Managing Down "Bretton Woods" Expectations

Hyperbole has become a mainstay of discourse in the US. The upcoming financial summit set for November 15 in Washington DC is being wrapped in the Bretton Woods brand, when it appears to be a different sort of beast. As a Wall Street Journal story reminds us, Bretton Woods was a three week session among 44 countries to establish a new international financial regime. The weekend-long gathering, by contrast, has ambitious, but more limited aims. and is more likely to produce an agreement to agree, that is, a consensus on a few high level issues, and some sort of road map for future meetings and initiatives for developing policies and reforms.

But the Bretton Woods label gives the misleading impression that currencies will be a major focus of these talks, and that seems unlikely. The Europeans who pushed for this session, have their own agenda, and it is long enough to difficult to tackle in the allotted time. From Bloomberg (hat tip reader Matt D):

Sarkozy is leading the 27-nation EU’s push to respond by revamping a financial system established after World War II. Leaders from around the globe will meet Nov. 15 in Washington to assess the turmoil at the urging of the EU, which has floated ideas including more bank supervision, stricter regulation of hedge funds, new rules for credit-rating companies and changes at the International Monetary Fund.

Do you see currencies on the list? No. Now of course, this forum, once established, would be the logical place to discuss how to move from the dollar as reserve currency to a new regime. The Chinese appear eager to have currency arrangements included in the talks; it will be interesting to see how much success they have.

Now we separately have a breakdown in progress of what some call the Bretton Woods II regime, or what others less elegantly call global imbalances: that China and some other economies run very large surpluses (which also means they have high savings rates and low consumption) while other countries run large trade deficits, overconsume, and undersave (in our case, run up unsustainable levels of debt). Brad Setser tells us this system is on the ropes sooner than anyone expected, not because our friendly foreign creditors have quit buying our paper, but because trade volumes, and with it, China’s large trade surplus, appear to be contracting rapidly. So events may force a discussion of the role of the dollar sooner rather than later, but it still appears unlikely to get more than a token acknowledgement next month. (This isn’t as bad a move as one might think, even if the issue does turn out to be urgent. Negotiators advise dealing with easy issues first and saving difficult, divisive ones for last so as to build a spirit of cooperation and trust).

Jeff Frankel sets forth what might come out of the November talks:

The first thing to say about the calls for a “new Bretton Woods” is that they overreach, in the sense that it is very unlikely that any changes in the structure of the international monetary or financial system will or should, at this point in history, come out of multilateral discussions that are big enough to merit comparison with the first Bretton Woods. Certainly we are not talking about fixing exchange rates, as the 1944 meeting did….

Nevertheless, it is worth taking the opportunity to consider what changes – whether more ambitious or less — might be made at the multilateral level to improve the functioning of the system….

The International Monetary Fund has been given the task of outlining what a new Bretton Woods would look like – appropriate since the IMF is one of the original Bretton Woods institutions (along with the World Bank).

o An Early Warning system is almost certain to be high on its list. But it already developed early warning indicators, after the East Asia crisis of 1997-98, and they haven’t been much help.

o Now that the financial crisis is spreading to small economies like Iceland, transition economies in easternmost Europe, and poor countries like Pakistan, the IMF country rescue programs will get back in the saddle…

o There has been a loose one-year campaign to suggest guidelines for the operations of Sovereign Wealth Funds themselves. But benefits of the SWFs may be more widely appreciated now, in the context of the current crisis than previously.

o The IMF, just as all the multilateral economic institutions, has moved far too slowly to give added representation to the newly important developing countries such as China, Brazil, Korea, India and Mexico – representation at least in proportion to their economic role, to say nothing of population…

The G-8 has been increasingly handicapped in recent years by virtue of its obsolete membership.

o How can they discuss global current account imbalances or the need for exchange rate adjustments without China and Saudi Arabia at the table? It looked like the G-20 would supplant the G-7.

o The G-7 still retains some relevance, in its role as self-appointed steering committee for world governance. After all, this financial crisis did not start in the developing countries, as it did those of 1982, 1997 and 2001.

o But they will still have to start inviting China, Saudi Arabia, and any other country that they expect to help finance any of its plans.

