Globalization Revisited by Grahame Thompson

Author:Grahame Thompson [Thompson, Grahame]
Language: eng
Format: epub
Tags: International Relations, Political Science, Political Economy, General
ISBN: 9781317598473
Google: ckKcBQAAQBAJ
Goodreads: 24049274
Publisher: Routledge
Published: 2014-11-27T00:00:00+00:00

Further reflections on possible monetary policy under extreme circumstances are developed in Chapter 8, where central banking activity since the financial crisis is analysed.

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Thus the authorities in effect conducted a ‘Keynesian’ monetary policy, not a ‘monetarist’ monetary policy. Indeed, in the 2009 crisis interest rates have been forced down to almost zero, where monetary policy stops. In principle this could enable the government to purchase anything at zero cost to itself (since it can borrow at zero cost) and to spend as much as it likes. But as developed at length in Chapter 8, the authorities chose not to exercise this option. Instead they went for a more conventional route of borrowing from the private sector, hence encumbering the public sector with significant amounts of debt, which could have been avoided.

14

However, one of the problems more generally has been whether the nationalized banks – let alone the non-nationalized ones – have acted to pass on any easing of credit conditions to their customers. Generally they failed to do this – a consequence of having ownership but not full control in the case of the nationalized banks, which may be an emergent pattern in the financial system. Further nationalization plus the exercise of control (or ‘governance’) may be an answer. Chapter 8 updates these comments and pursues their longer-term implications.

15

Thus, Gordon Brown almost became a ‘Schmittian sovereign’ for a while (‘He who decides in the exception’ (Schmitt 1998)) – in his New York Times column on 12 October 2008, Paul Krugman described Brown’s decisive action in the UK as the potential saviour of the world financial system!). This is somewhat of an exaggeration, of course, since the very existence of the UK state was not in question.

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In part this ‘irrationality’ can be illustrated by the way that options contracts (which are important in the derivatives markets) are priced – in fact necessarily ‘mis-priced’. Two key assumptions for valuing options are that the volatility of returns is constant and their distribution is log-normal (Black and Scholes 1973; Merton 1973; Brooks et al. 1993). In practice neither of these assumptions is likely other than by pure chance: usually returns are volatile, and unexpected combinations of events disrupt their distribution. This means that strictly speaking options can only be ‘correctly’ priced ex post: when the contract has matured (because then the actual volatility and distribution would be known). These problems have given rise to a complex debate about options pricing (e.g. Mehrling 2005; MacKenzie 2006; also Chapter 5 and Chapter 6 of this book).

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See Reinhart (2008) and Reinhart and Rogoff (2009) for the way the ‘financial crisis cycle’ has reproduced itself over many centuries, and the failure of the regulatory authorities to come to terms with this.

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An existential moment in this context would be a crisis that lacks purpose, meaning or authentication, leading to anxiety, disorientation and confusion in the face of the seeming randomness, absurdity and volatility of events.

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Here the lessons from natural disaster planning are introduced. And although in its own terms this has been problematic (e.

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