A famous phrase of Margaret Thatcher was that you cannot buck the markets.
I once wrote a note, as part of a speech for the floor of the House of Commons – a speech never made – that declared: ‘Why the human being, the individual, endowed with so much intellectual capacity, so many thinking processes, why such an individual who cares for everything from God to government, should put his faith in the free market, uncontrolled, unfettered, unmitigated, unthinking and unfeeling is, if I may say so, madam Speaker, beyond words.’
The new Russian government would say amen to that, as would other governments in South-East Asia which have seen that the free market in finance consists of massive waves of speculation against their currencies, which ultimately feed through to a slowdown in their economies.
Instability in financial markets is not only impinging upon domestic economies but is flowing through to the global economy.
Added to the glut in the production of silicon chips and a fall in the oil price, with the collapse of hedge-funds on Wall Street, suddenly the global economy fears lurching into a recession, as export orders are cut and manufacturers reduce their work force.
Governments are now coming to realise the limitations of the free market in terms of achieving sustainable growth and low inflation, never mind prosperity for their people, and are beginning to take steps they deem necessary to protect their currency.
The simple truth is, however, that in order to cease speculative flows that undo currencies and economies, bank regulators should get a grip on the lending policies of banks that provide the high-octane finance by way of instruments such as derivatives for cross-border runs.
And nation states themselves must put their own economic houses in order, by getting into balance spending and taxation, bearing down on inflation, and being less reliant on foreign capital that turns itself into ‘hot money’ that can flee a border as quickly as it crossed it in the first place.
Stuart Bell is Labour MP for Middlesbrough and adviser to Ernst & Young.
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