Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. 'New Haiti'; Same Corporate InterestsTerrific article by Isabel MacDonald, at the Nation.By Isabel MacDonald | January 29, 2010 In the wake of the earthquake that has killed more than 100,000 people in Haiti, the foreign ministers of several countries calling themselves the "Friends of Haiti" met on Monday in Montreal to discuss plans for "building a new Haiti." Participants in the Ministerial Preparatory Conference on Haiti, who included Secretary of State Hillary Clinton; representatives of international financial institutions including the World Bank and the International Monetary Fund; and Haitian Prime Minister Jean-Max Bellerive came to what Canadian Foreign Affairs Minister Lawrence Cannon, the conference chair, referred to as a "road map towards Haiti's reconstruction and development." However, the Latin American countries of ALBA--the Bolivarian Alliance for the Americas--who held a counter-conference, and several grassroots Haiti solidarity organizations, who organized protests outside the conference, expressed skepticism that the "Friends of Haiti" and the international financial institutions would work to further the interests of ordinary Haitians. One of the groups protesting the conference, Haiti Action Montreal, issued a statement warning that "There is a danger that these major powers will try to exploit the earthquake to further narrow pro-corporate ends, if reconstruction of New Orleans after Katrina and in Asia following the tsunami are any indication." As Naomi Klein has observed, this process is already underway. The Heritage Foundation think tank's initial response to the earthquake clearly followed the pattern she documented in her book The Shock Doctrine, by which neoliberal reformers seek to impose an agenda of privatization in times of crisis. It was less than twenty-four hours after Haiti was hit by an earthquake of 7.0 magnitude that the Heritage Foundation issued a release recommending that "In addition to providing immediate humanitarian assistance, the U.S. response to the tragic earthquake in Haiti earthquake offers opportunities to re-shape Haiti's long-dysfunctional government and economy as well as to improve the public image of the United States in the region." That sentiment was echoed by James Dobbins, former special envoy to Haiti under President Bill Clinton and director of the International Security and Defense Policy Center at the RAND Corporation, who stated in a recent op-ed in the New York Times, "This disaster is an opportunity to accelerate oft-delayed reforms," including "breaking up or at least reorganizing the government-controlled telephone monopoly" and restructuring the ports, which also represent two of Haiti's few remaining state enterprises. The World Bank also observed an upside to the catastrophe in Haiti; in a January 18 blog post titled "Haiti earthquake: Out of great disasters comes great opportunity," a World Bank disaster management analyst recently stated that "there is a silver lining to this great tragedy. Looking back in history, great natural disasters are often a catalyst for huge, positive change." Even calls for the expansion of Haiti's sweatshop industry are being made in the media. Read the rest of the article. Labels: Disaster Capitalism, earthquake, Haiti, IMF, World Bank Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The IMF and the World Bank in IstanbulFrom Monday's Guardian. Keep your eye out for an article in our Nov/Dec issue, Putting the "Global" in the Global Economic Crisis, by economist and D&S collective member Smriti Rao.Yes, the global financial sector has upped its game—but not nearly enough The mood at the meeting of the IMF and World Bank in Istanbul was one of quiet confidence, yet there are still worrying signs. Larry Elliot | The Guardian | Monday 5 October 2009 The mood is different this year. Not exactly whooping with joy, you understand, but finance ministers and central bank governors gathered in Istanbul this weekend exuded a sense of relief and quiet confidence. Relief because activity has started to pick up after its precipitous fall around the turn of the year. Quiet confidence because there is a belief that lessons have been learned over the past 12 months. When the International Monetary Fund and the World Bank last met in Washington in October 2008 the global financial system was on the brink of ruin. Bank after bank had run into trouble following the collapse of Lehman Brothers in mid-September. Iceland looked like it was about to go bust. In Britain, cash points would have stopped working had the government not come up with a rescue package that provided billions of pounds of fresh capital in return for part-nationalisation. Dominique Strauss-Kahn, the fund's managing director, says countries were forced to collaborate by the scale of the crisis, and the sense of togetherness will not vanish now the outlook is better. The replacement of the G7 by the G20, it is hoped, will improve global governance and make it easier to tackle the imbalances that lay at the root of the problems. There has, of course, been plenty of this sort of stuff before. Back