IMF: Global economy “better-than-expected”

July 18, 2008 | posted by Michael Baxter in economic growth, inflation | comments (0) | Print This Post

It’s a bit like one of those cakes a child may make in your kitchen. It looks awful, crumbing in the middle, mess everywhere. But when you actually take a bite, well, it tastes pretty good.

Yesterday, the IMF talked the talk of gloom. But when you drill down into the report, well, it really was good news, at least good news by the standards of 2008.

“The IMF expects global growth to slow significantly in the second half of the year, before recovering gradually in 2009,” begins their latest report. We all know the developed world is under the cosh. But then the IMF added: “Expansions in emerging and developing economies are also expected to lose further steam.”

But the real gloom was on the twin perils of inflation and deflation. “The global economy is in a tough spot, caught between sharply slowing demand in many advanced economies and rising inflation everywhere, notably in emerging and developing economies.”

The IMF went on to predict growth slowing to virtually standstill in the US by the final quarter of this year.

So, why was the report good? Well, first of all, actually, all those comments made above are not new. But what is new is altogether more promising.

The IMF actually increased its projections for growth. When it last published a report of this type it had expected global growth this year of 3.7 per cent. Now it expects 4.1 per cent expansion. As for 2009, it upped its projections for next year by 0.1 percentage points.

The UK saw an upgraded projection too. It now expects growth this year and next of 1.8 followed by 1.7 per cent. Previously it had forecast 1.6 per cent both this year and next. And the US really did see the IMF smile down. Last April the powerful organization projected growth of just 0.5 per cent for 2008, now it thinks the economy will expand by 1.3 per cent.

Of the G7 economies, Italy is expected to be the weakest, but no major economy is expected to contract either this year or next.

As for the developing world, well it is good news across the board. China and India are expected to maintain their breathless rate of expansion, but the rest of the world is expected to do pretty well, even sub-Sahara Africa which is projected to expand by 6.6 per cent this year and 6.8 per cent next.

As far as inflation is concerned, the IMF seems to be more worried about the developing world, but positively sanguine on the West.

“In emerging and developing countries, inflationary pressures are mounting faster, fuelled by soaring commodity prices, above-trend growth, and accommodative macroeconomic policies. Hence, inflation forecasts for these economies have been raised by more than 1.5 percentage points in both 2008 and 2009, to 9.1 per cent and 7.4 per cent, respectively, and the moderation in inflation in 2009 will depend on more assertive tightening of monetary conditions,” said the IMF.

But turning its attention to the wealthier bit of the world said: “In advanced economies, inflation pressures are likely to be countered by slowing demand and, with commodity prices projected to stabilize, the expected increase in inflation for 2008 is forecast to be reversed in 2009.”

The markets reacted with glee to the IMF report. But we would like to add a note of caution. IMF projections for 2008 have really been up and down like a yo-yo. It seems probable they will change again. Their slightly more rosy outlook also seems to go against the grain. Of late, the doom and gloom has been mounting. House prices are falling faster than anyone had expected. Unemployment rising, and expected to rise much higher. Prices are jumping at their fastest level since the early 1990s, but manufacturers are struggling to pass their rising costs on. The banks are finding it increasingly harder to shore up their balance sheets; then there’s the rising price of food. And one more thing, what is it? That’s right, oil is priced at levels vastly in excess of prices that would have been considered unthinkable a year ago.

The longer the credit crunch continues, and oil is priced at levels of around $130, we think the chances of a recession increase. When the IMF last reported, oil had only just broken through the $100 a barrel level. It does a seem a little strange they should improve their projections at a time of such astonishing rises in the price of oil.

Yet, news on the black stuff really does come with a healthy dollop of hope this morning. Maybe, the IMF is right after all.

To find out why, read the next article.