The most probable substantive outcome from talk of the need for a bold new multilateral initiative is that there could be a “Basel III” to replace the “Basel II” agreement.

o It would make capital requirements on banks countercyclical, rather than what has turned out to be procyclical, i.e., destabilizing, under Basel II. (Ironically economists at the BIS in Basel probably deserve credit for being the observers, in addition to Charles Goodhart, who most accurately warned of the procyclicality before the crisis.)

o A Basel III could also replace the option of self-regulation of banks (under which they could choose their own Value At Risk models) with external regulation.

o International guidelines for guaranteeing deposits (possibly reinstating a ceiling, such as $100,000, after the crisis has passed) should perhaps be coordinated, to avoid flight of the sort that Ireland’s European partners experienced.

Other possibilities:

o A more ambitious reform would be to try to agree on guidelines to extend prudential regulation from international banks to non-bank financial institutions, since the latter were such a serious part of the problem in 2008 that many either failed or were bailed out, against all expectations.

o More radically, regulation of this sort not just agreed multilaterally but carried out multilaterally, rather than at the national level, by the BIS (which now includes major emerging market countries) or a new agency.

o The IMF, Financial Stability Forum, and other institutions will vie to lead the effort.

o Other radical proposals:

 A securities transactions tax, harmonized internationally, to raise revenue in a way that satisfies the public’s understandable feeling that the financial sector, which created this financial crisis, should not benefit from the solution.

 Regulation of certain derivatives, such as Credit Default Swaps.

 But there is a danger that derivatives regulation could do more harm than good, e.g., a ban on futures markets or short-selling.

o At the other end of the spectrum, one should consider the possibility that doing nothing might in the end be better than undertaking fundamental reforms in the international financial system

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  1. Richard Kline

    Bretton Woods I wasn’t negotiated at Bretton Woods; it was the result of a series of US-UK bilateral accords followed by a lengthy negotiation between the two on a bilateral framework. This was then presented to an audience who, in the midst of a desperate war that had rendered most of them functionally insolvent, were invited to join where not joining meant ruin. Yes, yes, there were negotiations in those three weeks, but really those were jots and tittles on the prepared program. So it will be with the next regime. It will materialize suddenly out of a process underway for some time.

    —Which may well be called ‘the Beijing Consensus,’ regarding which thanks Matt D. for the tip on the EU-Asian conference. It is extremely telling that this meeting of the last two days has received _zero_ notable comment in the US MSM. I’m not saying that any final accord was struck there, but again most of the action would have been offstage in private multi-lateral consultations. The fact that it was held at all indicates that there had been much backstage preparation. This is happening so quickly, but that’s no surprise. China’s leadership has been very careful to take not provocative actions, very cautious on intervening anywhere. They have been ostractized and indeed beseiged by the world community within the not too distant past. No country has done more to prepare in case such a squeeze were to be put on them again, financially, diplomatically, or militarily. They would rather negotiate their way in though, clearly, and have done a damn good job of biding their time. They didn’t even offer to dollar fund Korea—a US possession—in the last few weeks when the US did nothing there.

    Fifteen months of unilateral actions by the US tells the other world what _our_ plan for the crisis is. If we were ‘leaders’ we would, for example, have instituted an unlimited swap program through the IMF in the last six weeks to the BRICs and others—but we didn’t. Many a country played ball on the field of dollar hegemony, taking capital inflows from the shadow bankers, and taking on dollar and yen debt. Now come the crisis, capital sprints away, and those countries see their currencies shredded while their debts soar. Does the US do _anything_ to address those structural issues. No, we are ‘studying’ the issue—only because Europe is leaning on us about this. That is not leadership, it’s absentee landlordism. The rest of the world would well serve their own interests in coming up with a new plan not under such management. And they will, since the US has a total leadership vacuum on the issue at present.

    Changes in financial regime do happen often; neither do they happen gradually; never do the really happen by negotiation. Reality strikes, and words on charters follow. Such shifts happen in exactly these contexts, when the financial pivot and preferred currency issuer is insolvent and out of options, its size notwithstanding, following decades, even generations of imbalance and malfeasance. The standing of any central financial power is very much a consensual one; this is something not well understood. It follows military success, but is not strictly determined by it, or even strongly correlated with it. Other countries cooperate because the costs of putting together an alternative outweigh the profits of sticking with a failing and unfairly balanced relationship. The date of 15 November is completely artificial. Sarkozy told Dubya, we’re having a meeting. Dubya said, you can’t ’cause _I’m_ having a meeting. Sarko said, well let’s meet on neutral turf. Dubya said, I’ve already book space. —Except the US has NOTHING to negotiate, no plan, program, nada; the whole idea was to prevent anyone coming to a consensus if Washington could possible obstruct that outcome. So the other countries are simply negotiating their package elsewhere; if they say anything about what The Plan is on 15 Nov, it will be a pre-determined accord, just like Bretton Woods itself. More likely, they will make a mid-December announcement elsewhere—without the US in attendance. That would be a laugher, and the true capper on the eight years of misrule under George the Bush.