in 2006, well before anyone had heard of sub-prime mortgages, the fund launched a programme of multi-lateral surveillance designed to see whether the policies being pursued by the big players on the global stage were compatible with reducing global imbalances. They weren't, but nothing happened. The feeling in Istanbul was that it is different this time. Having stood on the edge of the abyss, individual countries are now prepared to look beyond their narrow self-interest to consider whether policies help or hinder the cause of global economic stability. It would be wrong to think that nothing has changed. There is a recognition that the financial system was close to collapse 12 months ago and that collective action helped prevent a severe recession turning into something worse. The decision to make the G20 – where the bigger developing countries are represented – the body that counts for global economic policy is a good one. The G7 will stagger on as a more informal gathering of finance ministers for a quiet chat, but it has had its day. There is a willingness to accept that regulation of the sector should be toughened up. Unless banks are forced to hold more capital, Alistair Darling said on Saturday, we will quickly be back in the mire. He's right about that, and the G20 in Pittsburgh displayed a greater appetite for more intrusive supervision. So, yes, the atmosphere is different. Things have changed. The problem is that they have not changed nearly enough. Growth has nudged up, but as the IMF noted last week it has so far relied almost exclusively on governments doing the spending on behalf of the private sector, and on an inevitable rise in inventories following savage de-stocking. That is no basis for strong, sustained growth and there are already some worrying signs – US unemployment, last week's survey of manufacturing in the UK – suggesting that the recovery is running out of steam. With governments likely to come under pressure to tackle budget deficit from both the financial markets and their voters, there is a risk that economic policy will be tightened too soon. The risks to growth in 2010 are to the downside. What's more, the scars from such a deep recession will take time to heal. Even on the most optimistic scenario, we are facing a jobless and joyless recovery lasting two or three years at the minimum. That particularly applies to Britain, where growth in the pre-crisis years was pumped up by bubbles in financial services and construction. The IMF says that the economy has suffered lasting damage from the downturn, with the trend rate of growth reduced at a time when the next government is going to cut public spending and raise taxes in order to reduce the budget deficit. There is, of course, a chance that things will turn out better than the Fund expects. It may be that global growth will exceed the 3.1% pencilled in for next year and that 2011 will be better still. But unless the fundamental problems are tackled, the respite is likely to be brief. There were those in Istanbul this weekend who predicted it would take a decade for countries to get to grips with the global imbalances. That is a reasonable assumption given the wide gap between rhetoric and action, but it is far too long to wait. The Germans, for example, are resistant to calls that they should run a smaller trade surplus by boosting domestic demand. China has used a cheap currency to build up manufacturing and so hasten the movement of the rural poor into the cities. It is in no hurry to revalue the renminbi significantly. The reluctance by countries running trade surpluses to change their behaviour reflects a design flaw in the post-war international system identified by Keynes: the onus falls on deficit countries to deflate rather than on surplus countries to reflate. Unless this is remedied, global rebalancing will be an uphill struggle. Meanwhile, the financial sector has regrouped and is lobbying hard against "excessive" levels of regulation. Joseph Ackermann, the chief executive of Deutsche Bank, said at the weekend that if banks were forced to hold too much capital it would impair lending and damage the economy. In reality, what the financial sector calls excessive is what was once normal and prudential. Counter-cyclical capital requirements limiting the ability of banks to lend during booms and encouraging them to keep credit flowing during busts are vital for economic stability. It is interesting, though, how the financial sector has managed to conflate its own interests with those of the wider economy. Any attempt at reform – witness Adair Turner's comment that some City activities are socially useless – is met with the argument that the financial sector is an important part of the economy creating lots of jobs. And that is supposed to be that. A different take on that perspective comes from a new study (an alternative report on banking reform; www.cresc.ac.uk) by the Centre for Research of Socio-Cultural Change at Manchester University. It makes a series of points: there has been institutional capture by the City of both main political parties; this coalition thwarts reform by exaggerating the social value of finance