Hedge fund manager Hugh Hendry, whose prediction of the crisis in the Eurozone was spot on, says we’re at a rare moment in economic history.”The problem is greater than the ability of the politicians to respond,” he says in a radio debate on BBC’s Bottom Line.
“There is no policy prescription that they can offer that will redeem the situation. The redemption will come through the citizens of Greece and elsewhere throwing the politicians out and rejecting the European ideal.”
Hendry’s view on what the solution should be (a Greek default that doesn’t protect the creditors) is quite different than Evan Davis’ — the BBC host — and Brent Hobermann’s of mydeco.com, another guest on the show. Theirs also happens to be the opinion which we heard resounding at the Bretton Woods conference in DC, which is that something BIG needs to happen.
Everyone agrees that the big question right now is: is this Eurocrisis one of those in which leaders should implement incremental solutions until… (some later point)? OR is it one in which we need a big action?
We’re seeing an increasing divide in how economists and politicians, and how private money managers answer the question.
Tim Geithner, Hobermann and Davis, and Larry Summers, for example, say that the Eurocrisis can only be solved by a big action proposed by a big leader.
That process of being open to contemplate that big action, and take that big risk, is essential, says Davis.
He says, “Hugh doesn’t like the word emergency or crisis but I think that’s the only catalyst which will make people [act] — because most of the time, people are thinking just about their own political survival, not necessarily about the U.N., but if you link the two inextricably in an emergency situation, then they have to think in that bigger picture and not just about votes next week.”
Summers said something similar at Bretton Woods. “One of the most difficult problems during a crisis is finding the language that generates concern and action, but that won’t trigger despair,” said Summers on Friday.
Hendry has other ideas about a solution. He says, “Bankruptcy is a solution [because] creditors who extended that debt [to Greece] — that was a folly. All this firefighting is trying to protect the creditors, as opposed to the oppressed person.”
Hendry’s view is that Greece should default and leave the Euro. “Greece needs a real exchange rate,” he says. “If you go on a drachma and [a beer in Greece is] .50p, there’s a stimulus that’s not open to them today [cheaper money].”
Hendry says the UK is in depression – not recession – and it will take years to get back to where we were in 2006 and 2007. It’s been 5 years since the financial crisis, and it might take another.
That Hendry’s opinion differs from that of economists is not surprising. Economists and politicians will point the finger frequently at hedge fund managers and “speculators” now. Hendry believes their anger is rooted in the inability of a policy prescription to solve the Eurozone crisis.
He’s been right about the Euro crisis in the past. However there is strong pressure coming from Geithner and other leaders for the ECB and/or another European entity to take control via a decisive action.
So it seems like the question right now is, is it possible for a leader to step forward to announce and implement the solution, in a time when politicians, because of party politics, have questionable authority?
(Also interesting: Hendry is no longer the CEO of Eclectica. He’s the CIO, and his CEO has banned him from media. Terrible news!)
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