Thursday, October 01, 2009

Deciphering The Spin On A Bushie’s Money-Mad Musings

(And I also posted here.)

This New York Times story from last Monday tells us the following…

WASHINGTON — The president of the World Bank said on Monday that America’s days as an unchallenged economic superpower might be numbered and that the dollar was likely to lose its favored position as the euro and the Chinese renminbi assume bigger roles.

“The United States would be mistaken to take for granted the dollar’s place as the world’s predominant reserve currency,” the World Bank president, Robert B. Zoellick, said in a speech at the School for Advanced International Studies at Johns Hopkins. “Looking forward, there will increasingly be other options to the dollar.”

Mr. Zoellick, who previously served as the United States trade representative and as deputy secretary of state under President George W. Bush, said that the euro provided a “respectable alternative” for financing international transactions and that there was “every reason to believe that the euro’s acceptability could grow.”

In the next 10 to 20 years, he said, the dollar will face growing competition from China’s currency, the renminbi. Though Chinese leaders have minimized their currency’s use in international transactions, largely so they could keep greater control over exchange rates, Mr. Zoellick said the renminbi would “evolve into a force in financial markets.”

Mr. Zoellick criticized President Obama’s plan to put the Federal Reserve in charge of reducing “systemic risk” and to regulate institutions considered too big to fail. Saying that Congress had become uneasy about the Fed’s exercise of emergency powers to bail out financial institutions and prop up credit markets, Mr. Zoellick argued that the Treasury rather than the Fed should get more power because the Treasury was more accountable to Congress.
Hmm, sounds like the head of the World Bank wants to be the next treasury secretary in a (gulp) Repug presidential administration, people.

And as far as how we got to where we are in our current economic difficulties, Zoellick told fellow traveler Larry Kudlow the following here…

Well, I think across different administrations, across different times, you know, we haven't been able to get the discipline over the budget deficit across parties, different Congresses, different parties.
Different Republican administrations, Bob; President Clinton didn’t have any trouble balancing a budget (funny how “Zoely” is trying to deflect blame now that he and his pals are out of power).

And on the subject of the decline of the dollar mentioned by Zoellick (this stuff is legitimate Page One news, by the way, as opposed to a certain Polish film director who may be extradited to this country over 32-year-old rape charges), economist Nouriel Roubini told us the following in the Times last May (here)…

Traditionally, empires that hold the global reserve currency are also net foreign creditors and net lenders. The British Empire declined — and the pound lost its status as the main global reserve currency — when Britain became a net debtor and a net borrower in World War II. Today, the United States is in a similar position. It is running huge budget and trade deficits, and is relying on the kindness of restless foreign creditors who are starting to feel uneasy about accumulating even more dollar assets. The resulting downfall of the dollar may be only a matter of time.

If China and other countries were to diversify their reserve holdings away from the dollar — and they eventually will — the United States would suffer. We have reaped significant financial benefits from having the dollar as the reserve currency. In particular, the strong market for the dollar allows Americans to borrow at better rates. We have thus been able to finance larger deficits for longer and at lower interest rates, as foreign demand has kept Treasury yields low. We have been able to issue debt in our own currency rather than a foreign one, thus shifting the losses of a fall in the value of the dollar to our creditors. Having commodities priced in dollars has also meant that a fall in the dollar’s value doesn’t lead to a rise in the price of imports.

Now, imagine a world in which China could borrow and lend internationally in its own currency. The renminbi, rather than the dollar, could eventually become a means of payment in trade and a unit of account in pricing imports and exports, as well as a store of value for wealth by international investors. Americans would pay the price. We would have to shell out more for imported goods, and interest rates on both private and public debt would rise. The higher private cost of borrowing could lead to weaker consumption and investment, and slower growth.
And when the opportunity to reduce our deficits presented itself under our prior ruling cabal, I have no evidence that Zoellick acted with the required urgency for that purpose.

Because (and let us not forget this) Zoellick is a neocon through and through, an original PNAC signatory as noted here.

And this tells us of the time he preached his free trade mantra in Darfur (hardly an economically self-sufficient area of the world – the post also noted that Zoellick was a paid consultant on Enron’s advisory board); this tells us that he pursued North Korea over counterfeiting, which ended up getting the UK PO’ed at us and driving Kim Jong Il away from nuke talks; this tells us that Dubya nominated him to head the World Bank in the wake of another neocon, Paul Wolfowitz (even though Zoellick didn’t have “extensive development experience”); and this tells us that he called for aid to China along with developing countries (which looks particularly ridiculous now especially considering that the renminbi, as Roubini notes, could one day supplant the dollar as the world’s reserve currency).

As I contemplate all of this from Zoellick (given that he could have acted when he had the chance under Bushco), I cannot help but feel that the matter at hand is not so much a matter of the diminishing stature of certain financial instruments so much as his own prestige.

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