Monthly Archives: March 2009

Five Stories You Might Have Missed

The world is preparing for the upcoming G20 summit, scheduled to meet in London later this week. While each country is arriving at the meeting with their own objectives, it is clear that the global financial crisis will dominate discussions. In this context, the main issues on the table appear to resolve around three key policy debates: developing a globally coordinated stimulus package, strengthening global financial regulation, and reforming the international financial architecture, particularly the International Monetary Fund. Police are preparing for widespread tens of thousands of protestors accompanying the meeting.

In other news from the previous week:

1. President Barack Obama on Friday announced that the U.S. would expand its commitment in Afghanistan, sending an additional 4,000 troops to train Afghan security forces. The Obama administration is also hoping to refocus the U.S. mission in Afghanistan, moving away from the nebulous mission of national building and democratization and instead focusing on defeating al-Qaeda and Taliban militants operating along the Afghan-Pakistan border. FT blogger Gideon Rachman raises some important questions about the new strategy, pointing out that bringing the fight to al-Qaeda militants in Pakistan may well undermine the stability of Pakistan—an ultimately self-defeating strategy, he argues.

2. After struggling for weeks to secure a coalition government, incoming Israeli Prime Minister Benjamin Netanyahu was able to convince their center-left rival, the Labour party, to join a new coalition government on Tuesday. Netanyahu hoped to bring the center-left Labour party into the coalition in order to avoid allying with a number of far right parties and running the risk of souring relations with the U.S.  Nevertheless, the new government raises concerns among many Palestinian leaders about the future prospects of the peace process.

3. The medical journal the Lancet offered a powerful criticism of Pope Benedict’s recent speech during a trip to Cameroon and Angola. During the visit earlier this month, the Pope claimed that condom use increased the prevalence of AIDS on the continent. After the World Health Organization and other AIDS experts attacked the claim, the Vatican last week issued a statement that reasserted the Pope’s claim that condom use was both ethically wrong and actually exacerbated the AIDS crisis. The condom/AIDS debacle is just the recent in a series of missteps and controversies that have plagued the current Pope. In February, he lifted the excommunication of four ultra-conservative clerics who denied the holocaust. And in 2006, he quoted a fourteenth century emperor who characterized Islam as “evil and inhumane.”

4. On a Thursday press conference with British Prime Minister Gordon Brown, Brazil’s President Luiz Inácio Lula da Silva told reporters, “This [current global economic] crisis was caused by the irrational behaviour of white people with blue eyes, who before the crisis appeared to know everything and now demonstrate that they know nothing…I do not know any black or indigenous bankers so I can only say [it is wrong] that this part of mankind which is victimised more than any other should pay for the crisis.” Brown immediately sought to distance himself from the comments. But the comments underline the potential difficulty of securing agreement at the upcoming G20 meeting, in which Argentina and Brazil will be pushing for reform of the international financial institutions and campaigning against protectionist policies in the developed world.

5. German Chancellor Angela Merkel cautioned against excessive stimulus spending in Europe while at the same time calling on China to expand its stimulus package in an effort to address the global financial crisis. In an interview given in anticipating of the upcoming G20 summit, Merkel argued that the current crisis was caused, in part, by policies which facilitated unsustainable growth with too much money. She argued it was necessary to avoid repeating those mistakes in the recovery. Spain’s finance minister, Pedro Solbes, on Friday said that Spain would not be able to expand its own stimulus spending, fearing that excessive national debt would undermine future economic prospects.

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The Decline of the U.S. Dollar

On his blog for Foreign Policy, Daniel Drezner highlights a recent paper authored by the governor of the central bank of China calling for the development of a new global reserve currency to be administered by the International Monetary Fund. Surprisingly, this story was buried in the Financial Times.  But Drezner rightly points out that a move away from the U.S. dollar as the global reserve currency would have dramatic implications.

Reserve currencies refer to the money held by governments and international institutions as part of their foreign exchange reserves. Reserves serve as the lubricant of international financial transactions and permit countries to barrow money and finance purchases. Since the shift away from species-backed currencies (the U.S. dollar was taken off the gold standard in 1971), the value of currencies has been determined by market forces. Though governments may attempt to manage currency values by buying or selling their own currencies, such efforts are often dramatically unsuccessful— witness the Russian Ruble collapse in 1998, the Asian Financial Crisis in 1997, and so on.

