FIAT MONEY IN DEATH THROES

http://www.financialsense.com/editorials/fekete/2009/0706.html


by Antal E. Fekete,
Professor of Money and Banking
San Francisco School of Economics
July 6, 2009

"Banking was conceived in iniquity and born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. However, take away that power, and all the great fortunes like mine will disappear — as they ought to in order to make this a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, then let them continue to create deposits.”
Sir Josiah Stamp (1880-1941), one time governor of the Bank of England, in his Commencement Address at the University of Texas in 1927. Reportedly he was the second wealthiest individual in Britain.


Make no mistake about it: in this credit collapse we are witnessing the death throes of irredeemable currency. In vain have governments and their client banks tried, for hundreds of years, to graft this repulsive and degenerate bastard on the living organism of society. The result was always the same: the healthy organism rejected the unnatural implant in its own good time. The present episode is no different from earlier ones except, perhaps, in the degree of the conceitedness of the perpetrators, and in their contempt for the native intelligence of man.

When on August 15, 1971, Richard Nixon defaulted on the gold obligations of the United States and declared the irredeemable dollar the “ultimate” means of payments and liquidator of debt, he was relying on the expert advice of Chicago economist Milton Friedman. Five years later the world’s oldest central bank, the Swedish Riksbank would bestow upon Friedman the prize it established in memory of Alfred Nobel. The reward would be in recognition of the brilliance of Friedman’s idea that if a central bank robs the people piecemeal (read: it dilutes the currency at a fixed rate of, say, 3 percent per annum) then the victims would not cry “we wuz robbed!” They would never notice the robbery.

In all previous episodes shame and disgrace were part and parcel of the government’s default on its promises to pay. Not so in 1971. In this latest experiment with irredeemable currency there was a new feature: far from being a disgrace, the default was presented as a scientific breakthrough; conquering “monetary superstition” epitomized by gold; a triumph of progress. Sycophant governments and central banks overseas that were victimized by it and had to swallow unprecedented losses due to the devaluation of the dollar were not even allowed to say “ouch!” They were forced to celebrate their own undoing and hail the advent of the New Age of synthetic credit, irredeemable currencies and irredeemable debts.

The regime of the irredeemable dollar was put to the test soon enough. In 1979 the genie escaped from the bottle. The price of oil, silver, and gold were quoted at twenty times that prior to 1971; in the case of sugar the rate of increase was more like forty times, so much so that the Coca Cola Company found it too expensive to put into coke and started using corn syrup instead. Interest rates were quoted in double digits well past the teens. There was panic across the land and around the globe. Hoarding of goods became a way of life. Everybody was expecting the worst.

It was at this time that the notion of “targeting inflation” was invented. Previously the claims of central bank power were rather modest. Central banks were supposed to target short-term interest rates. Later they graduated to targeting the money supply. Now they were claiming supernatural powers of micromanaging price increases. It was apparently working, and the genie was put back in the bottle.

In the intervening three decades policymakers and mainstream economists became ever more confident that in inflation-targeting they have found the holy grail of irredeemable currency. Professor Frederic Mishkin of Columbia University, a former governor of the Federal Reserve, published the gospel of inflation targeting with the title Monetary Policy Strategy in 2007. In his book he calls inflation targeting “an information-inclusive strategy for the conduct of monetary policy.” Martin Wolf, the chief economic columnist of the Financial Times of London explains: inflation targeting makes allowance for all relevant variables — exchange rates, stock prices, housing prices and long-term bond prices — via their impact on activity and prospective inflation. This, then, is the new modified holy grail. Cast your net wide enough to catch all that you want to control. If you do it boldly, you will make people believe that the government can control everything it wants to control. It is amazing how much can be accomplished by piling prestidigitation upon prestidigitation.

