banks in the vast market for derivatives.
    The men of just 9 banks come from giants like JPMorgan Chase, Morgan Stanley, Goldman Sachs...They form a powerful committee that helps oversee trading in derivatives, instruments which are used to HEDGE RISK.
    Derivatives offer benefits, but these banks collect billions annually in undisclosed fees associated with these instruments — an amount that almost certainly would be lower if there were competition & transparency.
    Just how much derivatives trading costs ordinary people (world-wide) is uncertain. Pension funds today use derivatives to hedge investments. States and countries use them to try to hold down borrowing costs...
    Gary Gensler, The Chairman of the Commodity Futures Trading Commission, which regulates most derivatives states that additional oversight of the banks in this market is desperately needed.
    But who provides this oversight?
    The 9 big banks. The banks’ latest point of influence are clearinghouses like ICE Trust. Mr. Gensler wants to lessen banks’ control over these new institutions. Republican lawmakers (many of whom received large campaign contributions from these 9 banks) want to influence how the derivatives rules are written.
    Thankfully, the Department of Justice is looking into derivatives. The department’s antitrust unit is investigating (quote) “the possibility of anti-competitive practices in the credit derivatives clearing, trading and information services industries”.
    Remember Nasdaq in the 1990s. The Justice Department discovered that Nasdaq was secretly colluding to protect its own profits. Following that scandal, reforms and electronic trading systems cut Nasdaq stock trading costs to 1/20th of their former level.
    Robert E. Litan (helped oversee the Justice Department’s Nasdaq investigation, now a fellow at the Kauffman Foundation): “When you limit participation in the governance of an entity to a few like-minded institutions or individuals who have an interest in keeping competitors out, you have the potential for bad things to happen." (And this, my friend, is what has happened to derivative trading & the world economy.).
    Restricted to the 9 banks:
    The Bank of New York Mellon provides services on more than $23T. Recently, the bank sought to enter the inner circle of nine.
    It has been rebuffed.
    The ONE NEW derivatives' clearinghouse — Nasdaq — has been avoided by the big derivatives banks.
    A concern during the 2008 meltdown was that no one — not even government regulators — understood the interconnections of the derivatives market, especially the market in credit default swaps, which insure against defaults of companies or mortgages bonds.
    In the midst of this financial ignorance, regulators ordered banks to speed up plans to set up a clearinghouse to handle derivatives regulation. The intent was to reduce risk and increase stability in the market.
    Three were quickly formed (Nasdaq was one. ICE another. The name of the last eludes me.) None of the three clearinghouses would divulge the members of their risk committees. Some persons with direct knowledge of ICE’s committee said the some of these bank members are:
    Thomas J. Benison of JPMorgan Chase & Company;
    Athanassios Diplas of Deutsche Bank;
    Paul Mitrokostas of Barclays;
    Oliver Frankel of Goldman Sachs; amd
    Ali Balali of Bank of America.
    The revenue these dealers make on derivatives is very large and so the incentive is to protect those revenues. Derivatives have no central exchange - like the New York Stock Exchange or Nasdaq, where prices are listed. Kenneth C. Griffin, owner of the giant hedge fund Citadel Group, proposed open pricing for commonly traded derivatives, by quoting their prices electronically. Citadel oversees $11B in assets.
    His proposal for an electronic exchange ran into a brick wall. The 9 big banks didn’t like Citadel’s idea. Electronic trading might connect customers directly with each other, cutting the banks' "middlemen" profit.
    So the banks responded in the fall of 2008 by pairing with ICE, one of the Chicago Mercantile Exchange’s rivals. The banks attached a number of conditions to that partnership, which came in the form of a merger between ICE’s clearinghouse and a nascent clearinghouse that the banks were establishing. For instance, the banks insisted that ICE install the chief executive of their effort as the head of the joint effort. That executive, Dirk Pruis, works at Goldman Sachs.
    Rules:
    1. members must hold large amounts of capital in derivative units, a condition that was prohibitive even for some large banks like the Bank of New York.
    2. ICE to provide market data exclusively to Markit, a little-known company that plays a pivotal role in derivatives. (Backed by Goldman and JPMorgan), Markit provides crucial information about derivatives, like prices.
    3. Markit demands that every trade involve at least one bank, since the banks are the main parties that have licenses with Markit.
    This last demand from Markit secured a permanent role for the big NINE.
    Peter Barsoom, Chief Operating Officer of ICE Trust: "We spent and we still continue to spend a lot of time on thinking about governance. We want to be sure that we have all the right stakeholders appropriately represented.”
    Mr. Griffin: “The key players today in the derivatives market are very apprehensive about whether or not they will be winners or losers as we move towards more transparent, fairer markets, and since they’re not sure if they’ll be winners or losers, their basic instinct is to resist change.”
    Consequence: big banks dominate the risk committees of not one, but two of the most prominent new clearinghouses in the United States. That puts them in a pivotal position to determine how derivatives are traded.
    Under the Dodd-Frank Bill, the risk committees will recommend which derivatives should be handled through clearinghouses, and which should be exempt. Regulators will have the final say, but those 9 banks, which lobbied heavily to limit derivatives regulation in the Dodd-Frank Bill, are likely to rule that few types of derivatives should have to go through clearinghouses.
    I contend that the bankers will do everything they can to keep many types of derivatives away from the clearinghouses, because clearinghouses represent a step towards broad electronic trading that could decimate derivative profits.
    Even the newly proposed rule to limit the banks’ influence over clearing allows them to retain majorities on risk committees. Fundamentally, banks are not good at self-regulation. That’s not what they do. What they do is make profits.
    No one can fix the global economy until three things happen:
    1. investment banks are split from commercial banks,
    2. reform and regulation somewhat like the Glass-Steagall Act are imposed and
    3. break the 9-bank monopoly re derivative trading.

  • Comment number 10.

    5. At 2:56pm on 14 Dec 2010, John_from_Hendon wrote:
    ‘We must de-leverage the debt BEFORE deficit financing a recovery - if we do not all that happens is that the bubble remains and it itself blocks the recovery’

    This comment is very true.

    But with all money created as debt, how can you de-leverage and protect the banks at the same time?

    De-leveraging on the scale needed would presumably make most banks insolvent again.

    Hence Uncle Mervyn’s quantitative easing.
    But this comes with a price, currently 7.2% of everything an average Joe like me earns.


  • Comment number 11.

    Steph, a couple of observations.

    1)Keynes was operating in a fixed exchange rate system effectively the gold standard, now no longer applicable. Think the through the consequences of that.

