Hope and Action with Ann Pettifor 26/3/2020
As the coronavirus crisis set in I sat down with one of my heroes - Ann Pettifor, economist, activist and one of the masterminds behind the Jubilee 2000 movement. Ann is a prolific writer and thinker - and her take on the shock of the coronavirus to the global economic system was hugely instructive.
Dan Edelstyn:
It is 26th of March 2020. We're in the coronavirus outbreak, and I am just sitting here in my office at home, waiting for Ann Pettifor to join me on this call.
Dan Edelstyn:
We're the 26th of March 2020, and the coronavirus pandemic is in full flow. I've been shocked by the changes that I'm seeing just within the economy around me.
Dan Edelstyn:
I remember speaking to you, I think in the bank, and I asked you, "Do you ever think a debt write off could happen in Britain?" And you said to me, "There will have to be some kind of a shock that takes place first. Something like the 2008 crisis will happen again," I think you said, "and it will have to be the case that something like that happens before there'll be any kind of movement around any of these ambitions for changing the economy. I suppose the reason why I reached out to you very swiftly for this interview was because something like that has happened, big changes have taken place. We have very right wing governments in Britain and one in America, which was incredibly depressing for all of us, I think, on the progressive side, when they swept in, in December. I just wanted to get your take on what's happening, and what you think might come out of it all.
Ann Pettifor:
What's happening is, I don't know if there's a word for it, because it's more than momentous, really, it is extraordinary. I have to say that I've always prided myself on my predictive qualities, but I did not predict a pandemic, and I hadn't really thought about pandemics enough. There's a wonderful professor at Oxford, Professor Ian Goldin, who did. He wrote a book six years ago saying this was a big threat to globalization. To be fair to him, Bill Gates also, in 2015 did a Ted Talk in which he warned about pandemics. I missed that. But nevertheless, the principle I was arguing was that it would take a shuddering shock to get politicians to sit up and think about, and change. And that's what we've had. We've had a shuddering, an extraordinary shock. Actually we're about to have what I think would be a catastrophic great depression.
Ann Pettifor:
Today, the US unemployment numbers came out. They have made 3 million people unemployed in a week. This is unprecedented in history. If you look at the unemployment claims, the graph, the chart, it goes like this, dah, dah, dah, dah, then occasionally bumps up in 2007. Today it went like that. That is huge, and that's just the United States.The thing that that is good about what's happening is that airlines are being grounded, companies who are not sustainable are being closed down, and we know, for example, that China's emissions were cut by a quarter. Over the last quarter, Chinese emissions were cut by 20%. So, we can see emissions coming down as a result of the collapse in economic activity. That's the good news. The closure of airlines is also going to contribute to that good news. The bad news is the cost of the destruction of the economy.
Ann Pettifor:
The other bit of good news is the suspension of capitalism. Capitalism can't cope with a crisis. Capitalism can't cope with a pandemic. That's how pathetic capitalism is. Instead, so what do we find? The state moves in, and the state bails us all out, and by the state, and I want to stress this so emphatically, that's me and you. So, when we think about the state, we think about bureaucrats and big government departments, and politicians, and we feel it's not part of us. That is not at all the case. Without 30 million British taxpayers regularly paying their taxes, PAYE at the end of the month, or once a year if they were freelancers, and so on, there would be no state, there would be no Bank of England, there would be no quantitative easing, there would be no bailouts. The fact is that the Bank of England is backed by this collateral, because we have a sound tax collection system, and the joy of it is that we had one 30 years ago, and a hundred years ago, and we will have one in 30 years time, and in 100 years time, because we have the public institutions that underpin it.
Ann Pettifor:
That's why the state has been able to intervene. I really want to stress that, because we don't understand our role in all this. But you need to understand that the British state is backed by 30 million taxpayers. It has immense powers to create the credit in exchange for collateral that the Bank of England can create, and it's called quantitative easing, but you can just call it Central Bank money if you like. The Federal Reserve has got backing the Federal Reserve, 60 million American taxpayers, because it's twice the size or more. I don't know if it's 60 million, I think it's even more than that. So, the dollar and the Federal Reserve is more powerful. So, they've been able to act. What we've seen is that we've seen capitalism collapse, in a nervous jitter, and the state, and the taxpayer, and society, come to the rescue of capitalism.
