Thursday, March 26, 2009

A Single Global Currency, A Global New Deal, A Global Economic Council

Single Currency

The proposal on the table does not have street value. It only is to do with reserve value. The person on the street will not find a new currency in hand. The change would only affect the major institutions of global finance, primarily the central banks of the world. The very long term goal might be to end up with a single global currency that does have street value, because the market of currencies is quite a nuisance, if you think about it.

It is like this, ultimately, down the line, in the distant future, you can not have five powers wielding veto at the UN. The General Assembly, redesigned, will have to have all the power. That would make for a much more efficient global political architecture.

Even the current proposal is not meant for immediate implementation. But homework on it has to begin. Now is good time.

Global New Deal

If a stimulus plan is right for America, it is right for the world. The global economy asks for some shock therapy treatment. Something big needs to get done. Gordon Brown has a point.

Global Economic Council

I back the Stiglitz idea. It makes abundant sense. The World Bank and the IMF need to be reporting to the UN.

In The News

New reserve currency idea needs work-German minister Reuters
China's united currency idea divides nations revives a debate that can be traced back at least a half a century. ..... the U.S. greenback, much like the American economy, has fallen into disfavour with foreign investors and governments. ....... "The benefits (of a new currency) are far from certain and this is certainly not a "shovel-ready" project" ...... China is not proposing a single currency that individuals and companies in most countries would use for domestic transactions à la the European Union's euro. ..... an international standard for foreign currency reserves. ........ Right now, many countries hold a large portion of their reserves in U.S. dollars. The thinking is that the American greenback will keep its value against the cash of most other countries ........ the dollar just recorded its worst weekly performance in 24 years, while the euro simultaneously recorded its strongest week since its inception in 1999 ........ special drawing rights, or SDRs. ...... a basket of four currencies — the Japanese yen, the euro, the British pound and the dollar. ........ The Chinese government proposal would expand the number of currencies involved in valuing the SDR
Replacement of the Dollar? BusinessWeek Nobel laureate Joseph Stiglitz explained why he has also advocated the replacement of the dollar ..... the current system of depending on a single currency and the political and economic management of that currency is volatile. It’s inequitable because poor people are lending to the U.S. at low interest rates. In a global economy, you need a global reserve system ..... moving to multiple currencies. Over time you would replace the dollar as a reserve currency. No one thinks it would happen overnight. ...... [Obama] has to say that. It doesn’t mean anything. ...... a huge giveaway to the banks. ....... replacing the G20 with a United Nations body. ....... a Global Economic Coordination Council. ..... It could demand, for instance, that the World Bank and the IMF report to it and evaluate how they are performing.
Obama dismisses idea of single global currency Reuters dismissed suggestions by emerging economic powers that the world move away from using the dollar as the world's main reserve currency. ...... both China and Russia earlier urged an overhaul of the global monetary system. ...... Chinese central bank chief Zhou Xiaochuan ..... Brazil, India, China, South Korea and South Africa.
About this author: Seeking Alpha
China and the Dollar Wall Street Journal
Indonesia, Malaysia, Thailand Support Call for Global Currency Bloomberg “Trade transactions using one currency that’s dependent on the condition of a single country’s economy is dangerous.” ....... it may benefit developing nations to have an alternative to the dollar. ...... “Asian central banks have been diversifying out of U.S. dollars for some time and they’re concerned about the sustainability of the U.S. financial system.” ....... would prevent “excessive” money printing by any single nation posing a risk to inflation worldwide ....... The U.S. Treasury will issue $2.5 trillion in new debt this year as the government boosts spending to help end a recession ....... One SDR was recently equivalent to $1.50872
Look to BeijingWashington Post A hundred years ago, London would have made sense as the spot where the world's leaders should gather, as they will this week, to grapple with a spreading economic crisis. The city was the early 20th century's nexus of finance and power, and Britain straddled the globe as the only true superpower. But we're in the 21st century now, and the G20 heads of state should not be plotting in the shadow of Big Ben. They should be sitting across from Mao's Tomb, near the Forbidden City, in the meeting halls off Tiananmen Square in Beijing. ........ the Washington-Beijing axis is the most important relationship in the world today ...... if China sells off or stops buying U.S. bonds, the American economy could sink even deeper, leaving us like England at the end of War World II, a broke and broken hegemon, dependent on an upstart power. ........... the rest of the world needs both of them equally. ........ China is no longer as poor as it claims; the United States is no longer as rich as it acts. ...... the world should focus less on the G20 and more on a "G2" of China and the United States. ....... In 2008, before the storm hit, China and the United States accounted for more than half of all global economic growth. ....... emerging economies would provide 100 percent of the world's growth in 2009 ...... contrast with the tepidness of European spending efforts and dwarf the means of other nations. ....... America's political class, long accustomed to military and economic predominance, tends to view any reliance on a foreign power as a sign of weakness. ........... reality allows neither China nor the United States the luxury of their illusions ....... a relative decline in influence, a development Washington considers undesirable and dangerous. ....... Beijing desperately needs a functional U.S. market. ........ China's domestic economy is in many ways fueled by U.S. companies ....... hugely popular KFC franchises ....... attacking one's primary creditor at a time of fiscal need is not particularly smart ......... America must learn to separate its need to be the indispensable nation from its desire to remain powerful and prosperous. Since the end of World War II, there has been no distinction. Today, there is.
G20: Can we really expect a global new deal authored by Gordon Brown?
China presses G20 reform plans BBC News a new global reserve currency and reforms of international financial institutions to give developing nations more power. ....... The G20 countries are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, the US and the EU. ......... G20 members should also reaffirm their opposition to protectionism and uphold their financial commitments to the world's poorer countries. ......... China wants developing nations to have a bigger say in the International Monetary Fund ...... "Being the world's third-largest economy and the largest foreign reserves holder, China should get its due place in the monetary body." ........ currently dominated by the US and Britain ........ other developing countries, such as Brazil, India and South Africa, would also be demanding a bigger role.
No cheerleader for propping up greenback at G20 summit Canada Free Press the table being set for One World Government ......... The deadly duo, which has blocked all things America at the United Nations ........ both China and Russia posted their priorities for the new global system on their official websites. ...... removing the inherent deficiencies caused by using credit-based national currencies ....... “calling for the creation of a supranational reserve currency to be issued by international institutions as part of a reform of the global financial system” ......... Obama met secretly with Mikhail Gorbachev last week. ....... Joe Biden and Gorbachev had been discussing ways of reducing their countries’ respective nuclear arsenals .... a radical reform of the global financial system ....... calls for national banks and international financial institutions to diversify their foreign currency reserves. It said the global financial system should be restructured to prevent future crisis and proposed holding an international conference after the G20 summit to adopt conventions on a new global financial structure. .............. `Protectionism is the crack cocaine of economics. It may provide a high. It’s addictive and it leads to economic death.’
Touting Her Currency Conspiracy, Bachmann Insists: ‘This Is Not ... Think Progress
WTO forecasts huge drop in global trade World Socialist Web Site

