reserve currency

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pages: 397 words: 112,034

What's Next?: Unconventional Wisdom on the Future of the World Economy by David Hale, Lyric Hughes Hale

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The Labor Party lost its parliamentary majority in the August 2010 elections, and was obliged to forge agreements with two independents and a newly elected member of the Green Party in order to ensure its ability to pass a budget and survive “no confidence” votes. PART V RESERVE CURRENCIES 12 THE FUTURE OF THE US DOLLAR AS A RESERVE CURRENCY John Greenwood Two topics that are widely discussed in the media and among investors are the possible displacement, or even demise, of the US dollar as an international reserve currency within a few years, as well as what currency might replace it. However, in order to comment sensibly on the prospects for the international reserve role of US currency, and to answer the question about what might replace it, we first need to set out the essential characteristics of an international reserve currency. This chapter will first review the historical process by which the US dollar emerged as the preeminent international reserve currency, drawing from that experience a list of the prerequisites for reserve status.

Most holdings of US dollars outside the United States are by private parties, and financial markets are operated largely by and for private parties, with governments and central banks taking advantage of market arrangements. If the SDR were to become a truly international currency, it would need to become a vehicle of choice by private parties. The RMB as a Potential International Reserve Currency Turning to consider future possible reserve currencies, what would have to happen for the Chinese RMB to emerge as an international reserve currency? Viewed in terms of the nine criteria for an international reserve currency, China and the RMB currently meet only five (unit of account, medium of exchange, store of value, economic size, and creditor status), while the remaining four (availability beyond home borders, full convertibility, developed financial system, and network effects) have yet to be met.

In summary, China’s financial system will require many fundamental reforms and an extended period of development before the currency can become a serious contender for the role of international reserve currency. In order for the RMB to compete with—let alone replace—the US dollar as the world’s primary international reserve currency, it is clear that the Chinese authorities still have a long march ahead of them. Conclusion It is clear that none of the other leading currencies in the world today are in a position to replace the US dollar as an international reserve currency. On the contrary, the US dollar is likely to remain the dominant international currency for many years, both for private transactions and for official uses such as intervention and reserve currency holding. In private-sector transactions, the US currency has enormous advantages over other currencies, such as global usage that is supported by network externalities and a leading role in commodity markets.


pages: 381 words: 101,559

Currency Wars: The Making of the Next Gobal Crisis by James Rickards

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The continuation of the trend toward a diminished role for the dollar in international trade and the reserve balances begs the question of what happens when the dollar is no longer dominant but is just another reserve currency among several others? What is the tipping point for dollar dominance? Is it 49 percent of total reserves, or is it when the dollar is equivalent to the next largest currency, probably the euro? Barry Eichengreen is the preeminent scholar on this topic and a leading proponent of the view that a world of multiple reserve currencies awaits. In a series of academic papers and more recent popular books and articles, Eichengreen and his collaborators have shown that the dollar’s role as the leading reserve currency did not arise suddenly in 1944 as the result of Bretton Woods, but was actually achieved as early as the mid-1920s. He has also shown that the role of leading reserve currency shifted between the dollar and pounds sterling, with sterling losing the lead in the 1920s but regaining it after FDR’s dollar devaluation in 1933.

Devaluations did occur, but after each devaluation the anchor was reset. After Bretton Woods, the anchor consisted of the dollar and gold, and since 1971 the anchor has consisted of the dollar as the leading reserve currency. Yet in the postwar world there has always been a reference point. Never before have multiple paper reserve currencies been used with no single anchor. Consequently, the world Eichengreen envisions is a world of reserve currencies adrift. Instead of a single central bank like the Fed abusing its privileges, it will be open season with several central banks invited to do the same at once. In that scenario, there would be no safe harbor reserve currency and markets would be more volatile and unstable. One disturbing variation on Eichengreen’s optimistic vision consists of regional currency blocs, with local dominance by the dollar, euro and yuan, and possibly the ruble in Russia’s area of influence in Eastern Europe and Central Asia.

