As featured on p. 218 of "Bloggers on the Bus," under the name "a MyDD blogger."

Tuesday, March 24, 2009

I Suggest Everyone Take A Course In Mandarin

Barack Obama's op-ed on the G20 Summit has a global audience for a reason: there has been a lot of wrangling between member nations about how to best tackle the global economic crisis. America has called for additional stimulus while Europe in particular wants increased regulation of the financial sector. I think Obama mainly asks for a both/and approach here rather than either/or.

My message is clear: The United States is ready to lead, and we call on our partners to join us with a sense of urgency and common purpose. Much good work has been done, but much more remains. Our leadership is grounded in a simple premise: We will act boldly to lift the American economy out of crisis and reform our regulatory structure, and these actions will be strengthened by complementary action abroad. Through our example, the United States can promote a global recovery and build confidence around the world; and if the London summit helps galvanize collective action, we can forge a secure recovery, and future crises can be averted.

Our efforts must begin with swift action to stimulate growth. Already, the United States has passed the American Recovery and Reinvestment Act -- the most dramatic effort to jump-start job creation and lay a foundation for growth in a generation. Other members of the G-20 have pursued fiscal stimulus as well, and these efforts should be robust and sustained until demand is restored. As we go forward, we should embrace a collective commitment to encourage open trade and investment, while resisting the protectionism that would deepen this crisis [...]

While these actions can help get us out of crisis, we cannot settle for a return to the status quo. We must put an end to the reckless speculation and spending beyond our means; to the bad credit, over-leveraged banks and absence of oversight that condemns us to bubbles that inevitably bust. Only coordinated international action can prevent the irresponsible risk-taking that caused this crisis. That is why I am committed to seizing this opportunity to advance comprehensive reforms of our regulatory and supervisory framework.

All of our financial institutions -- on Wall Street and around the globe -- need strong oversight and common- sense rules. All markets should have standards for stability and a mechanism for disclosure. A strong framework of capital requirements should protect against future crises. We must crack down on offshore tax havens and money laundering. Rigorous transparency and accountability must check abuse, and the days of out-of-control compensation must end. Instead of patchwork efforts that enable a race to the bottom, we must provide the clear incentives for good behavior that foster a race to the top.

Generally speaking, we actually do have to deal with all these things at once, not just because of the political concerns (no better time for reform than in the midst of the crisis, etc.), but to insure against the very real prospect of moral hazard or the desire for personal greed to supersede a return to stability for the greater economy.

However, I'm concerned that the only people playing 8-dimensional chess with respect to this are the Chinese:

China will propose the new world 'currency' with reserve status, in fact a basket of major currencies as defined by the IMF Special Drawing Rights, at the G20 meeting on April 2.

It will take a few years until a full fledged SDR based system will become functional. The U.S. and the UK will likely fight against this. The Euro based countries will mostly be indifferent. For China this is now a major official policy goal. With BRIC pressing for a new reserve system and support from others medium weight countries like South Korea and South Africa the new initiative has a lot of momentum.

So far the U.S. could borrow cheaply and pay back less in real value than the original loan. That privilege is now going away. The trillions the U.S. currently needs to borrow from abroad will have to be payed back in full. That is a major change in its global power status and will seriously decrease its influence in international policy questions.

Russia appears to be on board with this, which would tip it in the direction of China. It doesn't seem like hyperbole to call this the end of American empire. And you know, we screwed the pooch so we lost the right to lead the world, in many respect. However, I find it always worthwhile to fear second-rate powers with lots and lots of guns. Steve Hynd has more.

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