IMF projections for global growth July 2008 
  2006 2007 Projected 2008 Projected 2009
World 5.1 5.0 4.1 3.9
US 2.9 2.2 1.3 0.8
UK 2.9 3.1 1.8 1.7
Germany 2.9 2.5 2 1
France 2.2 2.2 1.6 1.4
Japan 2.4 2.1 1.5 1.5
Italy 1.8 1.5 0.5 0.5
Spain 3.9 3.8 1.8 1.2
China 11.6 11.9 9.7 9.8
India 9.8 9.8 8.0 8.0
Brazil 3.8 5.4 4.9 4.0
Russia 7.4 8.1 7.7 7.3
Sub- Saharan Africa 6.4 7.2 6.6 6.8
IMF projections for consumer prices
Advanced economies 2.4 2.2 3.4 2.3
Emerging and developing economies 5.4 6.4 9.1 7.4
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Speculators turn on China, and embrace Russia

June 19, 2008 | posted by Michael Baxter in China, Russia | comments (0) | Print This Post

There’s another conflict in the making – this time between hot money and lukewarm money, in China and other developing countries.    Meanwhile, Russia is celebrating its most promising outlook in, well, in a very long time.  

According to Bloomberg, currency speculators are about to swamp China with their speculative cash pile.

Remember when George Soros did it to us, back in 1992, when he forced sterling’s ejection from the ERM?  George is something of a moralist these days, full of philanthropic thoughts, leftish ideas about how markets do not self-correct if left to themselves, and the massive problem of what to do with $1bn a year income.

Mind you, in 1992, Soros reckoned the pound was too high.  He felt its fall was inevitable, so he bet against it.  And, of course, won.

It is different with China.  The view is the yuan is too low.

Bloomberg quoted Louis Kuijs, acting chief economist for the World Bank China as saying, “China is too large an economy not to have an independent monetary policy.”

As you know, China’s policy of only allowing the yuan to rise slowly against the dollar is one of the most contentious issues in economic debate today.

But the World Bank now thinks inflation in China this year will be 7 per cent, and if Mr Kuijs is right, then it could get a whole lot worse.

Yet, while the currency men may resort to pumping money in, the fund managers and the speculators in the equity arena are pulling their money out.

According to this morning’s Telegraph, fund managers are pulling their money out of China and India at “a record pace.”

It quoted David Bowers, who has just put together a Merrill Lynch survey of fund managers’ activities, as saying that fund managers no longer believe that developing countries have a grip on inflation.

But it is a different story for countries rich in commodities.     As a result, the Merrill Lynch report found massive interest among investors in Russia.

Mind you, Russia has its fair share of inflation problems too, and is far too reliant on commodity exports.

In 1998 the Russian crisis was made a whole lot worse by the rock bottom price of oil – it was just $10 a barrel back then.   At one stage the entire Russian stock market had a market capitalisation which was roughly the same size as Sainsury’s.  

As long as oil stays high, Russia will be laughing, and its oligarchs laughing some more. Western companies, such as BP, which dare try and make money off the back of the boom, will be accused of arrogance by Russian businessmen, as happened earlier this week.

Actually, the West really messed up with Russia.  Former winner of the Nobel Memorial Prize for Economics, not to mention former chief economist at the World Bank, Joseph Stiglitz, told in his book, Globalization and its Discontents, how the IMF helped make the Russian crisis of 1998 so much worse than it needed to be.

IMF action may have helped save some Western banks, and restricted the crisis largely to Russia, avoiding a recession in the West as a result, but in the longer-term this has led to a Russian mistrust of the West, free markets and democracy.

It was, by the way, a similar story in 1997 in the East Asia crisis. 

In both the Asian and Russian crises, the IMF prescription was for higher interest rates, and lower government spending.    The precise opposite of the policy advocated by Alan Greenspan for the US, when it faced a similar crisis, and the complete opposite of Ben Bernanke’s policies today.

In China, this led to concerted efforts to ensure she was never reliant on the IMF.  So, we had the scenario of growth funded largely by internal saving.  China is possibly the first-ever example of an economy growing rapidly while savings levels are high, and the balance of payments is in massive surplus.