Ironically, disaster struck just at the time when the prophets of inflation-targeting became cocky beyond any measure of modesty. They actually had a whole debate going on in American journals, but also English ones. Ben Bernanke, who in the meantime was made the chairman of the Federal Reserve, contributed the keynote address and the title to the debate: “The Great Moderation”. Their description, up to and including the beginning of 2007 of what was happening in the macro economy, was a reduction in the volatility in the trade cycle: more consistent growth, less bouts of inflation, more stability. The London Times published a jubilant piece as recently as early 2007 with the title “The Great Moderation” which began with the line: “History will marvel at the stability of our era.” It was not meant to be a joke. It was meant to be believed. Complacency about the almighty nature of monetary policy reached its peak. They celebrated the success of inflation targeting just when it started to unravel. Policymakers, central bankers, and their lackeys in academia and journalism, felt inordinately proud of themselves. They thought they held the whole world in their hands.

The celebration and self-congratulation was premature. Bernanke & Co. did not know that they were about to be humbled by the markets. Blinded by the glare of their own glory, none of them foresaw the coming disaster.

Martin Wolf in his column on May 7 talks about “this unforeseen crisis” as an unmitigated disaster for monetary policy. It leaves fiat money with just one last chance to put its act together and save its hide. He says: “The holy grail turned out to be a mirage. If fiat money is not made to work better than it has, who knows what our children might decide to do in desperation. They might even decide to bring back and embrace gold”. Oh horror of horrors! Wolf still considers the gold standard an absurdity.

It’s kind of strange. It is not the regime of irredeemable currency, whereby governments are supposed to create wealth by sprinkling some ink on little scraps of paper, that is considered an absurdity. Of course, Mr. Wolf has the right of wanting to be pilfered and plundered. But he has no right to advocate that the rest of us be cheated through this crudest form of plunder forever and ever.

He is also mistaken when he assumes that Bernanke & Co. still has one more chance. The chance they just blew was the last. We are witnessing the closing of the regime of irredeemable currency and irredeemable debt. We may not know how long its death throes will take, but there will be no other chance. Financial journalists and mainstream economists, in their blind stupor acting as cheerleaders for the disastrous monetary policy of the government and the insane credit policy of the banks, have exhausted and destroyed their own credibility for once and all.

* * *

Martin Wolf, like most of his colleagues, is a victim of brainwashing inspired by Keynes that has been going on to discredit the gold standard for some 75 years, but which got a new lift after Friedman inspired Nixon to default. Here are the facts about the gold dollar that should be made available to the world through the opening of the Mint to gold, as demanded by the U.S. Constitution.

The gold standard is an indispensable prerequisite of freedom. Without it individuals are helpless in facing the constant and ongoing encroachment of their property rights by the government and the banks. The right to demand gold in exchange for bank notes and bank deposits far transcends the mere technicality of exchange of one form of money for another. It is the only way to check the unlimited power of the government manifested by the unlimited creation of bank deposits. The combination of governmental power and the power of the banks to create deposits is especially dangerous for the freedom of the individual, because of the double standard involved. The government exempts banks from the effects of contract law in exchange for the banks’ special treatment accorded to government debt.

Gold hoarding is not a blemish on the gold standard; it is its main excellence. When a sufficient number of individuals are disturbed by the encroachment of this combination of powers, or disapprove the monetary policy of the government and the credit policy of the banks, they are not helpless under a gold standard. They can withdraw bank reserves, namely gold, from the system, thereby putting the government and the banks on notice that unless they mend their ways, and stop their adventures in debt creation, they will find themselves insolvent and out of power. The gold standard gives people the upper hand.

It is no accident that all dictatorships set out by limiting the people’s access to gold. It makes no difference whether they march under the banner of national or international socialism. All totalitarian regimes inflict irredeemable currency on the people as an instrument of servitude and bondage. Martin Wolf should know this. The ideal of limited government is meaningless unless reinforced by a gold standard denying to the government the power of issuing unlimited amounts of currency. There is no other way of doing this than making the promises of the government redeemable in something other than more promises of the same shabby kind.