Since the end of World War II, the U.S. dollar has been the global reserve currency. Even today, almost two-thirds of all currency reserves globally are held in U.S. dollars.  The Euro, the second-most widely held currency, accounts for about one-quarter of all reserves, and other currencies, including the Pound sterling, the Japanese yen, and the Swiss franc, round out the remainder.

Because the U.S. dollar has been the global reserve currency, the United States enjoys a number of benefits. Most important of these is the fact that the United States can finance higher trade and budgetary deficits, as it has increasingly done in recent years. A shift away from the U.S. dollar as the global reserve currency would increase the cost of borrowing for the United States and make financing the national debt, which has recently crossed the $10 trillion mark, much more difficult and expensive.

Drezner points out that the shift proposed by China is not likely to happen quickly. Indeed, as the single-largest holder of U.S. dollars, China would be ill-served by a sharp and sudden decline in the value of the dollar. Nevertheless, the issue is likely to occupy decision makers at the upcoming G20 summit. More importantly, it potentially represents the most dramatic shift in the global political economy in decades.

Five Stories You Might Have Missed

It was a busy week for the U.S. Federal Reserve. Addressing a meeting of bankers on Friday, the Chair of the U.S. Federal Reserve, Ben Bernanke, called on legislators to address the need for regulatory reform of global financial markets. On Wednesday, the Federal Reserve undertook announced new plans intended to improve the position of the U.S. credit markets. With the federal funds rate remaining near zero percent, the Federal Reserve has been forced to turn to a program of qualitative easing, under which it purchases mortgage-related securities, removing them from the market and expanding the amount of cash in circulation. It is coordinating policy with the central banks of England, Japan, and Switzerland. But the dramatic move carries a number of risks, including the introduction of high rates of inflation and a decline in the value of the dollar

In news from outside the United States last week:

1.  A two-day meeting of the European Union last week produced a number of important outcomes, including a commitment to increase the E.U.’s contribution to the International Monetary Fund by €75bn. The European Union also staked out its position on reforming global financial market regulation, the focus of an upcoming G20 meeting in April. Current speculation is that the meeting of the G20 will likely pit Germany and France, which favor stricter regulation, against the United States and China, with the United Kingdom falling somewhere in the middle. However, all sides are currently playing up the likelihood of compromise.

2. On Saturday, the Abhisit Vejjajiva’s government in Thailand survived a no confidence motion in the national legislature. Vejjajiva has been in office for only three months, but has been under fire nearly the entire time, as Thailand has been plagued by political and economic instability compounded by declining exports, part of the impact of the global economic crisis. 

3. On Thursday, the government of China announced it would step up naval operations in the South China Sea, specifically targeting the disputed Spratly Islands. The Spratly Islands are claimed (in whole or in part) by at least six countries, including Brunei, China, Malaysia, the Philippines, Taiwan, and Vietnam. The announcement comes after a standoff between U.S. and Chinese naval vessels earlier this month, when the U.S. accused China of harassing a U.S. naval vessel operating in the South China Sea. China maintains the vessel was operating illegally in Chinese waters.

4. Israeli President Shimon Peres last week granted Likud party leader Benjamin Netanyahu two more weeks to form a coalition government. Netanyahu’s right-wing Likud party was named by Peres as formateur party after extremely close restuls in national elections earlier this month.  Netanyahu has the option of forming a coalition with a group of far-right and religious parties, but has been seeking to form a more centrist coalition with either Ehud Barak’s Labour party or Tzipi Livni’s Kadima party. A more centrist coalition, Netanyahu believes, would be better positioned to avoid potential clashes with the United States. But both Labour and Kadima remain hesitant to join a coalition government with Likud.

5. Andry Rajoelina was sworn in as the new president of Madagascar on Saturday. Brought to power under the auspices of a military rebellion, Rajoelina committed the new government to routing out the corruption of the previous regime and to re-establishing democracy within two years. But may observers remain skeptical. On Friday, the African Union suspended Madagascar from the organization, many donors have announced they will freeze aid, and the United States

And a bonus story this week:

6. A standoff between farmers and the government in Argentina last week threatens global food markets. Farmers are angry about the imposition of a 35 percent duty on soya exports and bans on export of some other food commodities. A similar standoff last year resulted in nationwide strikes and export bans. The standoff in Argentina has the potential to influence global food prices, as Argentina is one of the word’s largest food exporters—second only to the United States. China is the largest consumer of Argentinean soya exports.