In order of disruptive potential from smallest to greatest, they are: multiple reserve currencies, special drawing rights, gold and chaos. Multiple Reserve Currencies A country’s reserves are something like an individual’s savings account. An individual can have current income from a job and have various forms of debt, yet still maintain some savings for future use or a rainy day. These savings can be invested in stocks and commodities or just left in the bank. A country has the same choices with its reserves. It can use a sovereign wealth fund to invest in stocks or other asset classes, or it can keep a portion in liquid instruments or gold. The liquid instruments can involve bonds denominated in a number of different currencies, each called a reserve currency, because countries use them to invest and diversify their reserves.


pages: 561 words: 87,892

Losing Control: The Emerging Threats to Western Prosperity by Stephen D. King

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Another option would be for Russia and China to diversify away from US bonds into US equities and company acquisitions, but, as we saw in Chapter 7, this is easier said than done given the climate of mistrust in Washington. Arguably, then, major emerging nations have no alternative other than to challenge the dollar’s pre-eminent reserve currency role. It’s not just a case of switching out of dollars into, for example, euros. That might bring diversification benefits but it would not deal with the underlying problem, namely that the emerging economies would still be dependent on foreign currencies to conduct their international business. They need, instead, to create their own reserve currencies. They need to create the financial equivalent of the Protestant Church. CHINA’S RESERVE CURRENCY In principle, it’s a simple process. Imagine, for example, that China’s renminbi became a reserve currency, widely held around the world and used for trade and capital market transactions. Imagine, also, that the use of the renminbi in this way led to a partial displacement of the dollar.

As Barry Eichengreen of the University of California at Berkeley notes, ‘At the end of 1913, sterling balances accounted for less than half of the total official foreign exchange holdings whose currency of denomination is known, while French francs accounted for about a third and German marks a sixth … In the 1920s and 1930s three currencies again shared [the reserve currency] role, although now the dollar supplanted the German mark.’10 In other words, although the dollar has monopolized the reserve currency role in recent times, sterling wasn’t quite so dominant, at least not in the first half of the twentieth century. Arguably, the existence of rivals to a sterling reserve currency reflected an empire already in decline. Sterling may have accounted for less than half of known foreign-exchange holdings in 1913, but, at the end of the nineteenth century, sterling had accounted for around 64 per cent of holdings. While, therefore, reserve currencies may co-exist, their co-existence may be an indication of a growing malaise with the prevailing ancien régime.

The dollar’s rise in the 1920s was, in part, a reflection of the economic costs of the First World War: the Treaty of Versailles and subsequent hyperinflation put paid to the German mark’s reserve currency status, while economic upheavals in both France and the UK (with its General Strike in 1926) made the dollar a more attractive option. These were not happy times for globalization. Similarly, the dollar temporarily lost its way as a reserve currency in the 1970s alongside the collapse of the Bretton Woods exchange-rate system. The Deutsche Mark was suddenly in high demand while globalization was in trouble. Germany, unlike the US, wasn’t in the business of creating inflation. Thus, while it’s perfectly possible to have more than one reserve currency circulating simultaneously, it has typically been a sign of weakness rather than strength. Reserve currency rivalry generally reflects unease with the international financial system, whether for economic or political reasons.


pages: 466 words: 127,728

The Death of Money: The Coming Collapse of the International Monetary System by James Rickards

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By extension, it is also about the potential collapse of the international monetary system because, if confidence in the dollar is lost, no other currency stands ready to take its place as the world’s reserve currency. The dollar is the linchpin. If it fails, the entire system fails with it, since the dollar and the system are one and the same. As fearsome a prospect as this dual collapse may be, it looks increasingly inevitable for all the reasons one will find in the pages to come. A journey to the past is in order first. Few Americans in our time recall that the dollar nearly ceased to function as the world’s reserve currency in 1978. That year the Federal Reserve dollar index declined to a distressingly low level, and the U.S. Treasury was forced to issue government bonds denominated in Swiss francs. Foreign creditors no longer trusted the U.S. dollar as a store of value.