If you really cut through the economic crisis today, and get to the core, you will find one of the key issues is the high level of saving in China.    This is partly down to the actions taken by the IMF in the late 1990s.
 

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IMF sounds inflation warning

May 9, 2008 | posted by Michael Baxter in inflation | comments (0) | Print This Post

The IMF has waved the inflation warning card.  Speaking yesterday, its First Deputy Managing Director John Lipsky said, “To put the issue starkly, inflation risks have re-emerged as a global challenge following a long absence.”

Actually, in some ways inflation is a little like nuclear power.

As you know, it takes a long time to build nuclear power stations – well, it is the same with inflation.    Inflationary pressures can be years in the making.  

But the real parallel is between the money supply and nuclear waste.   Inflation, as opposed to rising costs, only really occurs when there is an over supply of money. But then, this money supply is a lot like waste – it has a very long shelf-life.

The money supply was boosted earlier this decade – in part thanks to rock bottom interest rates set in the wake of 9/11, and in part due to high lending to the US from countries such as China and the OPEC nations.   Thanks to the policy in many countries of linking the exchange rate to the greenback, demand for dollars was insatiable – that didn’t help.

But, thanks to cheap imports from China, and the Internet promoting price competition, inflation stayed in check – but all this new money didn’t go away.     It stayed in the system, like nuclear waste, its poison building up.

That surely is the real reason for all these inflationary pressures we keep reading about –  it certainly explains the falling dollar and pound, which is of course inflationary.

But now there are two new worries.  First is all this new money pumped out by the Fed and the Bank of England. It is not going to disappear, and when credit conditions are restored, it may come back and haunt us.

In fairness though, the recent Bank of England plan of swapping mortgage debt for Treasury bills should not be inflationary, the bank is merely swapping one asset that is usually liquid, for another that is always liquid – when credit conditions are restored, the banks won’t suddenly find they have more money thanks to that particular policy.   But other injections of money, the rescue of Northern Rock, for example, or in the US, Helicopter Ben’s attempts to carpet bomb the system with money could, in the longer-term, be inflationary.  

The second worry relates to China.  There is no letup in inflation behind the Great Wall.  Does that mean China will import inflation to the rest of us?  Well, yes, but indirectly.

Chinese products are cheap, and as imports from the country grow, we will benefit even more from its cheap products.  And while Chinese inflation will make these products more expensive, the deflationary effect of ever increasing imports from China should counteract the inflationary effect of their prices rising.

But that argument could fall down if China does what many believe is the sensible thing, and fights its internal inflation by allowing its currency, the yuan, to appreciate.  

This is of course what many US politicians have been calling for.  But if this were to occur, global inflation would jump quite severely.

The truth is that the economic miracle of the first half of this decade – low inflation and strong growth – was not down to savvy central bankers, as some would have you believe.  It was down to external factors.

And while in many Western economies, the US and UK, especially, saving has been too low, saving was perhaps too high in China.    This is why global inflation was low, this is why the UK and US had such massive deficits on their current accounts, and China such huge surpluses.

For years, many argued this was going to have to change, the sooner the better – and that is surely what is happening now.

The great irony of the credit crunch is that, actually, it is the manifestation of a global economy seeing its lack of balance being corrected.

But then again, all that real toxic waste – the excess credit of the last few years, is not going away – this means either more bad debts – or inflation.

You take your pick.

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IMF warns of Ice and Fire

April 11, 2008 | posted by Michael Baxter in credit crunch | comments (1) | Print This Post

The IMF has been busy admitting to mistakes of being too slow to warn of the dangers of the credit crunch, but is trying to make amends now with warnings of fire and ice.

In the UK, Chancellor Alistair Darling is calling for the IMF to beef up its act.  Good idea that, deflect criticism by going for your critic’s Achilles’ heel.

