The 2 page article on Secretary of the Treasury, Timothy Geithner, in the NY Times of April 27 ends with his definition and challenge of financial crises. He is reported as saying: “All crises are a fight over how much losses the government ultimately takes on.” And every decision “requires we balance how to achieve the most benefits in terms of improving confidence and the flow of credit at the least risk to taxpayers.”
A financial crisis and, especially the present one with its global impact, is more than a discussion of how much government funding is needed. It is to be a discussion of causes and consequences and of strategies to overcome the crisis. For him to preempt that discussion by bringing it back to government bailouts is counterproductive and does not inspire confidence. It is improving confidence that he thinks is to be balanced with the “flow of credit at the least risk to taxpayers.”
With his training in international finance, experience in the Clinton Administration, at the IMF and as president of the NY Fed he seems to be captive of a narrow angles on the crisis. He is so much part of the mindset of Wall Street and its big commercial and investment banks that he seems unable to see the crisis for what it is. It is the logical outcome of an industry that since the 1980s was able to become creative in taking enormous risks with other people’s money. This risk-taking was made possible by pushing Congress to relax oversight and to reduce reserve requirements. As a matter of fact, even he himself as president of the NY Fed wanted them further reduced as the article shows. At that time, May 2007, Citigroup and JPMorgan were pushing for these reductions because “they said would make them more competitive.” Mr. Geithner believed that “the standards would make the banks more sensitive.”
Part of resolving the financial crisis in the US and globally is to reevaluate the fractional reserve system all together rather than playing with a few percentage points in raising capital requirements. It was started in the privately owned Bank of England in the 17th century and imported, under duress, to colonial America. As shown in monetary histories of the US such as the one of Murray Rothbard there has been a constant struggle, particularly in the middle and late 1800s to have the money creation function returned to the public sector. However, the large Wall Street banks managed to establish a privately owned central bank which for strategic reasons was a called the US federal reserve. Its twelve privately owned regional banks continued to oversee the small state banks which are not part of their board of governors. It is not only the US monetary structure that has to be changed, but also the central banks of most nations that have the same ownership and fractional reserve banking characteristics. A start with this transformation can be made by having those central banks agree on a non-national reserve currency which, in consideration of the overwhelming importance of the climate crisis, is to be based on a system of reducing GHG emissions. The Tierra Solution and its TIMU Architecture has been presented for several months as a plausible way forward.
The FSB is the successor of the Financial Stability Forum which was “convened in April 1999 to promote international financial stability through information exchange and international co-operation in financial supervision and surveillance.” In its many meetings before the London Summit on April 2, it has managed with its close collaborator IMF to secure a position of unparalleled monetary and financial power. It is an integral part of the Bank of International Settlements (BIS).
From its humble beginnings in the early 1930s in a closed down hotel it now dominates the skyline of Basel. Though its beginning was marred by its banking for the Hitler regime and though its abrogation was advocated by the US government during the Bretton Woods Negotiations in 1944, it survived and now is the most powerful financial institution in the world, particularly after the G20 London Summit. Rather than going for a transformed international monetary system, the G20 voted for reassertion of the global privately owned banking system.
How is the FSB and the BIS run? This Central Bank of Central Banks is a privately owned institution like almost all of its member central banks. Though it has a membership of 55 institutions, the main members of the G20 make up its executive committee. Through its Based Accords I and II it has managed to keep control of international finance in the name of “financial stability.”
Their two websites and Ellen Brown’s article in Global Research of April 18 tell their sordid story of profit over people.
The March 19 Stiglitz UN Commission report posits a completely different framework within the UN that would be representative of the G192. The Tierra may become part if its proposed new global reserve currency if it is going to be carbon-based and part of its proposed global economic coordination council if it is going to evolve into the World Central Bank as proposed in the TIMU Architecture.
Since Keynes proposed the “bancor” in 1944 as the new international reserve currency, about half a dozen other proposals have been made. One of them was the issuance of Special Drawing Rights (SDRs) in the late sixties, the issuance of which would be decided by the governors of the IMF and be distributed to their members.