    2)Keynes understood that aggregate demand was the key and fiscal policy was the tool.

    3)The inflation terrorists will be all over this.

  • Comment number 12.

    At the turn of the Millenium drought-prone Malawi had three years strategic grain reserve. Along came the IMF and told the Government to sell off the grain (at a time of low prices) to repay its external debt more quickly. Three years later the rains failed and the BBC did its usual heart-rending coverage of starving African children. As usual no-one at the BBC had the sense or the courage to ask what had happened to the grain reserves.

  • Comment number 13.

    All this user's posts have been removed.Why?

  • Comment number 14.

    The only way to fix the global economy is to reduce the imbalances. Yet we have been fed the bilge, by the same 'experts' who never all saw this coming, that western economies should INCREASE the imbalance by getting into even more debt. This is not the fault of China but primarily the governments of the USA and the EU countries who have for decades been acting like alcoholics locked in a liquor store.

  • Comment number 15.

    The world certainly has changed since the 2930's for what seemed so simple then as far as Keynes was concerned has now turned into the sort of chaos and mayhem that no one organisation like the IMF can even comprehend let alone manage,

    Just reacting to events as they are happening is certainly no answer for a long term solution for none of them even know the consequences of what they are now doing further down the line.

    There just isn't enough money in the world to save everyone that needs to be saved and a world bank printing even more money without knowing the consequences could be even more catastrophic.

    What we are seeing now are the unforeseen consequences of the mistakes they made trying to solve the last batch of problems. It will go on into infinity or until the computer model has a total breakdown or someone decides it's time to blow it up.

    The decision will have to be made to go back to square one no matter how horrific the thought and split sovereign debt from bank debt. Then make each country sort out its own mess and put its own house in order.

    The banks can then fight it out as to who owes what and cancel out or write off the debts among themselves

    I'm sure Keynes would not be looking at the same solutions he advocated in the 1930's for the 21st century. Computer modelling running the world's global economy in cyberspace wasn't quite the norm in his day.




  • Comment number 16.

    Evening Stephanie,
    has the IMF ever recommended that a debt be defaulted as the best route for a country to recover, or are they only interested in seeing that the lenders (foreign banks) are repaid no matter what the cost to the populace?

  • Comment number 17.

    Since capitalism is a human endeavor, it will inevitably exhibit strengths and weaknesses.

    On the positive side of the balance sheet, one could recognize that it encourages competition and innovation, rewards success, promotes growth and generally improves the welfare of all societies (although some will undoubtably benefit more than others). So far so good.

    The negative side of the balance sheet is less appealing and includes:-

    Human greed is provided with an outlet (think Banks, Hedge Funds, Speculation, Consumerism. etc ...)

    Domination is possible (think Markets, Credit creation, Banking, Reserve Currency, and ... IMF)

    Poor performance leads to subjugation and centrally administered command economics.


    For the past 50 years, the US has been the lead player under this system - again, it had no choice. Inevitably, it's economic influence has, to a large extent, shaped the modern financial world. Economic progress, credit creation, debt levels, and trade imbalances have all been influenced to a significant degree by the ambitions of the US.

    That is not being judgmental - it was a role imposed upon it by the system!

    But 'capitalism' is an organic system and change is inevitable. New

  • Comment number 18.

    The US banks, I mean the IMF has heard that Ireland has a nice juicy public pension pot stashed away.

  • Comment number 19.

    I apologize - my post @ 17 was incomplete (I hit the wrong key!)

    Anyway, the final point I wished to make was that there is bound to be a big change in the organizations that control international trade and finance, now that China and India are becoming the dominant players.

  • Comment number 20.

    #11. EconomicsStudent wrote:

    "Keynes understood that aggregate demand was the key"

    But how on earth can you boost aggregate demand when all of the mechanisms conceivable and available will first boost the (busted) bubble that caused the crash?

    This is why I maintain that first the debt must be deflated prior to boosting aggregate demand.

    I am not entirely sure that Keynes sought to boost demand via fiscal policy 'alone'. Macroeconomic policy and monetary policy needs to congruent with fiscal policy surely, else a fiscal boost will be absorbed by the others to no positive net effect on the economy. (Which, by the way, is why QE is misdirected and ill-timed in my opinion.)

    We are in a situation where monetary policy has been catastrophically loose and this caused the conditions that led to the bubble and the subsequent crash (as I have argued many times before in detail).

    I also argue that monetary policy is still far too loose for any other policy to be at all effective. In other words until, and unless, money is priced correctly at a sensible long term rate any form of stimulus will just vanish into the bubble.

  • Comment number 21.

    15. At 4:23pm on 14 Dec 2010, virtualsilverlady wrote:

    "There just isn't enough money in the world to save everyone that needs to be saved and a world bank printing even more money without knowing the consequences could be even more catastrophic."

    ____________

    The basic underlying problem has two parts:

    First, Chinese workers earning $10/day (or less) produce more and better goods and services overall than we do, earning $200/day.

    Second, for a generation and more we have not been satisfied with the lifestyle of those earning $200/day, but, instead, we have decided to consume $212/day, such that average household debt in North America, which had been growing at roughly 6% of income per year, is now roughly %150 of household income, on average. This spending binge was fueled by the idea that house prices only ever go up, and a tax system that structurally favours consumer borrowing, and, punitively, doubly taxes savings.

    At some point prices and expectations are going to have to adjust. There is no way to avoid it being ugly.

    The productivity disparity can be corrected either by raising Chinese wages, or by cutting wages in western countries.

    The huge debt overhang can be cured (i) by selling assets; (ii) by defaulting on debt; or (iii) by dissolving a good portion of the debt in inflation.

    China already has significant price inflation, but, with a huge and still only partially tapped pool of inexpensive labour, wage inflation in China isn't going to do it at the current rate.

    Another alternative is to devalue western currencies, to give us the illusion that wages haven't fallen (at least not nominally) while kicking the stuffing out of purchasing power, nontheless.

    Of course, if you are a large holder of debt denominated in US currency (step forward China, Germany, and various PetroDollar paragons of democracy and civil rights) the idea that the purchasing power of those debt obligation is going to decrease, rapidly, may strike you as a fairly raw deal.

    Another alternative is to kick millions (indeed, tens of millions) of western workers out of work, and then employ them again only when they agree to vastly lower wages and benefits. That is the default solution, and seemingly the one favoured by all those who oppose "QE", and would, implicitly, prefer deflation instead. That was tried in the 1930's. Didn't seem to work very well.

