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.

Catalonia v the Spanish State - where now?

By Jeremy Smith, 30th September 2014

mas rajoy

Messrs Rajoy and Mas – picture with acknowledgment to La Voz Libre

To no one’s great surprise, the Spanish Constitutional Court, on application from the Spanish government of Mariano Rajoy, has issued an injunction prohibiting the Government of Catalonia from proceeding with its planned consultative referendum vote on independence, du to be held on 9th November.

The Catalan Law “authorizing a non-binding consultation on independence and participation” lays down the question to be posed to the people of Catalonia:

“Do you want Catalonia to become a state? If so, do you want this state to be an independent one?”

In Spanish,

“¿quiere que Cataluña se convierta en un estado? Y, en caso afirmativo, ¿quiere que este estado sea independiente?”

The date and the questions are the result of the agreement reached by the  Catalan President and the leaders of several political parties on 12th December 2013.

Two years ago almost to the day (1st October 2012) I wrote a long article on the Catalan situation, citing the key provisions in the Spanish Constitution and the possible tactics the Catalan government might adopt.  I also forecast that – even if there were ever a vote in favour of independence – the assumed easy path for Catalonia in the European Union would be, well, not so easy.

I reckon what I wrote then is mostly valid today (save perhaps my reflections at the end on the future of the Eurozone)… so here are some extracts:

“It is the word ‘nation’ that lies at the heart of a very modern constitutional fissure between the Spanish state and the people (or “nation”) of Catalonia, a fissure that has deepened and widened as a consequence of economic crisis. We are at the start of a power struggle whose outcome is hard to predict – but which may have an impact not just on people in Spain, but on all Europeans.

Continue reading… ›

How population, employment, pay, inflation, have moved since 2010

By Jeremy Smith, 18th September 2014

While we await Scotland’s decision on its future, I thought readers might like to see how some important elements have developed in the UK as a whole since the Coalition government took office in May 2010.

We have put together a bar chart showing in a “snapshot” the indices for: population; employment as a whole, also broken into full and part-time employment, full and part-time self-employment; regular and total pay; and CPI inflation. We are therefore not directly comparing like with like, tough there are some interesting correlations, but showing how fast or slow change has been (in % terms) in these different areas.  Of course it shows that pay has fallen way behind inflation, and it shows that total employment has risen a bit faster than total population – but not much faster.

Indices of emp, pop, pay inflation 2010-14

The statistics are all taken from ONS and rebased to 2010, which is shown as 100.  For employment stats we take May to July for each year. For population, it is the annual figure, rolled forward into 2014 by assuming a 600,000 increase (as in 2013).  For pay, we take July figures for each year.  For CPI, we take the July figures.

From the chart, we see that total population is estimated to have increased over the 4 years by 3.03%, while total employment (i.e. employees + self-employed) has increased by 5.12%.  Full-time employees are up by 4.71%, while part-time employees have scarcely shifted, up just 0.59%.  The bigger percentage changes are in self-employment, up 10.6%, while part-time self-employment has risen 16%.

Total wages (including bonuses) are up in cash terms 6%, while regular wages are up a bit less, at 5.4% in 4 years.  This is to compare with CPI inflation, up 11.8%.  The cumulative loss of purchasing power of regular wages (adding each year’s loss) comes to some 16.7%.


G77 and China demand change in the international financial system

By Jeremy Smith, 17th September 2014 G77

Green = G77 and China states

You may not have noticed, but the “developing” and “emerging” world is getting increasingly restless over the developed world’s ways of working the international financial system.  We have reported on the BRICS Bank concept which is one articulation of the concern that the Bretton Woods institutions are not working for most non-rich countries. And last week, the UN General Assembly – by an overwhelming majority – voted a resolution (backed by the G77 and China group of states) calling for a new international legal framework for sovereign debt restructuring, and condemning vulture funds.  For a summary, here is the UN press release. Continue reading… ›

Why the Scottish Uprising will not lead to independence

By Ann Pettifor & Jeremy Smith, 15th September 2014

The Scottish campaign for independence is effectively an uprising against the British state and its collusion with the globalized, mobile finance sector and supranational corporations. It is a protest against an economic and political system increasingly centralized and aloof—a protest bound to spread to other equally neglected regions.

It is a campaign to end allegiance to Westminster politicians that promote and/or tolerate austerity and the accelerating privatisation of the NHS and other national assets.

Rising anger against the establishment has mobilised support behind the campaign for Scottish independence. We share this anger and believe the Scots are right to challenge both the above, and also the narrow focus of Britain’s politicians on, e.g., voters in marginal seats.

But the uprising is led by a political party (the SNP) whose campaign will lead to Scottish subordination to the British state on the one hand, and to multinational corporations on the other. And make no mistake: the SNP’s determination to fragment the British state—even if achieved peacefully and even if it were possible to define a Scottish government as progressive—ultimately serves the interests of footloose finance capital more than those of the Scottish people.  Continue reading… ›

Out of thin air - the economic case for a 3rd Heathrow runway

By Jeremy Smith, 3rd September 2014

When I last twice travelled directly to Guangzhou, by China Southern Airline out of Heathrow, the flight was nearly full. But not – by visual impression at least – full of thrusting British entrepreneurs keen to visit the most vibrant economic region of China, thanks to this direct link from Britain’s hub airport. More like ordinary Chinese workers and some visitors. No – increasing trade is a more complex issue by far.

Which is one of many reasons why I was truly jaundiced reading Heathrow Airport’s advertisement yesterday, which compiled a list of highly dubious claims as to the benefits to all of us in the UK of a 3rd runway at Heathrow. I have no doubt that a 3rd runway there would be of benefit to the shareholders of Heathrow Airport, and might conceivably be nicer for passengers, but the specifically economic case for choosing Heathrow over say Gatwick – or indeed Boris Island – is still as thin as ever.

Yet we are being bombarded with phony or super-fragile statistics trying to bludgeon us into thinking that the UK will collapse economically overnight if those 3,500 metres of tarmac are not built tomorrow morning on Heathrow’s green and pleasant land.

Two years ago to the day we produced a short paper “Why the economic case for a 3rd runway at Heathrow still won’t fly”, and 2 years on, it still doesn’t.  Continue reading… ›

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… ›