    Look, the key is the EU. It always has been. As long as Europe lined up behind the dollar, there was no way _whatsoever_ that an alternative currency could advance. If the EU, Russia, China, Korea, Brazil, Mexico, and a few others iron out a mutual currency peg, and agree on a mechanism for non-dollar settlement, there is squat the US can do about it. Japan is tied to the US; whether they’ll jump ship is still unclear. Personally, I think that they will wait to the last possible minute, and then go over to the emergent bloc. Oh, America is a major financial force, and will recover to remain one; we could make a lot of trouble; we are in no position whatsoever to do so now. The rest of the world looks to have the sense to maintain appearances and go though all due summitry, but if they make an accord amongst themselves, that is the new plan. Period. And it looks like they will.

  2. Richard Kline

    I don’t mean to imply that the Chinese will dominate any financial reconfiguration: they won’t. At least not any time soon. The EU will lead if they want to, although power in a new bloc is likely to remain fluid for a ‘break in’ period. Smarter leadership in the US would and may yet attempt to get out in front of the consensus and lead from within. Such leadership is nowhere on the horizon, and if we wait eight years it’s all over but the editorials.

    Those of you expecting the euro and the EU to shred in this crisis, y’all are a hoot. The trajectory for Europe is a steadily centralizing political authority. There will be a presidency. There will be increased financial regulatory coherence. The pace on that I can’t say, but the crisis _will only ACCELLERATE such changes_. Sarkozy has had clear ambitions to be Europe’s first president, and he is presently earning the nod on merit. (Personally, I detest him; however, he knows how to play this game. No on in the US does, any more.) What you all are watching is really how global power politics _happens_, not by planned moves, and careful diplomatic protocal, but by latent trends coalesceing in the fluidity of crisis. Only afterwards do the ‘negotiations’ put make-up on the reality. Nearly always, it is all over before the negotiators convene; that is why they convene, to formalize what is already established.

  3. Anonymous

    Richard Kline

    Changes in financial regime do happen often; neither do they happen gradually; never do the really happen by negotiation.

    I think you mean do not.

  4. Richard Kline

    So Anon of 4:29, you are correct; that was my intent. Also: ” . . . Other countries cooperate because the costs of putting together an alternative outweigh the [decline of] profits [from] . . . .” I typically comment at work when I’m tired and otherwise intermittently engaged; there are many errors in my text. *mmph*

  5. jorgitonew

    have you read the Federal Reserve Bank of Minneapolis report? They use data from the Federal Reserve Board to deny everything is happening now.

    Under Minneapolis assumptions credit is now at full speed. Even larger than before the crisis. I think China knows more than us. Don’t forger than in any creditor-debtor relationship, creditors rule.
    Buy Gold,Silver,Platinum or Palladium, especially Silver,Platinum or Palladium. They are extremely undervalued.

    Disclosures: I’m long gold,silver and palladium.

  6. jorgitonew

    BTW, why do u think Asia is going to dump dollar by buying any other currency and selling dollar? Wouldn’t it be more efficient to dump dollars by buying commodities instead of paper currencies? China has the factories, West World just the printing machine. It makes mores sense to dump paper currencies by buying commodities. It would provoke the repudiation of the dollar and more expensive commodities. But the difference is that commodities would be now in China’s arm. They would have something more valuabe because they would push commodities up by dumping dollars, but they would have commodities.

  7. Richard Kline

    Dumping the $ is stupid; so far the RotW has been smart. To dump is to hurt yourself. They need to build down their dollar accumulation while building up their basket allocations of other currencies; it almost certainly figures to be a closely managed basket until the euro gets its training wheels off. Building down the dollar keeps the US gasping for capital, and on a very short leash. If we print in those conditions, it’s like flooding our bathysphere with CO2. If we play ball, we get winched up to the surface after all the other players have slotted themselves. O’ course, we’ll thrash around bawling self-promoting ‘orders,’ so who knows how it plays out in practice. But if we’re broke and importing less, we’re floating less debt ’round the globe, so it would be the optimal circumstance for others to re-balance their strategies.

