financeguy
ONE love, blood, life
In any normal circumstances, the new-found Tory zeal for fiscal restraint and small government would be splendid. But we are not in normal circumstances.
If this crisis is botched by the major powers – as the lesser crisis of 1930-1931 was so botched by politicians stuck in a mould – we risk a self-reinforcing spiral into devastation. We have no responsible choice other than backing Gordon Brown’s largesse in the pre-Budget report tomorrow, and more later no doubt.
The transmission mechanism of monetary policy has broken down even more swiftly and violently than it did in the early 1930s. The juice is not getting through. Or, to borrow a phrase from that erstwhile monetarist John Maynard Keynes, central banks are pushing upwards on a dangling string.
Hence the IMF has ditched half a century of fiscal orthodoxy and called for a global spending blitz equal to two per cent of world output, or $1.25 trillion. We are all Keynesians now. There are no atheists in a foxhole, and no ideologues in a liquidity trap.
Iceland, Pakistan, Ukraine, Hungary, Belarus, Serbia and Latvia are in the arms of the IMF, and a long list of countries are near tipping point. Argentina has reverted to Peronist type, seizing the private pension system.
The benign global order of the post-Cold War – what Francis Fukuyama claimed was a triumph of liberal moderation – is fraying fast. We have lost Russia, where the interior ministry is already mobilising “anti-crisis units” to stem unrest, and journalists face prosecution for reporting economic news.
In China, rioters have run amok in Longnan, torching a section of the city in hand-to-hand street fights with the police. Yin Weimin, the human resources minister, warns that the coming tsunami of job losses poses a serious threat to China’s social stability. Beijing is taking no risks. It is spending a colossal 14 per cent of GDP on a fiscal rescue plan. Japan is letting rip, too, and even Germany has woken from its trance.
This is now official world policy, nota bene. The G20 bloc of leading states signed off on plans for a universal fiscal boost at the Washington summit. Quite right, too. The lesson of the 1930s is that countries trying to reflate alone are punished by capital outflows, forcing them to retrench.
http://www.telegraph.co.uk/finance/...-choice-we-must-back-Gordon-Browns-blitz.html