It was in the late 1990s that Irish economist Richard Douthwaite proposed to have such international reserve currency based upon emissions. His “ebcu” proposal together with its FAESTA Noordwijk Aan Zee Draft Treaty was discussed in a 2000 conference organized by ODE Magazine.
In the first quarter of 2009 the Tierra international reserve currency and its TIMU Architecture was launched by the International Institute of Monetary Transformation. Like the “ebcu” proposal it is to compete with the IMF’s synthetic currency of thirds. New life was put into the SDR when, last month, the governor of China’s central bank proposed a “supersovereign currency” to replace the dollar, euro and other national currencies and when G20 un-imaginatively strengthened the IMF with channeling a trillion dollars through it without demanding real reforms. It is against this SDR that the Tierra has to compete: it is a fight of a David versus Goliath.
If realism, boldness and imagination had prevailed at the G20 Summit on April 2 the world’s leaders of the major economies and their IFIs could not only have discussed China’s proposal (that is supported by Russia, Brazil and India), but would have also followed the recommendation of the UN GA President's Commission on Monetary and Financial Crises to adopt a global reserve currency. Then they could have proceeded in setting up a commission to study whether that currency would be carbon based or not given that the climate crisis and its funding cannot be separated from resolving the economic crisis.
Fred Bergsten, director of Peterson Institute of International Economics, has suggested in his article of April 8 in www.ft.com that the US and other reserve currency countries adopt the more limited proposal made by Governor Zhou to create “an open-ended SDR-denominated fund” into which dollar balances could be exchanged for SDRs. I consider this fund a responsible way to transit to a global reserve currency and, later on, to the carbon-based international reserve currency of the Tierra. Bergsten also suggests that the US and China use this reserve currency issue in forging a G2 partnership that “is needed to provide economic leadership to pass needed reforms at the existing multilateral institutions. Since China advocates currency consolidation, the US could insist that it contribute substantially to the IMF’s new lending facilities as a quid pro quo. The Europeans would have to concur, since the agreement would include a large increase in China’s voting rights at the IMF, where Europe is so heavily over-represented, butChina-US agreement would go far to seal the deal.”
Would it be possible for both nations to make an enormous step forward by basing the new global reserve currency on carbon emissions, of which both nations are the major producers? Such bold approach would preempt the difficult and less efficient use of the cap-and-trade and carbon-taxes methodologies to reduce GHGs, since they do not include the perspectives of and justified funds for the ecological creditor countries in the global South.
The G20 which decided to channel a trillion promised dollars to an unreformed IMF missed a major chance to place the world economy and trade on a new trajectory. Its main intent is to restore through some regulatory reform rather than recover through transformation.
Basically, the establishment US media are also captive of this unquestioned market fundamentalism that wants restoration through reform rather recovery through transformation. This was evident in this morning’ Morning Edition where Tom Gjelten spells outs the effects and dangers of dramatically reduced trade are spelled out, and interviews like so many other main media do members of the Peterson Institute of International Economics many of whom have close past or present ties with the IMF.
The Tierra Solution squarely presents an alternative economic philosophy which is based upon the sustainable communities development paradigm. It combines theories and methods of the ecological economics field, the sustainable communities and the bioregional movements. Within that economic and social planning framework that is based upon the organizing concept of contextual sustainability and the vision of Earth Charter, it argues for the preeminence of frugal trade over free and fair trade. To a great extent, frugal trade is fair trade because it places the wellbeing of people and planet in a particular bioregion central.
Without engaging in autartikal activities frugal trade reduces international trade which is dominated by nationally loose transnational corporations and its WTO architecture which still demands deregulation from banking and insurance services.
Frugal trade for consumers means becoming locavores—eating locally to reduce food miles. Frugal trade for local authorities and national governments means policies and programs that emphasize local agriculture and manufacture without engaging in financial or commercial protectionism. Frugal trade for transnational corporations and the IMF and WTO means corporate deglobalization and greater public regulatory oversight, fostering accountability and transparency.
