A tidal shift in governing influence is under way, because monetary policy is now eclipsed. As the central bank loses control, the stronger hand shifts to the fiscal side of government. That seminal insight originates with economist Paul McCulley, retired after many years as Fed watcher for PIMCO, the world’s largest bond fund. McCulley is a Keynesian who never bought into the ideological fantasy of self-correcting markets. His views won respect at the Fed because he was right. Only politicians still don’t get it. After thirty years of deferring to conservative orthodoxy, both parties are afraid to break from the past. While the Fed pushes for fiscal expansion, Congress and the president remain obsessed with deficit reduction.
“This was not supposed to happen,” McCulley observes. “The fiscal authority was always supposed to be afraid of the Fed. The Fed would say, Don’t do this, don’t do that. And the fiscal side would back off. Now you have a situation where monetary policy is effectively impotent and the Fed is openly inviting the fiscal side to do what for decades the Fed told it they couldn’t do.” The “missing partner,” McCulley says, is the fainthearted politician who clings to old dogma about fiscal rectitude, even though the crisis has made those convictions “irresponsible.”
As a longstanding critic of the Federal Reserve, I am experiencing a role reversal of my own. In the new circumstances, I find myself feeling sympathy and a measure of admiration for Bernanke’s willingness to stand up for unorthodox ideas and to switch sides on the sensitive matter of debt reduction for failing homeowners. For many years, I have assailed the institution’s unaccountable power and anti-democratic qualities, its incestuous relations with powerful banks and investment houses. Those flaws and contradictions remain unreformed, yet I now think the country needs a stronger Fed—a central bank not afraid to use its awesome powers to help the real economy more directly.
People ask, How come the Federal Reserve can dispense trillions to save Wall Street banks but won’t do the same to rescue the real economy? Good question. They deserve a better answer than the legalisms provided by the Fed. At this troubled hour, the Federal Reserve should find the nerve to abandon “failed paradigms” and to use its broad powers to serve a broader conception of the public interest.Read it at The Nation
The Federal Reserve Turns Left
by William Greider
(h/t Kevin Fathi via email)
45 comments:
I think Beowulf should talk with McCulley. Some of his ideas deserve a hearing!
"While the Fed pushes for fiscal expansion,"
What f-ing world is he living in?!
This from Bernanke's testimony from a couple of weeks ago:
"Having a large and increasing level of government debt relative to national income runs the risk of serious economic consequences. Over the longer term, the current trajectory of federal debt threatens to crowd out private capital formation and thus reduce productivity growth. To the extent that increasing debt is financed by borrowing from abroad, a growing share of our future income would be devoted to interest payments on foreign-held federal debt. High levels of debt also impair the ability of policymakers to respond effectively to future economic shocks and other adverse events.
Even the prospect of unsustainable deficits has costs, including an increased possibility of a sudden fiscal crisis. As we have seen in a number of countries recently, interest rates can soar quickly if investors lose confidence in the ability of a government to manage its fiscal policy. Although historical experience and economic theory do not indicate the exact threshold at which the perceived risks associated with the U.S. public debt would increase markedly, we can be sure that, without corrective action, our fiscal trajectory will move the nation ever closer to that point."
http://federalreserve.gov/newsevents/testimony/bernanke20120202a.htm
Bernanke thinks the US can be the next Greece! He is a disgrace!
And McCulley is even MORE CLUELESS if he cant read Fed testimony for crying out loud. Too many years at PIMCO has literally turned his mind to mush. I feel sorry for him.
None of these people are of any human value any more. 100% write-offs.
Clonal,
Perhaps he has some ideas that are not completely depraved but please dont tell me that YOU are buying this bullshit that "the Fed is turning left"?
No I am not buying that the Fed is turning "left," but rather that all of the Fed's firecrackers have turned out to be duds. The only thing "left" is to try fiscal policy or have the "Great Scholar" of the Great Depression turn into the architect of the "New Collapse."
