A Strange World
We live in strange economic times. Yesterday I wrote a post in which I essentially advocated the Central Bank printing money and giving it to a National Investment Corporation which would then use that money to support investment and economic rebalancing. If I’d advocated that just a year ago people would probably assume I was crazy.
But we live in a world where the Government runs a 12% of GDP deficit, where major banks have been de facto nationalised, where just one year ago the major banks came within hours of failure, where central banks print money, where interest rates have been slashed to zero across the globe. We came so incredibly close to depression – and a depression caused by a breakdown of the financial system, that what once seemed crazy is now accepted.
We live in a world where Samuel Brittan can write articles like this one in the FT:
Recovery depends on a rediscovery of investment opportunities – “animal spirits” if you really must – reduced attempted savings or injection of demand by governments or central banks. China is not going to save less because of western lectures, which would be better directed to the political tyranny in that country. Until western consumers have reduced their indebtedness to reasonable proportions, demand must be supported by the monetary injections and budget deficits now in place, and possibly more of them. Thus the IMF is right to warn against premature withdrawal of these stimuli. British Tory Bourbons who want a draconian belt-tightening policy either have not read these warnings or think they know better.
Please note that I have got so far without once mentioning banks other than central banks. Commercial banks certainly worsened the recession by greedily seeking higher returns than those provided by market interest rates; and they can put grit in the recovery by refusing to lend. I can only suggest making Paul Krugman, the radical Keynesian economist, Comptroller of the US Currency with over-reaching powers to take over old banks and initiate new ones, with similar appointments in other countries.
The world we live in is one familiar to Keynes. The sensible commentators recognise this.