    On the other hand, though, it means that creditors can buy up assets at fire-sale prices, so it's great if you're a creditor and you've just seen your purchasing power increase dramatically. Hey, let's buy up those natural resources while they're cheap ... potash anybody?

  • Comment number 22.

    "6. At 3:03pm on 14 Dec 2010, Dempster wrote:"

    I watched the video, have considered John_from_Hendon and your comments regarding deleveraging and have come to the conclusion that the failure to address this issue is a political failure.

    "9. At 3:35pm on 14 Dec 2010, BluesBerry wrote:
    15. At 4:23pm on 14 Dec 2010, virtualsilverlady wrote:"

    As you suggest, without political belief and commitment we will stagger along, propping up an inadequate system that is destined to lead to failure. And that's probably what it will take to effect any sort of meaningful change. Unfortunately, the IMF is part of the problem. I dont see visionaries around me. I see jackals.

  • Comment number 23.

    20. At 5:35pm on 14 Dec 2010, John_from_Hendon wrote:
    "But how on earth can you boost aggregate demand when all of the mechanisms conceivable and available will first boost the (busted) bubble that caused the crash?"

    By Govt spending on jobs and British industry.
    By tax cuts at the lower rates.

    Crooked bankers caused the crash John.
    You have quite rightly argued that the Bank of England failed miserably in providing a stable financial framework. That needs sorting out as do the positions the UK banks still hold in dodgy assets.

    The basic facts of economics still hold though.
    Aggregate demand creates jobs, creates output, creates income, creates demand, creates jobs, creates output creates income..............

    Deficits and public debt are not the problem, they are actually the solution while the public bring down their private debt.

  • Comment number 24.

    @ 12: Kenya was before Dominique Strauss-Khan's (DSK's) time. It seems DSK has made a better job in this job than his incumbent (and previous incumbents)? Apart from dealing with the crises he's tried hard to sort out the management of the IMF (a very polical task); and has - though Stephanie does not mention it - changed the approach in dealing with "developing" nations..

    He has been linked with the French Presidential elections in 2012. If he could gain the Socialist nomination (doubtful) he would win. It's his dream, we read, here in France. Would he better advised, though, to seek a second term as President of the IMF? Or is it too early to judge his presidency?

  • Comment number 25.

    Bailed out Allied Irish Bank blocked from receiving bonuses. Fabulous! Fantastic. Amazing.

    Any chance of that spreading to other banks too? Please, finally?

    Perhaps, political/business journalists might get a grip and report for the 'people' instead of for the 'banks and traders' they clink glasses with.

    FINALLY a bank has been given back a punch on the nose on behalf of the bullied tax-payers.

    PLEASE DON'T LET THIS REPORT BE A DREAM.

  • Comment number 26.

    #23. EconomicsStudent wrote:

    "Crooked bankers caused the crash, John."

    Hmm... Is it crooked to do what the regulators permit or encourage - perhaps so, but banks can only operate in the way that they are permitted by regulation (and the 'settings' of the three areas of economic policy).

    I hear now that the architect of the tripartite system Gus O'Donnell has a 'Plan B'. Remember he was the Permanent Secretary of the Treasury when the 'hair brained' (my value judgement!) scheme was set up. I simply cannot believe that a leopard can change its spots and when, and if, we ever see the detail of Plan B I fear it will be more about saving GO'D than saving the country!

    I also do not see public deficits as 'the' problem - I see private debt as the problem and the consequence destruction of the secured debts held by banks - which will almost inevitably require a further expansion of QE to bail them out. QE really needs to be spent on infrastructure - something I am sure that would have been applauded by JMK so in a sense one could apply the 'crowding out' argument to QE - 'good QE' spending on infrastructure and 'bad QE' bailing out banks!

  • Comment number 27.

    Ms Flanders

    Where does the money come from to bailout countries?
    If it comes from other countries, where do they get it from?
    Where does 'money' come from?
    Who creates it?
    And who pays the price for its creation?

    Come on S.F.; all those kids out there about to be encumbered with enormous debt they’ve not agreed to be responsible for, and will struggle through life to service.

    Is this right?
    Is this all we’ve got to offer them as a future?

  • Comment number 28.

    10. At 3:38pm on 14 Dec 2010, Dempster wrote:
    De-leveraging on the scale needed would presumably make most banks insolvent again.
    ===========================
    How can paying the banks what we owe them make them insolvent??


  • Comment number 29.

    "Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked, 'Account overdrawn.'

    Ayn Rand

  • Comment number 30.

    In other words: MONEY TALKS.

  • Comment number 31.

    EconomicsStudent @ 23 and John_From_Hendon @ 26

    The issue of strategic investment keeps coming up again and again. Strategic investment in energy, housing and transport is a no brainer and was discussed publicly by politicians for about 2 weeks after the credit crunch. Was I the only one paying attention at the time? The policy has never raised its head again and we, the public, are left to wonder why. I believe that it's almost certainly due to the banks scaring governments with stories about the collapse of the global banking system. However, now we're getting a slow run on the monetary system. It's a slow run (or maybe a power walk) because, like Tesco, money is hard to do without.

    I've raised the issue of personal ethics a couple of times but as yet no response. My personal opinion is that government and central bank policies are now set in stone and personal ethics is the issue to be decided. Whether (tis nobler) to push for the crash (like Cantona) or to push for the recovery by taking on more work.

    Sorry if my levity is disrespectful but I'm saying this for at least the third time in response to the same issue.

  • Comment number 32.

    28. At 9:04pm on 14 Dec 2010, AnotherEngineer wrote:
    ‘10. At 3:38pm on 14 Dec 2010, Dempster wrote:
    De-leveraging on the scale needed would presumably make most banks insolvent again.
    ===========================
    How can paying the banks what we owe them make them insolvent??’

    Now come on A.E. what you’re going pay them back with?
    Money?
    And where does that come from? ……………Debt!

    The only de-leveraging that can be done is by default.
    Default = Insolvency

    In any event being as you may fall into the category of ‘the great unconverted’.
    A category which is in fact populated by 99.9% of the population.
    I offer you my hand in the hope that you may cross the threshold.

  • Comment number 33.

    Dempster

    Your 7.2 percent - You can hardly expect to see no inflation when a currency drops in value adn import vloumes are high. The pound at 2 USD was overvalued so when the pound dropped imports had to rise. BTW The biggest buyer of European bonds is China, using the surplus they hold. You were born into debt. The UK was to all intents and purposes bankrupt after WW2. This is pre WW2 'Blessed are the young for they shall inherit the national debt.' Herbert Hoover.