Five Stories You Might Have Missed

The G20 (which actually has 22 states attending this year) met this weekend in London. The ongoing economic crisis, of course, dominated discussions. The meeting produced a communiqué in which the states commit themselves to restoring financial growth and strengthening the global financial system. Discussions were dominated by several important divisions between the member states, particularly between the developed and developing countries (largely over reform of the International Monetary Fund) and between the United States and Europe (over the urgency and scope of economic stimulus efforts). In the end, the only real, concrete policy initiative was the agreement to enlarge the membership of the Financial Stability Forum to include all G20 members. Created in the aftermath of the 1997 Asian Financial Crisis, the FSF monitors the global financial system and coordinates policies between the international financial institutions.

In news from outside the G20 meeting:

1. On Friday, Chinese Premier Wen Jiabao expressed concern over the mounting U.S. deficit and the future stability of the U.S. economy. The Chinese government currently holds an estimated 70 percent of its $2 trillion foreign exchange reserve in dollar-denominated assets and is the single-largest buyer of U.S. Treasury Bills. A decline in the value of the U.S. dollar therefore threatens China’s massive reserves. But while the Premier is pressuring the U.S. to ensure the stability of its currency, Luo Ping, the director general of the Chinese Banking Regulatory Commission, reassured the U.S. government (and dollar markets more generally), that the investment in the dollar remains the “only option” for Chinese foreign reserve holdings.

2. Secretary of State Hillary Clinton, fresh off her trip to the Middle East and Europe, will be visiting Mexico later this month to discuss the crisis resulting from the growth of drug cartels in the country. The U.S. and Mexico already have an ongoing anti-drug effort (currently valued at approximately $750 million). However, the effort has not been successful in curbing the growing influence of the cartels, and many observers fear that Mexico may fall to the cartels. The situation in Mexico has become so stark in recent weeks that the U.S. State Department has issued a travel advisory, and the U.S. Joint Forces Command has begun gaming exercises based on the assumption that Mexico could undergo a “rapid and sudden collapse.”

3. The deepening political crisis in Pakistan continues. Over the last week, the government has increased its crackdown on opposition party members, which they accuse of attempting to undermine Pakistan’s fragile parliamentary democracy. A series of nationwide protests led by many of the country’s lawyers has been demanding the “restoration of democracy and the rule of law.” On Sunday, the government placed Nawaz Sharif, leader of the Pakistan Muslim League-Nawaz, under house arrest and attempted to block protests in Islamabad, the country’s capital.

4. On Tuesday, Madagascar’s the army gave the country’s president, Marc Ravalomanana, a 72-hour ultimatum to resolve the ongoing crisis or resign from office. Madagascar has been suffering from an economic malaise due the collapse of the vanilla market, Madagascar’s main export. While the country has begun to attract foreign investment, Madagascar remains incredibly poor, with a GDP per capita of just $330, and inequality between rich and poor remains very high. Ravalomanana remains defiant. On Saturday, he addressed his supporters to say he would not be resigning.

5. In a new statement released on Saturday, Al Qaeda leader Osama bin Laden warned Arab leaders against cooperating with the West and renewed calls for his followers to prepare for jihad. Bin Laden singled out Egypt, Jordan, and Saudi Arabia, as countries headed by leaders that “have plotted with the Zionist-crusader coalition against our (Muslim) people.” Bin Laden also made reference to the recent conflict between Hamas and Israel in Gaza, describing it as a “holocaust.”

More on the Daily Show Showdown

The blogosphere continues to discuss and debate Thursday’s showdown between CNBC’s Jim Cramer and Jon Stewart on the Daily Show.  The Financial Times’ Izabella Kaminska scored the debate for Stewart, James Fallows at the Atlantic described Stewart as the new Edward R. Murrow, Jack Balkin at Balkinization used the exchange to remind reporters what they should be doing, and Andrew Sullivan’s Daily Dish (in an entry entitled “To Catch a Predator”) described the interview as “an insistent and vulgar demand for some responsibility, some moral and ethical accountability for previous decisions and pronouncements.”

A Congressional Inquiry on Financial Crisis Culpability?

On last night’s Daily Show, Jon Stewart had an extended interview with Jim Cramer, host of CNBC’s Mad Money, an investment advice show. For more than a week, Stewart has been criticizing the financial network for promoting irresponsible investment on Wall Street (and the government policies that encouraged such practices). On last night’s show, he took Cramer to task for the excesses of Wall Street and the complicity of financial reporters in the continuing crisis. 