Lalu Prasad Yadav, at a political meeting in K...Image via Wikipedia

Mulayam, Lalu to form alliance for secular vote bank Economic Times

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Saturday, March 21, 2009

A Brighter Future Ahead

Top left: The Tennessee Valley Authority, part...Image via Wikipedia

Big Crisis = Big Opportunity

I am for a second trillion dollar stimulus package. It was not the New Deal, but World War II that got America out of the flunk last time. We can't have a world war, but we sure can have a second stimulus package. And this second stimulus package has to have global dimensions.

Anatomy Of A Crisis

Money poured into America because the American banks were thought to be the safest for the elites around the world. What did they know? The American bankers did not know what to do with all this flush cash. So they started running ponzy schemes, legal ponzy schemes, subprime mortgage backed securities, credit default swaps, what have you.

The problem in the world is not too much capital, but too little. But the architecture of global finance made it look like there was too much capital, too few capital outlets. And so all that extra money went on to create a housing bubble. This was not exactly wealth creation, but it got counted as wealth creation in the banks' books.

Old White Men Need To Chew Gum
Needed: A New Global Financial Architecture
Stimulus: Make It A Trillion
Stimulus: Size Matters
Global Finance, Global Terrorism, Global Warming

Too Many Big Banks

If a bank is too big to be allowed to fail, that bank is too big, it should be broken into a few different banks. And it is never too late to break up banks like that.