Meanwhile, Capital Economics has done some sums, and after examining the IMF figure that eventual losses relating to the credit crunch will hit $945bn, said actually, that isn’t so bad.

The IMF has a newish boss. So he can happily say the IMF has made errors, without dropping himself in it.  

Yesterday, Dominique Strauss-Kahn, the Managing Director at the IMF, admitted the IMF was too slow off the blocks in warning of the credit crunch.  He is right there. As was said here, yesterday, 12 months ago, the IMF was saying the US would suffer only a minor slowdown this year.   Mr Straus-Kahn then said, “the question is how can we have for the future, an institution which is likely to give to different governments early warning and warning which will be listened to.”

He then went on to try and grab some headlines when he talked about ice and fire.   Ice, referring to the risk of a serious slowdown, fire the dangers of inflation.   There’s another word economists use instead of ice and fire – stagflation, but it doesn’t have quite the same ring about it, does it?

Later today, our silver chancellor is expected to say in a speech at Washington today, where the G7 is having a get together, “The IMF must focus its surveillance more closely on financial sector issues and on the links between developments in the financial sector and the real economy.

“The IMF should also strengthen its analysis of spillovers between economies, so that we have a better understanding of how difficulties in one country can be transmitted to another through the establishment of a multilateral surveillance department to shift the focus from national surveillance.”

Nice one, Al. The IMF has driven a coach and horses through your projections for the UK – especially for 2009, so why not have a go at them?

Meanwhile, Capital Economics has said words to the effect, “look, $945bn is a lot of money, but then bear in mind that it is not just the US, but the EU that is being hit by the credit crunch, as a percentage of the GDP for these two regions, actually, the amount isn’t so big.”    Apparently, the savings and loans crisis of the early ‘90s posed a greater risk.

Capital Economics added, “The $945bn figure has already dominated the headlines in the last 24 hours, but it seems to be widely misunderstood. This figure is not a forecast of what the eventual losses are likely to be, or even an estimate of the actual costs to date. Instead it is an estimate of the losses that might be realised if distressed securities had to be sold (or marked-to-market) at current prices. As such it is arguably a worst case, since these prices are now close to rock-bottom and should recover as and when market conditions improve. Indeed, there are several proposals doing the rounds whereby the authorities would buy these securities outright (rather than simply accept them as collateral for loans). This option would be a last resort, but it would cut that $945bn figure significantly.”

So, panic over then.

It’s just that if house prices start falling in Europe , in the UK, and Spain – even France is vulnerable, expect losses to mount.

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Now the IMF runs short of money – but it has nothing to do with credit crunch – or has it?

April 8, 2008 | posted by Michael Baxter in Gold, credit crunch | comments (0) | Print This Post

There can be no shortage of people out there who think it is poetic justice. The International Monetary Fund, that once seemingly-almighty financial institution, is short of money. Even more poetically, it could be argued it is down to the arrogance of its policy moves during the last decade.

Bank mangers used to be unpopular individuals. How many failed businesses blamed their bank? How many individuals felt tempted to put a picture of their bank manger on the wall and throw darts at it? It is not to say that bank mangers were necessarily wrong, but to the individuals who were turned down for loans it must have seemed that way. But, during that era of plentifully available credit, which may or may not be coming to an end, bank managers appeared to have been replaced by salesmen. No longer were we required to go cap in hand to the banks if we wanted money, they were coming to us.

A similar principle applied to the IMF. But this time, it was countries that had to get the begging bowl out, and no doubt many finance ministers were made to feel two inches tall in the process. The UK was not immune, and in 1976, under the chancellorship of Dennis Healey and Prime Minister James Callaghan, the IMF bailed out the UK, or more precisely the pound, enforcing its austere regime upon the UK, and leaving the high and mighty at the Treasury with egg all over their face. In fact, Mr Healey must have felt like even more of a silly Billy in the years that followed, after the pound surged, thanks to North Sea oil. Maybe the embarrassing IMF rescue was not, in hindsight, necessary after all.

