Follow the Real Money Behind the New Green Agenda — F. William Engdahl

What is becoming clearer is that the latest global push for dramatic climate action is more about justifying a major reorganization of the global economy, that to a far less efficient energy mode, implying a drastic lowering of global living standards. In 2010 the head of Working Group 3 of the UN Intergovernmental Panel on Climate Change, Dr Otmar Edenhofer, told an interviewer, ” … one must say clearly that we redistribute de facto the world’s wealth by climate policy. One has to free oneself from the illusion that international climate policy is environmental policy. This has almost nothing to do with environmental policy anymore … ” What better way to do it than to start with the world’s largest money controllers like BlackRock?...

Capital flows away from increasing risk toward increasing opportunity. This is not necessarily a bad thing if currency sovereigns step up to fill the gaps with currency issuance.

Bill Totten's Weblog
Follow the Real Money Behind the New Green Agenda
F. William Engdahl | NEO (January 27 2020)

Naked Capitalism
‘Something Big Is Shifting’: As Georgetown Announces Fossil Fuel Divestment, Students Across US Demand Their Schools Follow Suit
Julia Conley, staff writer for Common Dreams. Originally published at Common Dreams

Bill Mitchell — Prime Minister Corbyn should have no fears from global capital markets

Bill addresses many issues in this post that MMT economists don't ordinarily focus on like capital markets, capital flows, capital flight, capital controls, and exchange rate depreciation. Since most progressives don't understand the background and dynamics they generally get sucked into commonly deployed neoliberal traps. Bill shows how they don't need to.

Bill Mitchell – billy blog
Prime Minister Corbyn should have no fears from global capital markets
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Martin Armstrong — Russia Preparing for War?

Looking at capital flows.

Armstrong Economics
Russia Preparing for War?
Martin Armstrong

J. W. Mason — Only the Debt Is National

Imagine this set of transactions.

1. A bank in rich country A make loan of X to government of poor country B. Let’s say for concreteness that A is the united States, B is Nigeria, and X is $1 billion. So now we have a liability of $1 billion of the Nigerian government to the US bank, and deposit of $1 billion at the US bank owned by the government of Nigeria.

(Nigeria might just as well be Egypt or Mexico or Argentina or Greece or Turkey or Indonesia. And the United States might just as well be Germany or the UK. )

2. The deposit at the bank is transferred from ownership of the government to ownership of some private individual. It’s easy to imagine ways this can be done.

3. The residents of Nigeria, via their government, still have a liability of $1 billion to the bank, obliging them to make annual payments equal to the interest rate times the principal. In this case, let’s say the interest rate is 5%, so debt service is $50 million.

4. The payments can be met by running an annual export surplus of $50 million. As long as this $50 million annual payment is maintained, interest payments can be made and the principal rolled over; the debt will remain forever.

5. The private individual from step 2 moves from Nigeria to the United States, eventually becoming a citizen there.

The result of this: a family in the United States has a wealth of $1 billion. Meanwhile, the people of Nigeria make payments of $50 million each year to the United States forever, in the form of uncompensated exports. In their valuable book Africa’s Odious Debts and related work, Boyce and Ndikumana demonstrate that this story describes much of sub-Saharan Africa’s foreign debt. It applies elsewhere in the world as well.

I wonder how various people evaluate this scenario. Do we agree there is something wrong here? And if so, what, and what is the solution?

J. W. Mason's Blog
Only the Debt Is National
JW Mason | Assistant Professor of Economics, John Jay College, City University of New York

Joel Kotkin — Where Millionaires Are Moving

You probably won't guess.

New geography.com
Where Millionaires Are Moving

Joel Kotkin | executive editor of NewGeography.com. He is the Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University and executive director of the Houston-based Center for Opportunity Urbanism.

Jacques Sapir — Russia and Global Finance

The shaping of economic reactions by globalized finance

The result of these different factors is well known. The ruble has taken quite a beating since late summer 2014. But, this has not been the direct driver for the recession Russia is experiencing. The real driver was the reaction of the Central Bank. And here we could argue well that the Central Bank policy was self-destructing. A large part of the current recession has been created by Central Bank actions and definitely not by Western sanctions or oil prices fall. We are then to precisely figure the Central Bank reaction to the inflationary bout induced by the fall of the rouble we discussed above. The Central Bank of Russia is committed to an “inflation targeting” policy[8]. Wise or unwise[9], and we don’t think it is wise as much is to be said about the so-called “inflation targeting” policy[10], it’s a fact. The CBR will then increase its interest rates every time inflationary pressures are seen coming.

