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- iHaveNet.com: Economy
by William Pfaff
British Prime Minister Gordon Brown's 50 percent tax on bankers' bonuses has staggered the city of London, with other European governments following his lead. The alibi for the presentation by bankers of bonuses to themselves, despite the international financial crisis they brought upon the rest of us, has until now been that without bonuses all the financial talent would fly to foreign competition; but where do the European bankers migrate to now? Wall Street is over-supplied.
There is room for still more common sense in the crisis, in which the orthodoxies of an obsolescent era continue to contradict one another. The canonical IMF-style remedy for nations with the kind of difficulties that prevail from London to Madrid and on to Athens is national austerity, budget cuts and reduced social spending.
Equally orthodox is for governments at the same time to do everything possible to encourage people to spend, so as to fuel demand for industrial goods, and the widest possible consumer consumption. To spend, consumers need the same money austerity is taking away from them, or preventing them from earning.
Economists and officials obviously are aware of this dilemma but see
no orthodox way out of it other than by deepening budget deficits, which
not every country can afford.
The unorthodox way, taken in the past by the Greeks, Italians and the
French before the
Although Washington is the home of fiscal orthodoxy, in theory, in practice it has been playing the deficit game for a considerable time now, in what the economist Joseph Stiglitz calls a kind of bizarre reverse foreign aid, by which poor countries loan the United States trillions at zero interest rates by buying U.S. Treasury bills.
Trust in the soundness of their investment will undoubtedly have weakened a little more in December, as Barack Obama laid down what might eventually prove an unsecured trillion-dollar bet by expanding America's futile war against the Taliban (while Pakistan already reels under the collateral damage).
Stiglitz observes (in the current issue of the Washington journal The National Interest), that the dollar is finding it very difficult to bear up as the world's reserve currency, and argues that prudent governments should begin considering another reserve currency.
This is not too hard a problem to solve. You create it. Stiglitz is
calling for a new issue by the
Stiglitz says that it would be rather like declaring that a massive goldmine has been discovered under the IMF building, yielding perhaps $600 billion a year. In accordance with a particular formula based on their income, the IMF would send out letters to its members telling them how much of this gold they own, and that they should begin augmenting their currency supply, to be backed by this gold, in full confidence that the new money will be honored. "All that matters is trust, the willingness of governments to exchange the paper gold." World liquidity would be vastly increased, demand multiplied, industry resume production.
It is not magic; it obviously presents problems of transition in moving to an international reserve currency from the dollar reserve.
However, the
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With Dollar Down and Out, New IMF Reserve Currency May Be Answer | William Pfaff