Just today, the OECD slashed its global growth forecasts. It now reckons the world economy will grow in real terms only 2.9% this year, down from a forecast of 3.4% that it made last May. For 2013, it now reckons global growth will be just 3.4% compared to its previous forecast of 4.2%. The main reason for the reduction is the weakening of the Eurozone economies, which the OECD expects to grow only 0.4% this year and even less next year at 0.1%.
This dismal news encouraged me to return to my usual high-frequency measures of the health of the world capitalist economy that readers of my blog will know – namely the surveys of business activity called PMIs (purchasing managers indexes). The PMIs provide the best immediate guide to how things are.
Well, looking at the combined PMIs (manufacturing and services) for the US – my own invention – the latest October data suggest that the US, up to now in relatively better shape than Europe or Japan, is beginning to weaken. We are not in recession territory yet, but the direction seems down.
For the US, let me add to mine, two graphics produced by Doug Short on his excellent statistical website (http://advisorperspectives.com/dshort/) that show activity in the heartland of US industry. The first is the Chicago Fed index. That index is also heading downwards, although again not yet in recession territory.
It’s the same story using the less well-known Philadelphia Fed activity index, again from Doug Short.
The US economy has been better-performing relative to others up to now for reasons that I have discussed in other posts. So what is happening in the rest of the capitalist world? Well, I have brought together various (combined manufacturing and services) PMIs to see. China and the US economies are still growing according to these indexes (China has picked up slightly from the last period, while the US has dropped back a little, as we have seen). The world as a whole is still expanding (just), again confirming the OECD’s more pessimistic new forecasts. But Europe and Japan (at a faster pace) are contracting, while the UK has also slipped back into contraction.
There is an even more frequent measure of activity for the US, the ECRI’s weekly indicator and that too is now turning south – although still short of recession territory.
Meanwhile, the most dangerous ‘monster of the market’, Goldman Sachs, the vampire squid of finance capital, has spread its deadly tentacles further over the world. The UK government has announced the appointment of Mark Carney as the new governor of the Bank of England to start next summer for a five-year term. Carney is the current head of the Bank of Canada, but guess what? He worked for Goldman Sachs in senior positions before 13 years before becoming head of the Global Financial Stability Board, the world body supposed to fix the banking system (from poacher to gamekeeper?). Carney, of course, being a former Goldman Sachs executive, is taking a serious pay cut to do the job and so he has kindly accepted a much higher basic salary than Sir Mervyn King, the current governor. Sir Mervyn’s pay of £305,000 a year will rise to £480,000 for Carney, plus relocation and housing expenses.
Carney joins Mario Draghi at the ECB and US Treasury Secretary Geithner as former Goldman Sachs executives controlling the world’s finances. You would think after what has happened over the last five years, including the scandals and trickeries at Goldman Sachs, among other investment banks and monsters of the market, there would be pause for thought before appointing another vampire squid to a completely independent control of the UK’s monetary and financial stability mechanisms, without any democratic accountability.
But no, of course, it is ‘business as usual’. Indeed, according to the Financial Times it is just that, “the City hailed the appointment as a breath of fresh air and an invigorating sign of the government’s desire to show that Britain was open for business from abroad.” The FT goes on to say that “Carney may also be seen by City bankers as “one of them”. The FT goes onto tell us that “Mr Carney’s speeches are notable for their open recognition of the value of market-based finance to the broader economy, even as he has promised to crack down on the risks that shadow banks pose to the financial system.”
It seems that it does not matter if you are right-wing or left, belong to the Austrian school of economics or the Keynesian, mainstream opinion is unanimous in its praise for this vampire appointment. The right-wing City of London rag and proponent of Austrian economics and Austerian policies, City AM, reckoned that Carney would let the banks have their way: “he is a tough reformer, not a vandal. He is no soft touch – but neither does he want to turn Canary Wharf into a ghost town. He oozes reasonableness. He doesn’t want to destroy universal banks, unlike some in Britain. His appointment shows Osborne still wants big financial firms to be based here. Carney rightly doesn’t like the Volcker rule, so beloved of banker-bashers; the Canadian, who actually knows what he is talking about, sees that one cannot distinguish between prop trading and hedging. He wants to reform behaviour, reduce leverage and improve supervision, not ditch scale and complexity for the sake of it. Most important of all, he understands the trade-off between making banks safer and their ability to lend. He is a breath of fresh air. ”
Former New Labour Chancellor, Alastair Darling, who presided over the UK’s banking collapse, was equally positive: “Throughout many G8/G20 meetings [Mr Carney] had a clear grasp of what had gone wrong and what to do. He knows the UK and brings international experience. And the bank needs a new broom.”
And leading Keynesian commentator for the FT, Martin Wolf, and a member of the Vickers Commission on banking reform (whose recommendations, by the way, still have not been implemented), was positively ecstatic: “the appointment of Mark Carney is a historic event. It is extraordinary – and admirable … George Osborne, the chancellor of the exchequer, deserves credit not only for choosing an exceptional person but for persuading him to take the job. Unquestionably, Mr Carney is a man of quality, with a broad background in economics, finance and central banking.” etc, etc.
As the world economy dips, another monster takes over the reins.