Will Hutton: History will see Britain's cuts as one of the great acts of political folly
[Will Hutton has written a weekly column for more than 15 years.]
Those who run the International Monetary Fund are supreme financial diplomats. They talk the opaque language of financial final communiques, the honed compromises between the great economic powers.
So when Dominique Strauss-Kahn, the IMF managing director, acknowledged that the language of a recent IMF summit communique was "ineffective", that the time for "real action" had come and that he feared "a race to the bottom" as the major countries began to outdo each other in beggar-my-neighbour currency wars, you should sit up and listen. The problem is that we can talk and talk and talk, he said, but in the end something has to happen – and it has not. If countries chose not to co-operate in unravelling the problems facing the world economy, we all faced disaster.
The United States blames China for the impasse, saying it was manipulating its currency to export unemployment to stagnation-stricken America. China blames the US for flooding the world with dollars and taking no responsibility as the hegemonic power for the fiscal and monetary discipline necessary to underpin the world's key currency. Fears are growing that next month's G20 meeting in Seoul will reveal the lack of co-operation.
It was the collapse of collaboration at the London summit in 1931 that launched the trade and currency policies that prolonged depression. Will history repeat itself? The US is preparing to declare unilateral economic war on China by further swelling the flood of dollars when next month it adopts an American form of quantitative easing to boost anaemic levels of bank lending. China will be swamped by yet more dollars displaced from the US, but is determined, as the governor of the Bank of China, Zhou Xiaochuan, repeated, to move with extreme gradualism on its currency, if it moves at all. Both, as in the early 1930s, imagine they can get better results by going it alone. And if they square up to each other, the rest of the world has no option but to protect itself, the dynamic that caused the competitive devaluations and trade protection of the 1930s.
This is the background to this week's statement by chancellor George Osborne in which he will announce the fastest, deepest cuts in public spending ever mounted by a government in modern times. Given the risks, the right policy would have been to embed flexibility in Britain's spending, taxing and borrowing plans so the government could move fast to adjust to whatever happens. It is not what will be announced...
Read entire article at Observer (UK)
Those who run the International Monetary Fund are supreme financial diplomats. They talk the opaque language of financial final communiques, the honed compromises between the great economic powers.
So when Dominique Strauss-Kahn, the IMF managing director, acknowledged that the language of a recent IMF summit communique was "ineffective", that the time for "real action" had come and that he feared "a race to the bottom" as the major countries began to outdo each other in beggar-my-neighbour currency wars, you should sit up and listen. The problem is that we can talk and talk and talk, he said, but in the end something has to happen – and it has not. If countries chose not to co-operate in unravelling the problems facing the world economy, we all faced disaster.
The United States blames China for the impasse, saying it was manipulating its currency to export unemployment to stagnation-stricken America. China blames the US for flooding the world with dollars and taking no responsibility as the hegemonic power for the fiscal and monetary discipline necessary to underpin the world's key currency. Fears are growing that next month's G20 meeting in Seoul will reveal the lack of co-operation.
It was the collapse of collaboration at the London summit in 1931 that launched the trade and currency policies that prolonged depression. Will history repeat itself? The US is preparing to declare unilateral economic war on China by further swelling the flood of dollars when next month it adopts an American form of quantitative easing to boost anaemic levels of bank lending. China will be swamped by yet more dollars displaced from the US, but is determined, as the governor of the Bank of China, Zhou Xiaochuan, repeated, to move with extreme gradualism on its currency, if it moves at all. Both, as in the early 1930s, imagine they can get better results by going it alone. And if they square up to each other, the rest of the world has no option but to protect itself, the dynamic that caused the competitive devaluations and trade protection of the 1930s.
This is the background to this week's statement by chancellor George Osborne in which he will announce the fastest, deepest cuts in public spending ever mounted by a government in modern times. Given the risks, the right policy would have been to embed flexibility in Britain's spending, taxing and borrowing plans so the government could move fast to adjust to whatever happens. It is not what will be announced...