The papers all seem to be reserving economic predictions for 2012 until today. Let me offer a few.
This will be the year the world faces the biggest economic crisis since 1945. Then we pulled together. This year countries will pull apart. Things are going to get worse, not better.
We will face social unrest as a result - right across the world impacted by recession.
The Euro is at serious risk of not making it through the year. No one knows what will happen then. It's pointless pretending they do.
Millions will lose their jobs in Europe - hundreds of thousands in the UK.
Evictions of people from housing they can no longer afford because of benefit cuts will become widespread.
Bankruptcies will rise.
Major companies will fail.
Public services will get worse. Attacks on public sector workers will rise. They will be pushed to their limits of endurance.
Democracy will fail in some countries.
And all because governments will refuse to do what they could all do - which is spend more, using borrowed funds (created by banks, and at very, very low interest rates as was done, for example in World War 2 when we also faced crisis) to get us out of the mess we're in to put people to work, to stimulate economies, to invest for our futures, to give people hope, to constrain disorder and to provide prosperity - and indeed to create enough tax revenue to pay for the borrowing more than once over - so reducing the deficit in the process.
Have no doubt the fiscal conservatives of supposed left and combined right want this chaos. They are choosing it when an alternative is available. For that they are and will be culpable.
But I fear the worst before it has a chance to get better.
A happy 2012 is hard to imagine.
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So the solution to a crisis caused by too much borrowing and too much spending is… to borrow more and soend more. Only the Left could come up with it.
You’re probably right. Only the left could come up with a solution to this crisis -which is exactly what we’ve done
The right are condemning us to poverty and despair
Precisely because they have no solution
The right are condemning us to poverty and despair not because they have no solution but because their goal is to continue the reign of the banking sector over the rest of us. This is a pattern, it’s been done before and unless the pattern gets widely recognised and understood for what it is it’ll happen again. The advantage we have this time is that this is the information age and there’s never been one before. Are you reading golemxiv Richard? He’s writing some good articles on the situation,and speaking of banking scams here’s his latest (Richard Price, you should read this too and then go and read all at http://www.economania.co.uk) the miracle of solvency. You should be asking yourselves, where are the prosecutions for all this? Benefit scroungers and disability fraudsters etc couldn’t come close even collectvely on their best day to this kind of larceny yet they’re the ones Milliband and Byrne choose to demonise in their latest outbursts, illustrating their complete indifference to actually changing anything fundamentally wrong. Mouthpieces for the bankers, that’s all they are. Proof again there won’t be any future for this country if we rely on politicians to provide it.
Richard, in late October, I attended a conference called Building a Creative Economy (
http://www.buildingacreativeeconomy.com/#!main-conference ). One of the speakers, Bill Mitchell (Prof of Economics and Director of the Centre of Full Employment and Equity at Newcastle University, Australia), argued exactly what you have been saying. The main thrust of his argument was that the government’s role is to create jobs, even if that means borrowing and printing more money. This was a surprise to me, because contrary to popular belief, this doesn’t create hyperinflation. Hyperinflation, as in Zimbabwe and Weimar Germany occurred because production collapsed – in a sense a lot of money chasing too few goods and services.
Another point in support of your argument is that the Commonwealth Bank of Australia (Australia’s Central Bank in the early 20th C) financed the entire war effort of Australia (in WW1), such that Australia entered the 1920’s with no government debt to speak of. Needless to say, the international banking community would have none of this and unfortunately we ended up where every other western country did – highly in debt to the banks. The point is (contrary to Richard Price’s arguments) if our governments decide to use their central banks in this way, we can get out of this mess.
Borrowing (at interest) from banks is indeed wrong when money can simply be created for free or at low interest by the same government which licenses the banks to do it, create money that is. What, you didn’t know that’s how it works? Where do you think these ‘markets’ keep finding the money to lend to governments, how do they get it to have it to lend in the first place? Answer, they create it out of thin air under license from the government! Duh! The whole process is a scam and it’s been going on for centuries. It’s that same scam process that needs to be addressed more than anything.
This is a strange response from someone who would presumably agree that a company needs to invest, in order to grow. The experiences of women in the developing world is that investment in irrigation, livestock or low level refrigeration, allows them to produce more, feed their families, sell surplus and educate/keep healthy their children. None of this can happen without ‘borrowing’. The alternative austerity kills people in the developing world, and inevitably will cause premature deaths in the UK.
But surely businesses invest in items or services that will be bring them a profit. Governments are not in the business of making a profit and therefore your comparison is flawed. The government needs to invest in projects like infrastructure which will, in the end bring in more revenue. What we don’t need is the last governments policy of borrowing more and spending more with a result of a huge deficit – one that they have yet to tell how us how then intend to reduce – so we can vote the Tories out at the next election. A credible alternative – from Labour – to the destruction of our country is needed now, more than ever.
I think Richard Price should tell us if he thinks your prognosis for 2012 is wrong. Let’s just take the following few points:
1) Millions will lose their jobs in Europe — hundreds of thousands in the UK.
2) Evictions of people from housing they can no longer afford because of benefit cuts will become widespread.
3) Bankruptcies will rise.
4) Major companies will fail.
These look like certainties to me.
Surely a good start would be to repatriate the issuance of debt by banks make governments control the money supply, creating at a stroke debt free money that banks would then have to compete for on the same terms as any other business or individual. Perhaps you could give more prominence to this issue as it is at the root of so many problems that exercise you daily.