The IMF will rise to the occasion with a towering issuance of SDRs, and this monetary operation will effectively end the dollar’s role as the leading reserve currency. ■ A Deluge of Dangers These threats to the dollar are ubiquitous. The endogenous threats are the Fed’s money printing and the specter of galloping inflation. The exogenous threats include the accumulation of gold by Russia and China (about which more in chapter 9) that presages a shift to a new reserve asset. There are numerous ancillary threats. If inflation does not emerge, it will be because of unstoppable deflation, and the Fed’s response will be a radical reflation of gold. Russia and China are hardly alone in their desire to break free from the dollar standard. Iran and India may lead a move to an Asian reserve currency, and Gulf Cooperation Council members may chose to price oil exports in a new regional currency issued by a central bank based in the Persian Gulf.

We call for the reform of the International Financial Institutions to make them more representative and to reflect the growing weight of BRICS. . . . We remain concerned with the slow pace of the reform of the IMF. The BRICS summit also specifically addressed the U.S. dollar’s role as the world’s leading reserve currency, and its possible replacement by SDRs: We support the reform and improvement of the international monetary system, with a broad-based international reserve currency system providing stability and certainty. We welcome the discussion about the role of the SDR in the existing international monetary system including the composition of the SDR’s basket of currencies. Finally, and so as to leave no doubt about the BRICS’ status as a political rather than an economic project, the Durban summit devoted substantial time to topics such as the crisis in Syria, a Palestinian state, Israeli settlements, Iranian nuclear weapons development, the war in Afghanistan, instability in the Congo, and other purely geopolitical issues.

Making Globalization Work by Joseph E. Stiglitz

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I envision global greenbacks being held only by central banks, but a more ambitious version of this proposal would allow global greenbacks to be held by individuals, in which case there would be a market price for them and they could be treated like any other hard currency.) Because each country is holding global greenbacks in its reserves, each no longer has to hold (as many) dollars or euros as reserves. For the global economy, this has enormous consequences, both for the former (current) reserve currency countries and for the global economy. We noted earlier the self-destructive logic of the current system, where the reserve currency country becomes increasingly in debt, to the point at which its money no longer serves as a good reserve currency. This is the process that is currently in play with the dollar. Because the global reserve system would no longer rely on the growing debt of a single country—the basic contradiction of the current system, which makes instability almost inevitable—global stability would be enhanced.

There is one country that can make up for the inadequacy of aggregate demand that comes from burying purchasing power in the ground: the United States has become the consumer of last resort. It is able and, especially since 2000, willing to run huge deficits. There is a seeming unending appetite for reserve country bonds, and it is all too easy for governments of reserve currency countries to get more and more into debt to feed this appetite. The fact that others are willing to lend at a low interest rate creates a situation politicians find hard to resist. It is easy to run fiscal deficits, to spend more than one has. Since the dollar became the major reserve currency, the United States has twice—in 1981 and 2001—financed huge tax cuts through deficits. This helps to explain our peculiar observation earlier—that the United States is the world's richest country, yet is living beyond its means. In this respect, it is doing the world a service.

Without America's profligacy, the fears of a weak global economy, possibly so weak that prices might actually start to fall—the fears of deflation that surfaced in the early years of this century, and which have plagued Japan for a d d i ht h b li d 12 Th ti i f h l 252 M A K I N G G L O B A L I Z A T I O N W O R K America continue to provide this service; that is, can it continue its spending spree? And are there alternative, more equitable ways of avoiding the global downward bias? Insufficiency of aggregate demand in the reserve currency country We have seen how the global reserve system leads to a problem of inadequacy of global aggregate demand. It also presents a special problem of inadequate aggregate demand in the reserve currency country. A country whose currency is being used as a reserve must—if it is to continue to be used as a reserve—"sell" its currency (or more accurately, its T-bills or bonds) to other countries, who hold on to them." -When a country sells a T-bill to another country, it is, of course, simply borrowing from that country.


