Ann Pettifor

No, the Recession is Not Over

Ann Pettifor – 11th June 2009 – For the Guardian Online.

A banker, Alan Clarke of BNP Paribas, citing a NIESR report, confidently tells the Guardian that the recession is over. Should we take the word of any banker – especially one that claims to be an economist – seriously?

Given that the economics profession was blind-sided by the ‘debtonation’ of 9th August, 2007, I am deeply sceptical. Second, given that this is a banker-induced recession; that reckless and often fraudulent behaviour by bankers led to a loss of $60 trillion of yours and my wealth (in the form of pensions, equities, lost interest on savings, and lost income from job losses) last year, should we believe a banker’s particular spin on the crisis?

I say firmly, no, for a number of reasons, outlined below. But the most important reason for pessimism, in my view, is the hegemonic role played by fiscal conservatives. By raising fears over government deficits, and by refusing to acknowledge that government spending pays for itself, these conservatives have set the economic and political agenda in all the British the media, and in every British political party (with the Green Party the honourable exception). As a result, chancellor Darling seems hell-bent on committing electoral suicide, with shadow chancellor George Osborne actively encouraging him.

The private sector will not be able to rely on the public sector for the stimulus vital to recovery. As things stand, any fragile signs of economic recovery will quickly be crushed by the failure of government to intervene and spend at an appropriate level. Instead government cutbacks will impact with considerable force on the fragile economy, and will hurt the middle and working classes. As the year proceeds many will discover the true, and often pitiful value of their pensions; and will be hurt by cuts in services and job losses in the public sector. This will hamper recovery and deepen, if that is possible, the alienation of British voters from the Labour government.

Unfortunately, the hegemony of fiscal conservatives reaches far and wide, and includes Chancellor Angela Merkel of Germany, President Sarkozy of France and the US’s Federal Reserve Governor Ben Bernanke. So at a time of grave private economic failure, cuts in government spending in Europe and the US will arrest recovery. Furthermore, central bankers will have no room for manoeuvre to lower rates further – as they have done this year. Instead interest rates may well rise at a time when low rates are needed to reflate the deflating body of the global economy.

So, while it must be accepted that the economy seems to have slowed its freefall into the abyss; that there are now fewer jobs to lose and fewer businesses to go bust – there is no real cause for confidence in sustained, or even halting recovery. The real economic outlook remains grim.

All G-7 economies will report negative growth in 2009 for the first time in 100 years, according to the Economist Intelligence Unit’s Senior Vice-president, Dr. Daniel Thorniley in a report to the EIU’s corporate network. The British Prime Minister and Chancellor constantly assure us that the Bankers’ Recession was not made in Britain, but is a global phenomenon. By this reasoning negative growth in the G7 economies means little chance of recovery for the UK economy.

Foreign direct investment could fall globally by 45% this year, according to the same report, and corporate profits will decline by 20-25%. Global trade is down 25%, and the EIU predicts trade will be down by 10-15% by year end – the worst figure since 1945.

In April this year, consumer prices turned negative in the US, the UK, Germany and Japan. This may be good news for consumers, and may help lower food prices for the poor, but it is not good for the economy as a whole. Businesses cannot profit from negative prices, so they are bankrupted and lay off employees. The rocketing numbers of unemployed (whose plight is seldom taken seriously by orthodox economists) will cut back on borrowing and shopping and may even default on loans. This is not good news for the productive sector of the economy, and it’s very bad news for the banking sector. Banks have still not fully de-leveraged the debts on their balance sheets. Now, thanks to rising unemployment, non-performing loans are “set to rise sharply around the world over the next 12-18 months” according to the EIU. This is very scary, if one considers that there are still $600 trillion of liabilities in the form of derivatives on balance sheets out there – backed up by a mere $38 trillion of so-called credit default swaps (in reality a form of insurance on derivatives).

Finally, the rising price of oil seems set to exacerbate this dismal economic outlook. To everyone’s surprise, it has been rising lately and is now at $71. This is strange, because as Business Week’s Stanley Reed reports “stockpiles are so high that an ocean of oil is building up around the world in tankers or in depots.” Yet the price of US crude has almost doubled, to $71. While OPEC has cut back and maintained quotas of production, and contributed substantially to the price rise, it turns out that once again, the finance sector is playing fast and loose in oil markets. Göran Trapp, head of global oil trading at Morgan Stanley (MS) in London is quoted as saying: “Hedge funds and asset managers who have been sitting on cash now feel it’s time to buy [oil].” $3.8 billion has flowed into oil and gas exchange traded funds this year, vs. $1.4 billion in the first half of 2008.