while downplaying the cost of taxpayer bail outs; much of what the financial sector does is "banking for itself"; and the pre-2007 era saw the creation of the wrong sort of debt, which encouraged speculation but not the development of productive resources. What is needed, the study concludes, is a smaller financial sector better focused on the real future needs of the economy, such as investment in low-carbon technologies and better pensions for an ageing population. Don't hold your breath. The power of the financial lobby remains immense, despite its role in pushing the global economy to within a whisker of a mark 2 Great Depression. Failure to tackle the imbalances and to reform finance would increase the chances of another crisis. But it may take that for politicians to turn words into action. Read the original article (there are some good charts). Labels: global economic crisis, IMF, World Bank Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Old Habits at the IMFA new discussion paper from the Center for Economic and Policy Research finds that 31 of 41 of countries with current International Monetary Fund (IMF) agreements have been subjected to pro-cyclical macroeconomic policies that, during the current global recession, would be expected to have exacerbated economic slowdowns. ... Read the whole paper here. Labels: Center for Economic and Policy Research, IMF Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Revisiting Bretton Woods (Literally!)Want to taste the same four-course meal that John Maynard Keynes enjoyed?You can mark the 65th anniversary of the Bretton Woods International Monetary Conference at the place where it all began, as The Mount Washington Resort is celebrating its own place in history next weekend. The upscale hotel in the White Mountains of New Hampshire will "celebrate the historic occasion by offering guests interested in exploring our world economic history [sic]." Sponsored by New Hampshire's statewide Chamber of Commerce, the weekend is aptly titled "The Gold Standard Package." Rates start at $194.40 per person, double occupancy. Guests will spend Saturday, July 25, listening to the sober analyses of mainstream economists, including the official historian of the IMF. The festivities begin on Saturday morning with a treasure hunt, called the Gold Rush (no, we're not making this up). Here's their description: On Saturday night, you can enjoy a "commemorative dinner ... based on the original menu served at the farewell dinner on July 22, 1944." But be warned: No lobster or escargot -- it was wartime, after all. All the details are here. Labels: Bretton Woods agreement, IMF, Mount Washington Hotel, World Bank Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Two Good Pieces on Global Finance from FPIFTwo nice relatively new pieces from the good folks at Foreign Policy in Focus. Hat-tip to LF for alerting me to these. (I like that FPIF lists the editor in charge of an article as well as the author—great idea.)Overhauling Global Finance Read the rest of the article. Plus this one on the IMF, by Aldo Caliari, who has written for D&S:
Read the rest of the article. Labels: financia crisis, Foreign Policy in Focus, IMF, Joseph Stiglitz, United Nations Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The IMF as Big Banks' Debt-CollectorOn the topic of the IMF and the "global financial community," here is a nice piece from Michael Hudson; hat-tip, again to LF.The IMF Collects Debts on Behalf of the World's Largest Banks Read the rest of the article. Labels: banking crisis, Britain, Iceland, IMF, Michael Hudson Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Global Financial CommunityAn excellent article by Prabhat Patnaik on networkideas.org, the website of International Development Economics Associates, starts off with Lenin and goes on to talk about the role that the IMF and the World Bank play to create a "group of core ideologues" to exert "peer pressure" on elites to adopt a belief system that is friendly to global finance capital. This helps to explain why Obama picked the economic advisers he did:How people like Summers, Geithner and Rubin come to occupy such important political positions within the U.S. system is pretty obvious. American Presidential elections require massive amounts of money, a good chunk of which invariably comes from Wall Street. The story doing the rounds for a while was that Obama had got most of his funds from small donations of $100 each garnered through the internet; but this was complete nonsense. Obama like others before him had also tapped Wall Street and the appointment of the trio, who had organized Wall Street finance for him, was a quid pro quo. The elevation of members of the global financial community to run the American economy therefore should cause no surprise. I love the light tough of his title. Anyhow, here's the beginning of the article, which is well worth reading. Hat-tip to LF.