pages: 488 words: 144,145

Inflated: How Money and Debt Built the American Dream by R. Christopher Whalen

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As part of this new international financial order, the world would gradually but deliberately replace the dollar as the sole international reserve currency and include at least two other currencies, the euro and the Chinese yuan. These currencies would gradually take a larger and larger share of international financial and commercial flows, and force the United States to manage its fiscal and monetary policies in a more responsible fashion. Instead of the dollar as the sole means of exchange for global commerce, there would now be three large reserve currency blocs built around Europe, North America, and Asia that would essentially compete in terms of encouraging growth and maintaining fiscal discipline. In a historical sense, creating a means for the United States to transition away from bearing the full burden of serving as the reserve currency for the world economy would truly mark the end of the Cold War period and, more broadly, the recovery of the world from the two world wars.

For years there has been speculation about how and when the U.S. dollar might lose its status as the world’s reserve currency, but the fact is that the migration process is already underway. The euro, the Chinese yuan, and even the Canadian dollar are all gaining attractiveness for investors who want to avoid the risk of devaluation and default as the United States wallows in self indulgence and indecision. If you compare the response by U.S. leaders to the subprime debt crisis and the response by leaders in Europe and other nations to their debt problems, the divergence in how we define the problems and the solutions is striking. It is often said that no other nation wants the job of being the global reserve currency, but as financial adviser David Kotok reflected, “this is not a job you look for. It is a job that finds you.”

The EU will expand to include Poland and Czechoslovakia. Over the next ten to twenty years we will see a larger Eurozone that will provide an alternative reserve currency to the dollar.”12 Triffin’s Dilemma and the Dollar A reckoning long foreseen is at hand. “Nearly 50 years ago, Yale University economist Robert Triffin identified the inevitable future deterioration of the dollar in his book, Gold and the Dollar Crisis: The Future of Convertibility (1960),” wrote researcher Walker Todd in a December 2008 article. “Essentially, Triffin argued, under the Bretton Woods system in which the U.S. dollar was the world’s principal reserve currency (instead of gold, for example), the United States had to incur large trade deficits in order to provide the rest of the world with the liquidity required for the functioning of the global trading system.”13 Returning to the point with respect to the soaring cost of imported energy, the fact that the dollar continues to trade at current levels versus other currencies reflects the reality that as the global means of exchange, the dollar cannot be easily replaced.


pages: 183 words: 17,571

Broken Markets: A User's Guide to the Post-Finance Economy by Kevin Mellyn

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America only briefly joined the gold standard, but instead pursued a liberal (as in loose) domestic credit system based on fractional reserve banking, and until 1913 eschewed the discipline of central banking. Britain accepted and even clung to the burden of maintaining a reserve currency until forced to impose strict exchange controls at the outbreak of war in 1939 largely through its governing class’s confusion between national prestige and practical economics. After the war, the “temporary” exchange controls stayed on until 1979. Sterling’s role as a reserve currency was unsustainable. The dollar became by default the only potential reserve currency after the war, but the remarkable fact is that by the 1944 Bretton Woods conference, the United States had been the largest economy in the world for about 65 years without taking up the burden of financial hegemon.

Bretton Woods created a new international institution, the International Monetary Fund (IMF), which pooled resources of participating countries in order to make funds available to help them make adjustments necessitated by balance-of-payment problems. The key weakness in the Bretton Woods system was that it required monetary discipline on the part of the United States, whose dollar was in effect the new gold, the anchor for all other currencies.The United Kingdom understood its role as issuer of the global reserve currency and played it well until it could no longer afford it. The US government was and is inevitably driven by domestic politics to put its reserve currency obligations in second place at best. The simple fact was (and remains) that the US government could print money without limit if it chose to, and in the 1970s it did so with a vengeance to finance a vast expansion of social spending and the Vietnam War without raising taxes. Other countries got stiffed as America paid its bills in dollars of diminishing value.