In the late 1990s though, the IMF seemed to get it wrong. When the economies of East Asia, and then Russia, hit crisis, the IMF rode in over the horizon, and, just like John Wayne, insisted everything was done its way. So that was less government expenditure and higher interest rates. Curiously, the IMF’s remedy for East Asia and Russia was the exact opposite of the approach taken by Ben Bernanke in the US right now.

The result of the IMF policy was this. Western banks by and large got their money back, and nasty crisis in the West was avoided. But many countries of East Asia, with Malaysia heading the list, and then the following year, Russia, suffered very nasty recession as a result.

The most famous critic of the IMF policy during this period is Joseph Stiglitz, winner of the Nobel memorial prize for economics.

The IMF did not mange to endear itself to the governments and people of that region; its action created a great deal of mistrust for western financial institutions. Many blamed the IMF as being solely responsible for the economic hardship that followed in those countries – and according to Stiglitz some even refer to events in their countries as either pre- or post-IMF. That’s how strongly people in the region feel about its support during that period.

Ironically though, while a Western financial crisis was avoided – even with the failure of Long Term Capital Management, which was partially caused by the Russian crisis – it could be argued that the roots of today’s credit crunch were laid.

Certainly China and Russia have gone to great lengths to ensure they never need IMF help in the future. In Russia, Western resentment grew – which explains much of the current friction between Russia and the West, while China ensured its economic boom was fuelled by savings.

China is possibly unique in the history of economics in developing while maintaining balance of payments surpluses. Its booming economy has also helped contribute to a global glut of savings – which helped underpin the borrowing boom in the US and UK.

It is a complicated web we weave, but if you squint a bit, and take a look at the current economic crisis from a certain angle, from the angle of Chinese savings and trade surpluses, you could even make a case for saying the credit crunch is down to the IMF policy decisions of 1997 and 1998.

And that brings us back to the poetic justice. For the IMF makes its money from interest payments on its loans to countries. And ever since the debacles of 1997 and 1998, customers have been thin on the ground.

Banks have changed their spots, and shed their images of being run by bank managers in the mould of Captain Mainwaring, from Dad’s Army, to a dynamic hub of financial salesmen – maybe that has also contributed to the credit crunch too, but that is another story. The IMF, on the other hand, is perhaps suffering from decades of not being sufficiently customer focused, and is now running short of money.

The solution is simple enough, though. The IMF is selling some of its gold. In all, around $6bn of gold is going to be coming up for grabs, that’s around 12 per cent of its total holdings.

As you know, gold hit its all-time high earlier this year, and although it has fallen slightly since, it still is up on the price a year ago, which itself was up on the price a year before that. It would appear that if you are going to sell gold, now is a good time.

No doubt Gordon Brown is wishing his timing had been fortuitous. He sold gold from the UK’s vaults when the price was much lower than today – bringing in much criticism – although we are not sure he could possibly have foreseen how prices were going to rise.

Interestingly, Gordon Brown has often called for the IMF to sell its gold. But Brown wanted the proceeds to be used to write-off some Third World debt – we are not sure that the IMF, which wants to generate revenue, will see it quite like that.

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Hope still shines through economic woe

April 8, 2008 | posted by Michael Baxter in US economy, credit crunch | comments (3) | Print This Post

Oh dear, oh dear.    Recession talk has been doing the rounds again. Now the IMF, yes it’s them again, have said there is a 25 per cent chance of global recession

The IMF has also been busy downgrading its forecasts. Not so long ago, well last July to be precise, it was predicting global growth this year of 5.2 per cent.  The official figures will be out in a  few days but, according to Bloomberg, the IMF is now pencilling in growth of 3.7 per cent.