But the story doesn’t end here. If the ruble depreciation is taking a fast dive, the Central Bank will increase much its rates to “crush” speculation, as it has be seen in December 2014 when the CBR raised its primary rates to 17%. Here again it was a blatant mistake, but here again it’s a fact. High interest rates have never prevented speculation on any currency in the world[11]. It was too true for the ruble.

But the dramatic increase of interest rates had a very negative impact on the economy. To sum up a drop in oil prices is creating a very adverse financial environment for households and enterprises alike. Household are reducing (or more precisely containing) their debts linked to consumption and enterprises are reducing investments. This parallel reduction in investment and consumption had and still is having a very negative influence on economic activity.…

It’s obvious than introducing some forms of capital controls could have done a better job. It is to be known that even the IMF now recommends capital controls in some specific situations[12] as it is now well acknowledged that strong exchange rates fluctuations could be extremely disruptive for the economy[13]. Some Russian authors have advocated such a move[14], and the debate is still going on[15]

The introduction of such a system could allow Russia to develop a strong industrial sector to provide both the internal market and the export market too without interference from the globalized finance. This was the strategy adopted by a number of East-Asian countries[16], but also by France between 1945 and 1975[17]. Such a development doesn’t imply to stop developing the commodity sector. Actually, the oil and gaz sector could become major consumer of Russian manufactured goods and help to develop a high-tech sector.

The main issue here is more how to ensure the development of manufactured goods without compromising the production of commodities. It is not just a problem of developing new productions but also one of changing the whole structure of Russian industry as a significant number of new enterprises are to be created to develop these new productions, and their development is challenging an industry used to rely on large integrated groups.

It is true to say that the Russian government has put a priority on the development of a modern manufacturing sector for years. But, when the Ukrainian crisis began to shape international relations Russia has not broken with its traditional model. To some extent the crisis in international relations has the direct effect to make the change of model both an absolute necessity. But, in the same time, this crisis was making it a very hard undertaking. So far Russia is still caught in the middle of a kind of new “transition”, but time is running short.…

These excerpts focus on the central bank. The post analyzes the Russian economy and financial system in greater depth, showing that the issue is really not economic but financial, with finance bound up in global finance to the detriment of Russia, and by implication other countries other than the Atlanticists that control global finance under the dollar system.

Sapir is one of the few people in the West I have encountered to recognize that the Central Bank of Russia is the chief problem. The heterodox wing of Russian economists knows this and has been lobbying for a change in policy. This crisis presents a perfect opportunity for restructuring but that requires domestic financing. The Central Bank of Russia is being an obstacle instead of facilitating restructuring as the issuer of the ruble.

This analysis reveals the pressing need to get MMT materials translated into other languages and more widely distributed.

RussEurope

Russia and Global Finance
Jacques Sapir

George Andrew Karolyi, David Ng, Eswar Prasad — .The coming wave: Where emerging market investors will put their money

Few economists understate the importance of emerging market economies in terms of world GDP and global growth prospects. This column asks where the future of emerging markets’ investments lie. Where investors have focused in the past and institutional path dependency are important determinants of emerging markets’ allocation of international investment portfolios. This has implications for the geographical distribution of emerging markets’ portfolio investments, a force to reckon with in international financial markets.…

To guide our empirical analysis, we then turn to the concept of information immobility proposed by van Nieuwerburgh and Veldkamp (2009, 2010). Rather than relying on information asymmetries, which should in principle decline over time, their theoretical model recognises that investors face a choice in deciding about which assets to acquire information when there are multiple risky assets in the investment opportunity set. For instance, investors have a comparative advantage in learning about their domestic assets. Even as information about foreign markets becomes easier to obtain, the initial information endowment leads investors to exert more effort in acquiring additional information about domestic assets, magnifying their comparative advantage. Similarly, investors would prefer to invest in foreign countries where they had an initial information endowment.

