Did world leaders rescue the global economy?
Anneka Sharpley writes:Speaking at Reuters Institute's weekly Wednesday seminar on 29 April, Stella Dawson, Global Treasury Editor of Thomson Reuters, prompted a lively discussion of the world's increasingly complex global economic landscape. She gave a 'romp' through the last 60 years of global economic history, shedding light on issues that are often mired in the jargon of the current global recession. The seminar entitled, 'Did world leaders rescue the global economy and redraw the face of capitalism at the G20 summit?' left the audience feeling that world leaders were in a process of redrawing, rather than having successfully laid, a new path for capitalism.
Dawson outlined three interlocking themes that contributed to 'what went wrong':
Money was too cheap for too long: from the 80s onwards, a build up of money at low rates was 'sloshing' around the economy.
A deregulatory wave hit the financial system: there was a falsely held assumption that markets self-regulate and are rational. In fact, in the ‘shadow banking’ world (that of hedge funds etc) there was no regulation at all.
The US went on a 'credit binge' financed by China and other Asian countries, who were gaining massive amounts of money from exports. Asia effectively became banker to the US, investing in the US dollar.
When opened up to the audience, the issue of the journalist's role in the crisis was questioned. As one audience member put it, there seemed to be a falsely held assumption in the financial world, that there was one God and that God was the increase of GDP. As Dawson stated, this is now being questioned, and we are in an era on the cusp of a 'seismic shift' whereby new alternative ideological environments will have to be imaged for our economy to develop in a sustainable manner. But if the existing economic model was so wrong, why were business and finance journalists not asking those questions that might challenge that system? Why was it not scrutinized more fully by those directly involved in, and those reporting, the economy?
Dawson argued that the complexity of the situation ran ahead of both bankers and those who comment on them. Another major factor was the intimate relationship between the journalist and their sources. Dawson said that within financial journalism there was a tendency towards consensus journalism, whereby a return of confidence passed from source to source, and source to journalist. Both policy makers and participants in the financial market were all reporting favorably on an economic system that was producing unimaginable amounts of money. With journalists relying on such sources, a cycle and reflection of confidence passed from one to the other. Dawson suggested a way of inverting this pattern would be for journalists to avoid becoming captive to their sources, to search for the lone voices, like those of Stephen Roach of Morgan Stanley. However, this she warned, comes with the risk of crying wolf; it is important to use these 'lone voices' responsibly and to make sure you choose the right one.