I don't buy it either. Nor do I think the Bernanke can do very much. But it's still a good article.
Mr Bernanke,
None of you people are of any human value any more. 100% write-offs.
Resp,
M. Franko.
"He who walketh through the valley of death as an asshole dieth as such, so sayeth the lord, and yay that thou must deficit spend unto eternity" (Romans 20:12)
"I think Beowulf should talk with McCulley. Some of his ideas deserve a hearing!"
...
"Perhaps he has some ideas that are not completely depraved"
Hey Matt, what are you trying to say? I would argue that a majority of my ideas are not completely depraved.
:o)
As Reagan would say, the solutions are simple but not easy.
1. the Fed buys back public debt, and Tsy redeems it with coin seigniorage, rinse and repeat until there's nothing left to buy.
2. the Fed eliminates our CAD by establishing a dual exchange rate system to subsidize exports (de facto export subsidies).
3. Nationalize--- err I mean, Federalize the mortgage market. Buy up mortgages-- new, current, past due, the whole shebang-- from banks, investors, FHA, Fannie & Freddie .
Now that everyone's in the same boat, unilaterally cut everyone's mortgage terms to 2%, 30 year fixed. If that doesn't reflate the housing market (since lower capitalization costs increase property values), might as well put the whip down because the pony's dead.
Ha, saw the part below in Greider's piece. I wonder if Mitt Romney's dark secret can stay hidden through election day (that he's actually quite sensible on economics). Shhh!
"Mitt Romney described this with impressive clarity while campaigning in Florida. “We’re just so overleveraged, so much debt in our society, and some of the institutions that hold it aren’t willing to write it off,” he told a foreclosure forum. “The banks are scared to death, of course, because they think they’re going out of business…. They just want to pretend all of this is going to get paid someday so they don’t have to write it off…. This is cascading throughout our system, and in some respects government is trying to just hold things in place, hoping things get better…. My own view is you recognize the distress, you take the loss and let people reset. Let people start over again…. This effort to try and exact the burden of their mistakes on homeowners and commercial property owners, I think, is a mistake.”
Yes Beowulf I agree.
Romney gave in that quote the most coherent description of the issue that any politician or Fed economist has in the last four years.
Being sensible on economics is only a part of the job though (large part admittedly). He is still too likely in my estimation to pull a McCain and over reach with his VP and cabinet choices to put us in the unenviable position of having a much better economy in terms of personal debt levels and employment opportunities but also having a much worse society.
I try to tell myself that Mitt wouldnt be bad at all but then I consider that with Mitt might come a lot of bargains with the extreme right wing that would make the US uninhabitable.
I think there are more on the right who think Mitt will give in to the "socialists" and continue on with the "welfare state".
Anon, Good one, comes close... but no substitute for the real thing:
"12 "All avoid Him: at the same time they were useless.... With their tongues they defraud." Rom 3:12
beo,
I would add to your list a new special series Bond(s) to let individuals who have saved earn a decent UST rate of return on their savings.
Available to individuals only.
Subject to maximums.
Say 6% rate of return UST guaranteed and max 1M of purchases per US person.
Resp,
"While the Fed pushes for fiscal expansion."
Matt, you're right...what f**king world is he living in?? Bernanke is talking constantly about fiscal responsibility.
Matt says:
I would add to your list a new special series Bond(s) to let individuals who have saved earn a decent UST rate of return on their savings.
Available to individuals only.
Subject to maximums.
Say 6% rate of return UST guaranteed and max 1M of purchases per US person."
I said in other thread:
An other option to reduce the size of banking RIGHT NOW (where people has the power to do so) is increase the volume of exchange an demand of government paper sense: both in bills/coins and in treasury securities for big ammounts.