The limits of this export-driven model was clearly recognized in the latest five-year plan, which seeks to rebalance the export-driven growth model that has driven progress up to now, but at an increasing cost to social harmony.The time necessary for the envisioned transition is very limited given the impact of the crisis on Western demand and the shaky position of the Western credit system and fiat currencies, not Broken Markets to mention political support for globalization. Nobody has a bigger stake in the global financial system. But will it take up the role of its hegemon? It is in fact likely that China, despite being the world’s largest exporter and creditor, will for some time at least contrive to avoid the role of hegemon, especially the burden of reserve currency issuer and lender of last resort. Reserve currencies, with the pound sterling as the most successful to date, become a global benchmark and safe haven that drives up their value relative to other currencies, which in many circumstances damages export competitiveness. Japan, the very model of an export-driven economy, remains the world’s largest creditor, with overseas assets of nearly $7 trillion. It has never aspired to financial hegemony, since it has been able to take advantage of public goods provided by America, the world’s largest debtor.


pages: 376 words: 109,092

Paper Promises by Philip Coggan

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By the autumn of 2011, government bond yields were very low round the world, leaving investors very vulnerable to inflation, currency depreciation or default. The European crisis has shown that government bonds are not the risk-free asset that they had been assumed to be. OPTIONS FOR CHANGE So how might the system change? Much of the discussion concerns whether the US dollar will be replaced as the global reserve currency by the Chinese renminbi, or whether it will simply be one of a range of reserve currencies including the euro, renminbi and yen. The global reserve currency is the currency that forms the biggest proportion of the holdings of central banks. More broadly, however, it is also the one most likely to be accepted by merchants in other countries; if you are a tourist in Africa, you will be better off trying to buy goods with dollars than pounds or yen. In my view, the debate about whether the dollar will be replaced by the renminbi is a bit of a red herring.

Such a shift may eventually occur but it is likely to take a long time. As of 2010, 60 per cent of all foreign exchange reserves were denominated in dollars, giving the US currency a critical mass.3 Investors are still comfortable with holding it; at times of crisis, the dollar is regarded as a safe haven despite the country’s fiscal problems. After all, sterling was still being used as a reserve currency in the mid-twentieth century long after Britain’s relative economic decline had become apparent. The choice of reserve currency involves many factors. The US’s political, military and economic pre-eminence have undoubtedly boosted the dollar’s status. But it is also important that investors, and other central banks, can easily realize their dollar holdings if they have to – in other words, that the US market is highly liquid. All commodities are still priced in dollars and the US currency is used in around 86 per cent of all foreign-exchange transactions.

Even if China allows the renminbi to become convertible (it has set a target date of 2015 for the switch), it will take a long time for its markets to become anything like as liquid as those in the US. And it will take even longer for international investors to become confident that a Communist-led government will always respect their rights. Even if the dollar steadily falls in value against the renminbi, as seems likely, it will still have attractions as a reserve currency. Indeed, currency depreciation goes with the territory of being a reserve currency. In a sense, this dates back to the Triffin dilemma outlined in Chapter 5: for a currency to be used internationally there must be lots of it circulating abroad. For that to happen, however, a country must run a deficit so its currency builds up in the accounts of overseas merchants. And if the deficit becomes too large, confidence in the currency will eventually decline.


pages: 537 words: 144,318

The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money by Steven Drobny

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Albert Einstein, Asian financial crisis, asset allocation, asset-backed security, backtesting, banking crisis, Bernie Madoff, Black Swan, Bretton Woods, BRICs, British Empire, business process, capital asset pricing model, capital controls, central bank independence, collateralized debt obligation, Commodity Super-Cycle, commodity trading advisor, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, diversification, diversified portfolio, equity premium, family office, fiat currency, fixed income, follow your passion, full employment, Hyman Minsky, implied volatility, index fund, inflation targeting, interest rate swap, inventory management, invisible hand, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, market microstructure, moral hazard, North Sea oil, open economy, peak oil, pension reform, Ponzi scheme, prediction markets, price discovery process, price stability, private sector deleveraging, profit motive, purchasing power parity, quantitative easing, random walk, reserve currency, risk tolerance, risk-adjusted returns, risk/return, savings glut, Sharpe ratio, short selling, sovereign wealth fund, special drawing rights, statistical arbitrage, stochastic volatility, The Great Moderation, time value of money, too big to fail, transaction costs, unbiased observer, value at risk, Vanguard fund, yield curve

