Crazy markets or crazy economic policies ?
Crazy
finance is back. Listening to most observers, doubt is no longer possible. Only
four years after the biggest stock market crash in history, financial markets appear
to display their most evil behaviour again, that is their worst excesses. The
last speculative bubbles are not yet entirely deflated that new ones are
appearing, under other forms, but with the same lack of control and the same
dangers.
This time stock
markets are less badly hit – the American NASDAQ is worth less than 2000
points, while it had passed the 5000 mark in March 2000 – than other sectors of
the market : bonds, developing countries borrowings, primary commodities, real
estate. As regards disturbances on the currency markets, with the dollar-euro
exchange rate plunge, these are also viewed as a consequence, as well as an
illustration, of the extravagant behaviour of markets. Much more certainly and
more seriously than Al-Qaeda terrorist attacks, the renewed “irrational exuberance”,
to use the word of Alan Greenspan, the president of the American federal
reserve board (the Fed), is thought to threaten world economic rebound. Growth
would have more to fear from hyperfinance and its excesses, than from
hyperterrorism and its madmen.
Faced with
this threat states are as befuddled as helpless. Having deregulated, having
dismantled legal constraints, having liberalised to the hilt, state authorities
no longer have any lever of action to correct market excesses. They are
powerless witnesses of the haywire movements of the economy, under the rule of
speculators.
But does this manicheistic vision, which
just about all governments of the planet are busy selling to their public
opinions, correspond to reality? Do the
large present imbalances in the world economy come from the craziness of the
markets or from bad economic policies of the major industrialized
countries? Shouldn't we worry more about
the bubble of public debts than about Wall Street bubble? Aren't budget deficits more vertiginous than
the roller coaster movements of the market indices or the plunge of the dollar?
In mid-February, in
Yet to see them posing as guardians
of monetary orthodoxy from troublesome markets is rather astounding! It is the American administration itself that
for the last two years, with repeated comments about the beneficial effects of
a weak dollar, pulled the greenback downwards.
While swearing about its rock steady commitment to market freedom the
White House, unofficially, used all means at its disposal to encourage market
operators to set the dollar value at a level it judged best for the American
economy.
Concerning monetary policy too the
Bush team was particularly artful at manipulation, and it has a large part of
responsibility in the current crisis on forex markets. All the more since that, by devaluing the
greenback, market operators were doing nothing more than reflect the increasing
imbalance of the American trade accounts.
In 2003 the
Economists stress that only major
changes in the economic policies of the
But as long as they do not have the
courage to launch these deep structural reforms, the state authorities’ action
is limited to dangerous short sighted expedients that instead of putting back
the world economy on a straight course create new disorders. That is the case of Asian central banks
interventions. During the year 2003
their currency reserves increased by one-third, to reach about 2000 billion
dollars, that is fifty times the amount of world reserves at the beginning of
the '70s. Here too lack of control
appears to be less a feature of the financial markets than a feature of the
states and their interventionism.
Particularly when one notes that the operations of the Bank of Japan
mostly consist in buying bonds issued by American states, and therefore fuel
the structural American life on credit.
When the lack of economic virtue of
some feeds the vice of others, all excesses are permitted. Governments can let their public debts go
without worrying. Under the pretext of
giving the economy a new boost after the Sept. 11 attacks, the Bush team
adopted an ultra Keynesian policy: as a result, the budget deficit should
reach, in 2004, the record value of 521 billion dollars. As regards the debt it increases by 1000
billion dollars every 20 months. In
Summed up the public debts of the
With higher interest rates the
charge of the debt would become so heavy that it would force states to spend
less and to manage better the money of their citizens. The indulgent policies of the Fed and of the
European Central Bank are only a consequence of their cowardliness in front of the
governments. Rather than facing them,
central bankers prefer, with them, to put the blame on the financial markets,
and to point at their irrationality. Yet
it is today clear that it is in the governments’ behaviours, in the budget and
monetary policies, in the soaring public debts, and in abnormally and
artificially low interest rates, that one should find the true excesses and the
true bubbles.
Le Monde, March 2004
(Translation AC)