News management will never be a substitute for real reform.
For reasons sometimes obvious but often murky, national media in the West seem at times to have fallen into the ‘don’t talk things down’ demand always made by those who have failed. Examples include the FT’s enthusiasm for all ideas about the eurozone crisis (Wolfgang Munchau being an outstanding exception), the Telegraph’s never-ending faith in America (Ambrose Evans-Pritchard just as honourable an exception), Le Figaro’s admiration for every financially illiterate statement by Christine LaGarde, the BBC’s inability to break any story that contradicts Downing Street, the boundless confidence of the Washington Post in Obama’s ability to recover lost ground, and the Wall Street Journal’s lack of interest in any important signs of disaster not directly connected, oddly enough, with Wall Street.
It all feels rather tacky to me: after all, it’s not just incompetent journalism by a long chalk. Despite daily streams of data and calculation showing that banks are undercapitalised and overlent, the stock markets are ludicrously overvalued and gold undervalued, nobody in authority has any new ideas at all – and those out of favour are dismissed and/or smeared – the choo-choo train of it is alright it is alright it is alright chuffs along on its journey across the detonating bridge.
There is nothing President Obama can do to stimulate the US economy or control the deficit. He is tied to Bernankerist QE for the first problem, and stymied by his promises for the second. Even were he to try and get out of his self-administered prison sentence, Congress would stop him with the debt ceiling.
There is nothing George Osborne can do to stimulate the UK economy or control the deficit. He is tightly controlled by the lack of economic restructuring, an empty Treasury, and the deficit itself for the first problem; and weighed down by EU membership and the Tory Right on the other. Even were he to try and force another QE on us, the independent Mervyn King would stop him by threatening to resign.
There is nothing Angela Merkel can do to stimulate the EU economy or control overlending banks and overspending governments in the eurozone. She is hoist by her own German economic success, the euro itself, and the leaden, expensive eurocrat overheads for the first problem; and by her own electorate and a long-ago bolted horse for the second problem.
In another time with fewer complications, one man – Franklin Roosevelt – came to the world’s rescue….too late to stop the accession of Hitler, but just in time to stop the global economy disappearing beneath the quicksand. Historians argue back and forth about what if anything FDR really achieved, but he gave hope and took urgent reforming action. These are the elements we lack today.
All three currency zones described above are hopelessly divided. In the US, a fight on Federal Power & cost v Individual responsibility is in danger of shifting the Federal Government into neutral, with the Tea Party grappling for reverse gear. In the UK, the sterile ‘Cuts v Growth and what’s Plan B?’ debate continues circling around a vortex of debt: the country and both governing Parties are split down the middle, and Unite and the teachers’ unions will fight tooth and nail to stop government policies from succeeding. In the EU, the ‘Federalised Germanised EU v autonomous members’ war cuts France and Germany off from everyone else, with the possible exception of Holland.
This is in turn all happening against a background of falling confidence in the ability of central bankers to address the problem. As the New York Times observes this morning, “Many of them are confronting the prospect that their powers are on the wane, as inflation begins to creep up and growth is hampered by high levels of government debt”.
Mervyn King himself acknowledged this during a speech last month, observing, “monetary policcy cannot alter the fact that, one way or another, the squeeze in living standards is the inevitable price to pay for the financial crisis, and the subsequent rebalancing of the world and UK economies.”
As King has said of the banking arena, if you were trying to sort things out, you wouldn’t start from here. Things won’t be sorted out for many reasons – but for three above all others.
First, politics and elections. Obama, Merkel and Sarkozy are all in bad shape, and defending their own turf. The UK Coalition doesn’t face an election; it faces something worse – trying to keep the Tory Right and LibDem Ministers onside at the same time, because either could quite easily bring the whole thing crashing down. The Congressional GOP in America has the same power over Obama. Merkel has a badly-split Party and a truculent electorate to face. Sarkozy has the worst opinion poll numbers since De Gaulle after the Algerian volte-face in 1958.
Second, everything from no taste for reform to bitter opposition to it. The banking sector (beyond central banks) is key here. It has diluted every medicine offered, and filibustered every proposal. But where local needs are important, the politicians have been behind them in this. Sarkozy doesn’t want a banking revamp run from London, and the City doesn’t want it emanating from a Franco-German controlled Brussels. In the US, Wall Street – whose alumni are stuffed into every key regulatory department of government – cares nothing for America the nation State, or the average Leroy and Whitney. A vigorous campaign to reposition regulation as a deadly strain of anthrax began the day after the taxpayer bailed it out, and has continued unabated ever since.
