The people in power are finally beginning to panic. Knives are being sharpened. Early next year, once the new US President is installed, those knives will be plunged as the experts in economics seek the scapegoats for their historic failures. This is no comfort for the millions who have been made scapegoats for the failure of economic philosophy that allowed the financial crisis to strike in 2008.
The IMF this week changed its tune. Optimism about the growth of the economy has been replaced by forecasts of a dismal outlook. And the IMF chief, Christine Lagarde, now talks of “terrifying and unacceptable” levels of unemployment. The time has come, she said before the IMF’s annual meeting in Tokyo, for “courageous” action.
Courage counts for nothing. Courage is only relevant if the people who occupy the seats of power know what they are doing. The present generation of decision-makers presided over the economy during the boom years that led to the bust. Or they are the clones of those decision-makers who are following the script handed down to them.
What we observe today is the logical consequence of a culture that is protecting itself. The austerity programme is a mark of the success of that culture. I am referring to the set of values, institutions and laws that generate what free market economists disapprovingly call rent-seeking. I analyse the rent-seeking culture in a book that is published later this month called The Traumatised Society.
The money printing strategy is calibrated to protect the political and financial institutions. People’s homes and jobs are the sacrifices to a system that wilfully ordains these outcomes.
In Britain, Lord Turner, Chairman of the Financial Services Authority, now confesses that the money printing strategy of central banks is no longer a viable way to maintain such buoyancy as is left in the system. He says that printing more money would have a “declining marginal impact”. In fact, more doses on top of the £375bn already churned out to support the banks could threaten the stability of the economy.
Turner was part of the establishment that administered a system that was programmed to create the property bubble. He offers no alternative approach to jump-starting growth or re-balancing the economy in a way that would secure sustainable growth. And he is one of the contenders for the job of Governor of the Bank of England.
The Day of Reckoning
The greatest danger to global stability is Europe over the next few months. The period of delusion is rapidly coming to an end in the corridors of power. Politicians thought they could waltz their way out of the mess by printing money and imposing the costs on their citizens. So far, except for token violence on the streets of Athens and Madrid, people have been moderate in enduring the austerity which is nothing less than the dismantling of the social system that was constructed after World War II.
But as the chickens come home to roost in Spain and Italy, panic will set in. The bankrupt economic paradigm on which the house of cards is constructed will be exposed, and the politicians will go gunning for scapegoats. Their knives will be out, and it is likely to be a bloody reckoning.