I would recommend the following
http://www.youtube.com/watch?v=swkq2E8mswI
What would you do if all economies were based on an assumption? – from the horse mouth.
http://www.guardian.co.uk/environment/video/2008/dec/15/fatih-birol-george-monbiot
hear, hear !
we won’t solve the crisis while private sector banks are allowed free access to the money supply. Oddly enough, I think the left’s opinion on this will concur with that of the Von Hayek monetarists
Sweden’s experience over the last few years shows us that fiscal spending is not necessary to promote recovery from a deep recession – monetary policy is sufficient, even after interest rates hit 0%. (Sweden ran a deficit of less than 1% of GDP at the height of the crisis, but used much more aggressive monetary policy)
Japan’s last two decades show us that deficit spending is not sufficient to promote recovery from a deep recession. Central banks can successfully neuter any attempt to boost demand if they are so inclined; the Bank of Japan has shown it will not tolerate any rate of inflation much above 0%, and so Japan’s neverending deficit spending does little good, except if success is measured by the growth of public debt over GDP.
Similarly, the European Central Bank has successfully neutered deficit spending in the “PIGS” by slowing growth in Europe with two interest rate rises in 2011. Access to bond markets to even fund deficit spending in Italy etc is now highly dependant on further ECB support.
So empirical evidence for fiscal spending in promoting demand growth: it is neither necessary nor sufficient. Monetary policy is key.
Monetary policy-makers in the UK have been “blinded” by high inflation, but (narrowly) avoided a pedantic adherence to their legal mandate for 2% CPI inflation, and we are hence not doing quiet as badly as the PIGS. But their actions will be key. As the VAT and oil price shocks fall out of the CPI calculation, hopefully inflation-targeting will start working properly again, as it did for roughly 15 years from 1992.
That’s belief in a policy even Milton Friedman decided was discredited in the end
You must be the last monetarist left
Yes, it’s only me and most economists who believe in the power of monetary policy. Friedman thought monetary policy was discredited? Cite references!
Do you even believe monetary policy is effective at managing Aggregate Demand with interest rates above 0%?
Other advocates of monetary policy:
Lars Svensson – one of the best monetarists around, a New Keynesian, deputy government of Riksbank:
http://people.su.se/~leosven/papers/me19-s1-11.pdf
Here is Nicholas Craft on how monetary policy, not deficit spending, was the key to the UK recovery in the 1930’s:
http://centreforum.org/assets/pubs/delivering-growth-while-reducing-deficits.pdf
Of course interest rates have a role – and any good Keynesian will tell you low long term rates are essential – that should be the goal of QE. but nothing makes business invest when there is no demand – as now when business ess is flush with cash. So monetary policy cannot work in current scenarios as Friedman agreed. Only dfiscal stimulus can – and rearmament was not the sole cause if it in the 1930s. Even if it were though the case was still proven!
One in seven of the population is either starving and/or very close to death from starvation. This is a result of greed and failing to distribute the planet’s resources objectively and impartially.
We will all (well 99% of us) pay the price for this selfish materialism.
Meanwhile the privileged few sit back puffing cigars in Monaco and Jersey planning their next raid on the world’s exchequers.
No prizes for guessing who is the most likely to survive!
Richard
I’d like to echo the comments from Bill Kruse and Mark Pearse about taking back the power to create money from the private banks.
Perhaps you could review the ideas of the “Positive Money” group in your blog?
All the best for 2012.
OK RM, it was not too hard to predict economic decline this year- almost every economic
commentator has said the same. Your solution – Governement spending ?
Ok now please tell me where in the whole wide world is this solution succeeeding ?
I can say “The fairies will solve everything” but that does not mean anything until someone spots a fairy doing something!
No one is really trying this in the world right now
That’s why we prove it with the 1930s
When it undoubtedly worked after austerity failed
The reason the Great Depression ended was because of WWII and rearmament. Deficit spending had nothing to do with it.
Also, the UK economy in the 1930 was one of the most successful in the world. Their deficit spending was also one of the least.
Since none of the evidence supports your claims it is very obvious you’re not trying to contribute to debate
And that’s a fail in future for your comments
Expanding on Richard Price’s comment, what he meant to write was,
“The reason the Great Depression ended was because of WWII and rearmament, which were both financed by deficit spending. So deficit spending had nothing to do with it.”
Wonderful stuff – Vicky Pollard would be proud of him.
Much of the spending we’ve seen in the world has been directed towards the financial sector – to prop it up and pay all their bad debts – rather than job creation. Witness the United States. They’ve spent close to a trillion buying up all the ‘toxic’ assets. Little wonder their economy is sick. People need jobs. Seeing your bank rescued isn’t going to make you go out and spend money.
Weakened banks should have been allowed to keel over or be nationalised, vis-a-vis Iceland. Had governments poured those hundreds of billions into creating new infrastructure, like maybe carbon-free energy infrastructure, I doubt the world economy would be a sick as it is today.
Nationalised was the only answer and that may well still be the case
Any thoughts anyone on this idea of Michel Rocard (French PM under Mitterand) and economist Pierre Larrouturou published in Le Monde and reproduced in translation by Simon Thorpe:
http://simonthorpesideas.blogspot.com/2012/01/michel-rocard-and-pierre-larrouturou.html ?
Here in France, I take some faint hope from the real possibility (dare I say probablility?) that we will manage to get rid of Sarko in April. Fran̤ois Hollande (PS) has yet to unveil the details of his presidential project Рpromised for the end of this month. He has however already said that if elected he will renegotiate the Merkozy deal. But what chance of any real change in the face of right-wing governments in most of Europe?