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Approaching a Global Deflationary Crisis?

Approaching a Global Deflationary Crisis?

Anyone with any sense for global economic trends ought to be worried. The signs are everywhere of a serious deflationary crisis. It is obvious that Chinese growth is falling. The prices for energy and the raw materials that feed the growth economy keep falling. The demand for Chinese exports is down too. Stock Markets in Asia are falling, despite attempts to prop them up. Countries are being tempted to export their problems abroad – for example by competitive devaluation. In Europe its obvious that a “solution” is being cobbled together for the Euro and Greek crisis even though no one at all believes that it will work. At the same time the policy response of “quantitative easing” which has kept interest rates down very low has reached the end of the road. With interest rates at or near to zero the scope for addressing the crisis through monetary policy (low interest rates) is exhausted. Many pundits believe that low interest rates have not encouraged productive investment but speculative bubbles – the creation of capacity in fields that in the long run will not pay, or fuelled a casino style speculation, a giant bubble of bets that could soon collapse, bringing the global economy down with it.

So what is going on? How do we explain the situation? In this paper I am going to argue that there are a number of ways of understanding and addressing what is developing into a global crisis. The desire to make the crisis understandable can convert into a temptation to make it seem simpler than it is. At its most banal we have the explanations that neo liberal German politicians are prone to – like the idea that the crisis is because of a lack of confidence and trust and that this can be resolved (in Europe) purely and simply by countries following the Eurozone rules. If the confidence and trust are restored then all will be well and the market will restore prosperity.

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