We propose empirical proxies on a country level and on an institutional investor level to detect possible emerging market investors’ information endowments for a particular destination country for their outward investments. On a country level, the proxies are historical foreign direct investment and trade flows between the home and destination country for outward portfolio investments. Such historical foreign and direct investment and trade flows typically result in business contacts and investment relationships that could serve as a source of the initial information endowment.

Transaction costs involved in gathering, processing, evaluating, and acting on information favors existing patterns as "endowments." 

vox.eu
The coming wave: Where emerging market investors will put their money
George Andrew Karoly, Professor of Finance, Samuel Curtis Johnson Graduate School of Management, Cornell University, David Ng, Professor of Finance, Cornell University, and Eswar Prasad, Tolani Senior Professor of Trade Policy at Cornell University, Senior Fellow of the Brookings Institution and Research Associate, NBER
ht Mark Thoma at Economist's View

Michael Bordo and Harold James — Trilemmas in capital flows, and domestic and international order

The classic exchange rate trilemma presented a formulation for analysing the trade-offs between the incompatible macroeconomic goals of capital mobility and monetary autonomy within a fixed exchange rate regime. This column shows how policy trilemma analysis can be extended to other domains, specifically financial stability, political economy, and international relations. It argues that analysing these trade-offs can help to identify policy options that balance macroeconomic objectives and political realities in the face of globalisation.

VoxEU.org

Trilemmas in capital flows, and domestic and international order
Michael Bordo, Professor of Economics, Rutgers University, and Harold James, Professor of History and International Affairs and the Claude and Lore Kelly Professor of European Studies, Princeton University and CIGI Senior Fellow

Marshall Auerback — The ECB Agrees With France: The Euro Is Too High

When neo-mercantilism is the model, then currency devaluation bestows competitive advantage in trade, and currency appreciation undercuts exports upsetting the business plan.

Focusing on the euro, ECB President Draghi pointed to large capital outflows out of Russia of about $160bn. Some of this may have gone into euro denominated investment, increasing unwanted upward pressure on the currency.

Macrobits by Marshall Auerback
The ECB Agrees With France: The Euro Is Too High
Marshall Auerback

Gabriel Zucman — The Missing Wealth Of Nations: Are Europe And The U.S. Net Debtors Or Net Creditors?

This article shows that official statistics substantially underestimate the net foreign asset positions of rich countries because they fail to capture most of the assets held by households in offshore tax havens.

Drawing on a unique Swiss data set and exploiting systematic anomalies in countries’ portfolio investment positions, I find that around 8% of the global financial wealth of households is held in tax havens, three-quarters of which goes unrecorded. On the basis of plausible assumptions, accounting for unrecorded assets turns the eurozone, officially the world’s second largest net debtor, into a net creditor. It also reduces the U.S. net debt significantly. The results shed new light on global imbalances and challenge the widespread view that after a decade of poor-to-rich capital flows, external assets are now in poor countries and debts in rich countries. I provide concrete proposals to improve international statistics.

The Missing Wealth Of Nations: Are Europe And The U.S. Net Debtors Or Net Creditors?
Gabriel Zucman

Super bad news for the wealthy. Not only does it undermine meritocracy and "just deserts." The public is really, really down on tax avoidance, especially at tax time when ordinary folks have to pony up or else.

Felix Salmon — Who’s to blame for the emerging-market crisis?

Paul Krugman and Dani Rodrik are out with dueling op-eds on the subject of the latest bout of financial-market craziness in places like Argentina and Turkey. Both men have been following emerging-market crises for decades; both indeed, are world-class experts on such episodes. What’s more, both economists have a broadly left-liberal worldview: there’s no deep ideological or philosophical rift here. And yet the two seem diametrically opposed.

Reuters — Econoblog
Who’s to blame for the emerging-market crisis?
Felix Salmon

Who's to blame. First, the institutional structure imposed under neoliberalism that rests on the myth assumption of "free markets, free trade, and free capital flows." Secondly, the requirement that the economy and therefore, the financial system as well, be run  by capital for capital preservation and accumulation, the myth assumption being that capital formation is the sine qua non of growth, which includes the myth assumption that "growth" is identical with greater prosperity. 

Of course, this is only part of the mythology which is ultimately to blame for recurrent social, political and economic problems. But it is an important part of it. There is no fix in an ill-designed or broken system without overhauling the system, or at least reforming it in a major way.

Neoliberalism is not only antithetical to democracy but also incompatible with distributed prosperity.