Once the government makes the currency irredeemable, it puts itself in the position to curtail the rights and freedoms of the people as it sees fit. Constitutional government is effectively overthrown. Once the government usurps the public purse, its power becomes uncontrollable. Budget debate in Parliament or in Congress becomes an annual farce. Nothing stands in the way of unscrupulous politicians to undermine constitutional government. The purchasing power of the currency is constantly undermined year in, year out. The banks are freed from constraints on them exercised by the people under the gold standard. Pandora’s box of corruption is opened and its contents contaminate the nation’s economic, political, and social system.

Governments which employ irredeemable currency grab unconditional control over foreign trade, exchange rates, foreign investments and travel, even the amount of currency an individual can take in or out of the country. The more powerful governments will buy the allegiance of the less powerful. Out of this feudalistic web of allegiances financed by irredeemable currency come various adventures in fomenting and waging wars in far-away lands, spilling the blood of the young people of the nation for causes alien to them.

Under a gold standard prolonged budget deficits and prolonged unfavorable balance of payments cannot occur. There are forces limiting persistent losses of gold which tend to correct the underlying distortion. By contrast, under the regime of irredeemable currency economic distortions can persist indefinitely. They ultimately become destructive. This is so because government bureaucrats cannot possibly provide the same level of wisdom that a people free to act in their own interest can.

As problems in foreign trade mount, governments will find ever more excuses for ever more controls. There is no end to the expansion of government power over the individual until the nation regains the benefits of a gold standard, requiring that the government retire to its proper role of umpire and relinquish its role as dominant partner and dictator.

A government can take total control of the people either by the use of military force, or by the use of irredeemable currency. The former is readily understood, while the latter is a subtle national drug that is not generally recognized as such. Rather, it is readily embraced by its victims. For these and similar reasons irredeemable currency is the favorite device of modern governments that want to bring people under total control. Indeed, it enables the government to succeed in controlling the masses while, at the same time, earning their approval and even their enthusiastic support. Irredeemable currency must be seen as the habit-forming drug that the government uses to intoxicate people. Under this intoxication people will want more and more national spending, more and more government control, and more and more debt.

This intoxication obscures the sad end that arrives when the merry-go-round is coming to a jerky halt, when credit is exhausted or withdrawn, and the kitty is found empty. The nation is facing a most serious economic disaster followed by prolonged economic pain. Unfortunately, government economists, university professors, and financial journalists have taken their share of the fun and they failed miserably in their duty to forewarn people of the coming disaster.

It is useless to expect a mass movement on behalf of a sound currency. The daily experiences of people provide them with a warped outlook. They confirm in their minds the alleged virtues and benefits of an infinitely inflatable currency. People lack sufficient understanding of monetary science to see that no currency can be made infinitely inflatable without inviting disaster. Like a drug addict, people exposed to irredeemable currency do not regard it as a dangerous and undermining narcotic agent. Even the loss of purchasing power does not disturb them to any great extent. Their response is to demand more money, and they take pride in the fact that the government listens sympathetically to their demand. They welcome the soaring stock indexes and real estate prices, and put great stores on them. Heavy taxes and burgeoning debt are not regarded with anxiety. A frequent and common agitation is for ever more government spending.

* * *
If we are to be saved from the ultimate evil consequences of the regime of irredeemable currency, needed action must come from the leadership of the opposition party when it is its turn to take over government. The new President and his Secretary of the Treasury, or the new Prime Minister and his Secretary of the Exchequer must be statesmen. They must act as informed and tough monetary surgeons, men who can and will persuade Congress or Parliament to reinstate redeemable currency.

Once that step is taken, the people should experience a breath of fresh air. Government would once more be subordinated to the Constitution, bringing greater freedom to the people. Optimism should be wide-spread, because the currency of the people would once more had integrity. Business should prosper, domestic and foreign trade expand. Imbalances in foreign trade should rectify themselves. Gold should start to circulate and flow in from abroad. The control of the public purse would be returned to the people where it belongs if human freedom is to be preserved and responsible government is to be obtained.

