The “Gathering Storm" warning on global economy
Business RT spoke with co-author Patrick Young to ask what governments and central banks are doing wrong.
PY: “We’ve spent the last twenty years at an all you can eat buffet, and we’ve kept eating and kept eating and kept eating, and now we are full. I think that the problem is that central banking is all about effectively when the party gets going the central bank must remove the punch bowl. Well what’s actually happened here is that Ben Bernanke, at the point where we got to one minute to midnight, instead of closing the party down, he brought everybody inside, locked them up, and pushed their faces into the punchbowl, and made them drink more.
And therefore its very, very difficult, because really, we have a fundamental problem, because actually the central bankers themselves are ultimately being controlled by the politicians. I mean, I realize we have this sort of rather elegant concept that they’re politically independent, but ultimately they are appointed by politicians, they have to deal with politicians every day of their lives, and therefore they are, too, to some greater or lesser degree controlled by them and I think that is clearly evident, for example, when we look at Mister Trichet at the European Central Bank. He is very capable, he is making clear statements, which, I think, have been the right kind of policy, but then ultimately he has been undermined by the governments all around him.”
RT: The US has announced a new wave of quantitative easing, whilst European governments are withdrawing stimulus. Those are diametrically opposite approaches it seems. How is that possible?
PY: “We’ve got Ben Bernanke, helicopter Ben, as I think he will go down in history, he is going to quantitatively ease anything he possibly can. But I think one of the most important things we have to look at is also the fact of, not just looking at what the banks are doing, in one direction, but also what the banks are demanding. And I think that, for example, when Portugal decided that it needed to be bailed out, what were the large supra national banks doing? Well they are not taking their paper, they are actually demanding gold. So they want hard fixed assets, and that is therefore rather worrying. Now within Europe the difficulty is that quantitative easing is going to be difficult to achieve because, effectively, they have spent all the money anyway, so therefore there is nothing more to spend.”
RT: And going forward, if we follow the money, what do we see? Are they trying to protect themselves against a new wave?
PY: “That’s the difficulty. It doesn’t just go away with one recession, unless it’s a very short sharp recession. Countries like, for example, the Baltic states, some of the parts of Eastern Europe, because they are at a completely different phase of the developmental cycle, and therefore they have got the opportunity to bounce. But in the relatively bloated, wealthy, large state economies of Western Europe, it’s going to be very, very difficult to turn that around. And it seems rather ironic actually, that in the post communist world, it’s actually many nations in Eastern Europe that are actually better equipped to move forward, than necessarily nations in the west.”