The third leg of the world's intractable depression is yet to come. If trade economists at the United Nations are right, the next traumatic episode may entail the greatest debt jubilee in history.
It may also prove to be the definitive crisis of globalized capitalism, the demise of the liberal free-market orthodoxies promoted for almost forty years by the Bretton Woods institutions, the OECD, and the Davos fraternity.…Systems based on efficiency as the priority are likely to be fragile and unsustainable. Capitalism is based on "efficiency of capital." The problem is that financial capital is debt-based, and as Minsky observed, stability leads to instability as confidence exceeds potential and then performance. The result is a reset. The world is now in the midst of such a reset. Rebooting takes some time. Enjoy the wait with a glass of brandy and a cigar.
The UN's diagnosis is that "shareholder primacy" and the entire edifice of liberal market finance are among the key culprits, all made worse by stringent fiscal austerity that has starved the global economy of sufficient demand.
Its prescription is radical. The world must jettison neo-liberal ideology, and launch a "global new deal" with a blitz of investment on strategic sectors. It wants a return of the "developmental state", commanding a potent industrial policy, and backed by severe controls on capital flows.Then comes the heresy.
The UN's advice to the emerging nations is to retake control of their destiny and turn the tables on the financial elites. They should impose capital controls, preferential tax treatment for retained earnings, and force fund managers to hold assets for longer. They should allocate credit without apology, and learn a trick or two from the Korea's methods of "financial repression".…But even the Western elite is wavering.
With uncanny timing - fit from a Conservative Party that has outlived every other major party in the world from sheer instinct and fingerspitzengefühl - Theresa May may now start to close that era with her embrace of industrial strategy.
What is clear is that world will soon need a massive and coordinated spending push by governments to create demand and bring the broken global system back into equilibrium. UNCTAD is entirely right about that.…
UN fears third leg of the global financial crisis - with prospect of epic debt defaults