If people uses more bills and deposit them on entities with low or no-leverage statues that would force governments to print more and debt in private sector would accommodate to lower levels, to avoid the problem of inflation eroding savings government would be forced to issue more inflation linked securities, and preferably short-term paper. So the 'new banks' for the savers would be investment funds which would be fully invested on government inflation-linked short term securities, and with fiduciary responsibilities and unable to issue credit that would seriously limit capacity to over-leverage and avoid asset price bubbles (more in line with 'optimal' ratios like the ones Dirk Bezemer talks about in his INET paper).
This would also encourage liquidity preference and exchange of goods & services indirectly, and would reduce undesirable inflation as the level of debt is reduced in aggregate for private sector and specially households. Also would encourage free market competition: no more bailouts, venture capital and in some cases vulture funds would take the place to finance risky stuff (plus government via investment programs and joint partnerships with private sector), there is simply no need for big banks to have such a role in the economy right now, where developed economies are entering a phase where not only growth is doubtful, but probably most of it is undesirable (except the one propelled by technological breakthroughs). Everybody wins: savers, indebted households, entrepreneurs; only rent-seekers lose (banks and credit entities, and most of the real estate speculators who depend not on selecting good investments, but on rising prices).
Is this practical? Only if there was a move towards that from the people, but this is just as everything else.
Similar concept, issue 'consols' which never expiry and can be redeemed directly with the Treasury whenever you want with a variable-rate linked to whatever inflation measure is officially used (right now CPI, though CPI should be modified to avoid asset bubbles).
Around 95% of the banking system could disappear tomorrow without problem while everybody would enjoy lower financial costs (less debt for private sector) and less rent extraction from the real economy, as 80% of the lending is for real estate and probably more than 10% for cars, student loans and other stuff that can be either nationalized or reduced appropriately if people has more money in its hands (more tax cuts / increased spending & less financial costs). Corporations can issue their own paper & deficits and outsting fiat in the system is more than enough (there would be still a role for some credit entities with limited leverage rations to provide capital for corporations, real investment banks which could fail and that would not be protected by FDIC with STRICT leverage regulations, in the lines of what Bezemer says in his paper).
I don't think these reforms are 'bigger' that what was done during GD and post-WWII in a lot of countries, the only thing lacking is willingness to do them.
P.S: Bonuses and profit potential should be avoided and limited in public credit entities. banking MUST be boring and mostly an administrative job, not for people seeking to extract the most money out of it and get out of the sector as fast as possible.
Otherwise it won't work and will be worse than the current system, as per older experiences.
"I try to tell myself that Mitt wouldn't be bad at all but then I consider that with Mitt might come a lot of bargains with the extreme right wing that would make the US uninhabitable."
Mitt — someone tell him you are known by the company you keep — also comes with Mankiew, who is a depraved moron, and I don't use those terms lightly.
Mike I think Beo would call it "arguing facts that are not in evidence" and it is generally not allowed to do this in a court of law and shouldnt be allowed here either imo.
Just pretending and playing make-believe about what the Fed is doing wont make it so, even if it is the policy that we greatly desire them to pursue.
Look to the Chairman's sworn statements for evidence of what the Fed is really doing.
The whole premise of Greider's write-up here is FALSE, I see no evidence of it.
Resp,
Mankiw has made a career providing macroeconomic economic justifications for the existence of inequality and the rich, proving that if you are willing to suck enough plutocratic di**s you can get a choice position at Harvard and in presidential administrations.
Dan,
It seems the entire economics department at Harvard are in a contest to see who can FUBAR the macroeconomy the most while enjoying the accouterments of plutocracy without even to bother wiping off their chins.
"if you are willing to suck enough plutocratic di**s" you too can be like Milton Friedman.
If you look closely at the footage of the nobel prize ceremony, you can see a faint whiteish residue on Friedman's lapel. He was a real trailblazer in that regard.
Beowulf:
"2. the Fed eliminates our CAD by establishing a dual exchange rate system to subsidize exports (de facto export subsidies)."
How does this work, have you got any more info?
