«Yellen’s words are a sure sign that there is going to be a financial crisis quite soon»

Ann Pettifor, Directora del Policy Research in Macroeconomics (PRIME)
Share on linkedin
Share on whatsapp
Share on reddit
Share on telegram
Share on email

After the first part of the inverview, through which Ann Pettifor analysed what money is and how the global financial system functions; in this second of the three pieces in which is divided the conversation that she held with EL BOLETÍN, the economist that predicted the world debt crisis examines the European and the World current situation.

So we have seen that the financial system could be managed very differently, but what happens in a currency union, when a government doesn’t have sovereignty…

That is a problem that I find incredibly challenging, but you need to remember the even the ECB which is a remote and unaccountable institution ran by technocrats, that it’s actually uncountable to Spanish taxpayers… Even that institution depends for its existence on Spanish taxpayers. So it’s about time that our politicians have the guts to demand that the ECB becomes accountable to taxpayers. However, I have to say that I have a lot of regard for Mr. Draghi because he is worried about unemployment and youth unemployment in particular. That’s not because he is a good man. It’s because he understands that with such high levels of youth unemployments we will get social, economic and political instabilities that will be bad for the banks. And he has the winsdom at least to understand that. Many others don’t. Unfortunately, in Europe Mr. Draghi might be trying to help; but in reality, he’s helping the banks and the rich. Is up to the governments to use fiscal policy to help the rest of us. And monetary and fiscal policy should work together.

And are they doing that?

In Spain, I have to say, that I’ve been very impressed by the fact that the government has ignored the suggestions that have come from Brussels, from the European Commission, to cut the deficit far more than was in my view necessary. So we saw in 2015, that the Spanish government began to spend and began to relax austerity. And what we see in 2017? We see an economic recovery. And everybody says: «oh, it’s down to the magic of capitalism». It isn’t: it’s down to QE, on the one hand, yes; but it’s also to the fiscal policy, to the fact that the Spanish government is spending; and to cheap oil. That’s all it is. When the price of oil goes up again, we need to worry again. And, actually, if the government decides to obey the instructions coming from Frankfurt, and from Mr. Schäuble in Berlin; them we’ll find that there won’t be recovery. So I hope that the Spanish government keeps on like this and that they care about the young people of the country because they could do a lot more: they could spend a lot more than they have done already.

But the other European leaders have the example of the Greek government trying to do things differently to the requests of the EU and they were totally defeated… so isn’t it better to behave a little bit like Rajoy: say that you are going to comply with the rules and them try to do as much as you can in the other direction?

I understand that. But what’s so tragic about that story it’s that is an example of bullying. Taking the weakest link, the poorest people. The big problem with Greece is a simple one: it is a poor country. And the idea that rich countries kick these poor people around is obscene, is against European values. If you look at the United States, they have a similar problem. It has California on the one hand, It has New York on the other; and them it has Arkansas that is poor. You don’t see the central bank, you don’t see the Federal Reserve, Mrs. Yellen, kicking the people of Arkansas and telling them that they must suffer and being impoverished. They have fiscal transfers, their banks were supported, etc. etc. So you get the United States of America; and you’re not gonna have the United States of Europe by kicking states that have different levels of poverty. In fact, one of the reasons why people voted for Brexit, and many on the left in Britain voted for it, was because they found the sight of very rich countries hurting very poor countries obscene. It reminds them of the 1930’s and the rise of fascism and lots of people fear that. They fear a very dominant Germany in Britain. We fought a terrible war, may people died, a lot of sacrifices were done and it’s not forgotten. It’s still there. Europe has to learn from this. Solidarity must mean solidarity.

Do you think that Schäuble really believes in the doctrine of his policies or is just self-interest?

German ordoliberalism originates in the idea that if only Hitler had obey the rules we wouln’t had have fascism. That’s wrong because in fact Hitler did obey the rules. He worked very closely with the banks to raise finances for all his crazy plans. But I also think that Mr. Schäuble can’t believe his luck. He has a currency that is very low: much lower than what the deutsche mark would have been. That means that German exports are cheap. Then he has this vast market called the European Union, just on its doorstep with no barriers to enter into these markets. This is heaven for an exporting nation. So Mr. Schäuble is exploiting the European Union for the benefit of the German people. That’s smart policies, but I think that we need to understand that this is a deal. The German people are getting benefits out of the European Union, which is good for them; but it´s not good for the rest of Europe. So they have to make concessions. And that is what solidarity means under the European Union treaties. But they don’t exercise solidarity as long as the German public are happy. And they are not entirely happy, I might say, cause German wages are also being very low which is also bad policy in terms of the rest of the European Union. So it’s very obstinate and ugly politics when you look at Greece; when you look what these rich countries have done to the poorer Southern countries. If ever Mr. Schäuble gets to Heaven, he is gonna have to answer some questions.

Ok, but it’s tricky to believe that they are going to change these policies, because at the same time are being functional for them…

Yes, but the ideas behind the European Union were solidarity and to unite the union, not to divide it. It’s actions, not words that count. So we began the European Union with all these wonderful ideas of uniting and having peace and no longer conflict. Now we have conflict and division and furthermore we see fascism in Europe, which is the reason why we were trying to unite the Union: to avoid fascism. Somebody has to try and understand why there is a rising in fascism, and the reason for example for Brexit. And it’s that people is angry: they know that their living standards are fallen; they know that the bankers are making them suffer the cost of crisis; they know that their children can’t get a decent home to live in, or go to university or get more skills. And rightly this is making them angry; and they see that the politicians won’t do anything about it, that they’re feeble and weak. So they are looking for a strong man or a strong woman that will protect them and their families. And that can lead to fascism. So Mr. Schäuble should think about that, as well the other European leaders.

