Robert Peston on global imbalances, the banking sector, debt and a sustainable economy #pestonsperi

I wanted to do a quick blog after Sheffield Political Economy Research Institute’s Annual Lecture given by Robert Peston. It was a fantastic talk, raising some really important points about systemic global, regional and national instabilities that we have in the finance, trading and banking systems and how this relates to issues such as debt and consumption and the potential of the current crisis to go on and even get worse.

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The talk was also interesting given my MA studies currently are looking at the question of global imbalances and how this relates to the United States’s power, their economy and the global economy at large. There are several important points that can be drawn from the talk that needs more recognition by those making policy decisions, who seem quite willing to let us sleep walk into further problems when nothing fundamentally that got us in this mess has been addressed or changed. However, especially in terms of global imbalances such as the US and China’s bilateral trade relationship, things are not going to be sorted over night – this will take time and also a lot of negotiation.

Key points I took from the talk, include:

  • There is a massive problem with global imbalances where there are surplus countries such as China, which has amassed a huge amount of reserves (especially since the 1997 Asian Financial Crisis) and through its heavily intense export-led economy, it has faced criticism of being a currency manipulator to keep the currency undervalued to help its exports with the US demanding a rapid appreciation. The US however, despite its complaints, rely on these surplus countries as the US – once the biggest creditor – needs these countries in order to maintain its massive deficits and debt and thus extensive foreign policy and tax cuts. This relates to the creation of the Bretton Woods System after 1944, where suggestions from Keynes of having an International Clearing Union to help prevent imbalances between surplus and deficit countries was rejected by the US – and given they had the money, it was hard for others to disagree. However, after the 1971 Nixon Shock and the US’s continual ballooning deficit there are questions over how sustainable the dollar is as the ongoing reserve currency, especially given this is somewhat determined by the policies of countries such as China who could increase their diversification of reserve portfolios, for instance. As Peston also mentioned, China is seeing tensions within it domestically rise given the huge disparities of wealth because of their export led approach. That’s why there are movements towards change and this could create problems for the US.
  • Peston talked about the problem with regulation and how it is so complex most people involved in the banks wouldn’t be able to explain it and those that can would need several days to do so! This is a serious problem, as Peston mentioned, given the lax regulation of the banking system, as banks had created practices where they were able to hide the real nature of their balance sheets from the regulators – this was key to the crisis – not as though they took much attention, anyway. Take the IMF, one of its main roles is with ensuring surveillance of the international economy but they actually often encourage measures such as in the Asian Crisis or in the run up to the Argentina crisis (particularly embarrassing given Argentina was seen as the IMF ‘poster boy’) that actually either sewed the seeds or made the crisis worse than it would have been. They failed to be critical about the problems the build up of global imbalances before the crisis could, and did, cause. The ideology and narrative shaping this regulation is wrong and the regulation needs to be simplified alongside reflecting a bottom-up restructuring of our economy.
  • Peston discussed how the boom years were unsustainable, mentioning in the Q&A how the journalists failure during these years was not being critical enough given they were based on over-leveraged, complex banking practices. This relates to Peston’s remarks on how living standards are now currently back to 2003 levels, which echoes comments made by Ed Miliband regarding there being a real crisis of living standards.
  • A very interesting point I thought Peston made was that public debt has now become a potential problem. Whilst Peston stressed how much private debt there is –  a neoliberal blind spot – the private sector, in dealing with their debt, undermines demand and related investment dries up, which relates to less productivity and also then less tax returns, creating an increase in public debt levels. So importantly, it isn’t public debt that got us in this mess, it is private, but public debt is being made to look like it was the culprit through clever spinning and manipulation of the figures. This relates to the imbalances of deficit and surplus countries. Again, it comes back to the issue of needing to rebalance the economy nationally, regionally and globally. It also relates to Peston’s comments regarding the dire state of manufacturing in the UK economy and how we need to reorient education so it becomes more governed towards increasing the supply of skills in the economy that are vocational and useful for regenerating the productivity in the UK and helping overcome such imbalances. Essentially, we have become too reliant on finance.

I found it refreshing to hear such a candid, fact based analysis of the economy. Peston was clearly torn between his BBC role and his economic belief system, even referring to the BBC chip he has to rein himself in through phrases such as “some may say”. I did get Peston on video camera saying capitalism didn’t work and was basically flawed but sadly the sound ironically cut out for that clip. More people need to listen to what Peston critically discussed and analysed, as things are set to get worse given the unstable, too big to fail banking system, weak but expensive regulatory practices, high levels of private debt, global imbalances and weak real economies with extended finance sectors that creates inequalities in living standards and wages. But as Peston mentioned, there doesn’t seem to be a sense of urgency any more – everything seems to be back to how it was, and nothing really changed which is bad for everyone in the short and long-term.

P.s. I wanted to include a video camera clip I recorded of Peston talking, but firstly I didn’t record everything properly as I am getting used to my new phone; secondly, the file isn’t compatible with the upload system on this blog and thirdly I am sniffling in the background because of my cold!

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