Just Money

Ann Pettifor, the economist and critic of modern finance, explains clearly what money is, where it comes from, and how it is currently controlled. She shows how an improved understanding of money and finance can build more just and productive economies.


PRIME is an economic think-tank that promotes understanding of the nature of credit, and its role in determining macroeconomic outcomes. Fundamental to our approach is an implicit and explicit restoration of ethics in relation to money and credit.

Twenty Two Days that Changed the World

27 August, 2014

Review of The Summit by Ed Conway.  Published by Little, Brown, 2014.

by Ann Pettifor

In this carefully researched book Ed Conway tells a gripping human tale about the July 1944 Bretton Woods Conference – “the biggest battle of the Second World War – fought behind closed doors”. He provides remarkable insights into the personal, geopolitical and intellectual dynamics that played out that summer within the confines of the Mount Washington Hotel, nestled within New Hampshire’s Bretton Woods.

His story of how 730 delegates from 44 nations worked together to build the post-war international monetary system is a highly readable account of a gathering that was to transform the global economy. Pivotal to the success of the conference was President Roosevelt’s and Keynes’s determination to bar Wall St. and the City of London from participating in preparations for the conference; and to deny the private finance sector (with one exception) access to the conference proceedings. After the catastrophic economic failures of the 1930s Haute Finance was to be denied a role in the construction of the post-war international economic order.   Continue reading… ›

“Debt forgiveness” – the hedge funds’ double standards

By Jeremy Smith, 12th August 2014

In yesterday’s Financial Times, Henny Sender has written a piece (“Blackstone invests to edge out Wall Street”) – interesting in its own right – about how huge US private equity fund Blackstone is investing in data and technology companies  to enable it to bypass its traditional bankers and brokers.  And thus save paying out loads of fees to Wall Street.  Ms Sender tells us that

 “No client paid more in investment banking fees to Wall Street last year than Blackstone, which handed over $882m to banks in 2013. So far this year, when the share of US investment banking fees coming from private equity has reached a record 32 per cent, Blackstone has been the second largest source after Carlyle .”

 But what really caught my eye was this passage:

 “Cutting out Wall Street could save hundreds of millions of dollars, but risks upending the cozy relationship private equity groups such as Blackstone enjoy with the banks.

 Blackstone’s importance to Wall Street has paid dividends. In 2010, when its investment in Hilton Hotels was struggling in the wake of the global financial crisis, it persuaded banks to forgive $4bn in Hilton debt on very favourable terms.

 Blackstone executives called around to remind banks how much it paid them in fees, according to people familiar with the conversations. Distressed debt players trying to get hold of chunks of the debt say they watched in disbelief as the banks “caved”, in the words of one such person.” [bold = my emphasis each time]

Debt forgiveness” for Blackstone

Thus one of the world’s (and US’s) wealthiest companies, Blackstone (with some of its wealthiest owners) is able to get “debt forgiveness” without any fuss, whilst another of the US’s wealthiest private equity funds, Paul Singer’s Elliot Management, relentlessly chases the state and (mainly poor) people of Argentina across the globe and through every court.  Continue reading… ›

For Argentina, debt default is a solution not a problem

By John Weeks, 3rd August 2014

Unless you just returned from holiday in some ultra-remote region lacking newspapers, television or internet access (is there such a place?), you will be aware the government of Argentina has defaulted on its external debt.

A New York federal court decision provided the immediate cause of the default by a ruling that rendered it illegal for Argentina to implement an agreement reached between the Argentine government and creditors holding over 90% of the country’s external debt [see our analysis of legal issues here - editor].

The principal litigant bringing the case against the government holds less than US$2 billion of the Argentine debt, which by comparison makes a tail wagging a dog seem a credible anatomical interaction. This litigant, NML Capital, never lent a cent to the Argentine government (nor to any other). It acquired its one billion plus of Argentine bonds on the re-sale market, purchasing at far below face value.

Depending on your source of [mis-]information, you will think that this default is 1) the result of a feckless, spend-thrift government failing to accept responsibility for its actions (as argued, for example, in Forbes), 2) the harbinger of deep economic trouble for the Argentines; and/or 3) the consequence of the predatory evil of “vulture” hedge funds.

Taking these three in order, they are 1) false, 2) probably false, and 3) true but not terribly important. The current debt of the Argentine government was accumulated before 2003, much of it under the disastrous presidency of Carlos Menem (forced to resign in 1999) and three short-term successors (Fernando de la Rúa, 1999 to end of 2001; Adolfo Rodríguez Saá, last two weeks of 2001; and Eduardo Duhalde, 17 months to May 2003).