In the meantime, however, with the bail out of the Italian banks what we are seeing again is a double standard… because rules or the enforcement of rules is not being the same if you are Greece, for example, or if you are a bigger and more powerful country…

Cyprus and Greece must be very bitter about this and quite right. This is the double standard of the European Union. What’s happening is that everybody wants to be nice to Mr. Renzi because they can have an election soon and they don’t want Berlusconi back again. At the end of the day, everything have to do a lot with politics. I’m not against politics; i’m very much in favor of politics, but this is double standard. We now have a system where the big banks, which are systemically a threat, will be bail out; but the little banks which are supposedly not a threat will be bail in.

But what’s really wrong about the Venetian banks’ it’s that ordinary people put their savings in the bank, and the banks said we’re gonna give you a very high rating of interest on that. That was already a sign of alarm and it turned out that these people weren’t just putting their money in the bank. They became bondholders and that was a mis-selling. So the politicians realized that these poor people did something innocently and now they were going to be punished for it and this wasn’t right. So what’s wrong there isn’t so much the political intervention, but the double standard and the corruption of the banks, that they cheated and lied about the nature of the product. And that’s the problem: we are all human and if you don’t regulate something, they will cheat and lie. Them politicians have to protect those savers and I fully understand that because that’s what democracy is for. But it shows that the so called bail in stuff without proper regulation is just hypocrisy.

Some analysts are saying that we are in a situation similar to 2007, just before the crisis burst… Do you agree with them?

It’s very interesting that recently Mrs. Yellen, who is the governor of the Federal Reserve, said she thought there was not going to be a financial crisis in our lifetime. So that’s a sure sign there is going to be one. At the same time we’ve discovered that the global private debt relative to global income is higher than it was before the last crisis. So that means the financial system is making more debt that we have income to repay that debt. So today debt is 327% of GDP. It’s 217 trillion dollars. This is crazy. And the global market for over the counter derivatives is worth 630 trillion US dollars. And global GDP is 70 to a 100 trillion dollars. Then there’s futures which are 275 trillion dollars; and there’s 41 trillion dollars outstanding on options. And the repos market are 15 trillion dollars. These numbers you and I can’t even imagine. When I think about winning one million dollars, that’s big numbers. 630 trillion dollars is beyond my imagination. But that’s the crazy world that we live in. These guys are making these gargantuan markets in finances which have no link to the real economy. That’s like the sorcerer’s apprentices has created a vast flood of water. And the idea that this is not gonna go wrong at some point in our lifetimes is delusional. So, yes we are gonna have a financial crisis. The thing that I can’t do and I fail to do is to predict the timing. ‘Cause we never know which thing is gonna blow up. Last time it was the housing market blew up, which exposed the credit crisis. Who knows what’s gonna blow up this time. It could a political shock, it could be an economic shock. Who knows? I can´t predict the timing, but I can say with some confidence that we are going to have a crisis quite soon.

So you’re quite pessimistic but not as much as Richard Murphy who is writing these days that he has already seen signs of contagion.

I’ve learnt from bitter experience. I’ve edited a book in 2003 in which I said that there was going to be a financial crisis and everybody laughed at me. And them in 2006, I wrote a book that the publisher said, we must call it «The coming first world debt crisis». And I said: «No, I don´t like terms such as First World, Third World… and secondly, how can you call it ‘the coming’ First World debt crisis? by the time it would be published in september 2006», I said, «this crisis would have happened and the book would be out of date». I was wrong: the crisis didn’t start until August 2017 and most people didn’t see the crisis until September 2008 when Lehman’s went down. This things can´t be timed and if you can time them, you will make a fortune. When I published that book, everybody laughed at it.

But at the same time you received a lot of recognition for it.

Afterwards. Nobody has read the book but the title gave me a huge amount of credibility.

When we talk about connecting real economy with the finical economy, you are a big defender of a New Green Deal, that will generate new jobs in sectors like renewables energies and so on. However, some economists argue that new jobs won´t be enough and that we will also need measures like the Basic Income. What´s your position on this?

I am very critical of the basic income. I think is crazy idea. I am a co-author of the New Green Deal which by the way we wrote in 2008, it was far reaching and far sighted. I am glad when the conversation moves toward those issues. But on the basic income, I think it’s a reactionary idea. It’s defeating: let’s give up the idea that everybody can have work and let somebody pay us a basic income. I think work is incredibly important to the human being. I’ve seen people who don’t have work: they become drug addicts, they divorce, they commit suicide, they become depressed. I think without work society would just disintegrate and the idea that we should celebrate not working for me is not tenable. But there’s other reasons, which is that in my view the neoliberal idea is to support basic income: to give individuals money and them we won’t have collective public services; for example, Milton Friedman believed in this idea. So that’s my second objection. My third objection is that the employers would quickly think: if you can survive in basic income why not put wages down towards the basic income. It would become the mean for what wages should be. We saw this happened in Britain and Karl Polanyi has written about that. I think is a crazy idea and that we should be arguing for work and for decent incomes for everybody.

Next part

TE PODRÍA INTERESAR

DEJA UNA RESPUESTA