  • Comment number 34.

    Remember holidays?

  • Comment number 35.

    33. At 10:02pm on 14 Dec 2010, Not Buzz Windrip wrote:
    Dempster

    Your 7.2 percent - You can hardly expect to see no inflation when a currency drops in value adn import vloumes are high. The pound at 2 USD was overvalued so when the pound dropped imports had to rise. BTW The biggest buyer of European bonds is China, using the surplus they hold. You were born into debt. The UK was to all intents and purposes bankrupt after WW2. This is pre WW2 'Blessed are the young for they shall inherit the national debt.' Herbert Hoover.



    It's a fair point N.B.W.
    'Blessed are the young for they shall inherit the national debt.'

    But is that we want?

    Do you want it N.B.W.?
    I know I don't.
    And from your posts I don't think you do either.

  • Comment number 36.

    #34. DebtJuggler wrote:

    "Remember holidays?"

    It all started with the Bank Holiday Act of 1871! And I recall a similar piece of legislation in France in 1936 when paid holidays first became a right.

    Anyway, we are all striving towards the permanent holiday of retirement (prior to death!) the trouble is that the pensions industry is in severe denial. Last week the BBC ran a propaganda piece about investing for your retirement. They were using what appeared to be 7% compound interest as a typical rate of investment return - they obviously are living in the past. Further they went on to use a similar rate to provide the value of the annuity that could be purchased with your invested fund. These people are completely out of touch with the present day reality of investing, savings and annuities where half of these rates is unachievable.

    The ridiculousness of the figures suggests one of two things, either they are simply lying and are fraudulent, or the pensions industry believes that money will again return to its previous price in quite a short time.

    Warming, and returning, to my theme of the 'Fools of Threadneedle Street': so the savings and investment half of the City 'knows' money is currently grossly under-priced, but the bankers can still get it free as QE! The idiots (ibid) MUST square this circle - pronto! And what is more we haven't the slightest hope of escaping from this slough until money is more appropriately priced. (rates back to 5%)

    Sorry to turn holidays on their head!

  • Comment number 37.

    #36 John_from_Hendon,

    You had to do it didn't you :) It was difficult enough to wend our way through the moral and practical relevance an actions of the IMF and you had to mention PENSIONS!

    So before the numbskulls come on claiming that "Gordon Brown robbed my pension" or all public sector pensions are gold-platted, I'll add to your BBC 7% compound interest fiasco. A latest review confirms that over 40% of the value of private pensions are taken by the financial services industry in fees. Now these are the very organisations who the numbskulls cried should take over responsibility for public sector pensions!

  • Comment number 38.

    Dempster (#27 et al) is the only one that fully gets it.

    You need to understand WHAT MONEY IS before you have a chance of understanding the issue.

    The Emperor Has No Clothes!!! Look carefully; think about it.

    Money is a claim against future wealth production. Compounding it with interest just results, ultimately, in those debts becoming unpayable. Adding more interest cannot help.


    These so-called Economists (and the politicians for that matter) are either too dumb to see it, or they have their snouts in the trough too.

  • Comment number 39.

    38. At 02:24am on 15 Dec 2010, Wardy29 wrote:
    Dempster (#27 et al) is the only one that fully gets it.

    You need to understand WHAT MONEY IS before you have a chance of understanding the issue.

    The Emperor Has No Clothes!!! Look carefully; think about it.

    Money is a claim against future wealth production. Compounding it with interest just results, ultimately, in those debts becoming unpayable. Adding more interest cannot help.


    These so-called Economists (and the politicians for that matter) are either too dumb to see it, or they have their snouts in the trough too.
    -----------------------------------------------------------------------
    THis is a familiar post. Are you a 'regular' in disguise? Or, dare I suggest, merely cutting and pasting from somewhere else?

    Money is not a claim against future wealth production. That is our debt+deficit and current state spending+fiscal system. Money is a means of exchange.

    It is true that money can carry its own value but that is in relation to lending.

    Economics is an inexact science and an ugly and clumsy art. Those practitioners that you decry are as susceptible to all sorts of understandings and pressures and distractions and diversions as any poster on this Blog. How many posters on this site can be wrong? Some were predicting the end of the Euro by August, others by October, some said November!

    Hey! Let's be careful out there today.

    PS: Dempster posts useful stuff.

    PPS: Most of the time.

    PPPS: But he would be the last person to claim that he is mostly right, especially right all the time.

    PPPPS: He is also very open to challenge and debate.

  • Comment number 40.

    It's pretty clear that the powers that be are now set on a course, and will not change unles and until we hit the rocks again. I'm one of those who see this as inevitable - but who know, economic growth may suddenly return at levels that allow us to pay off our debts (not).

    When the crisis hits, maybe we'll have a chace at Plan B, on which

    I'm with Bluesberry #9. We should place sensible restraints on mortage lending (%deposit and miltiples of salary): we should in some way separate investment banks from retail banking: and we should regulate the trade in derivatives.

    I'm with JfH on the need to deflate (pay off or write off) debt

    I'm with all those who look for a nationalised bank (built on those that are virtually nationalised) and would want this to replace the old building societies as safe, boring places to save and providers of reasonable mortgages. (nb If this happened then maybe we would not need tov regulate mortgage lending). It should also offer sensible loans to small businesses.

    Finally, and more ambitiously, I'm with Dempster on the positive money thing - and more particularly, would argue that the BoE should be lending money to banks at a reasonable rate of interest (which they can then use as capital): rather than the Government borrowing from banks who then use the debt as capital.

    Why does none of this happen? Because these guys don't have the power. Where does the power lie? With the people who have the money, and the power to create money - and they're not about to give it up.

  • Comment number 41.

    FDD: great point about pension fund fees.

    I have a modest private pension invested in shares via Barclays Stockbrokers. Their fees have risen consistently whilst my fund has halved over the past four years. They now charge £50 a quarter for sending me a letter out every quarter showing my status. This is an internet account and I don't need a letter thanks. If I do decide to move my investment into other shares they charge me £28 for doing this (fair enough) but I still get the £200 a year charge for absolutely nothing at all. It's highway robbery and the whole pensions joke needs tearing up and filing in the round window.

    It would be much better to broaden the ISA scheme and let people use that for general tax free savings including their pension needs. Mind you Barclays stockbrokers and others charge money for nothing for administering that as well.

  • Comment number 42.

    Going into debt and paying interest on that debt is a sensible financial strategy for individuals and governments.

    The great caveat to add to this statement is "provided that debt is invested into an endeavour that yields a greater return than the cost of the interest on the debt." This is the caveat that has been forgotten by governments and individuals.