Transparency, Accountability

There are banks and regulations. And there is this huge financial sector that has so far stayed out of that tent, without regulations. That is bad, that always was bad. Got to bring the entire financial sector under the tent. Infuse massive transparency and accountability. You can't play great soccer without the basic ground rules. I am all for the market, I am all for innovation. I am not saying the referee should now join the game. I am saying we need a referee.

America Can't Do It Alone

Over the past few years we have seen wild wildfires in Greece, California, in Australia. In each case the culprit was global warming, but local law enforcement hunted for arsonists.

Imagine a climate version of this financial crisis. Imagine a dirty bomb each in 10 big cities of the world on the same day. What we are going through is a finance version of such worst case climate and terrorism scenarios. The finance version is less heartbreaking, and it is so very heartbreaking as is.

But this is dress rehearsal. Handling this crisis will and should help us build mechanisms to deal with some future crisis in a different domain. More importantly, we should learn to prevent them. Could America and the world have taken actions over the past few years to prevent what is happening now? You bet.

Democratize the IMF, World Bank

Treat the people in the Global South like human beings. Pump more money into both. Bar the two from humiliating the poor countries every time they deal with them.

A Global Marshall Plan Needed

We don't need a world war, but we do need a global Marshall Plan. I am not sure about old fashioned aid. I am proposing a trillion dollars into microfinance. If the US Treasury gives a 5% return, microfinance gives twice as much. What has China been thinking lending Bush a trillion dollars to wage a wrong war? It should instead get into microfinance.

Big money needs to get into big infrastructure projects across the Global South. We have to make major investments in human capital.

Microeconomics, Macroeconomics, Globoeconomics

The theoretical framework of the academic discipline is not aware the world exists. Just like economics added macroeconomics to its body about 70 years ago, now is time to add globoeconomics to the same. The theoretical framework is missing.

Long Term Goal: World Government

Christianity is just one among many religions. America is just one among many countries, definitely true of Britain. When we are talking global cooperation on issues like climate and terrorism and finance, ultimately we are talking of a world government, anathema to the right in the US. But it is cooperation or doomsday. That is the stark choice. This financial crisis is dress rehearsal.

Global Finance: New Architecture

The ad hoc ways of global finance so far have proven so very inadequate. We need a framework. We need ground rules. We need transparency. We need accountability.

In The News

A.I.G. Sues U.S. for Return of $306 Million in Tax Payments New York Times
Many in Government Knew Weeks Ago About A.I.G. Bonuses
House Approves 90% Tax on Bonuses After Bailouts
Obamas to Plant Vegetable Garden at White House
Rapid Declines in Manufacturing Spread Global Anxiety
Talking Business: The Problem With Flogging A.I.G.
$2.5 Billion in Merrill Bonuses Would Elude Tax

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Sunday, March 15, 2009

Old White Men Need To Chew Gum

Obama's Reform Agenda: Is He Trying to Do Too Much? TIME Mar 11, 2009‎ Buffett was — and is — an Obama supporter, but he took to the airwaves on March 9 to try to seize the young President's attention away from health care and education and energy and refocus it back onto the economy. Warning that Obama's agenda has become too sprawling and provocative, Buffett admonished, "Job 1 is to win the war, the economic war. Job 2 is to win the economic war — and Job 3." He added, "You can't expect people to unite behind you if you're trying to jam a whole bunch of things down their throat." The oracle's verdict was quickly endorsed by Jack Welch and Andrew Grove, retired CEOs of General Electric and Intel, respectively. And from Federal Reserve Chairman Ben Bernanke came this measured nudge: "Until we stabilize the financial system, a sustainable economic recovery will remain out of reach." ........ Obama fired back the same day. "I know there are some who believe we can only handle one challenge at a time," he said, invoking Lincoln's launch of the transcontinental railroad in the midst of the Civil War. "We don't have the luxury of choosing between getting our economy moving now and rebuilding it over the long term." Is the Worm Beginning to Turn? Buffett Throws Obama Under Bus (subscription) ‎Mar 10, 2009‎
Barack Obama has to walk and chew gum at the same time. That is his challenge. I understand these are tough times and there is only so much you can shove down the throat of the political system. But imagine America saying in World War II, we can make tanks, but no planes, because we got to prioritize. The current global crisis is of a gigantic magnitude, and it asks for a gigantic response. I happen to think the stimulus package is not big enough. Krugman echoes that sentiment, and the dude has a Nobel.