  8. Anonymous

    RK, I agree with your take on the situation.

    So far China and the remainder of the SCO have done an excellent job of playing capitalisim to their advantage. Beginning with Nixon/Kissinger the game has been evident for any to see.

    To simply say that the US has had a ‘lack of leadership’ for the time between the Nixon inauguration untill present is such an understatement as to be laughable.

    There is only one party in the US and it is the party that destroyed the US. Any government that fails to provide a climate in which it’s citizens can strive and accomplish based on meritocracy forfeits the right to govern…and, the citizens of the US are certainly not off the hook for selecting pols based on their ability to lie with elan.

  9. Anonymous

    The time has come for the US to share the wealth, the 5% of total worlds population who are dependent on the rest of the world to suppot their boom bust cycles and goverment failures needs to end. The other option will be war on a global scale which is the more then likly outcome here.

  10. baychev

    the asian and the bulk of the gulf dollars are in treasuries/agencies. they can’t sell them for bucks as there is only 800bn dollars and 15tn treasuries/agencies, or 20 cents on the dollar.

  11. Anonymous

    Richard Kline,

    What’s your view on countercyclical capital requirements, or capital requirements in general and Basel?

  12. jorgitonew

    richard klaine..why allocate china $ surplus to other currencies and not to commodities? Other currencies are going to suffer the same problems as $.
    It would be wiser to dump $ by allocating your surplus to commodities.
    Remember, china has the factories, not now neither usa nor eu. They only need commodities, not $. They have more people to develop whithin its borders than people asking for their products in the western countries.

  13. Matt Dubuque

    Matt Dubuque

    I think the most likely outcome of the mid-November meeting (which is a very long way off in market time) is that Asian nations will pony up substantially more money into the IMF to assist it in its bailouts of a growing list of nations.

    To date, what the IMF is doing is offering to finance the rollover of sovereign debt. But it is becoming quite clear that the problems of the sovereigns, (including Turkey with its implications for German banks) is far more than a liquidity problem.

    The IMF currently has around 200 billion to fund this type of operation. When you understand the scope of the problem as more than rollover risk (which Bush does not), 200 billion falls far short of what is needed.

    But the argument of the surplus nations remains compelling. Why must the head of the IMF (a European) and the World Bank (an American) NEVER be an Asian? What makes THAT fair?

    It comes across as explicitly racist to the ASEAN +3 countries. And now that they are ponying up the cash, any vestige of a competent argument in defense of this policy vanishes.

    In terms of renegotiating a currency regime, clearly the bubble produced by the Japanese carry trade has now burst. I’m fully persuaded that introduction of the ACU (Asian currency unit), as discussed in ASEAN +3 and APEC over the last 15 years, remains the pathway of choice among the Chinese, Malaysians, Singaporeans and now, probably, the South Koreans. And they carry quite a bit of clout.

    One other factor cannot be emphasized enough to an American audience. It sounds DEEPLY counterintuitive to Americans, but a MAJOR part of the Chinese agenda here remains Taiwan. After the Olympics, Taiwan has now moved to numero uno on the Chinese agenda.

    Recall that two days ago Taiwan (taking a lesson from AIG and MET) took the drastic step of forbidding its insurers from holding RMBS.

    The following day, Hu Jintao “surprised” everyone with the strength of his backing for Sarkozy’s approach.

    Yesterday there were MASSIVE demonstrations in Taiwan against BOTH the Kuomintang (surprise!) AND Communist China.

    Before China subscribes fully to any EXTENSIVE overhaul of IMF financing and currency realignments, it will INSIST that, behind the scenes, Washington adopt a more “cooperative” approach to bringing Taiwan back to the homeland.

    Recall how they were infuriated at massive sale of armaments by George W. and his cronies to Taiwan
    a few short weeks ago.

    Such an agreement by Washington need not be public, but it is a necessary precondition for China’s full engagement. Otherwise they will let the West continue to fester in the cesspool of its making a while longer.

    They have the cash. Europe and the USA do not.

