Niall Ferguson ‘There will be blood'

Monday, February 23, 2009
‘There will be blood'

By HEATHER SCOFFIELD, Globe and Mail Update


Harvard author and financial crisis guru Niall Ferguson has landed with a thud in Ottawa, spreading messages that could make even the most confident policy makers squirm.

The global crisis is far from over, has only just begun, and Canada is no exception, Mr. Ferguson said in an interview before delivering a presentation to public-policy think tank, Canada 2020.

Policy makers and forecasters who see a recovery next year are probably lying to boost public confidence, he said. And the crisis will eventually provoke political conflict, albeit not on the scale of a world war, but violent all the same.

“There will be blood.”

The Buy America penchant pushed by the U.S. Congress in passing the recent stimulus bill was only the tip of the iceberg.

Abu Dhabi buying Nova Chemicals at bargain-basement prices on Monday is a sign of things to come, with financial power quickly being transferred over to the world's creditors – namely sovereign wealth funds – and away from the world's debtors.

And much of today's mess is the fault of central bankers who targeted consumer-price inflation but purposefully turned a blind eye to asset inflation.

The Laurence A. Tisch professor of history at Harvard University, and author of The Ascent of Money, A Financial History of the World, sat down with The Globe and Mail's economics reporter, Heather Scoffield.

Heather Scoffield: Canadian leaders frequently argue that Canada is in better financial shape than elsewhere in the world, and therefore should fare better during this crisis. Do you agree?

Niall Ferguson: Canada is [considered] a winner because its banks are less leveraged, bank regulation here has been tighter, because its housing market hasn't been in a bubble quite the same way. It's tempting to conclude from that ... that Canada will be less hard hit in the crisis than the United States. But that is unfortunately wrong. Because this is a very unfair crisis. The epicentre is the United States, but the rest of the world, and particularly America's trading partners, will get hit harder than the U.S.”

“It suggests virtue is its own reward. You don't get any reward beyond the self-satisfaction of having been virtuous. This is a crisis of globalization. Therefore, the more an economy depends on the global system, the harder it hurts. Canada is not finding the worst. Asian economies are going to be really slammed this year. But it's an unfair world. The U.S. won't be as badly affected as most countries.”

Heather Scoffield: Is the U.S. able to escape with less pain because it has more resources to throw at its problems?

Niall Ferguson: “Partly because they can throw so much at it, and they can do it at a lower cost than anybody else, because the U.S. retains the safe-haven status, which makes the world so unfair. Here is the world's biggest economy, which gave us subprime mortgages, rampant securitization, the collateralized debt obligation, Lehmann Brothers, Merrill Lynch. It is, in a sense, the fons et origo of this crisis. And yet, because it retains safe-haven status, in a global crisis, investors want to increase their exposure to the U.S. Hence, the dollar rally. Hence 10-year Treasuries down below 3 per cent yields. It's almost paradoxical that an American crisis ... reinforces the status of the United States as a safe haven.”

Heather Scoffield: Surely that safe-haven status would be revoked if China loses faith in the U.S. ability to finance its debt?

Niall Ferguson: As you know, Chimerica – the fusion of China and America – is one of my big ideas. It's really the key to how the global financial system works, and has been now for about a decade. At the end of The Ascent of Money, I speculate about whether or not that relationship will survive. If it breaks down, then all bets are off, for the U.S. and indeed for Asia. I think that's really the key point. Both sides stand to lose from a breakdown of Chimerica, which is why both sides are affirming a commitment to it.”

“It's very interesting that the Chinese in the last week were saying such soothing things around the [Secretary of State Hillary] Clinton visit. This was only days after Treasury Secretary Tim Geithner used the dreaded ‘m' word – currency manipulation.

Heather Scoffield: Why would the U.S. administration poke a stick in China's eye like that?

Niall Ferguson: “You obviously have to recognize that Democrats have been more hawkish on China for some time, than the Republicans ... But I think Tim Geithner is smart enough to know that this is a very dangerous game to play and I would be very surprised if you heard that word again pass his lips.”

Heather Scoffield: Did the Clinton visit improve the China-U.S. relationship?

Niall Ferguson: It looks like it....The line is very clear from China. They've consistently made their position clear. They want the status quo. They do not want this thing to break down. They were kind of appalled when Geithner said the ‘m' word. And they took full advantage of Hillary Clinton's visit to smooth ruffled feathers and restate their commitment. It's a very good bilateral relation. That bilateral will is important here. The Chinese believe in Chimerica maybe even more than Americans do.

“They have nowhere else to go. They have no other strategy that they can adopt in time to cushion the blow. Their exports are contracting at a terrifying speed. They want at all costs to avoid any kind of big shift in policy. They want to keep, as far as possible, the U.S. importing Chinese goods. They want to keep currencies stable. They are still buying dollars … At least officially, Chimerica is intact. But I stress ‘officially' because there's considerable public disquiet.”

“This is a crisis of globalizaiton that is destroying global trade. This poses the biggest challenge that the Chinese administration has faced since they embarked on reforms 30 years ago.

Heather Scoffield: Will globalization survive this crisis?

Niall Ferguson: It's a question that's well worth asking. Because when you look at the way trade has collapsed in the world in the last quarter of 2008 – countries like Taiwan saw their exports fall 45 per cent – that is a depression-style contraction, and we're in quite early stages of the game at this point. This is before the shock has really played out politically. Before protectionist slogans have really established themselves in the public debate. Buy America is the beginning of something I think we'll see a lot more of. So I think there's a real danger that globalization could unravel.

Part of the point I've been making for years is that it's a fragile system. It broke down once before. The last time we globalized the world economy this way, pre-1914, it only took a war to cause the whole thing to come crashing down. Now we're showing that we can do it without a war. You can cause globalization to disintegrate just by inflating a housing bubble, bursting it, and watching the financial chain reaction unfold.”