Which brings me to the final reason: culture. Just about every cultural fault that could get in the way of reform is present at every level of this unholy mess.
A banking culture driven by selfish greed and testosterone. An economic culture with so few ideas, it invented the jobless recovery. A consumer culture ready and willing to accept the irresponsible credit sold to it in return for material benefits. A media culture more interested in bread and circuses than issues, and too lazy to look beyond the spin of briefing packs. An energy exploration culture devoid of ethics, and prepared to do any deal with any rogue on behalf of the shareholders. And a political culture in every one of the States involved that long ago stopped listening to the complaints, needs and aspirations of its citizens.
Or, in a word, globalism.
I will give you – as dispassionately as I can – the rough order of falling dominoes. Not many names and no timings, because those really are anyone’s guess. Just the inevitable sequence that must once and for all bury the idea that a global system of free-trade mercantilism can produce anything other than financial, geopolitical and ecological disaster in the end.
Economic growth not cutting it…..QE being seen increasingly to fail…..rising long-term bond yields…..a sovereign default….rising short term bond yields….stock markets topping out, weakened by the safety appeal of long bonds….Chinese overheating and unrest….a gold breakthrough to $2000….big bank failure….falling Chinese demand for raw materials….property collapse and output blows for Australia….loss of investment faith in the EU’s ability to stabilise the eurozone….bailout for a large EU member….US election unsettling investors even more….collapse of stock markets….further EU bank collapses….loss of German patience….huge fall in demand for Chinese goods, import-led inflation out of control among weaker currencies…..rising interest rates and static growth…..stock markets plunge…flight to Swiss Franc and Yuan….exit from US dollar….stampede out of Euro….Beijing calls lending halt and raises rates further to control inflation….Australian economy collapses….more EU defaults, first sovereign bankruptcies, widespread social unrest….rising inflation in the West, huge deflation in China….output falls globally….further bank failures….deflation contagion….slump. EU collapses…..Britain defaults, US devalues….China bitter at her deflated investments…geopolitical tensions….stock markets at rock bottom, insurance/pension companies in trouble….most currencies worthless….Global Summit….worldwide write-off…..new territory….
For those dismissing this as a fantasy, I offer below some representative quotes from leading bankers, economists and other interested parties from around the world this merry Monday. They still shrink from facing the awful truth and writing the unwritable, but between the lines there real feelings are often apparent.
It is a myth that avoiding quick-drying paint to illustrate the crisis will help it. It will merely prolong the agony until the real denialists can finally by incarcerated in the insane asylum, and the world economy restructured to suit a new age with new needs.
‘The headline news that just 36,000 [US] jobs were created was undeniably atrocious, and much less than the market expected”. (Felix Salmon, Reuters)
“The planned [Federal] savings of a billion or so will not make a dent in the growing expenditure line…there is no way the US is going to make any real dent in the deficit unless social security, Medicare, Medicaid and the Military are put on the table to be sliced up”. (Bruce Kasting, Zero Hedge)
“It is hard to estimate the exact amount it will cost to recapitalise the European banking sector. I have heard a credible estimate of 100-200 billion euros…[but] the EU fears genuine stress tests conducted by the EBA in London might disadvantage their banks [and] committing the money to nationalise and recapitalise the banks would be very costly”. (Wolfgang Munchau, London FT)
“In all, 20 EU countries at Friday’s summit objected to the Germanization of their countries for one reason or another. So Germany refused to sign on to an increase in the size of the eurozone bailout fund. ‘It was a truly surreal summit’ commented Yves Leterme, the Belgian Prime Minister’”. (Irwin Stelzer, Wall St Journal)
“These things are costly for the German taxpayeer and highly unpopular. It [recapitalisation] will only be politically feasible when everyone sees this as the only way out. The euro crisis will go on and on”. (Ulrich Leuchtmann, Commerzbank AG)
“As for the issue on which [Mervyn King] has most closely staked his reputation – that Britain’s large banks must increase capital levels well beyond inteernational standards – he has so far been ignored….the main topic of debate is how much longer [the MPC] can resist the pressure to raise interest rates.” (Landon Thomas and Julia Werdigier, New York Times)