But as the last presidential election in the United States has shown, the needed leadership is lacking. The party of the opposition is just as much in thrall to the same toxic ideology as the governing party. The last change of guards took place in the middle of a financial and economic crisis involving the destruction of quantities of wealth unprecedented in all history, with more destruction coming. Yet when the new president appointed officials at the Treasury, confirmed others at the Federal Reserve, and named economic advisors, they turned out to be the same men who were responsible for the credit collapse in the first place. Not only do these officials continue the dangerous course of the previous administration; they increase the stakes by several orders of magnitude in announcing more bailouts, more stimulus packages, hence more government spending, more government debt, and more fiat money creation.

The situation is no better in the United Kingdom, another important country expecting a change of guards, which could take the initiative to put a peaceful end to the regime of irredeemable currency now in its death throes. Rather than initiating a national debate on the utter failure of the present financial system which was supposed to end bank runs, deflations and depressions, serial bankruptcies and unemployment for once and all, and on the return to sound money and sound book-keeping, Her Majesty’s Loyal Opposition is plotting a course how to cure the collapse of bad debt with the injection of more bad debt.

What this means is that there is no hope for change through peaceful means. When change finally does come, it will be through violence. When the economic pain inflicted on the people reaches unbearable heights, law and order will break down, anarchy and chaos will ensue.

Looking at the ruins of our civilization will be a bitter reminder of what the great monetary tradition of the English-speaking countries, in ruling out irredeemable currency and mandating a metallic monetary standard, was designed to prevent.

story end
© 2009 Antal E. Fekete
Gold Standard University Live

Exibições: 38

Comentário de Alexandre César Weber em 7 julho 2009 às 1:13
Excelente artigo que coloca na devida perspectiva o problema do dinheiro sem lastro e o curso da humanidade, este ponto é o capital na minha argumentação usando Geometria, Astrologia e Tarot, percebam que não cedendo ao apelo de eqüidade e justiça feitas por um material inerte , o OURO, e sim apelando a uma inteligência, a da natureza, proponho outra alternativa para a saída da presente crise.

Não desmereçam o autor, afinal é o Sr.Fekete do outro lado, mas considerem que ele mesmo admite no artigo que o BC têm uma outra alternativa que ele não soube nomear, mas que não funciona.

Aqui eu argumento que o problema não é a alternativa e sim os operadores do BC, que não sabem o truque.

Como não conseguem provar que isto é errado, continuo afirmando que uma solução negociada sobre as bases certas pode evitar o pior e mais ainda, colocar o mundo novamente na direção da prosperidade.
Comentário de Alexandre César Weber em 13 julho 2009 às 1:29
Este artigo é interessante pois coloca uma máxima em ação - Aquele que deve comandar, deve primeiro apreendera a obedecer.

Dito isto, o Larry até aqui não mostrou para o que veio, falta o básico da coisa para poder mover a economia, é preciso lembrar que ela é uma unidade, e esta unidade precisa ser respeitada, por mais diversas que sejam suas facetas. Especialmente as ocultas.

Lunch with the FT: Larry Summers

By Chrystia Freeland

Published: July 10 2009 22:05 | Last updated: July 11 2009 02:42

Illustration of Larry SummersLarry Summers, director of the US president’s National Economic Council, usually eats at his White House desk or sitting around a nearby table with other members of the economic team. But today, for Lunch with the FT, Summers’ aides have persuaded him to walk down the stairs to the Ward Room, a windowless alcove near the White House mess. The dark-wood panelling and nautically themed paintings are meant to evoke a naval officer’s dining room but these grace notes are muted by the plastic cutlery, paper plates and drinks sipped straight from their plastic bottles.

