Imagine a country so ravaged by inflation that $1 will buy you 630 billion in the local currency, where a loaf of bread costs tens of billions, and where wheelbarrows are the new wallets.
That was the Weimar Republic in November 1923. A similar prospect may now await the world economy, says French economist Jacques Attali in “La Crise, et Apres?” (“The Crisis, and Then?”), a stinging new critique of the financial meltdown.
Attali, 65, served as a special adviser to French President Francois Mitterrand in the 1980s and later became the first head of the European Bank for Reconstruction and Development. He went on to found microfinance agency PlaNet Finance. In 2007, he steered a panel on economic growth that made recommendations to Nicolas Sarkozy, the current president.
In a telephone interview, Attali traced the roots of the current economic quagmire to what he considers a flawed ideology that warped the financial system.
Attali: There was this ideology of a positive attitude: If you’re not positive, if you don’t believe that anything can be solved by going faster, you’re not a member of the club anymore. People were, in a totalitarian way, censoring themselves to avoid being expelled from the club. Because they made a lot of money by being in the club, they said, “OK.”
We can’t criticize people for being greedy if they made a lot of money within the rule of law. The problem was that there was no rule of law. We could have avoided this crisis if our understanding of the dangers linked to too much leveraging and securitization had led to better regulation and control.
Greenspan at Waterloo
Nayeri: How much is former Federal Reserve Chairman Alan Greenspan to blame?
Attali: We should avoid blaming anyone as a person. We should blame the system as a whole.
Whoever was part of the system was, as we say in French, “just a soldier at Waterloo” -- not responsible for anything, more of an actor. Even Greenspan was only a soldier at Waterloo, not the general in charge. There was no general in charge.
Nayeri: Is U.S. President Barack Obama the right man to have in the White House?
Attali: He’s the best and the brightest, with the best and the brightest advisers around him. I don’t see anyone who could do better. The problem is that he’s facing a situation that can rapidly get out of control, even for an American government.
Nayeri: What is the probability of a global depression?
Attali: A 5 percent drop in gross domestic product is already in the pipeline for the U.S. That means a 20 to 25 percent drop in industrial production. We only have about 6 percent growth for China, which is quite low. So we are already in a depression.
The question is how to avoid having a large one, and how to avoid solving the depression through inflation. Because the real threat is a Weimar situation -- a worldwide Weimar.
Nayeri: Is that likely?
Attali: Who would have said six months ago that the nationalization of American International Group and the Royal Bank of Scotland was likely?
Nayeri: What do you mean, exactly, by “Weimar”?
Attali: Depression, unemployment and inflation. What happens if the markets don’t finance the governments? The governments will finance themselves by creating money. This is a clear recipe for inflation -- both depression and inflation.
I don’t say that’s likely. The risk is less than 10 percent. But the nationalizations of AIG and RBS were only 10 percent probabilities when they happened.
Nayeri: Based on your experience, how does President Sarkozy compare with President Mitterrand?
Attali: All I can say is that two-thirds of the proposals in our report are in the process of being implemented, which is a huge achievement. It shows the capacity of the French president to implement reforms.