    The unrestrained financial sector that has grown massively, particularly in the past thirty years, has corrupted what the idea of borrowing and financial markets were all developed for, namely funding for innovation and improvements in technology and production.

    Until countries such as the US, UK, and other democracies sacrifice unfettered market freedom for the greater good of sensible investment in beneficial industry and commerce (aka the Chinese) we are doomed to see much needed investment funds being continually parasitically consumed by the over-whealmingly counter productive financial services sector. (bank bonuses, speculative bubbles, etc).

  • Comment number 43.

    oh not Keynes and Bretton Woods again?

    This is 2010 not 1944

    GC

  • Comment number 44.

    42. At 08:37am on 15 Dec 2010, Sage_of_Cromerarrh wrote:
    Going into debt and paying interest on that debt is a sensible financial strategy for individuals and governments.

    The great caveat to add to this statement is "provided that debt is invested into an endeavour that yields a greater return than the cost of the interest on the debt." This is the caveat that has been forgotten by governments and individuals.


    Good caveat that Sage.

  • Comment number 45.

    42. At 08:37am on 15 Dec 2010, Sage_of_Cromerarrh wrote:
    Going into debt and paying interest on that debt is a sensible financial strategy for individuals and governments.
    =========================================================================
    I would like to challenge this thesis.

    Lets say we could start with a clean sheet.

    Instead of paying £40 billion in interest this year let's say we spent some of that on our services and put some aside. During the good times lets say like we experienced during the late nineties and early two thousands we put more aside. So now we would have a sizable sum which we could use, modestly to build new schools, hospitals, Etc as and when we needed them and could afford them. Remembering that it is not the building that takes the money it is the running, for what is the use of a nice shiny building if you can't afford the staff to run it or the goods to deliver the services. Which it would appear where we are at with many of our new schools and hospitals built on the never never by our last goverment. The PPP and PFI programs have left us with a legacy that will haunt us for the next thirty years.

    So let us assume that debt is only good if you can;

    A. Afford it,

    and

    B. It has a life span that is short enough to minimise the exposure.

    So what we have now globally are Countries that have debts that they cant afford and it is going to take decades to reduce. Which is what is causing the continuing mealy. For all have become addicted to debt and those without are reliant on those with to drive their economies. For if the US and the EU shut up shop China and India will grind to a halt and probably implode for both are reliant on growth just to stand still and their economies are on a knife edge.

    So going into debt and paying interest on that debt is not always a sensible financial strategy for individuals and governments especially if you can't afford it.

    I think it was WB who said, "those who need credit are those who can't afford it"!!!!!


  • Comment number 46.

    @41 Sage_of_Cromerarrh

    This explains what is happening to your money (caution ozzy accents).

    http://www.youtube.com/watch?v=M_3T-Af57Pg

  • Comment number 47.

    #43. Guy Croft wrote:

    "This is 2010 not 1944"

    But I fear that it is really 1870 in the way that the bubble is being handled! (AKA start of The Long Depression)

  • Comment number 48.

    Where does the money that the IMF uses from, banks, where else. The banks money is your debt.

    http://www.youtube.com/watch?v=-oeqZVTCFzg&feature=&p=984F07122A861C6E&index=0&playnext=1

  • Comment number 49.

    39. At 07:34am on 15 Dec 2010, Up2snuff wrote:

    "... cutting and pasting from somewhere else?"

    OK, I admit I copied the expression "the emperor has no clothes": you got me!!

    "Money is not a claim against future wealth production. That is our debt+deficit and current state spending+fiscal system. Money is a means of exchange."

    In the current financial system there is no money without debt. And its debt that must be paid back with interest.

    Tell me, how is this debt (plus interest) paid back? With more money? How is this possible, except with more debt? But doesn't that just create more debt, which must be paid back with interest?

    I think you can see where I am going with this ....

  • Comment number 50.

    35. At 10:19pm on 14 Dec 2010, Dempster wrote:

    It's a fair point N.B.W.
    'Blessed are the young for they shall inherit the national debt.'

    But is that we want?

    Do you want it N.B.W.?
    I know I don't.
    And from your posts I don't think you do either.

    --------------

    No buddy it is not what I want. But there is no point is pretending it is not here. Nor is there any point in imagining the bubble conditions are going to come back. The West continues to consume more than its fair share of the planets resources. The expectations are just wildly out of kilter with reality. Basically the whole show is a conmans trick. And the reason it works is because people hear what they want to hear and close their minds to anything they dont want. So much of what is going on has been warned about for so long it just beggers belief no reaction has occurred. We are not talking proactive so things can only get worse before they maybe get better. It is being driven by things getting worse to the point denial has to stop. You get what a small number of people vote for in a small number of key marginal locations.

    Blessed are the meek because they shall inherit the earth. Just what state will the earth be in is another matter.

    Using domestic housing as a vehicle for so called economic growth via manipulation of the credit side and the land supply side was always going to be a disaster and how anybody could go that route when 75 percent falls in property prices occurred in Toyko Japan following their crunch I just cannot understand. Borrowing money from the future is just borrowed time. Too many have been living on borrowed time. 5 years into a 25 year term mortgagae and still years to pay or go bankrupt for some. It is diffcult to get hold of the figures, I wonder why, but if for 5 years the housing stock turnover was high, say 3.5 percent of housing stock pa, then thats a whole load of people exposed by negative equity and locked in. The only reason for low interest rates is to try and prop things. Thats the difference between this recession and the early 90s. They did the figures then and knew the number fo people sent to the wall was limited, so they sent them. Its not hard to get a calculator out and map the debt curve to a null point, its some way away. Time ensure you have something that works in this environemnt or to learn another language as a fallback, unless you like NZ which is still pre bubble in mentality, or Canada which has the advantage of massive land resources.

    Anyway here is Herbet again -

    'About the time we can make the ends meet, somebody moves the ends.'

    'Let me remind you that credit is the lifeblood of business, the lifeblood of prices and jobs.'

    Herbert Hoover

    As the banks are bust they have little credit to offer. As consumers, the ones who like debt, are fully loaded the things will grind. HMG is refusing to instruct the banks owned by the taxpayer - they are held at arms length - so credit is down to a nonfunctioning market.

    My money is still on some sort stimulus just before the next GE.

  • Comment number 51.

    fordeckdave:

    "A latest review confirms that over 40% of the value of private pensions are taken by the financial services industry in fees"

    Wow - that sounds incredible. Do you have a link?