The massive debt accumulation (see chart below) resulted from the hapless attempt to maintain a one-to-one exchange rate between the national currency and the US dollar via a “currency board”.  Continue reading… ›

Radical legal changes needed for sovereign debt crises - our FT letter

4th August 2014

We are pleased that the Financial Times today published PRIME Co-Director Jeremy Smith’s letter on the need for a fair system for resolving sovereign debt crises, arising from the recent court-induced “default” by Argentina.  It was lead letter in the UK paper edition, and also available  online  (behind paywall).  The letter also criticizes the US courts for discriminating – as a matter of policy discretion – in favour of NML  (we have written this up in detail recently).  Here for ease of reference is the letter’s content:

“Sir, Your well-balanced editorial “Argentina’s endless debt dilemma” (August 1) rightly draws attention to the urgent need for a fair and proper system for resolving sovereign debt issues. Alas, the US courts have made the situation worse, not better.

You say that, due to the interpreted breach of the pari passu clause, “US judges have declared it illegal for Argentina to make payments to the holders of restructured bonds unless it includes full payments to holdouts too”. However, the “illegality” is not a result of the breach of contract itself, but because the judges decided to grant a discretionary equitable remedy – the injunction – in a form that discriminated in favour of NML and against the exchange bondholders.

Argentina is enjoined not to make any payment of current interest to exchange bondholders unless at the same time it pays the totality of principal plus interest to NML. The courts could have chosen to order Argentina to pay NML the same percentage of its outstanding debt as the exchange bondholders to date, putting them in effect in an equal situation, in line with the spirit of pari passu. Instead, they chose to give total support to the “vulture funds”.

This is not a just outcome, but surely underlines the need for radical change in the legal framework.”

Of Argentina’s Debt, Default and Dreck (or Javert v Valjean)

By Jeremy Smith, 30th July 2014

OK I should never have got into a twitter brawl today with Heidi Moore of the Guardian (of which she is US finance editor).  I have never crossed swords with her before, and I am sure she is generally a Good Thing. And I apologize if I was a bit strong in my tweet. But her piece in today’s Guardian on Argentina’s debt got my blood up.  It reflects the Wall Street Journal’s world view to perfection, but the Guardian??

She hit back on our Twitter thread, describing my article on the legal position as “dreck”, a word which on looking up in the esteemed Urban Dictionary I find comes from Yiddish and means excrement, crap, garbage and even less nice things, but apparently was once used by James Joyce, which redeems it a bit.  This was followed by a tweet complaint from Ms Moore that I had been disrespectful to her. Ah well, that’ll larn me.  Sorry Heidi.

And honest, until I read her piece, I had not planned to return at this point to the injustice of the US courts’ decisions in favour of the US tax haven vulture funds; we have previously set this out in detail here and here.  But when I realise the level of non-understanding by usually intelligent commentators, I despair.

And for the record, we do not believe Argentina has acted wisely at all points, before or after default.  Not at all.  Not before, not after. And maybe not tomorrow.

But the case is important in showing how the present international system for sovereign debt is dysfunctional and unjust to debtor states and their peoples.  Companies like NML can go bankrupt and evade their debts.  States and their peoples cannot.  That was why Jubilee 2000 (of which PRIME’s Ann Pettifor was Director in the UK) and other Drop the Debt Campaigns have worked so hard so long to get a fair system and  balanced justice between debtors and creditors in sovereign debt cases. Which the US courts have now gone out of their way to deny.

So let me try to explain the facts and our viewpoint once more, first looking at what Heidi Moore wrote.  

Continue reading… ›

The Economic Contradictions of Mr Miliband

By Jeremy Smith and Ann Pettifor, 22nd July 2014

There is much to welcome in Ed Miliband’s address last Saturday to the Labour Party’s National Policy Forum.

For example, his argument that Britain suffers from a low-pay economy. While the number of those in employment has grown, real pay has fallen dramatically over the lifetime of the present government.

At PRIME, we calculated the fall in real pay from May 2010 to May 2014 as 6.1%, using the CPI inflation and total pay stats from the Office for National Statistics.

In his weekend column in The Independent on Sunday, David Blanchflower estimates the fall in real pay as 8% over the identical period, using the somewhat higher (but now less “official”) RPI inflation numbers.

Whether you choose 6% or 8%, that is a huge decline in real pay over such a short period.

So Ed Miliband’s espousal of an increase in the minimum wage, and promotion of a living wage, are very welcome – and if implemented will help to “balance the budget” (by increasing tax revenues) and enhance the UK economy as a whole, as well as helping millions of (auto-insert “hard-working”) individuals and households.

His speech included many other points with which we agree, and which if implemented would change our country for the better.

