Warning of things to come

The news headlines over recent months have warned of the rising tide of household debt, from credit cards and spiralling mortgages, that threatens to derail the consumer-led boom of recent years. Economic commentators and international financial institutions have warned that a combination of trade imbalances and unsustainable US government and household debt could turn into worldwide recession.

by Ann Pettifor

By contrast finance ministers and central bankers have mostly remained upbeat, confident that they can avert a major financial crash as they did in the 1997-98 Asian currency crisis and in 2000-2001 when the dotcom bubble burst and countries such as Argentina and Turkey went bust.

On the side of the Cassandras is Ann Pettifor, a one-time leader of the Jubilee 2000 Drop the Debt campaign, which mobilised millions of people to pressurise western governments to cancel Third World debt in the lead-up to the Millennium.

The movement - combining Christian churches, non-government organisations and the odd pop star - can claim some success in reducing the debt burdens of the poorest countries following multi-billion dollar debt write-offs by governments and official lending institutions, and of putting the issue on the political map.

Now Ms Pettifor turns her attention to no less herculean a task, one of halting a potential slide into economic crisis and possible slump as a result of the build-up of unsustainable levels of household and government debts in the rich countries.

Pettifor is first of all a campaigner and lobbyist, but here she puts on an economist's hat. She draws heavily on the work and help of a number of debt specialists, green and Keynesian economists to build up a case for a radical curtailing of the role of international finance and banking in the modern global economy.

She predicts a debt crisis in the rich countries comparable to the lost decades of the 1980s and 90s in Latin America and Africa, when debt defaults combined with economic stagnation to sink millions into poverty.

Should the warning be taken seriously? It would be foolish not to see the levels of US household and government debt, and the trillions of dollars of US Treasury bonds held by the exporting nations of Asia, as a potentially lethal cocktail, the unravelling of which has been successfully postponed by effective management from finance ministers. But for how long? Pettifor wisely avoids putting a date on the ‘debtonation'.

At times Pettifor undermines the authority of her arguments by ahistorical claims that rely on secondary sources rather than the original work of classical economists. Adam Smith a 'neoliberal' who opposed national economic protection? Hardly - he was the quintessential classical (as against neo) liberal economist who wrote that 'defence' must come before 'opulence'. Later the author deploys Smith to her cause, but such broad brush strokes are perhaps inevitable in a book that, Michael Moore style, is trying to win round millions of voter-debtors rather than economists.

One of the most interesting chapters examines the alchemy of modern banking and the way in which a few giant commercial banks have monopolised money and debt creation. Anyone who has seethed over bank charges while reading about the latest record-breaking bank results will probably feel outraged that such a set-up is allowed to continue without a murmur from our political representatives. Bankers will no doubt carry on as usual.

Her remedy - a labour-industry alliance against the iniquities of global finance -  recalls the populism of late 19th century America, and the 20th century populism of Latin America. She warns that a failure to act now - by re-regulating the world financial system and, in effect, reversing the 30-year finance-led globalisation drive - could mean a 1929-style collapse and a revival of that more sinister school of populism: fascism.

Pettifor urges society to return to the traditional religious approaches to usury as a way of curbing the excesses of capital market rent seeking. At times her determination to convince the reader of her thesis is not matched by the analytical precision required. Yet if she turns out to be even partially right, Jubilee 2000 will only be her first claim to have led the charge for global change.

The Coming First World Debt Crisis
Ann Pettifor
Published by Palgrave Macmillan

Review by Joe Gill



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