    Matt Dubuque

  14. thomas j

    “If the EU, Russia, China, Korea, Brazil, Mexico, and a few others iron out a mutual currency peg, and agree on a mechanism for non-dollar settlement, there is squat the US can do about it.”

    Man, Richard, you have lost the plot.

    A currency peg between the EU, Russia and China involving non-dollar settlement all without US approval because “there is squat the US can do about it.”

    And apparently in your esteemed opinion said unilateral currency pegs without the approval of the US will have no impact whatsoever on military alliances. Maybe Germany and France can arrange NATO entry for Russia while they’re at it. Hell why not add China. After all we’re all friends here now. And I’m sure Mexico will just jump right on the bandwagon too.

    And exactly what rate would the Rouble be fixed at? Or the Peso? How has pegging worked out in the past?

    Not to mention the currency swaps between the Fed and the ECB to bail out Euro banks drowning in dollar denominated debt. I guess we’ll simply ignore that old pesky dollar debt because we’ve been magically transported into the new Kline paradigm.

    But, of course, I forgot the US has been rendered impotent as Sarkozy the Great Unifier has suddenly won worldwide adoration and acclaim for his brilliant handling of the French economy. And military force or alliances no longer have any bearing or relevance to monetary arrangements in the Kline paradigm.

  15. k

    The Seventh Asia-Europe Summit just concluded a few hours ago. Chinese Premier Wen, French President Sarkozy and two others held a press conference this afternoon. When pressed for the “currency” issues, well, Sarkozy pledged the coming Nov. 15th conference won’t just be “talks”; he wants something “concrete.” Watch the clip yourself.

    (The whole thing is about 40 minutes. Sarkozy’s answer starts at about 34:00. This version is in English.)

  16. S


    Totally agree with you on Taiwan. Good point. When you think of forced liquidation you seell valuable assets. At the moment the intangibles are the most valuable for the US. China (Taiwan backing) & Russia (near abroad). The US may seek to wall off its influence in the ME/petro and cede the interasian trade via emerging Eurasia. Will this play out like the British tactical retreat who knows. The action is in the FX markets now and the stock market continues to be a circus sideshow.

    Who knows how it plays, but as they say, ameteurs study tactics professionals study logistics.

  17. Anonymous

    Does anyone wonder about the AMERO!?

    Watch now for the UNION BLOCS …

    EU/NAU, etc. Problem is, the other countries that were to be another “cakewalk” in “ownership,” have opted out of the NWO agenda, for now.

    China has indeed been our new best PARTNER (70 visits from Mr. Financial Dictator himself), I believe, in just a short time now since this “new” (PLEASE) CRISIS has evolved.

    The NORTH AMERICAN UNION is on course and but of course, so is the NEW CURRENCIES, since the US$ has been rendered to be just what it was and is — AN IMPERIAL TAX on planet earth and almost all the people all the time.

    But hey ho, away we go again! To blindly and DUMBLY allow a gene pool of criminally insane lead us into temptation, for another how many thousand years and counting?

    Ah, and all for the hope of winning the lottery.

    Too bad the American population does not look at becoming artists and do real labor for a living. AND the best part is, artists do not worry about being in the “in-crowd,” … billionaires in a mobster club of moronic predatory criminally insane, raping/pillaging and plundering all in the name of TRADERS.

    Hmmm, it feels an awful lot like the same notion the Founding Fathers of the Constitution penned, regarding faux “wealth.”

    Traitors rhymes.

    Does anyone remember the lessons of the past, where the KING that decided he, too, was a god and therefore he was placed on the same wall with the other Humpty Dumpty figureheads?

    Time to work for a living rather than play SICK digital expanded exponentially “monopoly,” with other people’s money.

    Creative genius is not lazy and it does not end with just brain chemistry – physical labor is a key factor in wealth since we are all in PHYSICAL BODIES.

    Oooops, tell this to the criminally insane who believe that the god they worship gave them permission to breed super races. AND, THIS SPECIAL GENE POOL is fed the flesh of “unnecessary eaters” (see H.Kissinger’s 1972 400 pg paper).

    In other words, this is ABOUT POPULATION CONTROL and therefore CURRENCIES is an obfuscation!

    Wake the hell up! China is too overpopulated and has been sending CHINESE NATIONALS HERE, for YEARS AND YEARS!!!


    How long has this been going on?

