PEOPLE, PLANET & PROFIT

Paul Mason, economics editor, BBC Newsnight November 2012

The Global Imbalances

crisis

USA: household debt/GDP

Current account imbalances

Share of world saving

Feldstein-Horioka coefficient
(RHS)

Red line indicates ratio of savings to investment in 15 countries.

Roughly 1:1 for most of history of capitalism.

Touches 0:1 in 2000s

The imbalances
Global savings glut Excess consumption fuelled by credit in West Sudden disappearance of national pools of capital

Capital flows uphill from East to West

Massive expansion of trade, currency trade, derivatives

Financialisation

Financialisation

Distribution, financialisation and the financial and economic crisis implications for post-crisis economic policies. Eckhard Hein

Inequality

the disruption is not the crisis

the disruption is what caused the crisis

disruption

2006: Property bubble bursts

2007: First credit crunch 2008: Commodity bubble disorients central banks

crisis

Lehman Bros, AIG, Merrill, RBS, Dexia 2009: Global recession, market crash

Fiscal stimulus: China, US, Japan, EU

2010: Recovery: Greek crisis; UK austerity 2011: Euro fiscal crisis: massive austerity

2012: Eurocrisis + Chinese slowdown = double dip

GDP Growth 2007-11

52%

Source: World Bank

Growth is slowing

World trade stopped growing

China: Exports slowing again

Balance sheet recession?

Governments, businesses, consumers pay down debt

Demand for credit low

Monetary stimulus does not filter through

Japanese style lost decade

Acute Fiscal stimulus? (Currency war) Financial repression (wiping out savers)?

Debt distribution

USA: Fiscal cliff

beyond
the crisis

Long-cycle theory
50 Year Pattern
Technology, Resources, Economic model changes Exogenous shocks

Nikolai Kondratieff

Upswing / Downswing
Four seasons

Supercycle theory

Disrupted wave
Tech revolution is real New centres of growth/power emerging ButFiat Money allowed extension of 50 year cycle beyond limits

Depression sharper/deeper offset by more Fiat Money

Crisis of western elite: financialised, immobile, politically disoriented

World economy: 2010 2030

BRICs drive growth

politics is concentrated economics

The base case

Massive increase in Asian middle class Normalisation of China, India, Russia etc
They spend, innovate, consume, democratise

Rebalancing of consumption vs production across globe

Intellectual centre of gravity moves to emerging world

Globalisation increases through multilateral treaty No new hegemonic power

a country that is prepared, consciously or unconsciously to set standards of conduct for other countries to take on an undue share of the burdens of the system to accept its redundant commodities, maintaining the flow of investment capital, and discounting its paper

leadership
Charles Kindleberger, The World in Depression, 1973

The chaotic case

China / Russia do not normalise
Savings glut grows with Asian middle class State capitalism strangles growth

Competitive exit routes:

Competitive devaluations (Euro collapse) Return of national pools of capital

Western model broken

Poor social cohesion Prolonged fiscal crisis

1919
Very few of us realize with conviction the intensely unusual, unstable, complicated, unreliable, temporary nature of the economic organization by which Western Europe has lived for the last half century. We assume some of the most peculiar and temporary of our late advantages as natural, permanent, and to be depended on, and we lay our plans accordingly. On this sandy and false foundation we scheme for social improvement and dress our political platforms.

Haldane A, The Global Imbalances in retrospect and prospect Bank of England, 2010 Lyons G, The Supercycle Report Standard Chartered, 2010 Hein E, Distribution, financialisation and the financial and economic crisis implications for post-crisis economic policies Berlin School for Economics and Law 2011 Congressional Budget Office An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022 August 2012 OECD, What is the near term economic outlook September 2012 (ppt) Reinhart C and Sbranica B, The Liquidation of Government Debt, IMF 2011 Kindleberger C, The World In Depression 1929-1939 Harmondsworth,1987 Kondratieff ND, Long Cycles of Economic Conjuncture Moscow 1926 Mason P, Meltdown: The end of the Age of Greed, 2009 Mason P, Why Its Kicking Off Everywhere: The New Global Revolutions, 2012 Keynes JM, The Economic Consequences of the Peace, 1919