But it is very plain to me that the politicians and the central bankers will at this stage do more or less whatever it takes to avoid that collapse happening now, under their watch. They will not let nebulous long-term economic consequences get in the way. What are your thoughts on the status of the dollar as the world’s reserve currency? The dollar is certainly challenged, and will remain so for a number of reasons. A better longer-term solution for the world is probably more than one reserve currency. But unless the U.S. really mismanages things from here, the dollar will remain the world’s number one reserve currency 5 and 10 years down the road. It just might not enjoy such a wide margin of dominance in the future. Is this current bailout going to create the mother of all moral hazards? Are the actions of the Bernanke Fed a highly levered version of the Greenspan put?

We already see evidence of this in markets such as steel. If U.S. demand remains stagnant for several years, this could drive a destabilizing deflationary impulse, considering how fast lending growth and debt has been over the past year. China also presents a clear challenge to the U.S. dollar as the world’s reserve currency for the first time since World War II. Although the Chinese renminbi will not become the sole reserve currency, it will become a major tradable currency and could eventually become an important part of a world reserve currency basket. A clear concern is the structural flaw in the global monetary system, whereby the U.S. deficit is everyone else’s surplus. As such, everyone else is simply wed to the level of U.S. debt and implicitly to the U.S. economy’s growth rate. Nevertheless, regardless of the rhetoric, it would be impossible to move to an SDR model (see box) within the immediate investment horizon.

This trade also captures the notion that widening income dispersion—a trend that has been running since 1980 and supported higher end property prices—has run its course and has started to reverse. And, by selling oceanfront, you own an implicit call on global warming! Obviously, and unfortunately, this is not a trade that you can really put on, although it does suggest renting oceanfront rather than buying until prices adjust. What about the U.S. dollar—is the dollar’s status as the world’s reserve currency on the wane? The idea that the dollar’s reserve currency status is disappearing is something I used to believe in, but now I am not so sure. In order for that to happen, the public sector would have to begin dumping its dollars, or at least no longer accumulate dollars. If the underlying U.S. trade deficit has fallen, then the public sector will likely be accumulating fewer dollars. In other words, faster consumption growth in China and Asia is an alternative to both reserve accumulation and nominal currency appreciation.


pages: 234 words: 63,149

Every Nation for Itself: Winners and Losers in a G-Zero World by Ian Bremmer

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airport security, banking crisis, barriers to entry, Berlin Wall, blood diamonds, Bretton Woods, BRICs, capital controls, clean water, Deng Xiaoping, Doha Development Round, energy security, European colonialism, failed state, global rebalancing, global supply chain, income inequality, informal economy, Julian Assange, labour mobility, Martin Wolf, Mikhail Gorbachev, mutually assured destruction, Nixon shock, nuclear winter, purchasing power parity, reserve currency, Ronald Reagan, smart grid, South China Sea, sovereign wealth fund, special economic zone, Stuxnet, trade route, uranium enrichment, Washington Consensus, WikiLeaks, Yom Kippur War

A number of emerging powers have begun to insist in recent years that the dollar’s singular status provides Washington with a privilege it no longer deserves and that America’s mounting debt ensures that the dollar is no longer a stable enough store of value to serve as the world’s dominant reserve currency. “They [the United States] are living like parasites off the global economy and their monopoly of the dollar,” said Vladimir Putin in 2011. “There should be other reserve currencies.” In 2011, as federal debt climbed toward 75 percent of U.S. gross domestic product, critics at home and abroad questioned the willingness of Washington’s feuding lawmakers to pay the country’s bills and the long-term impact of the country’s political stalemate on the value of the dollar. But the greenback has maintained its decades-long incumbency in part because there has never been a viable single alternative to it. During the Cold War, the shadow of Soviet tanks undermined long-term confidence in West Germany’s deutschmark, and Japan avoided pushing the yen as a reserve currency to keep tighter control of its value.