But on the crucial issue of economic policy, Ed Miliband also made commitments that will prove disastrous if ever applied in a recession without reference to the actual state of the economy – and which are potentially in direct contradiction with his promises on pay and greater security for workers.

Continue reading… ›

The new BRICS Bank - force for progress or cause for concern?

By John Weeks, 18th July 2014

For many years various officials of governments in African, Asian and Latin American have urged the creation of a “development” bank that they would control.  On Tuesday 15 July hopes became reality in Forteleza, Brazil, with the formal creation of the New Development Bank by the leaders of the so-called BRICS group of countries (Brazil, Russia, India, China and South Africa.

This event raises several political questions for progressives:  1) what is a type of “bank” do the BRICS leaders propose, 2) why is it needed, 3) are these the appropriate leaders to organize and control the new institution, and 4) is it something progressives should view favourably?

The BRICS proposal has two parts, a “development” bank and a US$ 100 billion reserve of international currencies.  The former has similarities to the operations of the World Bank, while the latter would have some functional kinship with the International Monetary Fund.  At this point the plans for the second — short term support for balance of payments problems — remain a work in progress.  Those for the first are quite clearly specified. So what are the main issues?

Continue reading… ›

When will UK wages respond positively to the recovery?

by Shaun Richards, 16th July 2014

One of the features of the credit crunch era in the UK has been the way that the output (Gross Domestic Product or GDP) numbers have told a different story to the employment ones. As we stand we have just exceeded the pre-credit crunch peak in terms of output but if we look at the 981.4 million hours per week worked in the spring of 2014 we see this.

up 69.4 million (7.6%) on five years previously.

So according to these figures we are working longer hours to produce what is the same amount. This, in essence, is the productivity issue for the UK economy which begs all sorts of questions. For a start how did we become less efficient and productive over a period when you might logically think that the pressure would be strong to be more productive? Another is the issue of whether part of it was something which UK economists were crying out for pre-credit crunch which was a change of behaviour from companies in downturns where they in effect hoard labour rather than making mass redundancies. The logic behind this was that there are costs in re-hiring a skilled workforce. Should the latter be true companies right now may well be rueing taking the economic advice given as they find themselves criticised for a “productivity puzzle” which is at least in part a consequence of taking the precribed medicine. Continue reading… ›

Partial Justice: the US Courts v Argentina

By Jeremy Smith, 8th July 2014

We have been following the tortuous path of litigation between NML and Argentina for a few years now, with growing concern at the way the US courts have interpreted the respective rights – and wrongs – of the parties in relation to Argentina’s debt, following the economic collapse, devaluation and default in 2001.  See our November 2012 article “Don’t ​(cry for me) pay up now, Argentina!”  for our analysis at that point.

To recall, by 2010, over 90% of Argentina’s original bond-holders accepted new exchange  bonds paying around 30% of the face value of the old ones in return for regular payments under the new, which have been made till now by Argentina. But NML (who bought up old bonds at knock-down prices) and other hold-outs claimed 100% of the principal and interest under the original bonds.

Today, we publish our latest PRIME report, “Partial Justice: the US courts v Argentina” which provides an in-depth critique of the way the US courts at all levels have interpreted the law and exercised the wide discretion available to them.

It complements the issues raised in Professor Raffer’s post yesterday, and goes into more detail in analysing the rights (some) and wrongs (numerous) of the US courts’ decisions.

Partially, the US courts got it right when they decided that Argentina was in breach of the bonds’ pari passu clause, which said that Argentina’s “payment obligations shall at all times rank at least equally” with all its other present and future external unsecured debt. By enacting the Lock Laws which precluded the government from paying anything on the original bonds, Argentina had legally ranked NML’s bonds below later ones.

But we argue that the US courts went wrong in also claiming that “rank” was not limited to legal ranking, as previously understood, but also covered different treatment of creditors in practice.

And above all, the way the US courts exercised their discretion was partial, i.e. the opposite of impartial. They wholly subordinated the general public interest in orderly post-crisis debt restructuring processes to the narrow financial interests of NML.  

Click here for the pdf:  Partial Justice – the US Courts v Argentina

Continue reading… ›

What is the current stage of imperialism?

7th July 2014

The question of imperialism has come to the fore in the recent period. This follows the conflicts in the Ukraine and the renewed possibility of Western military intervention in Iraq and Syria. There is too the US court ruling in favour of the ‘vulture funds’ holding Argentinian government debt.  The economic aspects of imperialism are examined in the piece below by Michael Burke, who is a co-founder of PRIME.  He recalls that imperialism is primarily an economic system, which uses military might to maintain its dominance.

What is the current stage of imperialism? – Socialist Economic Bulletin