Martin Wolf On The GFC

So the basic idea is that, stripped down, there were some very large shifts in the world economy in the late 1990s and early 2000s. At the end of which ­­ just to mention, the most important of which were the Asian financial crises and the rise of China, and the policies pursued by China ­­ the emerging world became essentially a huge capital exporter in aggregate, and pursued policies for a long time designed to reinforce those capital exports. Huge reserve accumulations, deliberate undervaluation in real terms of their currencies relative to what I think would have happened under floating rates. And they started to accumulate huge surpluses. 

There were a number of other developed countries ­­ Germany and Japan in different ways ­­ pursuing quite similar policies, to some extent accidentally as a result of ageing, or as a result of collapses in the desire for investment in their corporate sector, which also generated huge excess savings. And this is something that I develop more in my current book rather than in that earlier book: I have become more aware of the shifts in income distribution within our countries and the effects they have had. But the net effect of this was huge capital exports and a huge shift in the balance between savings and investment, shown in the real interest rate from the late 1990s onwards. 

Now, the world economy has to balance. Demand and supply must balance, demand must equal supply. The question is at what level of activity. My argument is that in the world system that we actually have ­­ this is slightly simplified ­­ the Federal Reserve acts as the global balancer. It effectively balances demand and supply, because when there is ever a huge net export of capital from the rest of the world, it almost automatically takes the form of excess demand for US liabilities ­­ or US assets if you like, or claims on the US to be most precise. Because it's the safest place. It's got the biggest capital markets, where everybody wants to put their money looking for decent, safe returns.

Manfredi Weber on the Greek crisis

Manfredi Weber 

"The prime minister of Greece should apologise for those utterly unacceptable statements. Unfortunately he has passed over them in silence. You are destroying confidence in Europe.

You’re talking about dignity. But dignity means truth and honesty. You have said that the banks are closing because the evil ECB is ratcheting up pressure. You said the banks would be open on Tuesday it is now Wednesday, you are not being honest with the Greek people.

Mr Tsipras, the extremists of Europe are applauding you. Fidel Castro wrote a message to congratulate you on your triumph. It seems to me you are surrounding yourself with the wrong friends

If you’re talking about a debt haircut, be honest. Its not extraneous financial institutions that will pay

It’s Portugal, they will pay 3bn, Spain, 24bn. It’s the nurses in Poland. You have to think about the dignity of people in other European countries.

How can you tell Bulgaria in terms of solidarity that Greece cannot countenance further cuts, when in at least 5 other European countries the standard of living is lower than in Greece. When it comes to hope, people in the continent need hope in the future. Latvia sat in your position in 2009, but the parties there didn’t resort to a referendum, they sorted out their fiscal budget, now they’ve got faith in the future

It seems you’re not standing for hope in your approach.

The PM of Slovakia is also thinking about a referendum because the citizens are sick of shelling out for the Greeks. Europe is not a sum of national views. You engage in confrontation, we engage in compromise.

You are looking for failure. We are looking for success.

Deflation

From a rather different perspective Richard Batley of Lombard Street Research argues that global deflationary pressure has also increased as a result of the relative decline in US economic power. For much of the postwar period the US acted as a clearing house for global demand and supply by maintaining open markets that absorbed the rest of the world’s goods. But the supply clearing capacity of the US ran out after 2008 because it had exhausted its debt capacity. Instead of excess supply being cleared through ever higher US household debt, it is now being cleared through lower prices.