Hugh Hendry on the economy and the sovereign debt crisis

Below is an audio You Tube clip of Hugh Hendry on the euro zone crisis, the UK economy, hedge funds, shortselling and a lot more. The Hendry video runs 15 minutes.

The headline quote was, "we’re not in a recession in the UK, we’re in a depression". But I believe Hendry’s greatest insight into the depression and crisis was the following:

We’ve reached a very rare moment in economic history where the problem is greater than the ability of the politicians to respond.

I agree with that formulation. When I think about the political economy of the European sovereign debt crisis, I think primarily about how large hierarchical systems respond to crisis. My view is that institutional inertia means that crises need strong leadership to create the preconditions for change. This is something along the lines of what anthropologist Jared Diamond postulates about societies in his book Collapse.

But in Europe, the euro zone has an institutional structure that is specifically designed to thwart strong leadership. The European institutional principle of unanimity will almost certainly mean institutional inertia and bailout fatigue will eventually prevail. Whether the euro zone survives afterward is dependent on how far economic nationalism has progressed when the crucial decisions are made. The longer Europe’s political class continues to socialise losses and resists the inevitable and democratic outcome of credit writedowns, the greater resonance messages from nationalist political leaders like Marine Le Pen will have.

  1. David Lazarus says

    “We’ve reached a very rare moment in economic history where the problem is greater than the ability of the politicians to respond.”

    I think that we have reached the end of the road as far as current policy. The politicians have tied their reputations to this ship and will go down with the ship if necessary, rather than admit that they were wrong. There are plenty of solutions but they are unacceptable ones as far as the leaders are concerned.

  2. Diego Méndez says

    Ed, you’ve done very well to underline democratic.

    But is it really a eurozone problem? Maybe we’re looking at the eurozone as a singular problem, much like Greece seemed to be a year and a half ago.

    But eurozone problems may be just the tip of the iceberg. A eurozone dissolution and the corresponding financial meltdown may be just the tip of the iceberg.

    What we had in the eurozone was the “euroisation” of the European nations’ economies and politics. And then we’ve discovered you need, in fact, national economies and national economic politicies, both of which were thought obsolete and made impossible by EU rules.

    But what was globalization, after all? It was a “euroisation” on a global escale. Worldwide, national economic policies have been made impossible.

    What if the globalized economy were about to explode and break up the way the eurozone seems poised to do? What if the eurozone was just the acute symptom of a pandemic?

    1. Edward Harrison says

      Right. It is no coincidence that a globalisation wave preceded the previous Great Depression. What I have been trying to convey about the political economy is that politics and economics interact in a way which amplifies us-versus-them thinking. It is natural that people will recoil and reject globalisation because it makes them further removed from the source of power. People feel adrift and helpless in a economic crisis and want some measure of control. Moving the decision-making process closer to home diminishes those feelings.

      Personally, I am not making an argument one way or another on that issue but I see it as a force to be reckoned with. I would say, however, that I agree with you that democratic processes seem to be frayed everywhere.If the anti-globalisation force is not heeded, respected and handled appropriately though, it will become extreme and nationalistic in a negative way. That is what I see as a potentially negative outcome.

      1. David Lazarus says

        Longer term I think that the anti globalisation trend will accelerate. I can see the re imposition of capital controls. The Swiss might actually welcome such a move if it stops the hot money ramping up the exchange rate that harms its exporters.

  3. Zack says


    do you have hendry’s most recent investment letter? I remeber you used to put them up before?


    1. Edward Harrison says

      I don’t. You might try Zero Hedge because I know they put them up from time to time as well.

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