Crank up the printing machine
Adam Posen, an expert advisor to the US Congress and an influential member of the Bank of England’s monetary policy committee, is urging governments on both sides of the Atlantic to print more money to rescue the economy from impending disaster.
In the US, Obama is preparing for mid-term elections in November and Posen’s particular worry is about the political consequences of economic collapse. He told a business audience in Hull:
Let us not forget that it was sustained high unemployment and austerity, the sense that governments were unresponsive to average people’s dire economic conditions, which led to the rise of extremist intolerant parties in pre-war Europe.
Posen is right to be worried. The global economy is in its deepest crisis in the wake of conventional and unconventional measures by governments and central banks. Negative interest rates, bailing out bankrupt banks, huge injections of credit borrowed from the money markets, and QE (quantitative easing) – aka printing money – had only a limited, temporary effect. Now it’s game over. Every country is sliding back into recession.
As these conditions mature, they shape the politics of the parties in and aspiring to power, as Posen rightly warns. You can see it in new leader Ed Miliband’s first speech as he sets out to make the British Labour Party acceptable to its capitalist masters. “Growth is our priority,” he declaimed, and “true patriotism is about reducing the debt burden we pass on to our kids.” Makes the hairs on the back of your neck stand up very straight. Or it should do.
So those who express the fear that history will repeat itself, that we’ll see a return to the long depression of the 1930s and the extension of Japan’s continuing 20-year slump to the rest of the world, are getting a hearing.
But there are more strident voices with different, opposed messages. Among them is Liam Halligan, economics editor of the Sunday Telegraph, and chief economist at Prosperity Capital Management, which is a major shareholder in some of the leading companies in Russia, Ukraine and Central Asia.
Halligan first made his mark in the 1990s. As Wikipedia puts it he “was heavily involved in the Russian government’s attempts to stabilise the country’s nascent post-Communist economy”. You might say Halligan turns the old phrase inside out – he puts his mouth where his money is.
Halligan wrote this attention-getting paragraph in his populist weekend column for the Telegraph:
Now, the Western world's policy response amounts to printing money and heaping debts upon debts, while shoving the banking sector's losses on to the general public – and, particularly, their children and grandchildren. This is perhaps the most systematic act of inter-generational theft the world has ever seen. But that's not the point – at least for now. The point for now is that QE [quantative easing] and the related fiscal boosts simply are not working.
Halligan ends his piece warning about the debasement of currencies and calls on Western governments to get tough. His prescription, borrowed from Simon Johnson, a former chief economist of the International Monetary Fund is “to break the financial oligarchy that is blocking essential reform.”
There’s a horrible truth in what Posen and Halligan have to say. The capitalist system at war with itself. The state is in conflict with finance capital which has successfully resisted re-regulation against a backdrop of a global sovereign debt crisis, which the printing of more money can only deepen.
Far from being part of the solution, Ed Miliband and the trade union bureaucrats who got him elected are the problem when it come to mounting serious opposition to Lib-Con cuts and the recession. They are for rescuing the system at any price.
Trade unionists are marching in Brussels today against Euro-wide budget cuts, while a general strike is taking place in Spain. The growing anger of working people deserves a leadership that will go beyond limited actions to settling accounts once and for all with the real problem – the maddened system of capitalism itself.
29 September 2010