[Marxism] International Financial Catastrophe: Is this the 'BIG ONE'?

Jeff Richards jeffare2 at gmail.com
Thu Jul 3 07:22:11 MDT 2008

There are many times when I think the Latin American preoccupations of
radical left groups like the DSP and the RSP (thankfully, less so in the
case of the DSP/SA) make you neglect what could be a truly historical moment
in the history of late capitalism (it certainly beats the daily chronicles
of the retreating horizons of the great struggles led by Chavez and Morales
and Cuba's slow drift to Beijing style 'socialism with Chinese
characteristics'). While I have nothing but respect for those in groups like
the DSP -people who put vast amounts time and effort to building a radical
alternative- I have to say that the amount of effort put into international
economic reporting is paltry compared to Latin American politics. Where are
the new generation of radical political economists? They are sadly missed.

Looking through all the messages over the last few days there was not one
soul who dropped a reference to the annual report of the Bank of
International Settlements, one of the most important financial institutions
in the world. The BIS is warning that we might not just be facing a
recession; we could be hurtling towards a depression!(In case anyone
forgets, the last time we had a depression we had some rather earth
shattering events e.g. world war 2). In my view, there is a pressing need to
refocus on this global historical event.
Below is a report from one of Australia's best financial journalists,
Stephen Long from the ABC.

Here is the website for the Bank of International Settlements:
Here is the link to the BIS annual report:

'Financial catastrophe looms': analyst
By economics correspondent Stephen Long
Posted Tue Jul 1, 2008 8:05am AEST 
Updated Tue Jul 1, 2008 2:13pm AEST 

The Bank for International Settlements (BIS) says global markets may still
be set for severe economic downturn.

Last year, when inflation was low and the world economy was still strong and
stable, BIS gave a a prescient warning about the growing risks that could
bring it all undone.

In its latest annual report, released last night in Basel Switzerland, BIS
gives a grim and candid assessment.

"The facts suggest that the magnitude of problems to be faced could be much
greater than many now perceive... while difficult to predict, their
interaction does appear to point to a deeper and more protracted global
downturn than the consensus view seems to expect," the report says in part.

Despite this, it cautions against using rate cuts to bail out the world
economy, arguing that loose monetary policy helped create the mess in the
first place.

Satyajit Das is a risk analyst who tipped the global credit crisis.

"It's an extraordinary statement of just how close the world economy is to a
total financial meltdown," he said.

Associate Professor Dick Bryan, an economist from the University of Sydney,
uses the same adjective.

"It's a quite extraordinary message," he said.

"It's a big statement that the world economy could potentially be facing one
of the biggest crises for the last 150 years."

Most central banks and the International Monetary Fund are tipping only a
mild hit to world economic growth.

The Bank for International Settlements, whose chief economist Harry White is
retiring, says they are wrong.

"The Bank for International Settlements goes to great lengths to juxtapose
their own view to what they call the consensus and that consensus is saying
that inflation will be a blip that it'll only be around for a year and we'll
get recovery and they're saying no," Associate Professor Bryan said.

"The central banks have used loose monetary policy and low interest rates to
bail themselves out of every crisis since 1987 and what they are saying is
at some point in time the piper must be paid," Satyajit Das said.

"The fears about higher inflation and what central banks can and can't do is
really quite frank. I think it would be best to sum up this report by saying
the super-hero central banker is dead."

The Bank for International Settlements notes parallels between the current
financial turmoil and the great economic woes of modern history.

"The 1930s, the 1870s, they're referring to parallels with the Asian
financial crisis and they're giving a big serve to the way in which the
world financial system has been run," Associate Professor Bryan said.

"The statements in here are talking about comparisons to the 1920s
depression and is actually pointing fingers at central banks and their
policies and their misunderstanding of how the financial system works and
their love of the new-fangled things that have brought the world to the
precipice of what could be one of the most major financial catastrophes in
the history of economics," Satyajit Das said.

He adds that he has never seen a report as dire as this from a global
economic agency.

"It's telling central banks that they got it wrong, that they shouldn't have
let us get into this precarious position, that they should have been
constraining credit earlier and that they've put us in a position now where
there just aren't clear policy options," Associate Professor Bryan said.

Jeff Richards
South Australia

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