    Gee, where has censorship gotten us — FOR YEARS!

    A partnership with China began to be and that was when the Russell Smuggling Company (Bush Family cousin) decided to participate in collapse of China in the Opium Wars.

    But, that is just the tip of the iceberg fellow American sleepwalkers.

    Every time a TRADER (think RHYME) plays in the MARKET with digital faux wealth, a child starves somewhere since that human being is not allowed to know the secrets of the temple.

    In a word, insane.

  18. Anonymous

    I do have a suggestion for all the true blue gamblers — INVEST IN THE CHEMTRAILS.

    This is actually the best future income anyone could hope for since it is guaranteed.

    But, please remember that the CIA pilot (a WWII POW VET, etc.) that flew for Evergreen Air (CIA in Oregon PARTNERS WITH CHINA TO BRING IN THEIR MILITARY), this Huey Helicopter pilot told the government “man” to stop “messing with the weather” after WWII, however, he was obviously ignored, too.

  19. Anonymous

    We pointed out that even BIS doesn’t have any idea what over the counter derivatives are worth. Without knowing the total debt outstanding, there is no way of knowing what funding is needed to service the debt.

    These meetings will be an exercise in futility with the US dragging around a ball and chain with ‘debt’ stamped on the ball.

    It is fascinating how the US goes around advising for foundational banking via the IMF and then leaves to watch the implosions from a distance returning to read from the card, “By the way, it only works when you have the reserve currency.”

    Helps if you can grow (nutritional) wheat in your backyard and your gun is 1000 times bigger than your wheat field.

  20. CCT

    The linkage of a political problem in Taiwan with the economic issues at hand are false, in my opinion.

    I won’t give Bush much credit as president, but over the last 4 years, he’s done a very statesman job in managing Taiwan/mainland China relations. It’s fair to say that the three capitols are closer to a consensus today than they have ever been at any point in history. Barring drastic change (and the “protests” in Taiwan aren’t a drastic change, just a continuation of polarized opinion on the island), Beijing will absolutely not contribute to the destabilization of the current consensus established by George Bush.

  21. Anonymous

    From Kitco’s John Nadler:
    “No wonder that next year’s World Economic Forum in Davos will not look and sound anything like the past five Bacchanalias where warning sings were tossed aside. Rumor has it that the goal is to transform the event into the “Bretton Woods of the new millennium.” Bretton Woods…hmmm we’ve heard that term somewhere, before…”

    Also see news article: Which suggests the Bank of International Settlements will be a good vehicle to implement a non-gold based international organization to fix currencies.

    Key comment: “The ramifications are deep especially if we are faced with an attempt to introduce Bretton Woods type currency controls. However, I doubt the new Bretton Woods will use gold as its anchor for valuing a reserve currency. More likely is an implicit pan-national guarantee of a non-sovereign, trade weighted measure. An expanded and strengthened version of the IMF Special Drawing Rights (SDR) springs to mind.”

    I think the short version of all this talk of Bretton woods is that we need more discipline from sovereign CBs, but when gold is brought up everybody says “Whoa! not that much discipline”!

  22. Anonymous

    “You don't have a 700-point drop in the Dow that is not followed by margin-call liquidations,'' said Jon Nadler, a senior analyst at Kitco Metals & Minerals Inc. in Montreal.

    After the collapse of Lehman Brothers Holdings Inc. on Sept. 15 triggered a $700 billion bailout package by the U.S. government, gold traded as high as $936.30 on Oct. 10 as investors sought a haven. The metal also touched $681 today as investors sold futures to cover losses in other markets.

    “The market wants to liquidate everything, everywhere,'' said Dennis Gartman, an economist and editor of the Suffolk, Virginia-based Gartman Letter.

  23. kevin de bruxelles

    Thank you Richard Kline. After reading the original post I was thinking along very similar lines as you are, but I see in the comments you have articulated the actual situation perfectly.

  24. Anonymous

    I posted this on the China Hedgemony blog…but thought I’d re-post here.

    original quoter was writing to Richard Kline…”…come out of the library and get a life, see how people live, interact with them, and only then pass on your judgements.”

    I know I’m taking the above quote out of context, but I’ll give you kids a little insight into “the little folks” out there trying to make a living in the USA.