Ann Pettifor:
The crucial thing for me now is that we set terms and conditions for these bailouts for these bastards who've paid themselves bonuses, who've bought back the shares on their companies. I was reading about McDonald's today, whose stock market prices went up like that. Why? Because they were buying their own stocks, and who was buying? The managers were buying them, and who was making the money out of it? The managers were making the money out of it. Now the stocks are going like that. Who's going to pay? The workers will all be sacked, or whatever. So, I want us to understand really importantly, our role in all of this, and how vital we tax payers are, and how much leverage we have.
Ann Pettifor:
Anyway. So, that's what's happening. And the question is whether it's happening at a fast enough pace, whether or not our politicians have got a grip on what's going on. Yesterday, the Bank of England, to my astonishment, said they thought the GDP was going to fall by 4.3%. 4.3%, can you imagine? We'd be lucky if it doesn't fall by 50% really. The idea that the Bank of England, there's some nerd in the Bank of England working out some model, and saying 4.3, just shows you they have no idea. 3 million people made unemployment in the United States in a week, is on a scale that we don't know of, and unheard of. And that's going to happen.
Dan Edelstyn:
That's crazy.
Ann Pettifor:
The thing about it is that it has a, what is the word, a ripple effect. Because when you're made unemployed, you don't pay your mortgages, you don't go shopping. You still haven't got anything. You may get $1200 out of the Congress, if you're lucky. You're sick and you go to hospital, you might even die, but you're certainly too sick to work, et cetera. This affects the finance sector, and what the finance sector is realizing is that it is screwed, basically. So, we're seeing Wall Street collapse. We're seeing stock markets have still got further to fall. This is because, a simple thing, Dan, which is that, I don't know, I always feel I have to go back to square one in these conversations, and talk about money. All money is created by me promising to pay. When I apply for a credit card, I don't put any money in my credit card account. I simply promise to pay the £150 for that washing machine, or whatever it is I'm buying, and I promise to pay it in the future. And I do, I pay it over months in the future.
Ann Pettifor:
But that promise to pay gives me purchasing power. It's money, it gives me a washing machine. That's a wonderful, wonderful thing. But, for it to work, my promise has to be upheld. I've got to pay in the future. Who's going to check on that? The bank checks on that, but also the criminal justice system. I've signed a contract saying I'm going to pay. If I don't pay, ultimately, if I'm a poor person, I'll probably go to jail. If I'm rich, I'll probably be bailed out. But anyway, if I don't pay, there's a criminal justice system there to sort.
Ann Pettifor:
In the financial system, at the level of Central Bank and the QE, when they apply for credit, when they want something on their overdraft, they have to post collateral. Just as when you take on a mortgage, you have to offer another property as collateral, in case you default. The collateral that they're offering in exchange for cash from the Federal Reserve, in exchange for liquidity, could be stocks and shares, it could be a pension, it could be an insurance contract, all those kinds of things. These are financial assets. An insurance contract is an asset, because it's a contract, it's a promise to pay, and you know that in future you're sitting on the contract, and there's premiums coming into your bank account every month. In that sense, it's a wonderful asset, and some of us wish we had more of those sorts of assets. Anyway, what's happening now, as I speak, is that people are saying, "Hang on a minute, that pension, that mortgage, that insurance contract, is it really worth $100000, 503 million dollars? I'm not sure it is. I think it's worth a third of that."
Ann Pettifor:
I have a friend who's a trader, who's a big, big trader, and he said to me, "Ann, I'm going into the market, and I'm bidding $6 for a security, and the ask, which is what the holder of the asset is asking for, is saying $16," he said, "I've never seen such a divergence in valuation." That teaches us that the way in which a crisis unfolds is by the wrong valuation of an asset, or the changing valuation of an asset which is acting as collateral to leverage additional finance here. If you say, "I'd like a mortgage of 3 million pounds on my house, because I know my house is worth more than a million pounds, and I'd be able to repay over time," And then suddenly the value of a house falls to 500, and you've borrowed 3 million bucks, 500000, and you've borrowed, you're in deep, deep trouble. That's what's happening to Wall Street at the moment. So, that's a big one.