    My pension hasn't dropped by 40%. What time period are we talking here? Surely if they took 40% of my pension every year I'd have 10p left in no time. Or are we saying that fees from all service, eg M&A, add up to be 40% of the value of private pensions? If the latter then surely that's just not relevant. Please can you clarify?

    EconomicsStudent:
    "Deficits and public debt are not the problem, they are actually the solution while the public bring down their private debt."

    Ah - the fun half of Keynes. Aren't we supposed to save during the boom for this to work though? Don't take this the wrong way, but is economics a BA or a BSc?

  • Comment number 52.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 53.

    The public debt.... the horror, the horror....
    What if the public debt was not a debt?
    What if it was really savings and money in bank?
    I know what I want for Xmas Santa.
    Everybody to wake up.

  • Comment number 54.

    Actually reading that 40% thing again I think you must be saying 40% of worth over the lifetime of the plan? If that's the case that is really something, and again if you have a link I'd appreciate it. Thanks.

  • Comment number 55.

    32. At 9:45pm on 14 Dec 2010, Dempster wrote:
    The only de-leveraging that can be done is by default.
    Default = Insolvency
    In any event being as you may fall into the category of ‘the great unconverted’.
    A category which is in fact populated by 99.9% of the population.
    I offer you my hand in the hope that you may cross the threshold.
    ==============================
    I think you need a few more 9s here!
    Thanks for the offer, but I feel that joining a cult that requires me to think that the only way to repay debt is to default is definitely several steps too far.
    By the way, I see that in Robert's little film at the top of the blog he talks about banks lending out their deposits. You need to put him right on that.

  • Comment number 56.

    12. At 3:43pm on 14 Dec 2010, Co-operateordie wrote:
    At the turn of the Millenium drought-prone Malawi had three years strategic grain reserve. Along came the IMF and told the Government to sell off the grain (at a time of low prices) to repay its external debt more quickly. Three years later the rains failed and the BBC did its usual heart-rending coverage of starving African children. As usual no-one at the BBC had the sense or the courage to ask what had happened to the grain reserves.
    -----------------------------------------------------------------------
    Joined up thinking and medium to long-term memory on news items is not a strong point of BBC News Teams, especially the Editors, Subs and producer. The journos/presenters seem peculiarly ill-informed at times as well. Yet, if you listen to FooC (From our own Correspondent - R4) you will hear journos reporting on off duty items that are really illuminating and mind/world view expanding.

    Malawi is a serious situation. If you are prepared to click on my User name and scroll through screeds of my numpty postings you will find a 'Humph' moment from a R4 TOADY programme last summer that I found hilarious.

  • Comment number 57.

    51. At 11:08am on 15 Dec 2010, Ben wrote:

    Ah - the fun half of Keynes. Aren't we supposed to save during the boom for this to work though? Don't take this the wrong way, but is economics a BA or a BSc?
    ------------------------------------------------------------------------
    There are two ways of stopping people spending:
    1. Encourage them to save and make it worthwhile to do so, and
    2. Take all their money away so they cannot spend it.

    [Who said economists (and 'economicists') are numpties?]

    BA or BSc? I believe it can be both, even at first degree level. Certainly it is at Masters and by the time you reach PhD, who cares?

    You are a Doc!

    Whooppeeeeeee!!

  • Comment number 58.

    49. At 10:16am on 15 Dec 2010, Wardy29 wrote:

    In the current financial system there is no money without debt. And its debt that must be paid back with interest.
    -----------------------------------------------------------------------
    Are you really sure about that?

  • Comment number 59.

    49. At 10:16am on 15 Dec 2010, Wardy29 wrote:

    Tell me, how is this debt (plus interest) paid back? With more money? How is this possible, except with more debt? But doesn't that just create more debt, which must be paid back with interest?
    ---------------------------------------------------------------------
    And are you really sure about that?


  • Comment number 60.

    Glad to see the end of the year is ending on a high for the Euro with both Spain and Portugal once again under the spotlight.

    Whats the odds for one or both of them needing a bail out before the new year?

    Not to mention the other PIIGS - Italy who is lurching and under great internal pressures both politically and economically.

    And what about other members who may join the club of "PIIGS", the numbers are rising quickly........

  • Comment number 61.

    " came away thinking that the world probably has more need of a muscular IMF now than at any time in its 65 year history. But I'm not sure big players like America or China are ready for the kind of loss of national sovereignty that a strong IMF would require."
    Giving up national sovereignty to what is a private bank! Sounds like fascism to me Stephanie. You still cling to the belief that neo classical economics has a future. You are wrong. You need to start reading the work of Steve Keen and others. Conventional economic wisdom has failed, and they have proven this beyond doubt.

  • Comment number 62.

    I find these figures quite interesting, they are the UK deficit / surplus figures;

    2001/02 +£12144 million
    .
    2002/03 -£11323 million
    .
    2003/04 -£17418 million
    .
    2004/05 -£19249 million
    .
    2005/06 -£13953 million
    .
    2006/07 -£5021 million
    .
    2007/08 -£4651 million
    .
    2008/09 -£49865 million
    .
    2009/10 -£100504 million

    These are then followed by the National Debt which now stands at;

    .
    £902,576,850,000 but this number is rising at £1k per second.

    This is surely delivering value for money for the UK.

  • Comment number 63.

    51. At 11:08am on 15 Dec 2010, Ben
    'Don't take this the wrong way, but is economics a BA or a BSc?'

    That depends on where you study!

    Much of what is taught is still wrong either way.

  • Comment number 64.

    ...of course they're up to the job - look how well it's going in Greece!

  • Comment number 65.

    'He wanted to create an International Payments Union, which would literally manage global trade and capital flows, to keep a lid on surpluses and deficits - and prevent a return of the costly trade battles of the 1930s. But the key US advisor, Harry Dexter White, had different ideas. The Americans didn't want anything that would be a counterweight to US power.'

    .................

    That is the important bit - our UK politicians and business community itself (particularly our banks) have sold out Britain repeatedly ... Britain's govt has lost strategic control of its trade to its new strategic masters ... globalised banks, multi nationals and goondog billionaire import extortionists.

    Millions of ordinary British people left behind here by 'self serving business interests' who write them off at every opportunity.

    Until our UK govt gets a proper handle on UK trade ... deficits and inflation/deflation (or worse still ... 'both') are a serious problem ... if inflation is a serious problem so are interest rates and UK currency ... and the stagnation is the end product for all but the pro-euro globalised 'I'm allright Jack' section of the British business community.