    In my ‘hood, kids as young as 13 are working at coffee shops, delis, bodegas and pizzarias, actually a young girl of about 6 rang up my soda the other day, her mother instructing her from behind. She took a break from her drawing to do so, may I add…

    At a local fine restaurant, a chef lamented about the price of food, noting that he wanted to make fish soup, but made potato soup instead. “Until people get their faith in the system back, I have to do what I need to keep this place running.”

    Just this morning, people were lined up for a food pantry at 9am, waiting for the doors to open at 10am, they were loud, and anxious.

    A woman with a small child boarded a bus, paid her fare, then dug up change for her own…came up short. The busdriver noted, at least you’re trying, put what you have in, and have a nice day…

    A day in the life…China? People on the street aren’t even thinking about China. They want the faith to be restored…

    Brooklyn, NY october 2008

  25. Anonymous

    I don’t understand all the hoopla and “damage” that people think that has been caused by the current crises. Society has made progress in many areas in the physical world. So what if money changed from one hands to another and all assets are devalued lower. People were getting complacent. This is in fact a good thing. Now, people will once again have the drive and motivation to rebuild, compete and grow again thus creating another yard of progress.

  26. Richard Kline

    So Anon of 7:59 AM, I am very much for counter-cyclical financial regulation and systemic planning. Back in May-June, Yves was very kind to post up a short series of discussion pieces I wrote about concepts of systemic organization and stability with regard to the financial system. The last piece had a very little bit on counter-cyclical approaches, and some related issures. You may be able to find them in the Archives here at NC if you’re inclined to look ’em up.

    So joritonew, a sovereign state organizing its place in a currency regime is a mid- to long-term advantage in macroeconomic strategy; it makes other things possible. Commodities, by contrast, are a short term play—how much can you store, really? They are a moving target in terms of price. And attempted commodity corners would provoke retaliatory hoarding by other global market participants, as well as incurring tremendous ill-will. It is far better to cultivate _relationships_ with suppliers; the Chinese understand grasp this exceptionally well. For example, if China used some of its reserves to fund the year-end rollover of Russia’s dollar-denominated debt if the US/IMF won’t go there that would be a much better use of the cred. Russia has the pipelines and oil that China has worked so hard to bring into strategic alignment with their own interests: that is the long term investment to protect. $50B invested in _that_ partnership would be money well spent if it comes to that. The Chinese know this; the Bushies piddle about with commando trainers and vacant homilies in Georgia—while stiffing Brazil, Argentina, and Korea on dollar swaps who are in a real tight spot. *oof*

    So Matt D. re: the IMF, agreed. It is the best available institution to do immediate crisis intervention, especially if it suspends punitive conditions. It has at least the appearance of neutrality, which bilateral swaps do not. But the IMF is much underfunded for such a role, yes. Presently, ‘the System’ is failing Korea, Argentina, Brazil, to a lesser extent Russia. They played the game within available conditions, and are not broke, but the huge yen-dollar deleveraging is swamping their reserves: If they default, it is in fact the global currency regime which has failed, not them. Other countries such as Iceland, Turkey, Hungary, Ukraine, or Pakistan are more typical IMB candidate-supplicants, with reckless debt and rinky-dink domestic financial regulation and management. Some of these are going to go bust, I don’t have answers for all situations, or even opinions. : ) It is unacceptable, though, for US-EU swaps to be guaranteed while others are left to freeze in the dark. The Europeans get this; I’m not sure how many others do, even in East Asia.

    On the issue of Taiwan, though it is assuredly China’s major geopolitical concern, linking movement there to the financial crisis _in any way_ would be a MAJOR mistake. Something like a direct quid pro quo, behind doors or not, would almost certainly make any US Executive balk, and produce highly negative reactions in Europe and other places where China is trying to cultivate allies, if not make friends. I think the Chinese grasp the fine balance of tension on Taiwan too well to make such a gross blunder, and will avoid any direct linkage as their price. I am also with commentor CCT above in that the demonstrations of which you speak are neither new, exceptional, nor I must say especially relevant, not to demean anyone’s aspirations. Much of the ethnic Chinese on Taiwan are already deeply involved in the Mainland, and steadily moving toward relations closer, for example the Kuomintang. The ethnic Taiwanese (non-Chinese) and a minority of the ethnic Chinese want to stay independent, but they have already lost long-term on this issue. This is really a domestic Taiwanese political row. Yes, the latter have have several big demonstrations; they have won some elections, though they nakedly stole the last one they ‘won’, and will be out of power for some time for related reasons. One can only sympathize with them given that the the treatment of ethnic minorities by the Mainland government is extremely poor, even odious. At the same time, China _will_ reincorporate Taiwan in time, so it’s better to negotiate fairly good and fairly solid terms, and make the best of it. Easy for me to say, I know . . . Geopolitics is not a place for self-serving fantasy or ideology, it’s a place for understanding what power is and how it works, and making sure people have as much of it as possible, and governments as little as is functionally feasible. The smart move for the Mainland, now, would be more on the order of insisting that any bars between Mainland and Taiwanese _investments and population movements_ be lifted; infiltration, in a word. We’ll see.