As he flips open a plastic box of Caesar salad with grilled chicken and unscrews the cap of a bottle of Diet Coke, Summers makes small talk – his son’s killer swing on the golf course, his own weekend tennis plans. But Summers – whom I first met as an undergraduate 20 years ago when I dropped into his office at Harvard to ask about the economic advice he was giving to the leaders of what was then the Soviet Socialist Republic of Lithuania – is not known for his casual conversation.

Today, dressed in a navy suit, white shirt and blue and white tie, with dark circles under his blue eyes that are not entirely hidden by his tan, the 54-year-old seems particularly focused on work. President Barack Obama’s decision last year to appoint Summers to lead the NEC was a surprise. From 1999 to 2001, Summers had served as Bill Clinton’s Treasury secretary and he was thought to be up for that job – if he, as a former Clintonite, were to have any role at all in the new administration.

But, instead, the Treasury went to Tim Geithner, and ever since Wall Street and Washington have been abuzz about the relationship between Summers and his former protégé – and about the balance of power between the two men and other economic heavyweights in the administration. As the Obama team has coalesced, Summers, who leads a daily economic briefing for the president, has seemed to emerge as the strategic mastermind of the administration’s macroeconomic response to the biggest crisis since the Depression.

His post and his past give him a unique perspective on the similarities and differences between Obama and Clinton. Summers is (in)famous for his bluntness but even he knows better than to tackle that question head-on. Instead, he praises the current president for the no drama Obama temperament America first discovered in the heat of last year’s primary battle. One source of that “calm, measured” outlook, Summers says, is Obama’s determination to use his presidency to effect long-term change – no matter how pressing the immediate problems.
EDITOR’S CHOICE
More from Lunch with the FT - Jun-12

“The president made two things clear to us early on,” recalls Summers, who answers my questions in full, idea-packed paragraphs, rocking gently back and forth in his seat as he gets into the flow of an argument. “He would do what he had to to fix the banking system, to get the economy out of the rut in which he was inheriting it. But he had run for president to do long-run, fundamental things, like fixing healthcare, like having real energy policy, like reforming education. And we weren’t going to be distracted from those things.”

Obama’s most important political calculation has been this decision to press ahead on all these fronts at once – and the success or failure of his administration will rest largely on whether that was the right call.

This combination of long-term reforms and an immediate crisis reminds me of the last global financial meltdown I watched Summers, then deputy secretary of the Treasury, help navigate. It was 1998, the year of Asian contagion and Russia’s default and devaluation. Emerging market veterans of that crash have taken a certain bitter pleasure in pointing out that this time their former rescuer and scold – the United States – is at the centre of the world’s crisis, and in observing that Americans seem markedly less keen on their own unpalatable medicine now that they are the patient.

“I don’t think I would quite accept the characterisation that we’re in the position that the Russians were in in 1998,” Summers says when I draw the comparison. “The crises that we addressed during the 1990s internationally, in almost every case, took the form of a foreign lack of confidence in a country that led to a mass withdrawal of funds and made reassuring foreigners the central priority. That’s why interest rates often had to be increased. The American problem this time has more in common, at least qualitatively, with the Japanese post-bubble problem, where the issue was not reassuring foreigners but maintaining sufficient domestic demand to push the economy forward.”

He does, however, concede that fire-fighting feels different when it is your own home that is alight: “There have been moments, certainly, when I understood better some of the reactions of officials in crisis countries now than one was able to from the outside at the time. It is easier to be for more radical solutions when one lives thousands of miles away than when it is one’s own country.”

Between that financial meltdown and the current one, Summers lived through a crisis different in scale and substance but perhaps even more personally challenging – his tumultuous leadership of Harvard University. That experience, I suggest, may be the first time in a golden career when something went wrong for Summers. The son of two economists and nephew of two Nobel laureates in economics, he went on to become an award-winning, tenured Harvard professor of economics when he was just 28, then moved to top jobs at the World Bank and the Treasury. From there, following George W Bush’s election, he glided into the nation’s most prestigious academic post, becoming in 2001 president of Harvard. That role came to a rocky end in 2006, when he resigned under pressure from faculty critics. I ask what the episode taught him.