Anon,
Kind of like how France subsidized The Concord and Airbus. Pay others to buy your stuff.
Travis has an interesting post that I missed a while back, and that my have some relevance for Beo's ideas - Is Canada is the ultimate MMT playground?
Quote:
Unlike other jurisdictions Canada has a sovereign currency and a central bank that is explicitly allowed to buy both federal and provincial debt. It is all right here in Article 18 of the Bank of Canada Act.
'Kind of like how France subsidized The Concord and Airbus. Pay others to buy your stuff.'
Not exactly, in that case the govt was cherry picking which sectors would be subsidized, a dual exchange rate regime would be an offer open to all exporters. Ravi Batra (excerpted below) has been suggesting this for years. Ramanan tells me Nicky Kaldor proposed something similar back in the day.
“The exchange rate determination is a two-way street. If they [China, Japan] can set low exchange rates, so can we. This is what America can do unilaterally to ensure balanced free trade in which our exports rise to the level of our imports. The United States, like most nations, can tie the dollar to major global currencies, especially of those nations that have a large and persistent trade surplus with us, and use this rate only for its exports. Take, for instance, the case of the Chinese yuan, which has been basically tied to the dollar at a rate of 8 to 1 since early 2006. In other words, a dollar buys eight yuan. Suppose the United States pegs the greenback at five yuan and makes this rate available only to foreign importers of manufacturing goods? This will cut our prices by almost 40 percent, and sharply increase Chinese imports from the United States, whose goods will become much cheaper in terms of the yuan... Note that the pegged dollar rates would be available only to those companies that buy American goods and ship them abroad… This way the U.S. trade deficit could be trimmed and even eliminated without curtailing American imports.”
http://www.scribd.com/doc/43930941/Ravi-Batra-The-New-Golden-Age-2007
Would this not be a return to a fixed exchange rate in a way? ie NOT a "free floating, non-convertable" currency anymore as the 'free floating' part would no longer apply?
Rsp,
Beowulf:
Same question as Matt above, plus what's to stop China responding by doing the same thing?
Anon,
It would be interesting to see what "China's" response to this would be... given what they are already doing (huge surpluses), I would not be surprised if they would protest.
This at core is irrational as they are trading real goods and real services for financial assets that are not even in their own state currency. At best irrational.
Not that this is going to happen; but I can see it as currently technically feasible to settle all international trade in real terms and account for it all. ie "we will trade you what is in this shipping container for what is in that shipping container".
We could require any imported container(s) (with manifest) to have identified a corresponding export container(s) (with manifest) then all trade would be "balanced" by definition.
Without operating a monetary economy, unbalanced trade would be impossible. I guess you would have to formally consider an Ex/Im deficit a "gift" in that case, ie a trade surplus while not operating under a monetary economy.
Now (ie under a monetary economy) it is not usually considered a gift only because the surplus country can offset the gift with a so-called "financial claim" against the deficit country they give the real product to.
Resp,
That's the dual exchange rate part. For every purpose other than exporting, we have a floating currency. The Fed would give an overly generous exchange rate (why its practically a subsidy!) to US exporters alone.
Since the Fed would have total discretion as towhat the exporter exchange rate would be at any point in time for any currency (as well as who qualifies as a US exporter) its not really a pegged rate.
In other words, Fed could pick up the mountain and move it over 10 feet any time it wanted to crush speculators. It could also levy user fees on capital transactions if it wished put sinkholes under the speculators at the same time.
"they are trading real goods and real services for financial assets that are not even in their own state currency"
It seems that developing countries have to go through this process given that their currencies and economies are still weak and fragile.
Trade deficits and huge budget deficits strike me as being the privilege of developed economies.
I'm not sure China would be able to switch tomorrow to a US style economic model.
Once their economy is more developed they'll probably let their currency appreciate and focus more on internal consumption, but for now they're still in development mode.
