Review of The Credit Crunch by Graham Turner
Has somebody sent a copy of this book to Gordon Brown and Alastair Darling yet? Well it’s probably too late anyway. The Credit Crunch by Graham Turner is as devastating a critique of Government created asset bubbles as you’ll read and is, unlike our own Government, ahead of the curve on the Credit Crunch. As Turner avers – if you think it’s bad now (and the book runs right up to spring 2008) , you ain’t seen nothing yet.
The thesis is this. The Thatcher and Reagan (and after) economies of the UK and US have seen the driving down of wages, sometimes in real terms, certainly as a share of the national pie. Much of this has been achieved by the crushing of union power and of the confidence of workers to ask, Oliver like, for more. A further downward pressure on wage demands has come with governments’ encouragement of globalisation, removing trade barriers to allow our companies to invest offshore, to tap a vast pool of cheap labour in China, India and beyond. Our consumer goods have been getting cheaper for years, and I type this review of the Credit Crunch by Graham Turner sitting in a pair of Primark shorts costing £6 and T-shirt costing £2.50 Just one scrap of evidence that a) I’m a cheapskate and b) western Europe is enjoying an extraordinary driving down in the cost of certain products.
And if Joe Public isn’t distracted enough by the cheap flood of goods offsetting the fact he hasn’t had a pay rise in years, then the government can create the illusion of wealth, by releasing the credit restrictions that prevailed for most of the 20th century and allowing people to tap the equity in their homes – turning their domicile into a giant hole in the wall. How can it go wrong?
Welcome to 2008 and the Credit Crunch, the other side of which is not just one, but a series of asset bubbles, artificially expanded by cheap credit. Worse, the unsustainable UK and US housing markets, a giddy spiral of credit which had to stop somewhere, are just two of the most obvious. Our investment outflows to offshore producers have fuelled credit bubbles there too – a froth of overinvestment and over production. From an oversupply of new build apartments in Manchester look abroad to what that credit release has also fuelled – a rash of unsaleable homes on the Costas, of garment factories in Korea, of parts suppliers in Romania, even of nightclubs and hotels in the new holiday resorts of Estonia. Go round the developing world in fact, and you see sick balance sheets disguised by vast credit inflows. Graham Turner’s Credit Crunch tours the globe revealing the candyfloss economies built by a decade of cheap credit.
Great until the party stops, and here Turner elegantly unpicks the myth of decoupling. How CAN the developing countries be decoupled from our sick economies when their trade is so dependent on ours. As our bubble bursts, argues Turner, we’ll stop spending on imports and the sickliness of those countries’ balance sheets will become clear … you’ll start to hear pops around the globe. The answer? To cut interest rates and cut them quick – and here he uses the baleful example of 1990s Japan to demonstrate the folly of tardiness, of after the curve interest rate cuts of a quarter per cent at a time. If we don’t act now, he argues, our economies will become entrenched in the ‘debt deflation’ which has gripped Japan for a generation, of money piling up in the banks and nobody spending. His description of the Japanese government’s desperate and fruitless attempts to inject liquidity into their economy makes painful reading. And we used to fear inflation? Turner wryly points out that the US Fed and the UK Treasury are still fighting yesterday’s war … it’s deflation we should really be fearing. The Credit Crunch by Graham Turner is essential reading for anyone trying to grasp what’s really gone wrong with economy.
Tags: credit crunch, global liquidity crisis, deflation
The Credit Crunch: Housing Bubbles, Globalisation and the Worldwide Economic Crisis
by Graham Turner
Paperback: 224 pages
Publisher: Pluto Press (20 Jun 2008)
ISBN-10: 0745328105
ISBN-13: 978-0745328102
£14.99
STOP PRESS: An exclusive offer to Walletwatcher readers. To receive 20% off the RRP of the book go to www.plutobooks.com and enter code PLUCRUNCH. Happy reading.