Read the rest of the article. Labels: IMF, imperialism, larry Summers, Lenin, Prabhat Patnaik, Timothy Geithner, World Bank Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Capital Flowing Out of Developing CountriesFrom Nouriel Roubini’s RGE Monitor:The reversal of capital inflows due to deleveraging or losses in financial markets has been one of the most significant effects of the financial crisis on emerging and frontier economies. After a period in 2007 and 2008 when many emerging markets faced the problem of dealing with extensive capital inflows, now capital flows have reversed. Private capital flows in 2009 are expected to be less than half of their 2007 levels, posing pressure on emerging market currencies, asset markets and economies. Countries that relied on readily available capital to finance their current account deficits are particularly vulnerable. Furthermore, capital outflows pose the risk that governments may react with some type of capital controls or barriers to the exit of foreign investments.Note that the piece later adopts a different tone on capital controls, accepting their use on a temporary basis and noting that Iceland, Ukraine, Argentina, Indonesia and Russia, among others, have already adopted them. Foreign direct investment (FDI) is considered by many to be a major and more stable source of financing for many developing countries. FDIs slowed down sharply in recent quarters ...Read the whole analysis here. Labels: capital controls, economic crisis, Emerging markets, IMF, Nouriel Roubini Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). IMF Blames Crisis On Lack of RegulationFrom the International Monetary Fund, you know, the people who shoved unfettered global profit-seeking down the throats of impoverished countries for decades, comes this fabulous insight: inadequate regulation was the major cause of the current financial crisis.You can read about it in the Economist, or you can read Dollars & Sense's own Dr. Dollar (Arthur MacEwan) in a recent column. Labels: Arthur MacEwan, Ask Dr. Dollar, financial regulation, global imbalances, Greed, IMF, The Economist Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). OECD: Downturn Deeper than IMF ForecastFrom Reuters:By Brian Love PARIS (Reuters) - The global economic downturn will be considerably deeper than even the International Monetary Fund forecast a month ago, the Organization for Economic Co-operation and Development's chief economist Klaus Schmidt-Hebbel told Reuters. Further substantial cuts in interest rates by the European Central Bank and Bank of England are totally justified, he said in an interview. These were to be expected in response to the worst spell the economy has suffered since 1946, when military spending plunged after World War Two. "The recession will deepen...there's no doubt," he said. "I think this quarter will be the worst quarter of all." On January 28, the IMF cut its forecast for global growth to 0.5 percent in 2009 from an earlier prediction of 2.2 percent. It also forecast a 2.0 percent slide in economic output from the world's most advanced economies as a whole, an equally large downgrading of forecasts it had made in November 2008. Even those drastic revisions failed to reflect the extent of the downturn at this stage, said Schmidt-Hebbel. He is preparing new forecasts for publication at the end of March by the Paris-based OECD, which will be cutting its own predictions from those it made last November. "The shape of it will be a significantly deeper recession than what was forecast by the IMF in January, at all levels," said Schmidt-Hebbel. "(It will be) significantly deeper and more protracted -- meaning longer than what is embodied in the IMF forecasts of late January." Last November, the OECD predicted a 0.4 percent decrease in aggregate economic output this year from its 30 member countries. These include all of the wealthy industrialized countries and a handful of less mature economies such as South Korea, Mexico and Turkey. "The OECD economies will do significantly worse than the world economy because in emerging economy countries like the Indias, Chinas and some others, growth will still be slightly positive in 2009," he said. Labels: financial crisis, global downturn, IMF, OECD, recession Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Iceland Gives Christmas Frosty ReceptionA grim story from today's Financial Times (posted to their website yesterday). Best quote, from the end of the article: "Sitting in an old fisherman's cafe by the port, Orn Svavarsson shakes with rage. He sold his health food business three years ago when he was 54 and, like many of his countrymen, put the money into the stock market. It has been wiped out. "The Icelandic people are too lazy, he says. "Why don’t we go to the airport and block it until we get answers? For the first time in my life I have sympathy with the Bolsheviks; with the French revolutionaries who put up the guillotine."By Sarah O'Connor in Reykjavik | Published: December 23 2008 20:14 On the ground floor of one of Reykjavik's gleaming office buildings, a well-dressed crowd shuffles and waits. Tinny Christmas songs blare from a small hi-fi by the door. As numbers are called out one by one, people file into the next room where rudimentary shelves are filled with free tins, fish, clothes, books and wrapping paper. Some 2,500 people have applied for Christmas relief packages from Iceland's