When Obama ran for president, there were people who were saying, he is too young, he can and should wait his turn. And I am like, you are right. If it is about Obama, the dude can wait his turn. 10 years from then he would still be younger than most. So why now? Why the urgency? Guess what, it was not about Obama, it was about America and the world. Obama could have waited, but not America, not the world. The time was now.

So if we are concerned about too much grey hair ending up on Obama's scalp, I say take it easy. Deal with this crisis, leave the big programs for the next president who might have more room for it all in eight years. Like Reagan said, hard work never killed a man, but why take a chance!

Barack Obama can afford to tackle one thing at a time. But the country, the world can not. He has to fight the Civil War, and he has to lay down the train tracks at the same time. He has to walk and chew gum at the same time. And I recommend the same to the old white men. I mean, old wise men.

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Friday, March 06, 2009

Making Sense Of A Mega Mess

What Went Wrong?

A financial 9/11 happened. The unthinkable happened. The unpredicted happened. Banks stopped lending money. The bottom fell. This is about the fourth time it has happened. Something like this seems to happen every 70 years. So it's a cycle. After each such crisis, there is major renewal and resurgence, and things are better than ever before.

What Really Went Wrong?

China lent big money to an American president to wage a war it should never have waged. It was a big time deficit war. There was flush cash in the American banking system. Elites in the not America countries seem to think money is safer on Wall Street. What did they know? Instead of investing locally they stash it away in the safe havens of Wall Street. But taking in money is only a small part of what banks do. They also have to lend money. That is how they make money. So they came up with really complex financial instruments: mortgage backed securities. So more mortgages means more such securities, more fees, more commissions. Suddenly there was this market for securities. People who could not afford homes were sold homes, because if more homes got sold, there would be more mortgage backed securities. House prices went artificially up. So the mortgage backed securities at those high prices became toxic once the prices on those houses went down. Obviously you can't just revise the prices to get them in tune with the new market reality. Demand and supply went out the window a long time ago. And because every banker and their cousin were doing this mortgage backed securities thing, when the crisis hit, people simply froze. What are you saying, that my assets are not worth what it says on paper? No way.

Japan had its own real estate bubble and a lost decade. This quarter the Japanese economy shrunk at an annual rate of 12%. That is huge.

Money And Basic Demand And Supply

Money is a resource. And it has to go where the need is the greatest, where the return will be the greatest. That would be the market way. Obviously creating a real estate bubble is not the best use of that resource.

For a long time I have felt weird about people's outsize confidence in real estate as a safe and sound investment item. The physicality of a piece of real estate really gets them. If nothing else, you got the land, you got the house. That seems to be the thinking. But what if the market price on your house went down by half, and you are still paying mortgage at the original price? Then where is the safety?

Big Demand In The Global South

Roads, bridges and broadband are needed everywhere. The returns on such investments are routinely high. You do BOOT, Build, Own, Operate, Transfer.

Inventing New Jobs And New Industries

That is where Japan comes in. You end up with all this flush cash, but if you as a society are not invested in the jobs, companies and industries of tomorrow, you are not growing. But you still end up with all that flush cash. So what happens? A housing bubble happens.

Transparency, Accountability

Those will go a long way.

A New World Order

That is sorely needed. Global rules of finance have to be set that are fair globally. They are democratic, they are transparent, they are inclusive of all countries.

We have to set up a regime such that private capital flows to the areas of greatest need and greatest return. Microfinance is really good business. If it gives a 10% return, that is to compete with a S & P 500 indexed fund. And it does. Actually better. So the market has to obey, and microfinance has to grow like crazy.

Investments in human capital in this day and age are way better than pouring money to create a housing bubble.

Flush cash asks for a much sounder global financial order.

Startup companies should be leading the green tech, infotech, basic infrastructure, and lifelong education themes, and globally so.


If a few big banks can hold a national, a global economy hostage, were those banks too big in the first place? I think so.

What will the next generation of banks look like? If there can be tech startups, why not startup banks?

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