    So thomas j, snark isn’t argumentation, rather the reverse. BTW cowboy fantasies of military saber-rattling or flyby adventures will provide but trivial leverage in the coming currency and global economic reconfiguration. Really.

    So S.: “Amateurs study tactics; professionals study logistics.” That is a _great_ quote, and directly relevant to the issues in thread from Yves’ post. Looking at logistics in the global macroeconomy is by far the most revealing perspective since these shape the space within which decisions are and are feasible or unfeasible, functional or dysfunctional. I’ll have to go back and find the source ont that one.

    So Anon of 5:44 PM, I didn’t comment on any blog by that name, so I don’t know who is posting there, or who might have clipped something I put up somewhere else in comments. Myself, I see no inherent conflict between doing the conceptual work and basic research on these issues on the one hand, and seeing the needs and constraints of everyday life on the other. This isn’t an either/or. I’ve lived most of my adult life as poor as the woman you mention on the bus, and dwelt in more than one ghetto. I ride the bus now, in fact, and have a union service job. My spending power has _declined_ over ten years, while my rent has doubled, and all other costs have gone up: I live one neighborhood over from the folks you describe. If, however, the working poor have put their faith in illusions pasted up on TV for them by the overclass, those illusions need to go, to be blunt. Working folks need faith; they also need information, and a personal strategy, or else they will always be the marks for slimebags pushing high rate, high limit plastic, or El Stupido ARM mortgages. The biggest single problem this country has had through thirty years is that a large section of the country has wanted to hear lies with money attached rather than probable truths with solvable problems attached. I’m not saying that to accuse anyone; frankly, the working poor are far more realistic about these things than the self-serving middle class has been. Hope for the future is a function of knowing what the game is and seeing that the other players play fair, dammit. I work on the one; let’s both work on the other.

    I have no sympathy with anti-intellectualism, but by the same token I don’t expect anyone else to think as I do about the problems we all confront. I do history and sociopolitical modeling, so I chop wood and carry water in the woodlot I know, that is all. Working folks need to have and follow through on _high_ expectations for the incoming lot in Congress. Single payer health care reform and genuine funding for education would do much to both cut their costs and grow their options: that is reality. Taxing the plutocracy and stitching them up in a regulatory regime that works for ALL Americans is essential; there can be no compromise on that. Local intitiatives are good, too, and often pay better faster. NYC has been run by and for the suits for two decades: Whatta yah gonna do ’bout it? Wait for them to kiss you and mail you a check, or something a little more . . . active?? Want hope? Get tough. We’ve had unabashed class war here for a generation, a war on the poor. Gonna have to bang on some tables and doors, and stay with the issues, _and understand the issues_ to change that. I hope the family with the six-year-old on the register is making sure she attends school and has enough mental space to learn while she’s there; if not, their priorities need a rethink. Peace to you, my brother.

  27. Anonymous

    Great info.

    Why don’t we all just stop using dollars domestically? Boycott and blacklist.

    Why don’t we just spend every dime in an effort to cause inflation on purpose so people will care they have to eat dogfood?

    Why don’t we sell all our gold because half of its value is the risk of time that Congress will Emminant Domain it, again.

    Why don’t we take nickel and copper out of circulation (and make tanks, planes and bullets for our defense at home?)

    Really, Why not just fuck the whole think dead and hang the bastards off the Brooklyn bridge or out the windows of their congressional offices?

    Could it be, We are the problem; just like them–apathetic over-entitled loud mouth, neer-do-well know-nothing slime?

    Happy Guy Fawkes Day: I’m moving to Mexico–the last place a white man can find freedom.

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