The fundamental socio-economic strength, relative to other parts of the world, that makes western style economic models possible, needs (in part) to be 'earned', it seems to me.
Q. Once we get to the point at which most of the world's national economies are developed and everyone is operating on a high- end consumption-driven model, who the hell is going to be making all the cheap stuff? Is this when we finally get to a situation of balanced trade?
Beowulf:
"Fed could pick up the mountain and move it over 10 feet any time it wanted to crush speculators"
Wouldn't it simultaneously be crushing exporters then?
If the Fed buys up all the outstanding government debt, would it really be necessary to pay it off through coin seigniorage?
I thinking, given that the Fed hands back all the profits to the Treasury, the debt could largely pay itself off over time.
Also, Beowulf, why is it that you think the trade deficit needs to be reduced or eliminated? I'm still very unsure about this topic, but Mosler et al. all seem to think it poses no real 'financial' risk, i.e. no balance of payments crisis/ currency crisis risk. What are your thoughts on that?
"If the Fed buys up all the outstanding government debt, would it really be necessary to pay it off through coin seigniorage?
I thinking, given that the Fed hands back all the profits to the Treasury, the debt could largely pay itself off over time."
The debt remains on the books and is counted against the debt ceiling. TPC gambit gets around the debt ceiling. It basically demonstrates that the US cannot "run out of money."
But I think the real issue here is not that people think the US can run out of money. Rather they think that the politically imposed restrictions on the fiat system hobble it to spending only that which is taxed or financed. The want the government acting like it is one a gold standard to control inflation. It's part of the system design.
"Wouldn't it simultaneously be crushing exporters then?"
The point of moving it only 10 feet is to minimize collateral damage. :o)
"why is it that you think the trade deficit needs to be reduced or eliminated? I'm still very unsure about this topic, but Mosler et al. all seem to think it poses no real 'financial' risk, i.e. no balance of payments crisis/ currency crisis risk..."
I never said it posed a real financial risk. The problem is our political system.. First, let's set the table with something Wynne Godley wrote.
"If the private sector decides to save more, the government has no choice but to allow its budget deficit to rise unless it is prepared to sacrifice full employment; the same thing applies if uncorrected trends in foreign trade cause the balance of payments deficit to increase."
If every Member of Congress understood the significance of these words, we'd live in a much happier world. But they don't. The trade deficit is an enormous demand leakage that has to be offset by deficit spending. Since Congress isn't going to give up its misplaced hyperfocus on budget deficits, we're left with the choice of giving up on full employment or eliminating the CAD.
Actually I'm tending towards the view that even if there isn't in a theoretical sense a 'financial' risk with large and expanding trade deficits, nonetheless any necessary rebalancing as the result of future currency depreciations (which could potentially happen very rapidly) become more difficult and painful the larger the trade deficit grows and the longer it goes on. If you stop manufacturing anything because you import everything, then one day your currency drops like a stone, what are you going to do then? Adapting to new conditions becomes increasingly difficult the longer trade deficits go on, it seems to me.
These issues are also far more significant for small countries with limited resources, such as the UK.
It's probably far more prudent to at the very least moderate the trade deficit rather than allowing it to wildly expand beyond control.
Godley recommended imposing blanket import tariffs and controls as a temporary measure, and then moving forward towards new international arrangements for more balanced trade. I think he was probably right.
With a less worrying trade deficit and subsequently less need for gigantic deficits, the public mood would probably be more conducive towards introducing progressive policies, which would require additional spending.
The only problem is you end up getting less of them for 'free', which is what a trade deficit ultimately makes possible.
However most things aren't really free anyway.
*gigantic budget deficits.
"Godley recommended imposing blanket import tariffs and controls as a temporary measure, and then moving forward towards new international arrangements for more balanced trade."
Never happen in the US politically. It is poison to the elite that control the system and enforce neoliberal policy.