    The govt must re-balalnce the economy and make the UK a european and global driver in its own available areas of expertise ... when the UK itself has little natural resources only its people, agriculture, education and our British weather - Green energy and a target of zero carbon fuel consumption in e.g. 20 years is a suitable way out and fully electrify our road and rail transport networks.

    Waiting for/encouraging further billionaire foreign investors to take up offers of further monopoly situations in the UK will be a disaster for millions of ordinary British people.

    The key to Britain's economic performance is having a domestic investment strategy ... intensive and alternative agriculture, green energy, electric vehicles etc ... can in the medium-long term lift the UK out of stagnation and be sustainable and reduce e.g. fuel and gas imports ... this should make a huge difference to the economic performance of the UK going forward.

    We have to grow more and produce more in the UK .. and import much less ... if we are to do any better going forward.

  • Comment number 66.

    61. At 1:02pm on 15 Dec 2010, Averagejoe wrote:

    "Giving up national sovereignty to what is a private bank! Sounds like fascism to me Stephanie. You still cling to the belief that neo classical economics has a future."

    We gave up our national sovereignty when we let banks control the monetary system. National governments are there to absorb the criticisms of the wealth-producers, deflecting our attention away from the owners: those behind the banks. Whether its Government debt or private debt the banking cartel are the major benificiary. Just look at the re-distribution of wealth in favour of the top 1% of population in the last 20-30 years, and we argue about trifling government policy about a few billion quid here and there.


    Take a look at the CVs of those in the top echelons of government in the UK and US over the last 20 years; before and after their stints in government. Think about what "change" Obama has brought in. Look at how Tony Blair is being rewarded for his loyalty with his UN role, as well as his 'job' working for JP Morgan. Look at the Wikileaks docs and see how inter-twined the US and UK governments are. Is it right that they knew so much about al-Megrahi's release? Or how about their knowledge of Shell in Nigeria? What about their intervention in Russia on behalf of Visa and Mastercard? Did this have any impact on the subsequent blocking of credit card payments to Wikileaks?

    Don't forget that previous totalitarian regimes have controlled the media too. Why would this one be any different? Ever noticed how they're always talking about the need for economic growth? Even though ultimately it can only result in the destruction of the planet.

    One reason why we are bombarded with dogma into believing that growth is good is the belief that it can lead to increased prosperity of the poorest without taking from the rest. This may be true, but a cynic might point out that the main reason for growth is to create the extra wealth needed to pay off the interest on the ever-increasing debt in the world economy. Its like a game of musical chairs: while the music plays on there are no losers. And then the music stops!

  • Comment number 67.

    'Germany's Chinese New Year and What to Do about It', Adam S. Posen, February 19, 2010: "Though the political relations within the European Union could not be more different today from during the 1920s—thankfully and by conscious European design—the economic dynamic is much the same as then, but with the German role reversed. Seen in this light, the hostile emotional response of many German—and for that matter Austrian, Dutch, and French—politicians and their constituents to prospects of a "bailout" for troubled Southern European economies must be overcome. In fact, the idea of showing political solidarity is not contrary to economic sense, but is a means to achieving the euro core's economic self-interest for the long term. Keynes suggested the way out in his proposals for the postwar economic system at Bretton Woods. Euro area economies running recurrent or large-scale surpluses should be required to pay back to the system some share of their trade proceeds. This would be a way of stimulating demand abroad, thereby mitigating the transfer problem. So long as the amount taxed was a fraction of the trade surplus run by Germany or other intra-euro area surplus economies, it would not even be felt as a real burden, though it would pay for itself in terms of the long-run. Importantly, in the political context of the euro area and the European Union, these funds could be collected and disbursed via the already existing mechanisms of the cohesion funds. Thus, they would not "reward" spendthrift governments per se, but would help with real adjustment and sharing out of demand. Moreover, in the context of today's stresses, initiating such a program would not be directed specifically at Greece, even if that would a primary first beneficiary. The surplus recycling program would be ongoing, not an ad hoc bailout, and all euro area members in turn would be eligible for its disbursements at some point."
    No impersonation here, just quotation.

  • Comment number 68.

    *12

    and many others like so - isn't it?

    A deep look is long overdue

  • Comment number 69.

    #51 Ben,

    Wish I could give you a link. The calim was made in Wake Up To Money on Radio 5 at 05.30. I suppose you could ask them for a link. In the same piece they also calculated that if UK private pensions were operated on the Dutch system pension holders would be 50% better off.

    Now I know that they were broadcasting at an early hour but I am sure that both claims were made.

  • Comment number 70.

    The real problem is the populist press, which is particularly powerful in the Europe, the UK and the US. Leaders like Mrs Merkel, Sarkozy and Cameron feel that they have to beat the nationalist drum, especially when elections are imminent.

    It is invariably the case that debtors and creditors have a common interest in sorting problems out, but leaders have to pretend that they are only interested in getting the best deal for their own nation.

    Collectively the world's central banks can print as much of any currency that might be required to punish speculative activity in the currency market. So why is less than 5% of the flow across the exchanges actually required to finance international trade? Could it be that money changing is highly profitable, and governments, particularly the UK government, take a cut and ignore the fact that these profits are a restraint on trade?

  • Comment number 71.

    What has changed since Keynes's heyday is that it's no longer governments which are calling the shots. From around 1980, the global financial institutions have been in the driving-seat, having been put there by neo-liberal politicians (Reagan and Thatcher principally).

    It's they who are running the show and the IMF is there to carry-out their bidding. This means that the interests of global finance are always put first; the IMF's principal role is to see to it that the lenders never suffer any losses. Indebted governments are not allowed to default; instead their populations are required to come up with the money. Thus the transfer of wealth from the poorest to the richest is safeguarded and the IMF vulture is freed to fly on and pick the bones of the next victim. Meanwhile financiers in New York are routinely taking home $200 million and more per year - for bearing no risks whatsoever.

    When a country (Argentina, Malaysia) thumbs its nose at the IMF and refuses to play ball, it's promptly subjected to the financial equivalent of Guantanamo, but so long as it stands its ground it can in fact win in the end. But precious few politicians have the guts required for this.

    SF wrote:
    "By introducing ever more elaborate safety nets for countries that get into trouble - and "precautionary facilities" for the ones that haven't - the risk is that the Fund is adding to the mountain of moral hazard that many fear will be the result of all of the bailouts of the past few years. It could thus be helping to make the next crisis more likely."

    Of course.

    So blatantly and obviously has the system now been skewed in favour of the mega-rich, and so insatiable are they, that increasingly all the makings are there for a real conflagration. Its reminiscent of the final decades of the ancien regime immediately preceding the French Revolution, or of the Tsarist regime before the Russian Revolution.

