A cycle of illusions

Linked with Ann Pettifor – England, with In these Times, with Jubilee Research, with Bringing the Proposal to Reality, and with New Economics Foundation NEF.

Found through a Google Group: The coming first world debt crisis by Ann Pettifor, from Open Democracy, out of 1-9-2003, but still worth to be read:

excerpt 1: … The reckless financial policies of leading western powers in the last two decades make it likely that the next seismic debt crisis will be in America, not Argentina. It can be avoided, says Ann Pettifor of the Real World Economic Outlook, only by serious efforts to bring regulation and balance to the international economy …

excerpt 2: … How did we get into this mess? Real World Economic Outlook challenges standard explanations for the launch of the “globalisation” experiment. We contest the view that deregulation of capital flows – the very core of the globalisation project – was brought about by a form of “spontaneous combustion” caused by new technology. Nor do we share the view of many activists that globalisation is “corporate-driven”.

Instead, we argue, globalisation was triggered by elected politicians, and central bankers, in both the US and the UK. In the post-Vietnam war era, led by Richard Nixon and later Ronald Reagan, these politicians sought ways to avoid making the “structural adjustments” necessary to the American economy if debts incurred by foreign wars were to be repaid by US taxpayers. Rather, these politicians preferred to disband the existing system of paying off debts by exchanging gold, and opening up capital markets, so that the US could borrow to pay off its debts.

This new arrangement also allowed them to print the money in which they paid off those debts (unlike poor countries which have to repay debts in foreign currencies like dollars or sterling). British politicians and central bankers were only too happy to act as US intermediaries in the capital markets. Together they constructed a new financial architecture that effectively obliges central banks of both rich and poor countries to lend to the US – by buying US treasury bills (debt).

It is US treasury bills that have now effectively become the world’s reserve currency – where once that reserve currency was neutral (gold). It is this international financial system that makes the US administration so arrogant in its refusal to “adjust” its economy by cutting spending and pay its way – as poor, indebted nations are required to do by the International Monetary Fund (IMF). (The IMF’s double standards in its dealings with poor countries on the one hand, and the US on the other, are breathtaking).

It is this financial system which makes US financiers so confident that the rest of the world will continue to finance their nation’s extravagant spending binge. In the words of David Goldman, head of debt research at Banc of America Securities: “America is at little risk for the foreseeable future, simply because the world’s capital has nowhere else to go”(Wall Street Journal, 13 August 2003). (Read the rest of this very long article on Open Democracy).

Links:

World Economic Outlook, April 2005 by the World Bank;

The coming crisis, June 2004;

Launch of nef’s radical review of the global economy, the Real World Economic Outlook, edited by Ann Pettifor.

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