As the FT notes this morning:
The US Federal Reserve sprung a surprise on markets by keeping its asset purchases steady at $85bn a month as chairman Ben Bernanke backed away from the guidance he gave in June.
The Fed cut its growth forecast and confounded expectations that it would start to slow its third round of quantitative easing as the rate-setting Federal Open Market Committee said it would “await more evidence that progress will be sustained before adjusting the pace of its purchases”.
The FT suggests that this is a move to keep long term interest rates low.
I think it far more likely that Ha-Joon Chang has it right. As he said in the Guardian recently:
QE has become the weapon of choice by these governments because it is the only way in which recovery — however slow and anaemic — could be generated without changing the economic model that has served the rich and powerful so well in the past three decades.
This model is propelled by a continuous generation of asset bubbles, fuelled by complex and opaque financial instruments created by highly leveraged banks and other financial institutions. It is a system in which short-term financial profits take precedence over long-term investments in productive capabilities, and over the quality of life of employees. If the rich countries had tried to generate recovery through any other means than QE, they would have to seriously challenge this model.
QE is addictive: it's sustained the dying finance sector all too well. Again as Ha-Joon Chang puts it:
Recovery driven by fiscal policy would have involved an increase in the shares of public investment and social welfare spending in national income, reducing the share going to the rich. It would have generated new public sector jobs, which would have weakened the bargaining power of capitalists by reducing unemployment.
That, of course, is the Green New Deal - with it's green quantitative easing, which isn so very different in impact from QE itself.
The sign is that the junkie can't lose its fix in the US. I suspect that may well be true here too. And that's what's worrying about this. A recovery built on rebuilding the unsustainable bubble of 2006 is no recovery at all, but that's what we're getting.
As a senior UK civil servant said to me in 2009:
We have to rebuild Anglo-Saxon capitalism; it's all we've got
I fear that logic survives unaltered today on both sides of the Atlantic.
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Ha-Joon Chang analysis is spot on as always, Richard. But the short quote you include at the end of this blog tells us all we need to know about why such sensible and practical initiatives as the Green New Deal – and anything similar – will never be accepted anywhere that Anglo-Saxon capitalism prevails.
Not only would it impact on prevailing economic, social and power relations, but it would require a complete change of mindset on behalf of the political class, the hierarchy of so called public servants responsible for informing and overseeing the delivery of public policy, and their masters in big business and the rich “elite”.
My view now is that that will not happen unless and until there is yet another crash. However – and this is what’s most worrying – the promoters, protectors and beneficiaries of Anglo-Saxon capitalism (neo-liberalism) now have a case study (model) on which to base their response to any future crash. Importantly for them it isn’t Keynesian. And while you, me and many others might be able to pick holes in that model, an awful lot of people have been convinced, coerced or hoodwinked into thinking it’s worked pretty well at sorting out the post 2008 mess.
If I were one of those whose been instrumental in formulating and/or applying that model (tying up the lose ends is an ongoing project, of course), such as the new governor of the BoE, or Lord Browne, Osborne, and of course a compliant political opposition, and their US counterparts, I think I be feeling quite chuffed with myself and my ilk right now.
Spot on Ivan
I fear your analysis is right
QE can be seen as a mechanism to boost balance sheets in advance of the next and anticipated crash
I feel a blog coming on….just got a talk to do first
Richard, when I get the time I will read your Green New Deal document in full, instead of just picking at it as I’ve been guilty of doing so so far. The trouble is, while I’m sure it’ll contain much that makes immense sense, I’ll also end up depressed and infuriated that there’s no sign of any of it being implemented in the near future by our useless (with some honourable exceptions) politicians.
Instead, we have this insane state subsidized house price bubble and endless cheap money being thrown at the useless banks.
I know that feeling
So reverse socialism continues its march backward – looks like the author of ‘Aftershock’ might be right.
It’s sado-monetarism all over again. Lots to sort out on the money side, it’s true, but what about a decent fiscal policy? Shifting the burden of taxation to the rent-seekers is what’s needed – a virtuous circle of increasing public investment => increasing land values => increasing tax base => increasing investment. Land Value Taxation, please!
Hear, hear, Carol. It’s the single best thing that could be done to reduce unemployment and deal with tax avoidance and evasion.
Ivan,
I’d recommend you spend some time on shareholder bulleting boards. Most private investors, which are probably the biggest cross section of people you will come across who are interested in this sort of thing, do not think anything has been solved.
You cannot continue indefinitely running deficits, increasing borrowing, importing everything from the most basic essentials to the most worthless tat and suppressing wages: something has to give at some point. But now the end is clearly approaching: even with QE bond yields were rising. Now it is clear that if QE ends , borrowing costs will increase still further and the property market will collapse again.
QE bought us time but that time was used to shore up a house built on sand, and not on laying new foundations.
People across the political spectrum agree on this – it isn’t a question of whether you are green or left or right. The people who do not agree – or at least won’t say because it may “undermine confidence” – are politicians of all hues.
Buy shares now, sell them in 12 months time, at that point buy gold and diamonds and be very fearful. Happy days!
Or, to use Leonard Cohen’s words:
Everybody knows that the dice are loaded
Everybody rolls with their fingers crossed
Everybody knows that the war is over
Everybody knows the good guys lost
Everybody knows the fight was fixed
The poor stay poor, the rich get rich
That’s how it goes
Everybody knows
I feel a blog coming….
Depressingly, very true. Personally, the sooner we have a collapse in proprty prices, the better. Maybe a second crash will bring the idiots in charge to their senses.As you say, it will happen sooner or later.
Roger. Thanks for that info. Very interesting – and heartening in some ways, perhaps, though I have a suspicion that even that continuing uncertainty and fear would not encourage much of that sector of society to embrace an approach such as the New Green Deal. Perhaps I’m wrong.
I agree about QE, though again, my experience is that so few people understand what it’s about (and outside of the financial sector, why should they) that they do not appreciate that if and when the “medicine” stops there hasn’t been any cure.
This applies as much here as it does in the US:
http://www.tavakolistructuredfinance.com/2013/09/potus-bailouts-without-indictments/
Not so sure it’s really “Anglo-Saxon capitalism”. It sounds positively Norman to me.
Speaking as someone whose origins are from the celtic fringe,I think the Normans have a lot to answer for!
It was certainly “us and them” after they invaded,and feudalism prevailed for centuries. Considering their Scandinavian origins too – a pity the Danes lost out?!
Maybe our class system,and maybe the less desirable parts (or attitudes) of our tax regime dates from then?!
The Anglo Saxon version of capitalism has failed, because the banks were allowed to run amok. However, THERE IS AN ALTERNATIVE….