Coverage of the show in the New York Times’ Art Section this morning noted that “Mr. Stewart treated his guest like a C.E.O. subpoenaed to testify before Congress—his point was not to hear Mr. Cramer out, but to act out a cathartic ritual of indignation and castigation.”

That may well be, but Stewart did make some valuable points, particularly in the third segment of the interview.  We’ve treated the financial crisis “like a crazy, one-in-a-lifetime tsunami that no one could have seen coming,” Stewart observed, “is disingenuous at best and criminal at worst.”

His criticism included not just the traders and brokers but financial reporters as well. “The [traders] at these companies [AIG, Lehman Brothers, etc.] were on a Sherman’s march through their companies financed by our 401ks and all the incentives were for short-term profits. And they burned the house down with our money and walked away rich as hell. And you guys [CNBC’s financial reports] knew that that was going on.”

A Congressional inquiry is not likely in the works. And we’re still a long way off from understanding all the factors that contributed to the current crisis. But Stewart offers a great start to understanding the crisis—and to laying blame for it. But it’s a sad, sad day when we have to look to the court jester for truth and justice.

Five Stories You Might Have Missed

Poor economic news continues to flow out of most of the world. In the United States, new jobless figures released last week show unemployment up to 8.1 percent, the highest rate in 25 years. Malaysian exports have collapsed, placing pressure on the government to find a solution to the ongoing crisis. And the banking sector in South Africa, Canada, and Mexico (among others) continues to face problems, and the International Monetary Fund is urging greater coordination to address the crisis. 

But the Chinese government is asserting that things are improving there already, forecasting 8 percent growth this year and denying the economy is in a downturn. If they’re correct, perhaps we’re starting to see the beginning of the end of the global economic crisis. I, however, remain cautious.

Here’s important five stories from the previous week:

1. Hillary Clinton continued her charm offensive in Europe last week. After shifting to a more diplomatic strategy with Syria, the new Obama administration has announced its intention to conclude a new arms control agreement with Russia by the end of the year. The effort to improve diplomatic relations with both Syria and Russia are seen as part of a wider effort by the Obama administration to distance itself from the hardline policies of the previous president.

2. A suicide bomb attack against Baghdad’s main police academy killed 28 people on Sunday. Although the number of attacks has declined since the height of the sectarian violence in 2003, the attack nevertheless illustrates the challenges that Iraq continues to face.  On Thursday, a car bomb attack in Babil province—a region that has enjoyed relative peace for months—killed 12 people and injured 40. 

3.  Palestinian Prime Minister Salam Fayyad on Saturday announced his intention to resign. Fayyad was appointed by Palestinian President Mahmoud Abbas after Hamas took control of Gaza in 2007. But Fayyad was a controversial figure, and Hamas regularly criticized Fayyad for being too closely aligned with the United States and Israel. Fayyad’s resignation is seen as an important step towards the development of a unity government for Palestine, which itself is viewed as an important first step in the Middle East peace process.

4. The Good Friday peace accord in Northern Ireland faces its most serious challenge since it was signed in 1998, after two British soldiers were killed Saturday night in an attack by Irish nationalist groups opposed to the agreement. Though no group has yet claimed responsibility, several groups, including the Real IRA, the Continuity IRA, and the Irish National Liberation Army, oppose Sinn Fein’s effort to develop a powersharing agreement and peace deal for Northern Ireland.

5. Last week, President Hugo Chávez stepped up his effort to nationalize foreign agricultural producers in Venezuela. After last month’s referendum, which granted Chávez the right to remain in office indefinitely, Chávez announced his intention to move forward with the nationalization of key industries, including oil, steel, and cement. Chávez accuses foreign agricultural producers of exacerbating the country’s economic problems.

And in a bonus story for this week:

6. Zimbabwe’s Prime Minister Morgan Tsvangirai was injured in a car accident on Saturday, and Susan Tsvangirai, his wife of 31 years, was killed. According to witnesses, a truck swerved from the oncoming lane and struck his car, the middle in a convoy of three cars, head on. Some within Tsvangirai’s Movement for Democratic Change have accused Zimbabwe’s President, Robert Mugabe, of masterminding the attack in an effort to eliminate his political rival. Although Tsvangirai has since said he did not believe the accident was part of a broader plot by Mugabe to eliminate him, Tsvangirai did accept an offer from Botswana’s President to recouperate across the border, fueling speculation about the nature of the accident. Zimbabwe’s national unity government remains an unstable coalition of rival groups, and the government has been unable to effectively address the ongoing economic crisis there.