Governments in Britain and the United States appear relaxed, even passive, about the impact of hedge fund speculation on the oil price and the global economy. Indeed they seem determined to maintain the dominant status of the finance sector within the economy. Banks that are ‘too big to fail’ are not just tolerated by both the US and UK governments, but encouraged in their morally hazardous behaviour. In Britain the Labour government has actively helped consolidate the banking sector, and shrink the competition, as the forced Lloyds/HBOS merger demonstrated. Hedge funds remain free to gamble in the casino that is the global economy.

Nothing has been done to re-structure the global economy and limit financial imbalances – including Anglo-American deficits and the Chinese surplus. Indeed these matters were not even discussed at the recent G20 Summit in London. Big, reckless money continues to be made from currency speculation, just when the global economy requires currency stability.

We – employees, consumers, investors and borrowers – have been misled and fooled by the economics profession and finance sector for years before this crisis. As a result of our gullibility, we lost $60 trillion of wealth between June, 2008 and 2009. We would be wise now to dismiss their vain efforts at confidence-boosting, and instead rest our judgements on the real world economic outlook.


6 thoughts on “No, the Recession is Not Over”

  1. Ann,

    I couldn’t agree with you more. The entire thing is disgusting. Although some of the

    regular and financial economists, like Nassim Taleb and Vince Cable, spoke up, they were studiously ignored. And the rest never seemed to notice.

    Like you, I don’t think there is any reason at all for trusting the bankers. The data compiled by Eichengreen and O’Rourke show that this

    depression and the one in 1929 are not too dissimilar (

    Nothing has been done about job

    creation, mortgage foreclosures, or business survival. Nor has anyone been indicted for the massive fraud that has gone on. The case of Deepak

    Moorjani provides good reasons for us to be enraged – cf. The

    claim that Brown is the only one to get the country through the recession is a joke.

    In 1929 in the US, while the feds did nothing about

    mortgage foreclosures, many states individually initiated moratoria. I think there may be a good reason, from the point of view of the bankers and

    some politicians, that nothing be done because they hope to recreate the bubble, thinking that this will end the recession. Even should this

    happen, this will only stave off the inevitable reckoning that must take place. And it is dangerous.

    As you point out, such a “solution” is

    only applicable to the financial sector, and it is a short-term fix in any case. The real economy is being squeezed. As Moggridge argues for the

    Depression, structural reform and putting a substantial number of people to work, however artificially, is what is required. The notion that we

    “can’t afford it” is absurd, as anyone familiar with the arguments of Keynes, Minsky, Moggridge, and a few others should be able to see. What we

    can’t afford is to pretend that the debt can be paid down; it is too large – more money than the world possesses.

    What will it take for

    there to be an uprising? My take on the rage at MP’s expenses is that it is partly displacement activity due to the bankers not being punished by

    the politicians who soon after the financial debacle were discovered lining their own pockets. People can’t get at the bankers, so they are

    getting at the politicians who haven’t gone after the bankers.

    I see no reason to think that Brown either will, or even can, change. And

    Cameron has returned the Tories to Thatcherism, a disaster in the making. As one 20th century innovator once wrote, what is to be done?

  2. Pingback: Response to Ann Pettifor’s ‘Recession is not over’ blog « From the OuterCrust

  3. Banking regulation ‘not to blame’

    Chancellor Alistair Darling does not plan fundamental reform of the structure of the system

    that regulates UK financial institutions.
    Mr Darling has said that the current regulatory system is not to blame for the credit crunch, blaming

    instead the bosses of financial institutions.


  4. It’s hard to belive that just over a year ago many thought a ressesion impossible. The economies can just keep

    growing the optimists shouted. Even the most hard nosed dreamer has to except that the global economy has indeed farted.

  5. Well according to This questionnaire
    USA is the

    last country in the world, which will come out of recession. Apparently it is based solely on people’s opinions, but the fact, that basically 75%

    of 100% USA citizens think, that recession is not over yet and 17% of them think, that it will not even be over until 2-3 years, is not realistic.

    I have no idea, whether people have serious financial problems or they just don’t think realistically.

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