There is a great variety of opinions about the effectiveness of the Summit to “recover and reform” the international economic system. The linguistic use of these two terms and the frequency of the term restore in the official communiqué indicate the prevailing view of restoring the earlier system with some built-in reform proposals to prevent the present economic meltdown. Given the imploding global economy with ever larger numbers of people being unemployed and underemployed, time for new thinking and action could have been expected. The NY Times editorial April 3 stated that “they fell short.” The question is to what extent did these leaders of twenty nations and assorted financial institutions fell short. The importance of answering that question determines what has to happen next.
The April 2 Summit has been portrayed as a second Bretton Woods. It is far from a BW Summit. For one, the first BW engaged for some 21 days in tough negotiations. Including the days for its preparation this Summit cannot be called a second BW. Secondly, the basic BW1 institutions are still intact, though voice and representation issues are being discussed. The March 9 half day ECOSOC briefing of the IMF and IBRD show how little progress has been made. Perhaps, the next full day briefing on April 27 which would include the World Trade Organization as the third member of this “Unholy Trinity”, may put greater demands on the three institutions, but it will not be sufficient for the global imploding economy.
Rather than having a follow-up meeting of the G20 in the fall, it would be more productive, capitalizing on the Summit’s collaborative spirit, to call for a week-long period of working sessions as proposed by Walden Bello, using as the basic discussion document the March 19 report of the UN GA President's Commission on Monetary and Financial Crises, also called the Stiglitz commission after its chairman. At such sessions serious attention could also be devoted to Tierra International Monetary Union (TIMU) architecture, which presents a transformational challenge in the global monetary, financial, economic systems by instituting a carton based international reserve currency that could take care for the funding for development and mitigation and adjustment measures in dealing with the climate crisis. More information in the forthcoming third version of the Tierra Manifesto of 2009.
These terms were used in NPR’s reporting about the G20 Summit this morning. At the same time the Wall Street Journal (4/2/2009) had an article by Daniel Henninger entitled “Is This the End of Capitalism?”
Henninger argues that capitalism doesn't need a fundamental fix and didn't subvert the US economy. Overbuilt housing did. Inflated housing also undermined the economies of the UK, Ireland, and Spain. Yet new "saviors" of capitalism--oblivious to this--are appearing every day, including China, the IMF, and France's Sarkozy. Henninger says that far from running from masses of protesting anticapitalists, the G-20 summit is notably short because its goal was accomplished before the first delegation arrived. He suggests that the recession of 2009 provides the Left with the opportunity it has craved since Reagan took the White House to turn America back toward public-sector power and away from free enterprise. (Summary by firstname.lastname@example.org)
Knowing and understanding the thinking of one’s opponents is an important part of coming to a solution that all sides can agree upon.
In order to come to such solution it is more important to have the different parties surface their basic biases, assumptions, and values and try to find a common value base. One such process has been happening in the last ten years or so, all over the world, across disciplines and classes. It resulted in the Earth Charter which can be considered the 21st century successor of the 20th century Universal Declaration of Human Rights.
Battling for the soul of capitalism is taking place, not only now, but for many decades. One of the outstanding proponents for a transformed capitalism is William Greider who wrote a book about the soul of capitalism and many other related issues. The many civil society organizations or CSOs that are engaged in monetary and financial matters particularly in relation to the G20 Summit in London such as www.rethinkingfinance.org,www.brettonwoodsproject.organd www.timun.net are also in diverse ways working towards transforming monetary, financial, economic systems which, in essence, is a battle for the soul of capitalism. It is to be a monetary, financial, economic system that integrates the social and ecological demands of the times within a vision of a thriving Earth Community on a thriving planet as elaborated in the earlier mentioned Earth Charter.
Thomas Friedman in today's NY Times called "The Price Is Not Right" makes the excellent point the mispricing and externalization of costs to the economic and Mother Nature are the major reasons of the world's deplorable predicament where millions of humans and other sentient beings suffer and Mother Nature is being afflicted by human-caused degradation of her basic processes, that is the flowing of energy, the cycling of matter and the webbing of life.
Let's hope that the G20 heads of state and their finance ministers and the IFIs consider London and Copenhagen together, If they do this, they may also come to the conclusion that the Tierra Solution and its TIMU architecture make sense. It will finally build the confidence and trust that is needed, particularly if they accept to remove the fractional reserve system from their privately owned commerical banks.