Why is it easier to imagine the end of the world, than to imagine the end of capitalism?

This is the title of a new book published in Czech and it encapsulates an important thought given the extraordinary contortions we are witnessing at the G20 and amongst Eurozone leaders. It has been clear for several years that the money created during the banking boom was produced from thin air and could never be repaid, yet those amongst the elite who nominally hold this value are refusing to relinquish it now that their bubble has burst.

Initially, the extorted money from governments to pour into the debt black holes and maintain the value of their assets. This merely had the consequence of threatining the financial stability of the countries involved, in the case of Greece and possibly Portugal and Spain to the extent of bankrupting those countries. Now that more of the debts are coming home to roost the asset-holders are seeking another round of welfare payments from the 99% who are suffering the austerity cuts their profligacy has caused. No wonder that European capitals are filled with angry demonstrators.

The impasse is the result of a struggle amongst capitalist elites. On the one side we have the US, Christine Lagarde, the US puppet at the IMF, and the UK, the traditional US poodle. This group seeks to maintain the power of the dollar in the global financial system. On the other side the rising economies of China, Brazil, India and Russia are proposing a greater role for the IMF, which should no longer respond solely to US dictat.

Without a strengthening of the IMF bailout fund money must be found from the Eurozone countries to provide money to support European banks when their Greek assets are obliterated, some time later this month. Otherwise some, or perhaps all, the European banks and a large number of its countries, will become bankrupt. If European citizens cannot be persuaded to accept the use of public money in this way, then control of European and US financial institutions may have to be ceded to the sovereign wealth funds of the BRIC economies - the only group capable for finding additional money to invest.

Meanwhile the people of the world are calling time on an economic system that maintains the value of the corrupt assets of a tiny elite while the vast majority of the world's people suffer. The inchoate mass of political opposition camped around the world's capitals is waiting for a political leadership with the courage to proposed a new economic system, and for a media prepared to break the strangledhold of its pro-capitalist owners.
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The King's Speech

You can tell that there is a major adaptation afoot when the Governer of the central bank of the country where capitalist finance is based starts to make interesting speeches. Do not be put off by the title, Global imbalances: The perspective of the Bank of England is radical stuff - heady, the FT calls it. Like King's speech to the Buttonwood gathering in New York this new statement is steeped in nostalgia for the era before Big Bang, when there was some degree of political control over financial interests, and bankers could not destroy the livelihoods of other citizens.


King expresses concern about the 'large and persistent current account deficits' being run by the UK and US 'while emerging market economies, in particular in Asia and among oil exporters, have been running current account surpluses.' This situation of imbalance in current accounts - the very situation that the Bretton Woods system was designed to avoid - results in instability and, potentially, conflict. The graphic shows how successful the Bretton Woods system was, and the mayhem that was evident before and after.

This paper must surely have been used to inform discussions amongst G20 finance ministers in Paris last weekend. The meeting agreed a resolution but the fundamental disagreement between China and the others over the desirability of total free movement of currencies and the need to address current account imbalances was apparent.

Mervyn King appears to agree with the Chinese. As illustrated in the second graphic from his paper, he associates free currency movement and financial instability:

'financial crises have been a hallmark of the current incarnation of the international monetary and financial system (IMFS),with the reappearance of global financial instability coinciding with the rapid increase in capital mobility.'

His conclusion is that finance ministers need to use a much wider range of tools than just interest rates. They should take back a positive management role in monetary policy, controlling capital flows, and encouraging an increase in saving rather than spending, as well as considering a revision of the 'role and governance of the international financial institutions'.
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Don't Mention the Trade War

Have you ever noticed how your German friends can't pronounce the name of their own country correctly? No doubt grown tired of us correcting their pronunciation, according to Martin Wolf in the FT they have no made an alliance with China and actually become Chermany . I wish this were a joke, or some sort of economic chimera, because the reality of Germany and China turning inwards and offering only stern words to the rest of the world about our budget deficits is a very worrying development.

