Tagged with quantitative easing

Ending ‘life support’ for western economic model underlies China crisis

chinas new world orderAfter two days of trouble and strife in global stock markets, the Federal Reserve’s New York President William Dudley said in remarks to reporters that a September interest rate hike seemed “less compelling” now than in recent weeks. These two words alone calmed global financial markets, and pushed up the price of oil.

So everything’s going to be all right then? That is what some would have you believe. “Relax. Its just a correction” say the analysts. “The stock market always goes up and up and up. Hang on in there.” However, I do worry. Where there’s volatility and instability, the causes are ultimately fundamental. Given this week’s events what can they be? Is it all to do with China?

I doubt it. When the governors of the People’s Bank of China announced a cut in interest rates – stock markets continued to fall. When a Fed governor uttered two words off the cuff – markets rallied. So when looking for a cause we need to look west, not east. Continue reading →

A slow-burning revolution is starting to overturn neo-classical economic orthodoxy

KeynesAs the world struggles to deal with threatening outbreaks of violence – most dangerously, in the Middle East and the Ukraine – another less dramatic and slower-burning revolution is getting under way. This revolution does not threaten violence – but it does promise change, and almost certainly change for the better.

The revolution that is gathering pace is a shift in understanding and increasingly in policy. What we are now beginning to see is the painfully slow and invariably reluctant abandonment – in the face of evidence that is now impossible to ignore – of an economic orthodoxy that has dominated the global economy for nearly four decades. Continue reading →

So where now for Europe?

The irony for the EU, wPlanet of the Euros, by DonkeyHotey, Flikr, Creative Commons licensed Attribution 2.0 Generic, source image for the European Central Bank sign is a Creative Commons licensed photo from UggBoy?UggGirl's Flickrhich even its leaders now recognise must change course radically, is that it can’t. At least it can’t in its present structure without such dislocating changes as to be scarcely credible.

The central problem has been, and remains, the single currency. As long as countries, particularly on the southern periphery, remain locked within the eurozone interest rate and exchange rate and unable thereby to operate their own monetary policy, they have no option but to resort to austerity (i.e. cutting public expenditure, squeezing wages, letting unemployment soar) to regain competitiveness. But even that route is now blocked by these European election results. Even if that route were still open, it is clearly impossible for some eurozone countries under current conditions to raise their rate of growth sufficiently to prevent their indebtedness continuing to grow. Continue reading →

How Osborne’s ‘recovery’ evaporated in a puff of smoke within 24 hours

osborne in a puff of smokeTwenty-four hours is a long time in politics, let alone a week. Dressed in his best City garb Osborne informed the assembled banking grandees in the Mansion House last Wednesday that: “We are moving from rescue to recovery. Britain has left intensive care”. Really? On Thursday words from Ben Bernanke, head of the US Federal Reserve, to the effect that he was slowing the pace of QE3 and might conclude it by mid-2014, blew Osborne away and with him most of the stockmarkets across the world. Continue reading →