Should that change it won't be only trade policy that changes. It will result in a wholesale turn-around in the way the US is governed. I don't see this happening short of a crisis, although the neoliberal era is getting long in the tooth and it could be replaced by a shift in voter views. But it's not on the cards in the 2012 election.
Well, the MMT alternative of deficit spending unto eternity isn't going to get many followers either in the current environment, and I suspect that it would probably (eventually) lead to a pretty traumatic balance of payments crisis anyway, given the fact that countries like China show no sign of wanting to allow their currencies to appreciate or the dollar to depreciate enough to bring back some semblance of balance to global trade. So what's the solution? Would the idea presented by Beowulf above be more palatable do you think, assuming that it could work?
Does being an 'MMTer' mean believing that trade deficits aren't really a problem? Mosler doesn't seem to think it's an issue at all, although Bill Mitchell wrote somewhere that it could be if a country becomes dependent on imports to the point at which it would find it difficult to exist without them.
What is the downside of running persistent trade deficits if a sufficiently large fiscal deficit is used to offset the demand leakage and a JG to mop up residual employment. There are two areas of exposure, domestic inflation and a falling exchange rate for the USD.
The problem for the US now is that the USD is too strong, which is a big reason its exports are lagging. The other is restrictions on major export sectors that are deemed necessary for national security. Whenever risk of off, the USD dollar rises. It is still the safe haven, and the demand for tsys is holding strong. Yes, that "could change" anytime. Like things could change for the yen. Actually, the euro is probably overvalued considering the risk of the EMU breaking up.
Could a falling dollar result in rising petro prices, causing supply side inflation. Of course, but that would be a plus from the perspective of ending a negative externality and environmental sustainability to some degree as the US shifted to coal (unfortunately there is still a load of coal to burn),natural gas, nuclear power (hopefully thorium), and renewable energy sources. Petroleum is still priced much too low in the US wrt true cost.
Seems to me that the notion that the fx rate could plummet toward zero is far-fetched. As the rate fell, exports would kick in and imports would become more expensive. Importantly, investment abroad would also fall, and many companies would transfer more ops to the US.
As far as domestic deficits growing, that is no problem as long as the economy expands to provide real resources to meet increased domestic demand.
All in all, an rebalancing through a falling fx rate for the USD could be very bullish for the US economy and employment, as well as breaking the addiction to oil.
I totally agree with you on the oil issue, as least as far as the US is concerned. Having concrete reasons to shift to alternatives would be good for everyone, in the long term.
Other countries, such as the UK, could potentially find the (possibly forced) transition to alternatives to be much more difficult and painful however.
"As the rate fell, exports would kick in and imports would become more expensive. Importantly, investment abroad would also fall, and many companies would transfer more ops to the US."
That's the thing though - this argument is based upon the idea that the economy could somehow seamlessly transfer from being a huge net importer to becoming a competent exporter, in the face of a rapid depreciation - simultaneously capable of providing everything that was previously gained through cheap and easy imports, whilst somehow producing things that the rest of the world needs.
I'm making the (more realistic, I think) assumption that such a transition could potentially be very difficult, and painful for everyone involved.
...
Finding a replacement for imports would be hard enough as it is. Simultaneously having to generate needed export goods - at a competitive price - to prop up the value of the currency could be even harder.
That was the point I was trying to highlight - the longer the trade deficit persists, and the larger it gets, the more dependent the country becomes upon imports, and the less capable it becomes of surviving without them. Over time it becomes less capable of providing substitutes, or of generating exports that can be sold to the rest of the world.
(Again, these problems are potentially far greater for countries that are not technically 'continents' like the US).
cont...
It might seem a bit apocalyptic, but these sudden changes in the balance of power can happen - and they are more likely to happen the more one 'pushes the envelope' -i.e. the more one exacerbates the trade deficit through deficit spending without addressing the fundamental problem of global trade imbalances.
...