It is extraordinary how many politicians fail to understand that, in a globalised and interconnected world, running a surplus is just as destructive as running a deficit. It is only when national economies are in balance that all can thrive; large-scale imbalances lead to tension between countries and suffering and strife within them. This is not news: it was Keynes's understanding at the Bretton Woods conference, which is why he proposed a global trading system within which those with a surplus, as well as those with a deficit, were fined by a global regulatory body. At that time it was the US, flourishing as the purveyor of arms to the world, that resisted; now it is Chermany, which is vaunting its economic strength and ignoring the political consequences.

Martin Wolf draws attention to the problem of 'chronically weak aggregate demand'. This is the most frightening code-word that an economist can find: it means people aren't buying enough stuff. From the point of view of a capitalist economy that spells disaster. The shark has stopped moving through the water and will soon expire. The other code-word of note in his piece is 'protectionism', contrary to expectations one of the most threatening words in the economist's lexicon because it means less trade. In capitalist economics, without growth the economy will fail and the best way to achieve growth is to sell stuff to other countries.

The facile posture adopted by Dave and the Boy George at the G20 is almost as laughable as their suggestion of 40% cuts. We are, apparently, to grow our way out of the recession by exporting more. Leaving aside the understanding of readers of this blog that the planetary limit makes any further growth impossible I have two simple questions for the dining-club boys: what are we supposed to export (the demand for financial services having declined rather rapidly over the past two years), and who on earth is supposed to be buying? Tweet

Plus ca change . . .

Now the dust has settled, what are we to make of the G20 conference? Such high hopes; so little real achievement. When the whole process began the discussion was around a new global financial architecture, then it moved to a major financial stimulus, but what we got was a strategy of inventing money to boost the coffers of the world's disaster management bank, the IMF.

I'm not surprised the architecture went nowhere. It took more than two years and some of the best brains in the world to pull Bretton Woods together. The media circus that was G20 shows how the world has moved from substance to superficiality since then and no amount of clever graphics or smart clothes can conceal this.

We might draw our own conclusions about why no fiscal stimulus was agreed. Presumably a combination of warnings from bankers that they would tolerate no more public debt and a reluctance from some of the countries in Europe that do not control reserve currencies pushed this off the table.

So we are left with the controllers of powerful currencies using this power to make money from thin air which they then deposit with the IMF. The poorer and less powerful countries that we have economically destroyed are then forced to beg our humble permission to borrow this money, which they then pay back to us. The inequity of personal banking writ large.

We wait to see what conditions the IMF will put on these loans but we may expect that they will be the sorts of conditions that allow the globalising sharks to take control of the resources of the poor countries as they have in the past, first through colonialism and then through trade. It leaves me wondering how much difference the expansion from G7 to G20 has really made. Tweet

G20-20: No Vision

Yes, I know it's tempting to smash things up. I can't remember the last time I felt so frustrated as when I watched that glass window go at the RBS building and realised I could have been there if I hadn't been in an Economics and Accounting management meeting. Even the thought of being hemmed in by thousands of coppers without access to a toilet failed to persuade me I'd made the right decision to go to work today.

It is not difficult to say where the G20 should be going - the media are choosing to hear from the same old men with blue eyes and pale faces who caused the problem. The sense appears to be coming from people dressed up as apocalyptic horsemen and clowns. I am sorry to say that the Green Party has taken to wearing suits (and having a leader) in the mistaken belief that this will ensure we are given more serious attention by the media and political classes. If only it were so simple I might wear a suit myself.

But lest you despair, I will share with you the radical, visionary and just policy that was passed a fortnight ago at our still fully democratic party conference in Blackpool:

International finance

EC960 The present international financial system provides disproportionate benefits to banks, trans-national corporations and currency speculators. It must be replaced by a system in which money returns to its proper role as a medium of exchange, not a commodity in its own right. This requires international negotiation. The result could be a reformed World Bank and International Monetary Fund at the centre of a global economic system with commercial institutions playing a much diminished role.