Meanwhile, a debate is roaring over whether the economy is set for a mild slow-down, or something much worse. Yet curiously, while there are plenty of economists who are ridiculing comparisons with the 1930s, there seem to be very few reports which actually provide real justification for hope.  Actually, cut through all the doom, we believe that after an unpleasant 2009, and who knows maybe 2010, there are good reasons for optimism.   Reasons which seem to get overlooked by many economists, preoccupied as they are with interest rates and confidence surveys.

But before we explain what this real reason for hope is, here is the latest stage in the debate in a nutshell.

Yesterday, writing in The Times, Anatole Kaletsky, the only contemporary economics journalist we are aware of who is referred to in economic text books, outlined a list of reasons why he believed the US was not in recession.  His core argument was that while jobless figures are down, they are not down that much, that the imminent tax rebate in the US will give a big boost to consumers, that some indices, namely, purchasing managers’ indices, the industrial production figures and the quarterly consumption statistics are still quite good, and that in any case history tells us recession does not automatically follow financial crisis – and to support this argument he mentioned the stock market crash of 1987, and LTCM in 1998.

It was as if Mr Kaletsky had opened a can of worms. And even Capital Economics, not a group which usually responds to articles by journalists, issued a strong rebuttal of his arguments.

“Private sector payrolls,” said Julian Jessop, Chief International Economist at Capital Economics, “have fallen by an average of close to 100,000 over the past three months and have never dropped at this pace without going on to record average monthly declines of at least 200,000. Even if the latest jobs data are not bad enough to send an unambiguous recession signal, the downward trend is clear.”

It went on to add that the current financial crisis is much more serious than ones Mr Anatole Kaletsky described in the past, while it argues low consumer confidence will mean much of the tax rebate which will be winging its way to households soon, will be saved, and not spent.

But perhaps one of the key arguments relates to US house prices.  And at this point we would like to call to the dock another witness.

Yesterday, Alan Greenspan, who once said he would keep a back seat when he retired so as not to undermine Ben Bernnanke, has said he believes US house prices will stabilise later this year.

The interesting thing about US house prices is that, as a ratio to income, they are already below the historical average. According to the IMF, US house prices are about 10 per cent too high, but that is quite modest compared to Ireland – where they are over 30 per cent too high.  Furthermore, the IMF has the gap between house prices and what they should be higher in the Netherlands, the UK, Australia, France, Norway, Denmark Belgium, Sweden, Italy and Japan.

The point is, US house prices are set to continue to fall – inventory levels are so high that it appears there is no avoiding this.  But, sooner or later, US houses will look cheap.  Will that spark a new boom, or instead, will prices keep falling?    We all know that equity markets tend to overcorrect.  Will the US housing market do the same?

But Greenspan reckons the inventory will be eliminated by the end of this year, and that is when prices will rise.  Actually, in his book, Age of Turbulence, Greenspan rattled on about inventory over and over again – he obviously sees this as an important guide.

Looking further forward, the danger now really has to be that authorities will overreact.

In 1930, the US government introduced the Hawley-Smoot Tariff, which raised tariffs on over 20,000 US goods. Many say this made the depression of that era much worse.

The fear has to be that many US politicians, Hilary Clinton in their vanguard, are calling for protection of US jobs.  She has popular support for this idea too, and yet such action could lead to retaliatory action, and create a downward spiral.  This has to be the really dangerous threat to longer-term economic stability.

But, the reason for hope is this:  Technology.

Moore’s law continues to operate, and now technology in other fields is changing fast – generating energy through renewable means is becoming more efficient, our knowledge of DNA is close to throwing up new and truly mind-blowing changes.

That is why the current crisis is not like the 1930s.  The Internet provides a means of global communication which will probably make a shot-in-the-foot-type move, such as a modern Hawley-Smoot, unthinkable.

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Time for a new world order

January 28, 2008 | posted by Michael Baxter in credit crunch, global economy | comments (0) | Print This Post

The IMF, the World Bank and UN are increasingly looking like yesterday’s ideas for yesterday’s problems.

