by Michael Roberts
Just today, the OECD slashed its global growth forecasts. It now
reckons the world economy will grow in real terms only 2.9% this year,
down from a forecast of 3.4% that it made last May. For 2013, it now
reckons global growth will be just 3.4% compared to its previous
forecast of 4.2%. The main reason for the reduction is the weakening of
the Eurozone economies, which the OECD expects to grow only 0.4% this
year and even less next year at 0.1%.
This dismal news encouraged me to return to my usual high-frequency
measures of the health of the world capitalist economy that readers of
my blog will know – namely the surveys of business activity called PMIs
(purchasing managers indexes). The PMIs provide the best immediate
guide to how things are.
Well, looking at the combined PMIs (manufacturing and services) for
the US – my own invention – the latest October data suggest that the US,
up to now in relatively better shape than Europe or Japan, is beginning
to weaken. We are not in recession territory yet, but the direction
seems down.
For the US, let me add to mine, two graphics produced by Doug Short on his excellent statistical website (http://advisorperspectives.com/dshort/)
that show activity in the heartland of US industry. The first is the
Chicago Fed index. That index is also heading downwards, although again
not yet in recession territory.
It’s the same story using the less well-known Philadelphia Fed activity index, again from Doug Short.
The US economy has been better-performing relative to others up to
now for reasons that I have discussed in other posts. So what is
happening in the rest of the capitalist world? Well, I have brought
together various (combined manufacturing and services) PMIs to see.
China and the US economies are still growing according to these indexes
(China has picked up slightly from the last period, while the US has
dropped back a little, as we have seen). The world as a whole is still
expanding (just), again confirming the OECD’s more pessimistic new
forecasts. But Europe and Japan (at a faster pace) are contracting,
while the UK has also slipped back into contraction.
There is an even more frequent measure of activity for the US, the
ECRI’s weekly indicator and that too is now turning south – although
still short of recession territory.
Meanwhile, the most dangerous ‘monster of the market’, Goldman Sachs,
the vampire squid of finance capital, has spread its deadly tentacles
further over the world. The UK government has announced the appointment
of Mark Carney as the new governor of the Bank of England to start next
summer for a five-year term. Carney is the current head of the Bank of
Canada, but guess what? He worked for Goldman Sachs in senior
positions before 13 years before becoming head of the Global Financial
Stability Board, the world body supposed to fix the banking system (from
poacher to gamekeeper?). Carney, of course, being a former Goldman
Sachs executive, is taking a serious pay cut to do the job and so he has
kindly accepted a much higher basic salary than Sir Mervyn King, the
current governor. Sir Mervyn’s pay of £305,000 a year will rise to
£480,000 for Carney, plus relocation and housing expenses.
Carney joins Mario Draghi at the ECB and US Treasury Secretary
Geithner as former Goldman Sachs executives controlling the world’s
finances. You would think after what has happened over the last five
years, including the scandals and trickeries at Goldman Sachs, among
other investment banks and monsters of the market, there would be pause
for thought before appointing another vampire squid to a completely
independent control of the UK’s monetary and financial stability
mechanisms, without any democratic accountability.
But no, of course, it is ‘business as usual’. Indeed, according to the Financial Times it is just that,
“the City hailed the appointment as a breath of fresh air and an
invigorating sign of the government’s desire to show that Britain was
open for business from abroad.” The FT goes on to say that “Carney may also be seen by City bankers as “one of them”. The FT goes onto tell us that
“Mr Carney’s speeches are notable for their open recognition of the
value of market-based finance to the broader economy, even as he has
promised to crack down on the risks that shadow banks pose to the
financial system.”
It seems that it does not matter if you are right-wing or left,
belong to the Austrian school of economics or the Keynesian, mainstream
opinion is unanimous in its praise for this vampire appointment. The
right-wing City of London rag and proponent of Austrian economics and
Austerian policies, City AM, reckoned that Carney would let the banks have their way: “he
is a tough reformer, not a vandal. He is no soft touch – but neither
does he want to turn Canary Wharf into a ghost town. He oozes
reasonableness. He doesn’t want to destroy universal banks, unlike some
in Britain. His appointment shows Osborne still wants big financial
firms to be based here. Carney rightly doesn’t like the Volcker rule, so
beloved of banker-bashers; the Canadian, who actually knows what he is
talking about, sees that one cannot distinguish between prop trading and
hedging. He wants to reform behaviour, reduce leverage and improve
supervision, not ditch scale and complexity for the sake of it. Most
important of all, he understands the trade-off between making banks
safer and their ability to lend. He is a breath of fresh air. “
Former New Labour Chancellor, Alastair Darling, who presided over the UK’s banking collapse, was equally positive: “Throughout
many G8/G20 meetings [Mr Carney] had a clear grasp of what had gone
wrong and what to do. He knows the UK and brings international
experience. And the bank needs a new broom.”
And leading Keynesian commentator for the FT, Martin Wolf, and a
member of the Vickers Commission on banking reform (whose
recommendations, by the way, still have not been implemented), was
positively ecstatic: “the appointment of Mark Carney is a historic
event. It is extraordinary – and admirable … George Osborne, the
chancellor of the exchequer, deserves credit not only for choosing an
exceptional person but for persuading him to take the job.
Unquestionably, Mr Carney is a man of quality, with a broad background
in economics, finance and central banking.” etc, etc.
As the world economy dips, another monster takes over the reins.
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