Has Capitalism Been Overthrown?

The general acclaim that greeted the announcement of Mark Carney as the new Governor of the Bank of England immediately roused my suspicions. Surely somebody could have raised a peep of disagreement with the fact that he is the greatest central banker the world has ever seen and second in credentials to only the Messiah himself? What could explain this universal fawning, I wondered, while I listened to the regaling of his impressive cv. My mind stumbled over one crucial fact: he has worked for Goldman Sachs. Carney has worked for the global financial corporation in Tokyo, New York and London.

I have told the sad tale of the takeover of the US Treasury Department by Goldman Sachs in an earlier post: a story that culminates in the move of Tim Geithner from Goldman to the Treasury. This safe pair of hands could cover the hole in my otherwise flawless theory: the fact that Ben Bernanke has not worked for Goldman Sachs. But on the upside Mario Draghi served his time there, before taking over the European Central Bank, serving as vice-chairman between 2002 and 2005. The revolving door between Goldman Sachs and the world's central banks is no secret, providing material for a Bloomberg blog last year. The implications of the fact that global finance is now running national monetary policies across the world receives little critical comment, however.

My own candidate for the job, Professor Richard Werner of Southampton University - the man who invented quantitative easing - was probably not surprised that his phone remained silent yesterday. After all, he has suggested that we allow the bank to produce enough cash to buy back our debts and end the Age of Austerity. Whose political interests would that serve? He is also unfashionably German. As when Sven-Göran Eriksson took over as England manager there were some quaint comments about Carney being the first 'foreign' governor, as though nation-states have any nostalgic import for these masters of money who only really identify with the offshore fantasy island labelled 'Cash' and resembling the Big Rock Candy Mountain for those who can gain access.

Perhaps I am just being naive here. Was there ever a time when capitalism meant a large number of small companies competing for investment capital as well as for customers? Was there ever a time when governments played a role for their citizens rather than being operatives of Central Bank Inc.? (Leo Panitch tells an interesting tale of the state-finance relationship.) In Marx's day the many-tentacled banking machines travelled under the name of Rothschild. Perhaps we should celebrate the democratic widening of the global economy demonstrated by the fact that the bankers governments are serving today are at least not all members of the same family.
. Tweet

Two Bald Men Fighting Over a Comb

As we blunder towards another credit crisis, with banks losing confidence in each other and increasingly refusing to accept each other's debt, the inability of politicians to act is extraordinary. This morning's headlines might have read: 'Lagarde says nothing, recommends doing something, not clear what'; 'Osborne demands strongly that something is done'. Tomorrow's headline should read 'Geithner insists on urgent (unspecified) action'.

Everybody is demanding action from everybody else, but all those who apparently have power have given it away and forgotten how to use what they have left. My Ten Point Stabilisation Plan is still available, free of charge, to any who would wish to use it. But while our politicians find themselves incapable of thinking their way around free markets we can expect more blundering and empty performances in the days to come.

While Tim Geithner appears to have no thoughtful content to contribute, the intervention by the US Treasury Secretary adds interest and takes hypocrisy to new heights. Geithner's advice will presumably be to cut public spending harder and faster, this coming from a country whose own debt is so out of control that it threatens to incapacitate the political system entirely.

Thinking back a while we can recall why the Euro was invented in the first place: because the Europeans were tired of the trade advantage the US enjoyed by controlling the world's trading currency. The Euro was intended to compete with this supremacy and become an alternative reserve and trading currency. The US's intervention is thus more evidence of its presumption in favour of its own interest, no matter what the consequences.

But it was no only the Europeans who had grown tired of producing goods for the US and receiving only arrogant pronouncements in return. The Chinese worked their way into such a massive external trade balance that they could buy up the US and have change. Hence their continuing and repeated calls for a neutral trading currency to replace the dollar and the euro. Meanwhile, the growing economies of Latin America and south-east Asia found ways to facilitate mutual trade without using the dollar. The US no longer has anything to support its assumption of a right to tell the rest of the world how to behave.

If this really is a situation of two bald men fighting over a comb it's fairly clear that the comb, like everything else these days, has been made in China, and the Chinese are holding on tight.
. Tweet