EC961 The tripartite global system regulating international finance should be replaced by three new bodies: an International Reserve Bank to administer the neutral international exchange currency (EBCU); an International Clearing Union to oversee goods and carbon trading; a General Agreement on Sustainable Trade.

EC962 All countries belonging to the tripartite system should make their currencies convertible but according to internationally negotiated and fixed exchange rates. Domestically countries would be expected to administer exchange controls.

EC963 The global trading system would aim to achieve balance trade between countries; those which operated extended surpluses or deficits would be fined.

EC964 The US dollar should no longer be accepted as equivalent to gold in international transactions and other national or supra‐national (i.e. the euro) currencies should no longer be used as international reserve currencies.

EC965 Their role should be taken on by a neutral international currency ‐ the EBCU ‐ linked to the right to produce carbon dioxide. Tweet

From Denial to Cognitive Dissonance

Two significant meetings are taking place this week. The conference in Copenhagen to address the science of climate change is receiving world-wide publicity. Our correspondents report that normally sober scientists are looking frightened in public: they have seen the evidence of environmental breakdown and their hair is turning white. That in Horsham, Sussex - a preparatory meeting for next month’s G20 —less so.

The meetings have different participants and different agendas because at present world leaders are seeing the environmental and financial crises as two separate issues. But they are not. We are facing a single economic crisis which can be summed up by the phrase ‘living beyond our means’. In financial terms, living beyond our means has resulted in a grossly inflated debt bubble whose explosion is decimating the world economy. In environmental terms, this same over-expansionist logic has resulted in over-exploitation of planetary resources and the atmosphere.

What we need to achieve at next month’s G20 is an economy that is stable and balanced. This cannot be achieved while we have a privatized financial system which relies on debt as the motor of the global economy. While Gordon Brown is focusing attention on bankers’ pay, re-regulation, and using the IMF to create yet more debt, the real issue is the need for a restructuring of the international financial architecture.

The financial system devised at Bretton Woods in 1944 guaranteed a lengthy period of peace and prosperity — at least for Western nations, but it did not respect planetary limits. The G20 should return us to a system of political management of the global economy but one which ties in an agreement on climate change. The evidence presented by scientists makes it clear that we can no longer wait for an agreement on climate change: radical cuts in CO2 emissions are needed now. Since it is economic growth that drives the increase in CO2 emissions we cannot achieve that outside the framework of a significant readjustment of the world’s economic system. Tweet

G20: Some Achievement!

I am impressed by the results of the so-called global negotiation that took place in Washington in just one day. It is a remarkable achievement to have been able to agree solutions diametrically opposed to those that would serve people and planet and to be so spectacularly wrong on all points!

Cut taxes and increase public spending: in a world of open economies and free movement of capital this will vastly increase national government debt across the world but is not guaranteed to achieve anything for national economies. Public spending directed specifically at green objectives and politically managed would be a preferable option.

Stabilisation of national financial systems: without a negotiation between countries about reasonable exchange rates and a political agreement to reinstitute exchange controls this can provide no guarantee against future destabilising speculation in currencies.

Economic growth and more global trade: both will only increase inequality within and between nations and force a further damaging exploitation of natural and human resources.

The expansion of G8 to G20 is something to be celebrated, but not much consolation if you are in Lesotho or Papua New Guinea. Without the poorer nations of the world being included in the negotiations how can we expect to end the desperate global inequality that scars our world?

The absurdity of attempting to negotiate anything in one day and without the world's most powerful player was obvious from the start. The lengthy negotiation towards a just and sustainable financial structure should begin as soon as possible. It should begin with the loss of the dollar's role as global currency and end with the cancellation of trade and debt surpluses. Nothing less radical can provide a genuine solution to the economic and environmental crises facing us. Tweet