We are heading ‘toward the next crash’: Former UK PM
The global economy is being pushed "inexorably toward the next crash" due to the weakness of international banking rules, a former British prime minister wrote in the New York Times on Thursday.
World leaders have been in "retreat" since the collapse of Lehman Brothers in 2008 and have "made a mockery of global coordination", according to Gordon Brown, the U.K.'s prime minister between 2007 and 2010.
The comments come as the European Union wrangles over the details of a Banking Union and U.S. lawmakers push ahead with the Volcker Rule reform, in an attempt to clean up the banking sector and restore confidence in the industry.
During his decade-long reign as the U.K.'s finance minister, Brown promised "no return to boom and bust" economics, before leading the country into recession. He also oversaw the disastrous policy of selling off the majority of Britain's gold reserves for prices between $256 and $296 an ounce. Gold has soared to $1,205 an ounce today.
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Brown says politicians have failed to create international banking rules and have instead resorted to "unilateral" actions in the national interest. While the U.S. has pressed ahead with the Dodd-Frank financial law, regulation in Europe, Latin America and Asia has remained lax, he said.
"In short, precisely what world leaders sought to avoid — a global financial free-for-all, enabled by ad hoc, unilateral actions — is what has happened," Brown wrote.
"Political expediency, a failure to think and act globally, and a lack of courage to take on vested interests are pushing us inexorably toward the next crash."
The former prime minister also gave a stark warning that a Chinese meltdown would have a major impact on the Asian economy.
"If China's economy were to slow, Asian countries would be doubly hit from the loss of exports and by higher prices. They would face downturns that would feel like depressions."
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Brown raised concerns about the rapid rise of shadow banking in Europe and China, an increase in Chinese domestic credit and rise in borrowing.
China's total domestic credit has more than doubled to $23 trillion, from $9 trillion in 2008, according to Brown. Over-reliance on short-term capital markets that brought down banks like Lehman Brothers shows "parallels with the pre-crisis credit boom", Brown said.
"Already, we have forgotten the basic lesson of the crash: Global problems need global solutions. And because we failed to learn from the last crisis, the world's bankers are carrying us toward the next one."
—By CNBC's Arjun Kharpal: Follow him on Twitter