letter sent to papers early this year, looks fairly prophetic now...but based on obvious stuff
Your report on the bleak prospects for Mervyn King as he goes into his second term as Governor (Guardian Jan 31st) with all signs showing a noxious mixture of economic recession and spiralling inflation on the horizon, is timely. Rising fuel prices, in the 1990s a barrel of oil cruised at $10 now it hovers around $90 plus more expensive food, means that to keep inflation low, the Bank will need to raise interest rates. Yet collapsing house prices, falling consumer confidence, a liquidity squeeze/credit crunch and a dour US economic outlook, demand that to prevent recession, the bank will have to cut interest rates. The MPC and Mervyn will, thus, be damned whatever they do with interest rates at their monthly meeting next week.
While in 1997 putting the Bank of England in charge of interest rates and therefore economic management looked like a master stroke, it is evident that the economy can no longer be stabalised purely by monetary means. Government needs to take an interest as well.
Equally there are a whole herd of elephants in the room, economic growth is ultimately impossible on a finite planet, to solve recession we have to consume at ever faster rates, yet with peak oil and climate change this looks positively dangerous. We have a whole system built on debt, the housing bubble could burst at any moment and with it could come 1930s style mass unemployment. Financialisation builds ever more risk into the system and with the use of ever more esoteric economic instruments such as derivatives, policy makers have less and less understanding of the real state affairs. We need a new Keynes and some serious work in constructing a new economics unless we are to lurch from every deepening crisis while we mortgage the future through environmental damage and spiraling monetary chaos.
Dr Derek Wall,
Green Party Principal Speaker,
1a Waterlow Road,