[Russian magazine interview with David Pearce. Interviewer (Oct.) Vladimir Zamansky; published Nov. 2008]

2008 Russian interview with David Pearce on the financial crisis interview with David Pearce published November 2008

[English translation]

Dave, I want to talk about crisis. What can you say about the crisis in general?

A lot of prominent Western banks are undercapitalized and probably insolvent. They would collapse if central governments weren't pumping in money to keep them afloat. At current prices of financial stocks, China could buy up the entire US banking system - though the Chinese might not get a very good deal.

Bombed-out banks are no position to offer easy credit to businesses and consumers. So the downturn in the real economy is likely to be quite severe.

Politically, I think the crisis is going to cost the Republicans the US Presidential Election. Barring something dramatic, America is going to have its first black president - something I never thought I'd see in my lifetime. But President Obama will inherit an economy in recession and two expensive and unwinnable wars in Iraq and Afghanistan.

What it means?

Wall Street investment banks going bust is big news. By contrast, 30,000 Third World children a day dying from the effects of malnutrition and curable infectious diseases isn't big news. But I know which story is most important - and ought to be occupying the newspaper headlines.

Despite the risk of financial Armageddon, I think the next few decades will witness an extraordinary economic boom. Information technology is leading to the creation of value - in the technical, economists' sense of "value" - on an unprecedented scale.

Who is feeling it early?

For now, mainly bankers and workers in the financial services sector are affected. But the pain will soon spread into the rest of the economy.

What crises do you remember in the UK?

"Black Wednesday" in September 1992. Britain was forced to withdraw the pound from the European Exchange Rate Mechanism (ERM). This crisis shattered the Conservative Government's reputation for economic competence - and contributed to the Labour Party landslide in the General election of 1997.

But it's doubtful if ejection from the ERM did the UK economy any significant long-term damage. Many economists would argue it did the opposite. I think the coming political, economic and financial crisis is likely to be more severe. But the looming recession is not going to do more than briefly dent long-term growth in the global economy. This isn't a re-run of the Great Depression.

What's your personal experience?

As yet, very little.
I don't own stocks and shares, and my overdraft is safe.

Have you experienced a shortage of monetary and real resources? Seen people become destitute and falling into poverty?

There are problems of homelessness and drug addiction here in the UK.
But they aren't really the product of the global credit crunch, which started only in August 2007.

What is a useful aspect of crisis, and what real lessons can be drawn?

There are technical lessons that we can draw from the crisis e.g. that we need better regulated, better capitalized banks even at the cost of curbing financial "innovation".

But more generally, I think the crisis has shown that faith in the wisdom of markets can be as naive as faith in the wisdom of governments.

What do you think about current World crisis? How is it interpreted by the UK media?

The dramas on Wall Street and Washington are being widely reported in the UK media - together with the O.J. Simpson trial and the usual celebrity news and gossip.

Compared to the momentous political and economic events of the 20th Century, the current crisis looks quite tame - so far at least.

What do you know about Russian situation? Do people in UK want to get more information about us, or they're just afraid?

Some of the older generation still harbour Cold War stereotypes.

But after Iraq, a majority of Western Europeans are probably far more suspicious of the Bush-Cheney Whitehouse than a re-assertive Russian nationalism.

What is current image of Russia in British society?

Probably quite positive. Putin is widely respected.

Georgia's attack on South Ossetia got a lot less publicity here than Russia's response. But no one in their right mind wants another Cold War.

Can we build society without crises and how?

A society without crises is arguably a stagnant society. But if humanity is to survive in an era of weapons of mass destruction - and I'm not talking about financial derivatives - then we need to contemplate some very radical initiatives. For my own perspective on what's needed, see:

What famous sentence you can recommend as mantra for people who are feeling bad about that?

The love of money is the root of all evil. (?)
But I think someone said that before me....

Why do you think Great Depression is impossible now?

Central governments now have a far richer set of fiscal and monetary tools than were available in the early 1930s. Free-market dogma aside, central governments are also far more interventionist. For example, it's widely acknowledged that insisting on balanced budgets during a recession is likely to prolong and deepen the recession. So central governments are going to take on massive extra debt to pay for counter-cyclical spending measures.

If all else fails, one way to prevent another Great Depression is to flood the global economy with extra liquidity. Yes, printing extra dollars (etc) runs the risk of setting up inflationary pressures in the international economy. But right now deflationary pressures - not least massive "deleveraging" by financial institutions desperately trying to reduce their level of debt - pose a bigger threat to the world economy than inflation.

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