    I must say I fear for the future.

  • Comment number 72.

    Wardy29 @ 66

    a cynic might point out that the main reason for growth is to create the extra wealth needed to pay off the interest on the ever-increasing debt in the world economy
    --------------------------------------

    You know me so well.. and yet we've never met.

    I prefer not to use the term "wealth". I think value is more appropriate because saying wealth hides the fact that value has a lifespan. Wealth is value which has a longer lifespan and therefore seems to have permanence. However when considering value, it's obvious that all value has a lifespan. For example, a concert ticket has value until it is used to enter the concert or admissions to the concert have ended.

  • Comment number 73.

    Wardy29 @49 wrote..

    Tell me, how is this debt (plus interest) paid back? With more money? How is this possible, except with more debt? But doesn't that just create more debt, which must be paid back with interest?
    --------------------------------------

    I would say that the situation that you're referring to only occurs in a compound debt trap because normally debt can be paid of by value as well as money. Quantity of money isn't the whole of the picture because the economy is not a closed system. Velocity of money is certainly relevant as well. Potential value is a function of population (potential man-hours), natural resources and fundamentally energy. We get more energy from the sun every day. Regardless of which model is used, it can only approximately describe any economic situation. That's why people who rely overly on models are dangerous because analysis comes first. If models are breaking then analysis is needed to figure out why.

  • Comment number 74.

    What has changed since Keynes's heyday is that it's no longer governments which are calling the shots. From around 1980, the global financial institutions have been in the driving-seat, having been put there by neo-liberal politicians (Reagan and Thatcher principally).

    It's they who are running the show and the IMF is there to carry-out their bidding. This means that the interests of global finance are always put first; the IMF's principal role is to see to it that the lenders never suffer any losses. Indebted governments are not allowed to default; instead their populations are required to come up with the money. Thus the transfer of wealth from the poorest to the richest is safeguarded and the IMF vulture is freed to fly on and pick the bones of the next victim. Meanwhile financiers in New York are routinely taking home $200 million and more per year - for bearing no risks whatsoever.

    When a country (Argentina, Malaysia) thumbs its nose at the IMF and refuses to play ball, it's promptly subjected to the financial equivalent of Guantanamo, but so long as it stands its ground it can in fact win in the end. But precious few politicians have the guts required for this.

    SF wrote:
    "By introducing ever more elaborate safety nets for countries that get into trouble - and "precautionary facilities" for the ones that haven't - the risk is that the Fund is adding to the mountain of moral hazard that many fear will be the result of all of the bailouts of the past few years. It could thus be helping to make the next crisis more likely."

    Of course.

    So blatantly and obviously has the system now been skewed in favour of the mega-rich, and so insatiable are they, that increasingly the makings are there for a real conflagration. Its reminiscent of the final decades of the ancien regime immediately preceding the French Revolution, or of the Tsarist regime before the Russian Revolution.

    I must say I sometimes fear for the future.

  • Comment number 75.

    Double post - sorry, please disregard the repeat. (Getting sleepy).

  • Comment number 76.

    re #73
    Beat me to it and then went a whole lot further.

  • Comment number 77.

    re #75
    Mrs T - neoliberal?

    Please explain!

  • Comment number 78.

    Is the IMF meant to be up to the job of fixing the world's economy?

    Isn't it something that's only meant to be better than nothing at reducing the probability that the world's economy will need fixing in the first place, a rather different brief?

    You wouldn't ask if a doctor was up to the job of curing all known ills, for instance.

  • Comment number 79.

    @77. Up2snuff:

    I don't think we can really hope to do justice to that debate here, can we?

    Some hallmarks of neo-liberalism:-

    capital accumulation and deindustrialisation in the West (rather than productive investment)
    accompanied by heavy investment in primary producing economies with cheap labour and little or no environmental restrictions
    disempowerment of trade unions
    disempowerment of local community government and "grass-roots" democracy
    dollar hegemony
    worldwide free trade
    extreme concentration of individual wealth
    extensive privileges for the corporate sector, through tax concessions, watering-down of planning and environmental restrictions
    removal of virtually all regulation from the financial sector
    removal of all obstacles to "big business"
    "private-public partnership" (meaning that democratic control is sidestepped)
    (in the US) capture of the Republican Party by "big business" - now fully executed according to the plan drawn-up in the 'eighties

    That's for starters.

    I take it as self-evident that the label applies quintessentially to Mrs. T - and to Ronald Reagan of course (they were soul-mates). I assume from your reaction that you don't. So perhaps you ought to tell us how you would categorise Mrs T's policies, if not as neo-liberal? (And I would point out that it ought to tell us something that the traditional "old guard" of the Conservative Party was opposed to her throughout, seeing her as a radical - which she most certainly was - and finally managed to turn her out when she started to look like a loser).


  • Comment number 80.

    66. At 2:14pm on 15 Dec 2010, Wardy29 wrote:
    .........
    Totally agree. As for trickle down of wealth, as far as I can see this is a myth, merely to keep the masses on the hamster wheel. The evidence is the gap between rich and poor has never been wider.

  • Comment number 81.

    I welcome Stephanie Flanders’s thoughtful article and Radio 4 program but doubt the global economy will be fixed. More likely its flawed fundamentals will be resolutely defended until it fails irretrievably!
    I’m glad Keynes’s Clearing Union is being re-examined. Beveridge’s ideas for full employment are also important as low real wages are a major cause of recessions and debts.
    Many rightly worry about growing debts but I warn against blaming the fractional reserve bank. It appears to be an historic anomaly that should be phased out but it only takes one person to lend some money to another to create a debt. Conversely, if the borrower repays the loan then the debt is extinguished. This is easier said than done and society has traditionally prevented the build up of debts by prohibiting usury, facilitating debt write offs and encouraging spending and giving.
    I find good advices for our times in the latest Trade and Development Report from UNCTAD: See especially its downloadable Overview.
    I doubt workable reforms will be accepted until the claim adults are basically good and rational is seen to be false, and until its corollary that people should be free to pursue their self interest subject to competition and choice is judged naive. Almost all workable reforms require a degree of restraint and concern for others and the common weal!

  • Comment number 82.

    Why does comment 81 say "you wrote:" when the page from which I posted said I was signed in as George Talbot? It still says this.

    And why does the preview show space between the paragraphs and the page none? Fortunately the paragraphs are clear in this comment.

    Please correct my name and restore the spaces I removed.

 

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