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Amazon Exclusive: Liaquat Ahamed on the Economic Climate
In December 1930, the great economist Maynard Keynes published an article in which he described the world as living in “the shadows of one of the greatest economic catastrophes in modern history.” The world was then 18 months into what would become the Great Depression. The stock market was down about 60%, profits had fallen in half and unemployed had climbed from 4% to about 10%.
If you take our present situation, 16 months into the current recession, we're about at the same place. The stock market is down 50 to 60 percent, profits are down 50 percent, unemployment is up from 4.5% to over 8%.
Over the next 18 months between January 1930 and July 1932 the bottom fell out of the world economy. It did so because the authorities applied the wrong medicine to what was a very sick economy. They let the banking system go under, they tried to cut the budget deficit by curbing government expenditure and raising taxes, they refused to assist the European banking system, and they even raised interest rates. It was no wonder the global economy crumbled.
Luckily with the benefit of those lessons, we now know what not to do. This time the authorities are applying the right medicine: they have cut interest rates to zero and are keeping them there, they have saved the banking system from collapse and they have introduced the largest stimulus package in history.
And yet I cannot help worrying that the world economy may yet spiral downwards. There are two areas in particular that keep me up at night.
The first is the U.S. banking system. Back in the fall, the authorities managed to prevent a financial meltdown. People are not pulling money out of banks anymore—in fact, they are putting money in. The problem is that as a consequence of past bad loans, the banking system has lost a good part of its capital. There is no way that the economy can recover unless the banking system is recapitalized. While there are many technical issues about the best way to do this, most experts agree that it will not be done without a massive injection of public money, possibly as much as $1 trillion from you and me, the taxpayer.
At the moment tax payers are so furious at the irresponsibility of the bankers who got us into this mess that they are in no mood to support yet more money to bail out banks. It is going to take an extraordinary act of political leadership to persuade the American public that unfortunately more money is necessary to solve this crisis.
The second area that keeps me up at night is Europe. During the real estate bubble years, the 13 countries of Eastern Europe that were once part of the Soviet empire had their own bubble. They now owe a gigantic $1.3 trillion dollars, much of which they won’t be able to pay. The burden will have to fall on the tax payers of Western Europe, especially Germany and France.
In the U.S. we at least have the national cohesion and the political machinery to get New Yorkers and Midwesterners to pay for the mistakes of Californian and Floridian homeowners or to bail out a bank based in North Carolina. There is no such mechanism in Europe. It is going to require political leadership of the highest order from the leaders of Germany and France to persuade their thrifty and prudent taxpayers to bail out foolhardy Austrian banks or Hungarian homeowners.
The Great Depression was largely caused by a failure of intellectual will—the men in charge simply did not understand how the economy worked. The risk this time round is that a failure of political will leads us into an economic cataclysm.
--This text refers to an out of print or unavailable edition of this title.
Almost all critics praised Lords of Finance for its command of economic history and engaging, lucid prose. Ahamed, noted the New York Times, illuminates wise parallels between the misplaced confidence that spawned the global depression in the 1930s and the illusory calculations of risk that led to the current financial crisis. His compelling biographies also personalize economic history. While critics disagreed about whether lay readers will, in a century's time, care about Norman, Moreau, and Schact, the only negative words came from the Wall Street Journal, which criticized Lords of Finance for an imprecise understanding of the gold standard: "Harrumphing about the ‚Äògold standard,' Mr. Ahamed reminds me of the fellow who condemned ‚Äòpainting' because he had no use for Andy Warhol."Copyright 2009 Bookmarks Publishing LLC --This text refers to an out of print or unavailable edition of this title.See all Editorial Reviews
This is a terrific book with many chapters of important information for historians and policy makers. Read morePublished 9 days ago by Jean LeJerq
A great book on the international finances leading up to the banking collapse of 1929 and the 1930's. A strong case against the gold standard. Read morePublished 15 days ago by M. Cott
Lords of Finance is an odd combination of four short biographies held together by a chronological jaunt through a period of global financial turmoil. Read morePublished 17 days ago by Kenneth R. Mitschke
A fantastic historical book about finance and the people involved who make and implement policy.Published 18 days ago by Craig Brown
if you like finance then you will want to have this bookPublished 1 month ago by Dante Devon Robertson
Haven't had time to read, but my high IQ husband says the author is brilliant and has a great knowledge of finance and how these Lords of Finance ruined our system. Read morePublished 1 month ago by Jane Athanus
Some books start with the assumption (it seems) that you already know a lot about the subject. Others start with the assumption you know nothing - and then stay there. Read morePublished 1 month ago by Irvin Wilson
Economics plays a decisive role in shaping and guiding our lives. For most of us, it is not an easy subject to understand. Read morePublished 1 month ago by KOMET
The book presents a comprehensive picture of the central banking system and the financial woes of the twenties and thirties. Read morePublished 2 months ago by Gerrit Middelkoop