The typical MMT argument is that large trade deficits are great (because they mean that we can get stuff for 'free'). However, the reality might instead be that trade deficits are great - until someone turns around and points out that the emperor isn't wearing any clothes.
Again, these issues are potentially much more serious for small countries with limited resources and large populations (UK).
...
This is where the cynic's idea of 'generational transfer' comes into play. That is, the idea that this generation benefits from 'free' government deficit spending (assuming MMT policies are implemented) at the expense of later generations, who (may) have to suffer the consequences (assuming some 'day of reckoning' finally arrives - and the longer it takes to arrive the worse it will probably be).
...
The fact that a balance of payments crisis would be particularly bad for small countries like the UK makes me think that Mosler's version of MMT is maybe more suited to vast superpower nations like the USA, at least in the medium term(assuming trade imbalances aren't resolved).
...
Given that you're on the side of labour, Tom (as I am), shouldn't you be in favour of more balanced trade?
Do you like to see factories closing? Whole regions doomed to welfare support and left to wonder where their great industrial past disappeared to? I don't.
...
Let's say that suddenly, after years of gung-ho deficit spending (accomodating both domestic and foreign 'savings desires') the US suffers a dramatic balance of payments crisis. How would the governmnent respond?
Raise interest rates? - not going to work.
Increase spending? Not going to work - just more inflation.
Raise taxes? There you go, generational transfer - and it won't even solve the problem.
In all likelihood we end up with a severe depression and a huge loss of private financial wealth through inflation, and possibly taxation.
...
The fact that Wynne Godley considered this eventuality to be the greatest potential threat to the future of the US economy (after an excessive financial bubble), makes me think that we should take this issue very seriously indeed.
...
There has to be another way, between gargantuan compensatory deficit spending and rightwing race-to-the-bottom ideology.
That should have been 'inter-generational transfer'. Sleepy brain. In the negative sense, i.e. one generation passing its debts on to the next, rather than net assets (have to be careful about including the word 'net' aroud here):o)
Anon: "this argument is based upon the idea that the economy could somehow seamlessly transfer from being a huge net importer to becoming a competent exporter, in the face of a rapid depreciation - simultaneously capable of providing everything that was previously gained through cheap and easy imports, whilst somehow producing things that the rest of the world needs."
Doubt that a sudden transition would be "seamless." There would be major adjustments, as there were when imports began to take over. But that was a fairly expended process lasting decades and it seems to still have a way to run.
Randy has said that following an MMT policy, there are two factors to watch - inflation rate and fx rate.
Supposing that there were a currency crisis tomorrow. Central banks would intervene heavily to protect their currencies. TPTB of the US would like to see a gradual downward drift of the dollar but want to avoid any sudden changes that would upset markets.
Anon: "Given that you're on the side of labour, Tom (as I am), shouldn't you be in favour of more balanced trade?"
I learned toward Ramanan's side ("the case for concerted action") of this debate on trade imbalances although for somewhat different reasons. I recommend viewing the global economy as a closed system and running for the good of the whole rather than relying on competition among nation states and regional alliances to resolve the challenges facing humanity.
However, at present it is probably necessary for the developed world to be a net importer and the underdeveloped world to be a net exporter, but the goal should be to shift away from resource exports to goods exports and use the rising investment to build out infrastructure and to develop a consumer economy ASAP.
If the world did this, then much of the funding that is now being committed to national security could be re-allocated to socially productive use.
This new world order would also be oriented to actual challenges that humanity faces, like global warming, resource depletion and environmental and ecological detriment. That is to say, the orientation could be toward a sustainable path toward a higher standard of living globally and distributed prosperity.
That can only be achieve through coordination and putting humanity first. But the collective consciousness is a long way from there at this point.
"Central banks would intervene heavily to protect their currencies."
They would normally do this by buying dollars with foreign reserves and putting up interest rates.
The larger the quantity of foreign owned dollars and US treasuries is, the more ineffective these interventions will be.
Post a Comment