Heather Scoffield: Is a violent resolution to this crisis inevitable?

Niall Ferguson: “There will be blood, in the sense that a crisis of this magnitude is bound to increase political as well as economic [conflict]. It is bound to destabilize some countries. It will cause civil wars to break out, that have been dormant. It will topple governments that were moderate and bring in governments that are extreme. These things are pretty predictable. The question is whether the general destabilization, the return of, if you like, political risk, ultimately leads to something really big in the realm of geopolitics. That seems a less certain outcome. We've already talked about why China and the United States are in an embrace they don't dare end. If Russia is looking for trouble the way Mr. Putin seems to be, I still have some doubt as to whether it can really make this trouble, because of the weakness of the Russian economy. It's hard to imagine Russia invading Ukraine without weakening its economic plight. They're desperately trying to prevent the ruble from falling off a cliff. They're spending all their reserves to prop it up. It's hardly going to help if they do another Georgia.”

“I was more struck Putin's bluster than his potential to bite, when he spoke at Davos. But he made a really good point, which I keep coming back to. In his speech, he said crises like this will encourage governments to engage in foreign policy aggression. I don't think he was talking about himself, but he might have been. It's true, one of the things historically that we see, and also when we go back to 30s, but also to the depressions 1870s and 19980s, weak regimes will often resort to a more aggressive foreign policy, to try to bolster their position. It's legitimacy that you can gain without economic disparity – playing the nationalist card. I wouldn't be surprised to see some of that in the year ahead.

It's just that I don't see it producing anything comparable with 1914 or 1939. It's kind of hard to envisage a world war. Even when most pessimistic, I struggle to see how that would work, because the U.S., for all its difficulties in the financial world, is so overwhelmingly dominant in the military world.”

Here's a link to the rest of this lengthy interview, well worth the read....

http://ctv2.theglobeandmail.com/ser...223/business/Business/businessBN/ctv-business

 

So what if I made $3 billion over the last decade with new laws I helped write and my buddies in congress passed (I have friends that make me look poor by comparison). That's life. It's un-American to ask me to return any of that money. If I see profit potential, exploiting the gray area of a law, or pushing to have that law removed or rewritten, IS American. So fuck off, you socialist bastards. If you don't like it, move to Cuba.

 

Shays' Rebellion was an armed uprising in Central and Western Massachusetts, (mainly Springfield) from 1786 to 1787. The rebels, led by Daniel Shays and known as Shaysites (Regulators), were mostly poor farmers angered by crushing debt and taxes. Failure to repay such debts often resulted in imprisonment in debtor's prisons or the claiming of property by the County.
The rebellion started on August 29, 1786. A militia that had been raised as a private army defeated an attack on the federal Springfield Armory by the main Shaysite force on February 3, 1787. There was a lack of an institutional response to the uprising, which energized calls to reevaluate the Articles of Confederation and gave strong impetus to the Constitutional Convention which began in May 17, 1787.

Thomas Jefferson in a letter to COLONEL SMITH dated November 13, 1787 he commented directly on this rebellion in what would be one of his more famous quotes regarding the tree of liberty.

http://www.gutenberg.org/files/16782/16782-h/16782-h.htm#2H_4_0116

Wonderful is the effect of impudent and persevering lying. The British ministry have so long hired their gazetteers to repeat, and model into every form, lies about our being in anarchy, that the world has at length believed them, the English nation has believed them, the ministers themselves have come to believe them, and what is more wonderful, we have believed them ourselves.

Yet where does this anarchy exist? Where did it ever exist, except in the single instance of Massachusetts? And can history produce an instance of rebellion so honorably conducted? I say nothing of its motives. They were founded in ignorance, not wickedness. God forbid, we should ever be twenty years without such a rebellion. The people cannot be all, and always, well informed. The part which is wrong will be discontented, in proportion to the importance of the facts they misconceive. If they remain quiet under such misconceptions, it is a lethargy, the forerunner of death to the public liberty.

We have had thirteen States independent for eleven years. There has been one rebellion. That comes to one rebellion in a century and a half for each State. What country before ever existed a century and a half without a rebellion? And what country can preserve its liberties, if its rulers are not warned from time to time, that this people preserve the spirit of resistance? Let them take arms. The remedy is to set them right as to facts, pardon, and pacify them. What signify a few lives lost in a century or two? The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants. It is its natural manure.

Our convention has been too much impressed by the insurrection of Massachusetts: and on the spur of the moment, they are setting up a kite to keep the hen-yard in order. I hope in God, this article will be rectified before the new constitution is accepted.

You ask me, if any thing transpires here on the subject of South America? Not a word. I know that there are combustible materials there, and that they wait the torch only. But this country probably will join the extinguishers. The want of facts worth communicating to you, has occasioned me to give a little loose to dissertation. We must be contented to amuse, when we cannot inform.

Present my respects to Mrs. Smith, and be assured of the sincere esteem of, Dear Sir, your friend and servant,

Th: Jefferson.

 

So now Ferguson is on the Stock777 Bring Back Public Hanging bandwagon.

 

An excellent read. Thanks for posting.

I particularly like what he had to say about 'Chimerica.'

 

Notice how little feedback these heads up get?

Same crowd that's holding stock in their 401k.

 

I've read Niall Ferguson's book titled "The War of the World: Twentieth-Century Conflict and the Descent of the West" where he argues that conflict in the twentieth century (which he calls the bloodiest century) was due to economic volatility, ethnic disintegration, and the end of empires.

We certainly have the first prerequisite locked in.

The book is centered on WW2 but goes into detail on many other conflicts around the globe during that century. He makes a very compelling argument and I would recommend this book to anyone.