Of late, the IMF has been on the receiving end of enormous flak. Where was it when the foundations were laid for the credit crunch? Rewind the clock back to the last crisis but one, in parts of East Asia and in Russia, thanks to the way it dealt with that crisis, its name is mud. Maybe we need a new IMF, and World Bank. Well, in saying that, we are in good company.

If there was one theme that emerged above all others at Davos, it was calls for a new world order.

Gordon Brown was at it, so was George Soros, but perhaps most significantly are the ideas that are just beginning to gain global momentum from an economist called Joseph Stiglitz.

Note that name. If you are not already familiar with Mr Stiglitz, then here is a prediction. This is a name you will hear more and more often over the next ten years or so. For Joseph Stiglitz is increasingly being talked about in the same breath as Keynes. If Keynes was the greatest and most-influential economist of the 20th century, Stiglitz seems to be emerging as the top economist in the world in the modern era.

Stiglitz’s views are not dissimilar to Keynes’. In a recent interview with the Telegraph, while talking about a way through the credit crunch, he said, “As a Keynesian, I’d say the biggest back for the buck in terms of immediate stimulus would be unemployment assistance and tax rebates for the poor.” Actually, in this respect, Uncle Joe’s remedy is not that dissimilar from the $150bn tax breaks recently announced by George W. But, he said, “Set against the magnitude of the problem, even a fiscal stimulus package of $150bn is not going to be enough.”

To understand where Stiglitz is coming from, it is first necessary to recall the crisis that made the IMF so unpopular in parts of the world. The East Asia crisis, the Russian credit crisis, and then finally the collapse of Long Term Credit Management, were, in their own way, just as serious as the crisis reverberating around the world today.

The main difference is this. Back then, banks in the West had poured their money into the tiger economies of East Asia and Russia, creating a bubble, which collapsed. The result was nearly catastrophic for the western banks but, in the end, thanks to the action of the IMF and what Stiglitz calls the “Washington consensus,” it was largely the economies of East Asia and Russia that lost out. According to Stiglitz, in his book ‘Globalisation and its discontents’, some people in that region actually date events with respect to that period, describing something as pre- or post-IMF.

So actually, when we celebrate years of uninterrupted economic growth, of the way the global economy managed to avoid recession in the ’97 and ’98 period, just remember, there was a price to pay and that price came in the shape of major economic hardship in some regions.

This experience has in turn affected the attitude of certain developing countries to western institutions. Take India and China, for example, Stiglizt recently said, “These countries managed globalisation: it was their ability to take advantage of globalisation, without being taken advantage of by globalisation, that accounts for much of their success.”

Stiglitz, who was chief economist at the World Bank in 1990, believes that globalised collective action is required moving forward.

George Soros struck a similar note last week when he talked about the failure of market fundamentalism. He says this idea that markets have a self-correcting mechanism is false; in order to propel the global economy forward in a sustainable way, and to create prosperity for all, governments must act in unison.

As for our Gordon, while talking at Davos, he said he wants to see the IMF become like an independent central bank – and as for the World Bank, he wants it to change and become a bank for supporting environmental projects.

The IMF and World Bank were formed after the end of World War II. Their principal architects were Keynes and the American economist Harry Dexter. Because, at the time, the US had all the political clout, the final make up of the institutions was much closer to what Dexter and the US contingent wanted.

But today, the global economy is so completely different, it is inappropriate for the financial institutions that are supposed to make the global economy tick over to be so dominated by the US and Europe. The boss of the IMF, for example, is always a European, the boss of the World Bank always an American.

Maybe all we need to do is reform the IMF and World Bank a bit. It seems more likely, however, that we need to scrap these two institutions and start again – come up with something new. Here is the prediction. This debate will develop, and within a few years will become a major talking point, and don’t be surprised if that name Joseph Stiglitz comes up on TV and appears in the newspapers more and more often.

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