Dan Edelstyn:
So, you think it will collapse. Because, I've just been reading this again, and in the introduction, or the first chapter, you talk about the 2008 crisis. There was a moment in the 2008 crisis, I think, where people knew there was a problem, and the governments all came in with their stimulus packages and stuff, initially for a few months, until Lehman Brothers went bankrupt, and then that put everything into a big spin, didn't it? It feels as if there's a moment when the... I use this metaphor, and Hillary hates it, but I sometimes think of it as like a duck that's just been shot, and it's still trying to fly, and it thinks it can carry on flying, and doesn't actually realize it's about to crash into the trees with a thump. Is that where we are now? Are we in a duck hunt?
Ann Pettifor:
No, I think that's a jolly good analogy. The duck is floundering, but then what happens, the state comes along, the Central Bank or the Federal Reserve comes along, and it provides it with a new set of wings. So, what happened in 2007-8, was that exactly that happened. I remember vividly, because I don't know if you remember, Dan, but I wrote a book predicting the crisis. So, when it happened, I never thought it would wait as long as August 2007 to blow. I thought it was going to blow up in the September 2006, and my book was going to be out of date. And even then, neither Central Bank governors, or economists, or politicians, or officials in the treasury, understood what was going on properly, and therefore the public didn't understand what was going on. The left certainly didn't understand what was going on, as you say, only in 2008.
Ann Pettifor:
In that period, I remember vividly, I even remember, I've got a photograph somewhere of an Evening Standard headline, in which the bankers declare contrition, when they say, "Mea culpa, we're terribly sorry. We done wrong. We done wrong. Will you please punish us?" And to their absolute astonishment, far from punishing them, we gave them a stronger set of wings. We turned them into Eagles. They weren't even little ducks anymore. Now they were Eagles. They were bigger, badder. They could go further. They could speculate even more. They couldn't believe their luck.
Ann Pettifor:
This had been provided in the first instance, think of RBS. RBS was the biggest bailout in British history. The bailout was set by Labor government, Alistair Darling, And he said, "Please don't anyone give the faintest impression that this is nationalization. We would like you to go on just as before. We're not asking your shareholders to take a big hit. We just want you to pretend you are where you were before, and here's a load of taxpayer's money to help you do that."
Ann Pettifor:
And to be fair, RBS had to do a lot of restructuring afterwards, and they messed up, and they've had huge problems. I'm not saying that they had just a good time, but we didn't say to them, "Sorry, sweetheart, you can have this money, but the condition is that, number one, you're going to lend money to Britain's SMEs, and you're going to help them get through this crisis. Number two, you're going to lend money at very low interest rates, so that they can afford to borrow." We could've said that. "Number three, if you're going to invest in anything, we want you to invest here in Britain. And number four, will you please pay your taxes." If we just said that, God, we would have had a different world. We never said any of that. We said, "No, we'd like you to be globalized. We want you to be a global bank. We think it's good to have a global bank that's British. And yes, take your money if you like, and don't put it in an Irish or a Delaware tax haven. Who cares? We think everything's hunky-dory.
Ann Pettifor:
So, what we did was, we strengthened the system, which is why today, the level of debt is twice what it was in 2006-7. In other words, they went out and said, "Right, let's splash, let's create loads of credit, and lend crazy money at very high rates of interest, and get very rich very quickly. Why don't we do that? Why don't we gamble, and make even more money?" And they did. And we've had all these agonizing arguments about how unfair the world is, because we're unequal, and everything. But we created the conditions in which those guys could go and do that.
Ann Pettifor:
Anyway, so the thing is, but chickens, ducks are coming home to roost, and they're discovering that all of these assets that they created don't have value, and so it's all unraveling. I feel I'm rambling, Daniel.
Dan Edelstyn:
No, you're not. So, are we about to experience a second shock, I suppose is the question. We've got these stimulus packages which have been approved, and to most people, they think, "Okay, well I've got 80% of my income. Hopefully this is going to go on for, what was it, eight weeks, the official line, or 12 weeks, and then everything will get back to normal." That's what the official accounts [crosstalk 00:18:24]-
Ann Pettifor:
"Then everything will be hunky-dory, and then I'll go shopping."
Dan Edelstyn:
That's our official account, effectively, I think, which is being managed in the daily press briefings, and then which is being distributed by, let's call them the press, or whatever we're going to call them. The people who just spout the same thing that they're told to write. But my question is, how close to reality do you feel that account is, or what's going to come from this? I'm mindful of the time, because I said 20 minutes, because I know your time, and you've got 15 minutes, you need to get ready for your next one, don't you? When we come out of this, where are we going, and can we get a Green New Deal out of this? Those are two questions.