three main charities in recent weeks, a 30 per cent rise on last year, as growing numbers of the middle class lose their jobs in the wake of Iceland's banking collapse. Jon Omar Gunnarsson, a pastor at Hallgrimskirkja, Reykjavik's main church, says applications to the Church Aid group have doubled. "It's mostly middle class people who have all these obligations, mortgages that are going up, many are losing their jobs ... they just can't carry the burden alone," he says. Iceland is still reverberating after its economy crumpled in October in the face of global financial turmoil. Inflation and interest rates are both at 18 per cent as the country struggles to shore up its currency, which plunged after its three banks collapsed. It has borrowed $10bn from the International Monetary Fund and others which it needs to repay, meaning taxes are rising even as recession deepens. Read the rest of the article. Labels: Christmas, financial crisis, Iceland, IMF, recession Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Neoliberalism, the IMF, Summers, & GeithnerInteresting post by Ken Hanly on lbo-talk, about Obama's new economics appointees: Timothy Geithner (to be Treasury Secretary) and Larry Summers (to be head of the National Economics Council, which coordinates economic policy throughout the executive branch):Both Summers and Geithner worked at the IMF and favored the deregulation that caused the financial crisis and Geithner of course has worked with Paulson and Bernanke and also used taxpayer money to help JP Morgan purchase Bear Stearns. Labels: IMF, larry Summers, neoliberalism, Timothy Geither Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Good Survey: How Bad in Emerging Markets?From Der Spiegel (translated into English, though). Hat tip to Yves SmithSPIEGEL ONLINE 11/04/2008 04:54 PM THE GHOST OF ARGENTINA What Happens when Countries Go Bankrupt? By SPIEGEL Staff First it was mortgage lenders. Then large banks began to wobble. Now, entire countries, including Ukraine and Pakistan, are facing financial ruin. The International Monetary Fund is there to help, but its pockets are only so deep. No, Alexander Lukyanchenko told reporters at a hastily convened press conference last Tuesday, there is "no reason whatsoever to spread panic." Anyone who was caught trying to throw people out into the street, he warned, would have the authorities to deal with. Lukyanchenko is the mayor of Donetsk, a city in eastern Ukraine with a population of a little more than one million. For generations, the residents of Donetsk have earned a living in the surrounding coalmines and steel mills, a rather profitable industry in the recent past. Donetsksta, a local steel producer, earned 1.3 billion euros ($1.65 billion) in revenues last year. But last Tuesday the mayor, returning from a meeting with business leaders, had bad news: two-thousand metalworkers would have to be furloughed. Lukyanchenko doesn't use the word furlough, instead noting that the workers will be doing "other, similar work." But every other blast furnace has already been shut down, and one of the city's largest holding companies is apparently gearing up for mass layoffs. Under these conditions, how could panic not be rampant in Donetsk, the capital of Ukraine's industrial heartland? In Mariupol, a steelworking city, a third of the workers have already been let go. The chemical industry, Ukraine's second-largest source of export revenue, is also ailing. In the capital Kiev, booming until recently, construction cranes are at a standstill while crowds jostle in front of currency exchange offices, eager to convert their assets into US dollars. Donetsk is in eastern Ukraine, 8,100 kilometers (5,030 miles) from New York's Wall Street and 2,700 kilometers (1,677 miles) from Canary Wharf, London's financial center. But such distances are now relative. The world financial crisis has reached a new level. No longer limited to banks and companies, it is now spreading like wildfire and engulfing entire economies. It has reached Asia and Latin America, Eastern Europe, Iceland the Seychelles, the Balkan nation of Serbia and Africa's southernmost country, South Africa. It is a development that has investors and speculators alike holding their breath. Some are pulling their money out of troubled countries, while others are betting on a continued decline -- and in doing so are only accelerating the downturn. Central banks are desperately trying to halt the downward trend, but in many cases the plunge seems unstoppable. Read the rest of the article Labels: currencies, Der Spiegel, Emerging markets, financial crisis, financial crisis bailout, IMF, World Bank, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Swap Lines Extended To At-Risk CountriesAs we expected (see blog post of October 22nd, "Not a Slow News Day"), the Fed has extended a lifeline facility to a number of pivotal, mainly emerging economies (Brazil, South Korea, Mexico and Singapore), whose currencies have been falling through the floor as a result of mass-repatriations under the impetus of the rush to safety in the US dollar. As usual, Yves Smith was on the ball:Wednesday, October 29, 2008 Fed Establishes New