With a slight grimace – the question has been asked many times before – Summers offers his standard, Kissinger-esque line: “Harvard and Washington are both political environments and I’m not sure that Washington is the more political of the environments.” Beyond that, he allows that the “negative” lesson he learnt at Harvard was the need to “maintain focus on your top priorities and avoid diversionary controversies that were apart from the agenda”, a possible reference to comments about women and science that helped to scupper his already-troubled tenure.

Summers is more forthcoming on how his thinking has been influenced by his recent, part-time stint as an adviser at the hedge fund DE Shaw – a job that created a brief political flurry this spring when financial records released by the White House showed that Summers was paid about $5.2m (£3.2m) in salary and other compensation in the last of his two years at the firm.

The chief intellectual casualty of the current crisis has been the “efficient markets” school – the theory, associated with such erstwhile laisser faire gurus as Alan Greenspan, that market participants are governed by rational expectations and markets are self-correcting. As an academic economist, Summers has studied the shortcomings of that approach but, working on Wall Street gave him, he says, a more visceral understanding of the “self-referential” character of markets: “Markets are concerned with the ultimate health of economies and the like but they’re equally or more concerned with what the likely judgments of other market participants in the short run are.”

Might this “more textured understanding” have caused Summers to reconsider some of his views from the 1990s – a time when he and former Treasury secretary Robert Rubin led a pro-market faction in the Clinton administration that some critics believe is partly to blame for the current crisis? (They cite, for example, Summers’ support for the 1999 repeal of the Depression-era Glass-Steagall Act, which had separated commercial and investment banking.)

Summers’ reply amounts to a qualified yes: “I think I always had the sense that our regulatory system was about the protection of individual institutions, and the important problems are often about the protection of the system. I was very worried in the 1990s about predatory lending, about systemic risk, about the stability of Fannie and Freddie. But the political constellation at that time didn’t offer a chance really to do more than report and warn about it. It’s a different world today. As Keynes famously said, ‘When the facts change, I change my mind.’”

Onward, then, to the toughest economic challenge Summers faces today: the recession. Here, Summers turns sombre: “I don’t think the worst is over ... It’s very likely that more jobs will be lost. It would not be surprising if GDP has not yet reached its low. What does appear to be true is that the sense of panic in the markets and freefall in the economy has subsided and one does not have the sense of a situation as out of control as a few months ago.”

As the panic has subsided, the trendy new economic issue has become “exit strategy” – as in, when and how do governments shift from costly and aggressive intervention to levels of spending and taxation that are sustainable over the long term?

Summers rejects the premise of the question. “I actually think that the right measures for doing the right things about the long-run deficit will also increase confidence, hold down long-term interest rates and capital costs, make mortgages cheaper, make mortgage rates lower and so will contribute directly to recovery. So I don’t buy the notion that there is some conflict between the budget imperative for growth and some other budget imperatives.”

So far, so orthodox. What is different about the Obama team’s economic vision is their aspiration that once this crisis is over, the US economy will be in different, and better, shape than it was before the bust.

This new American economy, Summers hopes, will be “more export-oriented” and “less consumption-oriented”; “more environmentally oriented” and “less energy-production-oriented”; “more bio- and software- and civil-engineering-oriented and less financial-engineering-oriented”; and, finally, “more middle-class-oriented” and “less oriented to income growth that is disproportionate towards a very small share of the population”. Unlike many other economists, Summers does not believe that lower growth is the inevitable price of this economic paradigm shift.

Summers admits that this rosy scenario depends on a lot more than the White House. Foreign policy watchers have tended to focus on the security issues this administration faces – the wars in Iraq and Afghanistan, the challenges of Iran and North Korea’s nuclear ambitions. But Obama’s most important international assignment may turn out to be coaxing the rest of the world into accommodating this reshaping of the US economy.