Ann Pettifor:
The bottom line. Two things. I think if this is badly managed, and in the United States is being badly managed, it's going to get a whole lot worse. I know we've only got 15 minutes, but I want to quickly say to you, Dan, that it's going to be really hard for us to manage this crisis within the existing international financial system. The real channels for the Green New Deal isn't getting the money. Honestly. We've all seen how easy it is for governments to promise to pay, basically. That's not the problem. The problem is going to be changing the international financial system to enable us to mobilize the finance, and spend the money. And what that means is, right now, and one of the things I'm really angry about at the moment, it just makes my blood boil, is the international system is so designed as to prioritize the interests of capital, over, in the broader sense, labor and the ecosystem.
Ann Pettifor:
Right now, capital, which is given freedom to roam around the world, without any friction whatsoever, well, virtually without any friction, is rushing out of poor countries, and heading straight for the United States, pushing up the value of the dollar, and investing in what they think is a safe haven. They may not think that after today's unemployment numbers, but nevertheless. What that's doing is it's absolutely sacrificing, crucifying emerging markets, Argentina, South Africa, which is the country of my birth, and where I have family, Turkey, and so on. That is happening as a result of capital flight, and capital flight is enabled by the current system.
Ann Pettifor:
Secondly, the current system is based on the notion that there should be a reserve currency for the whole world, and that reserve currency should be the currency of the United States of America, and it should be run by the Federal Reserve. So, the dollar is now absolutely fundamental to the global economy. If a poor country like Zambia wants to buy soya beans from Brazil, it cannot do that with the Zambian Kwacha, which is their currency. It has to get holds of greenbacks. It has to get hold of dollars, and then it goes to Brazil and buys soya beans. If South Africa wants to buy oil, or copper, or whatever, similarly. There is currently a shortage of dollars, and the Fed realizes that, because money is all gravitated to the US, because dollars have all fled to the US, the rest of the world doesn't have dollars, can't buy oil, can't buy copper, can't buy soya beans. The Fed has decided to engage in a process called swap lines, whereby they give dollars to, for example, the ECB, to be given to European businesses, and to other OECD countries, but they're not giving dollars to poor countries, and above all, they're not giving dollars to China, because they, they don't believe that China is entitled to dollars, because her currency is not convertible, her government manages the currency.
Ann Pettifor:
So, China is short of dollars. China is recovering from this initial crisis. This coronavirus, she's beginning to want to buy copper, soya beans, and oil. She doesn't have enough dollars, and the Fed is not going to help. Then we have Mr Pompeo yesterday saying, "We've got to call this flu, the Wuhan flu." The Americans want to make war with these guys. But the very fact that China can't get hold of the currency it needs to buy it's essentials is going to be an issue of huge tension in the world.
Ann Pettifor:
Hang on. This says a new version of Java is available, would you believe?
Ann Pettifor:
Anyway, so this is a really big problem, and it's a result of the system. The system was set up under Bretton Woods, and the Americans grabbed the role of the reserve currency. Keynes, at the time, said, "No. We need a currency that doesn't belong to any nation state. That is like an independent Central Bank, and it's not attached to anybody's interests, and, like any old commercial bank on the high street, it manages your assets, and your liabilities, your credits, and your debts and so on, and it takes in deposits in it, and it lends out money." And Keynes was defeated at the Bretton Woods conference by the Americans, who said, "No. We've got to have the dollar, and we demand the dollar because after all we're bailing out the world economy," et cetera. And now we're in this incredibly unbalanced financial system, which benefits the US, and penalizes, especially the poorest countries, and China. Creates enormous political tensions, the potential for war, but also enormous economic imbalances and instabilities.
Ann Pettifor:
So, China will no doubt, number one, she might sell all her American debt to US treasury bills, and that would be damaging for the Fed, but she may even then just become more protectionist, and more self-sufficient. That's probably going to have to happen to emerging markets as well. I'm hoping they'll impose capital controls, and stop that money from moving around.
Ann Pettifor:
So, these are conditions in which we want to talk about the Green New Deal, and that's what's going to be hard, because to do the Green New Deal, to mobilize the finance we need to transform the economy away from its addiction to fossil fuels, we have to change this international system. I'll tell you why, Dan. The key thing about the system that Keynes designed post war, was that it was based on international coordination and cooperation. The current system is based on every man for himself. Every state for itself, and the biggest status of bulliest of them all. It's there to create tensions. It's there to split and divide.