IMF Facility. Dollar Swap Lines with Brazil, South Korea, Mexico, and Singapore ... Today, the Fed provided Brazil, South Korea, Mexico, and Singapore with dollar swap lines of $30 billion each (hat tip readers Robertm, Dwight). From the Fed's press release: Today, the Federal Reserve, the Banco Central do Brasil, the Banco de Mexico, the Bank of Korea, and the Monetary Authority of Singapore are announcing the establishment of temporary reciprocal currency arrangements (swap lines). These facilities, like those already established with other central banks, are designed to help improve liquidity conditions in global financial markets and to mitigate the spread of difficulties in obtaining U.S. dollar funding in fundamentally sound and well managed economies. Federal Reserve Actions In response to the heightened stress associated with the global financial turmoil, which has broadened to emerging market economies, the Federal Reserve has authorized the establishment of temporary liquidity swap facilities with the central banks of these four large and systemically important economies. These new facilities will support the provision of U.S. dollar liquidity in amounts of up to $30 billion each by the Banco Central do Brasil, the Banco de Mexico, the Bank of Korea, and the Monetary Authority of Singapore. These reciprocal currency arrangements have been authorized through April 30, 2009. The FOMC previously authorized temporary reciprocal currency arrangements with ten other central banks: the Reserve Bank of Australia, the Bank of Canada, Danmarks Nationalbank, the Bank of England, the European Central Bank, the Bank of Japan, the Reserve Bank of New Zealand, the Norges Bank, the Sveriges Riksbank, and the Swiss National Bank. Read the rest of the post Labels: currencies, Emerging markets, financial crisis bailout, IMF, The Fed Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). IMF = DeathA new study in the journal PLoS of Medicine by Cambridge researcher David Stuckler reports that the rise in rates of tuberculosis in Eastern Europe is strongly associated with a country's receipt of loans from the IMF.The authors speculate that this a result of country's reducing their expenditures on health care to qualify for the loans. According to the NYT "The researchers studied health records in 21 countries and found that obtaining an I.M.F. loan was associated with a 13.9 percent increase in new cases of tuberculosis each year, a 13.3 percent increase in the number of people living with the disease and a 16.6 percent increase in the number of tuberculosis deaths. The study, being published online Tuesday in the journal PLoS Medicine, statistically controlled for numerous other factors that affect tuberculosis rates, including the prevalence of AIDS, inflation rates, urbanization, unemployment rates, the age of the population and improved surveillance." The report notes that every .9% increase in mortality from TB was correlated with a 1% increase in credit from the Fund . Labels: health care, IMF, New York Times, Tuberculosis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Washington's Double StandardAn editorial by Eduardo Porter in yesterday's New York Times points out the double standard in the U.S. government's response to the current financial crisis, vs. the remedies it has supported for the rest of the world: "Could this be the same United States that backed the International Monetary Fund’s get-tough strategy during the emerging-market crises in the 1990s—pushing countries from Asia to Latin America to slash government spending and raise interest rates to recover investors’ confidence and regain access to lending from abroad?" The IMF advocated—and indeed coerced—high interest rates and reductions in government spending. But the solution in the United States is lower interest rates and expensive stimulus spending. Porter cites Joseph Stiglitz (who was chief economist at the World Bank at the time that "structural adjustment" was forced on Asia and Latin America) as one economist who sees a double standard here. He cites Larry Summers, who was Treasury Secretary at the time of the 1990s financial crises, as one who denies a double standard.We agree with Stiglitz and Porter. As D&S collective member and blogger Larry Peterson noted in an earlier posting: In a shocking display of bad taste at best, and ignorance at worst, a Lehman Brothers economist referred to last week's Fed action as "shock therapy." Most of the readers of this blog will need no reminding that the same phrase was used to describe the structural adjustment programs that caused "lost decades" for much of the poor and developing world. The only difference, of course, is that "shock therapy" for them meant jacking up interest rates to stratospheric levels—and subsequent capital outflows which enriched many Western investors, while for us, it has meant a dramatic drop in interest rates. The source of this comment from the Lehman Bros. economist? The New York Times, of course. Labels: economic stimulus, IMF, interest rates, Joseph Stiglitz, Laurence Summers, shock therapy, structural adjustment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
