–Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.–

If the economics profession has sunk in public estimation in the last two or three years, it would hardly be surprising. Our failure to predict the crisis is something which cannot be simply brushed aside lightly, as some of my colleagues would love to do.

Competitive devaluation is no longer a possible danger – it is already here. Many people are worried that, after global stock market crashes and a collapse of most of the world’s banking system, a war over exchange rates completes a sequence of events that looks awfully like a rerun of the 1930’s. There is however one crucial difference. The Chinese role certainly makes matters more complicated, though it is as yet unclear whether it makes the outlook better or worse.

The key point to understand about the belligerents is this. In the context of purely self-interested beggar-my-neighbour economic policy, devaluation makes good sense for the Eurozone countries as a whole, the British, the Japanese, Swiss, Koreans… for everyone except the Americans. Whether they are deficit countries, like Britain, or surplus countries, like Switzerland, Korea or Japan, devaluation will increase demand for their exports and make their imports more expensive, giving a boost to their output and employment. And if other countries retaliate by counter-devaluation, they can tell themselves that their situation would have been worse if they had not taken the initiative and got their retaliation in first.

Watching George Osborne present the results of the Government’s Comprehensive Spending Review last week, two thoughts went through my mind.

On a personal level, how could I have been so wrong about Cameron and Osborne? A pre-election blog of mine was titled “A Pair of Lightweights”. Both have already done enough to assure even the most cynical observer (which probably doesn’t mean me) that they are every bit as serious as the job they face.

“Those whom the gods would destroy, they first drive mad.” – the words of a wise Roman thinker (or was it a Greek central banker?). At any rate, the gods certainly seem to have no benevolent intentions with regard to this country, judging by the statements coming from the Bank of England, in particular the calls for another round of quantitative easing from one member of the Monetary Policy Committee and the cry of “Spend, spend, spend” from another.

The view emerging from the Bank and the Monetary Policy Committee is that the country is in the grip of a slow-growth recession, facing the threat of Japanese-style deflation and a double-dip recession, and that this grim situation requires near-zero interest rates, supported by QE2 if necessary, in order to restore consumption and lending (including mortgages) to pre-crisis levels.

-Laurence Copeland is professor of finance at Cardiff University Business School. The opinions expressed are his own. -

A week or two ago, I posted a blog bemoaning the size of Britain’s public sector and expressing the fervent hope that the ill wind of the financial crisis would blow much of it away, leaving room for private industry to expand in its place.

-Laurence Copeland is professor of finance at Cardiff University Business School. The opinions expressed are his own and do not constitute investment advice. -

I have just reread the blog I wrote for this column last September. A year has gone by, and neither the title – “It’s All Over: the Banks Have Won” – nor the rest of it seem out of date. In fact, last weekend’s Basel III deal looks very much like the final surrender by the authorities.

-Laurence Copeland is professor of finance at Cardiff University Business School. The opinions expressed are his own and do not constitute investment advice. -

The first chapter of the Eurozone crisis story has ended as expected, with the Germans (and Dutch and Austrians) left to foot the bill, repeating the pattern we have seen in the last couple of years, at the micro and macro level: savers bailing out borrowers, the solvent rescuing the insolvent, the responsible minority rescuing the feckless majority from the consequences of their irresponsibility. No wonder banks don’t want to lend and firms don’t want to invest.

-Laurence Copeland is professor of finance at Cardiff University Business School. The opinions expressed are his own and do not constitute investment advice. -

The unemployed and the terminal insomniacs who have nothing better to do than read my blogs will know that I have long been gloomy about most of the Western economies. How can you fail to be pessimistic when the world economy is still dominated by the U.S. – a basket case, becoming weaker every day, with a political class too blind or too scared to admit in public the obvious fact that the country cannot carry on living beyond its means?

-Laurence Copeland is professor of finance at Cardiff University Business School. The opinions expressed are his own-

The policy debate is hotting up. On one side, we have the expansionists, arguing that it’s the Nineteen Thirties all over again, that Keynes is right now as he was then – we need more, not less government spending, we are digging our own graves by cutting back, especially as the fiscal retrenchment is continent-wide, covering thrifty North Europe as well as profligate ClubMed. According to this view, fiscal contraction will exacerbate the situation by magnifying the fall in the level of economic activity, leading to a downward spiral and, incidentally, making it harder than ever to repay our debts.

- Laurence Copeland is a professor of finance at Cardiff Business School. The opinions expressed are his own.-

Worries about Europe’s banking system go back at least to 2007, but whereas the U.S. (and UK) banks appear to have weathered the storm, there are fears that for European banks the worst may lie ahead.  Concerns centre on four areas.