Ann Pettifor:
We now face a major global pandemic, and the United States, Britain cannot cooperate with the Europeans and the Chinese to tackle this because they're so engrossed in their own nationalistic, individualistic, America first kind of attitudes. It's disastrous. We have to change that system just in order to get a new system, a new international system.
Ann Pettifor:
I have so much trouble with my friends in the green movement and even in economics, who only want to look at the British economy. The British economy is fascinating let's face it, and lots of things happening here. But the British economy is part of this global system, and we have to change that in order to be able to, A, manage our own finances so that we can fulfill our own carbon budgets here at home. We will be given a carbon budget and told you've got to live within that mate, or else your [inaudible 00:26:37]. And then there's a global carbon budget that we need to all work together with to ensure that we achieve the global budget. It might mean we've got to help poor countries. It might mean there's got to be give and take. That's absolutely essential to the Green New Deal. We can't do that within a system that currently is designed to divide and rule. It's designed to break up international coordination. It's designed to attack the World Health Organization, and United Nations that had been set up to help us coordinate. That's the challenge we face with the Green New Deal.
Dan Edelstyn:
So, should we also set up a new international currency in your opinion, like the HOE Street Central Bank currency?
Ann Pettifor:
I think we should, definitely.
Dan Edelstyn:
But it would have to be underwritten, wouldn't it, by taxpayers across across the world?
Ann Pettifor:
It could be. The thing is what would happen, for it to be international, you'd have to have governments underwrite it, and governments are therefore taxpayers. They're having this row at the moment in Europe, should the ECB be a central bank for the whole of Europe? [inaudible 00:27:48] saying, "No, we don't trust the ECB, you're going to cause inflation." They suddenly realized they need a central bank. Governments need to have to be backed by Central Bank, and central banks have to be backed by governments. We can see, as we speak, Europe fighting over whether or not to be united under the Central Bank that they've created.
Ann Pettifor:
If they hadn't created the ECB, and they all had their own central banks, they could perhaps then talk about collaborating in a different way. But no, they've set up this monster, and now they're having to agree that it becomes something that enables them to coordinate, and work together around, and cooperate. That's quite heartening to see that today. We need to do that at a global level. The Central Bank would then, it wouldn't be a central bank. What it would be, it would enable states, for its clients, it would have states. The High Street Bank, the HOE Street Bank has locals as its clients, individuals and firms.
Ann Pettifor:
So, that's for all commercial banks. Central banks don't have high street people, you and me as their clients, and it's not possible for them, because they're organize differently. They have big banks, the banks are their clients, and big financial institutions are their clients. Then you'd have another layer of your global independent bank, and that would have states as its clients. Germany has got a massive surplus, and Portugal's got a deficit, say, and that bag would act as, "Come on, let's balance this out, guys. Germany, you can have your surplus, but you can't have it for long, because I'm going to penalize you, because it's imbalancing the economy, and hey, Portugal, fix your books, and improve your economy, and pay your debts." So, the job of that bank would be to manage those finances across the world.
Ann Pettifor:
That's what we should have. It shouldn't be linked to any single individual state. That's the point about it. We have something like that, and the IMF was a kind of independent central bank, but it turned out not to be that. Then there's the Bank for International Settlements in Basel, and that was actually originally the model. So, we do have institutions in which states participate, like the IMF, but we would need this to be a bank which would balance out surpluses and deficits across the world. [crosstalk 00:30:24] have the Green New Deal.
Dan Edelstyn:
That's great. I'm just thinking that I should probably get you to stop, because you have another call in three minutes, and you need to prepare for it, don't you? It was really lovely to speak to you. Just to sum up, basically, what it looks like, possibly a depression, and international chaos on the cards in the wake of the coronavirus, unless people can stop squabbling, and get an actual plan together. Fingers crossed. I'll keep watching.
Ann Pettifor:
I don't think we can say possibly a recession. There is going to be a deep, deep recession. The question is how deep. And yes, definitely, it's about time that we got together and we worked internationally, and coordinated.
Dan Edelstyn:
Okay. Lovely to speak to you. I'll be in touch with you about trying to help you with the equipment, and getting your podcast up and running. In the meantime, it's been a real pleasure to [crosstalk 00:31:21] speak to you on this one!