As Summers puts it, “The global imbalances have to add up to zero and so, if the US is going to be less the consumer importer of last resort, then other countries are going to need to be in different positions as well.” On this possibility, Summers is bullish. “The very great enthusiasm for accumulating reserves that one saw globally is likely to be a smaller factor over the next decade than it has been in recent years,” he predicts.

Summers has managed to eat about half of his salad and is now munching on one of the blueberry macadamia nut cookies an assistant brought in midway through our meal. It seems like a good moment to ask him the question that has bedevilled White House-watchers since he was appointed to head the NEC: what exactly is his job?

“My role is to make sure the president gets access to the best economic thinking he can on everything that touches the economy” he says loyally. “That means making sure that no arguments go unscrutinised ... and it means helping everyone on the president’s economic team make the best case for whatever policies they prefer.”

The notion of Summers as an intellectual handmaiden, “helping” others refine their arguments, is at odds with his reputation as a supremely self-confident intellectual bulldozer. Since he moved into the White House there have been a few, mostly anonymous, complaints about his unwillingness to brook dissent but the real story is that there hasn’t been any public falling out among the team of economic rivals Obama has assembled.

Summers is not easily seduced but he seems thrilled by the demands of his current job. “It is certainly incredible, as intellectually challenging as anything I’ve ever done ... What makes it so challenging and exciting, as well as exhausting, is the range of subjects.”

Even so, Washington rumour has it that the NEC isn’t big enough for Summers and that he regrets not leading the Treasury and yearns to run the Federal Reserve. Does he?

“I am totally engaged by the breadth of issues that I am asked to think about to support the president.”

I push one more time: “Even for you, that’s enough?”

“That’s more than enough.”

Chrystia Freeland is the FT’s US managing editor

..................................................

Ward Room
White House
Washington DC

Turkey sandwich $7.15
Chicken Caesar salad $6.90
Bottle of water $0.55
Diet Coke, from Summers’ fridge
Blueberry cookies, complimentary

Total $14.60

..................................................

What the columnist wrote

From 2006 to 2008, Larry Summers wrote a regular column for the FT from which the following quotations are taken:

June 25 2007: “The challenge for those running for president of the US in 2008 – a challenge very different from that faced by presidential candidates until very recently – will be to develop a mandate for policy approaches that can ensure prosperity is more fully shared without threatening its fundamental basis.”

November 26 2007: “Three months ago it was reasonable to expect that the subprime crisis would be a financially significant event but not one that would threaten the overall pattern of economic growth. This is still a possible outcome but no longer the preponderant probability. Even if necessary changes in policy are implemented, the odds now favour a US recession that slows growth significantly on a global basis. Without stronger policy responses than have been observed to date, moreover, there is the risk that the adverse impacts will be felt for the rest of this decade and beyond.”

January 7 2008: “The odds of a 2008 US recession have surely increased after a very poor employment report, growing evidence of weak holiday spending, further increases in oil prices, more dismal housing data and further writedowns in the financial sector. Six weeks ago, my judgment in this newspaper that recession was likely seemed extreme; it is now conventional opinion and many fear that there will be a serious recession ... There is now a compelling case for the president and Congress to create a programme of fiscal stimulus to the US economy that could be signed into law in the next several months.”

January 28 2008: “Good policy is art as much as science, depending as it does on market psychology as well as the underlying realities.”

August 7 2008: “Today, the end of the current financial crisis looks further away than it did in August 2007. Policy has not yet gotten ahead of the curve. I used to remark in the context of the emerging market crises of the 1990s that I would date the moment of the recovery from the first time an official pronouncement proved to be too pessimistic. By this standard, recovery is not at hand.”

October 26 2008: “It is said in all presidential election years that the choices made by the next president are uniquely important. This time the cliché is true. The gravity of our situation is matched only by the opportunity it presents.”

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