., 164 convertability of, 43, 49, 50 devaluations of, 49 dominance of, 81–82 exchange rates tied to, 39, 43 as international reserve currency, 55 oil priced in, 81–82 Domain Name System, 87 droughts, 101, 106 drug trafficking, 183 Durban, South Africa, 94–95 Eastern Europe, 187 E. coli, 169 Ecuador, 177 Egypt, 48, 69, 113, 169, 179 food riots in, 98 revolution in, 112, 117, 175, 192–93 unrest in, 89 water supply of, 106 elections, 2009, Iranian, 192 elections, 2012, Russian, 182 emerging nations, 3, 16, 21, 26, 27, 29–30, 34–35, 44, 54, 59, 88, 119, 120, 179, 187 communication standards and, 84 exports from, 111 growing influence of, 76–77 rising middle class in, 98 environment, 68 equity funds, 127 Erdogan, Recep, 55 Estonia, 72 ethanol, 100 Ethiopia, 72, 106 euro, 17, 38, 54–55, 71, 155, 164, 165, 155, 181 as reserve currency, 55, 83 Europe, 16, 148–49, 170 aging population of, 120 budget crises in, 188 China’s trade with, 143 cooperation in, 174 debt and credit crisis in, 3, 17, 45, 181 defense budgets in, 134 intellectual property laws and, 84 Internet protocol in, 89 possible fragmentation in, 181 post–World War II reconstruction needed in, 38–39, 44–45 privacy laws in, 68 reduced role of, 194 European Central Bank, 71, 176 European Commission, 71 European Union, 54, 71, 117, 122, 123, 126, 132, 138, 155, 169 border controls in, 19 middle class in, 55 possible collapse of, 181 smart grids in, 73 Export-Import Bank of China, 29, 118, 135 exposed states, 135–36 ExxonMobil, 97, 127 Facebook, 91, 92–93 Ferguson, Niall, 158 “Fight the Debt Limit Extension,” 162 financial crisis, 2008, 2, 4, 11–12, 25–26, 62, 63, 65, 143, 152, 167 Finland, in Arctic Council, 96–97 food, 68, 69 security of, 3, 5, 97–104, 107, 133, 147, 152, 155, 168–69, 183 Fourcade, Jean-Pierre, 47 4G mobile phone standard, 86 France, 19, 25, 28, 39, 44, 45, 47, 166, 167 government intervention in economy in, 78 nuclear program of, 57 possible fragmentation of, 181 post–World War II reconstruction needed in, 39–40 freedom of speech, 89 French Revolution, 167 G2, 21, 35, 156 U.S.

Throughout this period, Britain acted as the primary provider of global public goods—services that profit nearly everyone and for which no one wants to pay. For example, Britain helped keep the peace by working to maintain a balance of force among the great powers of Europe. It promoted an increasingly open world economy, in part by using its unparalleled naval power to protect international sea lanes. It enabled capital flows and maintained the gold standard. The British pound served as the world’s primary reserve currency. The rise of Germany and the United States in the late nineteenth century began to undermine Britain’s dominance, and the breakdown of Europe’s concert of nations gave way to the First World War. But it was World War II that permanently crippled Britain’s ability to continue in this role. The United States, which suffered much less damage from the two conflicts than its enemies or its allies, proved ready, willing, and able to take on global leadership.


pages: 444 words: 151,136

Endless Money: The Moral Hazards of Socialism by William Baker, Addison Wiggin

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Andy Kessler, asset allocation, backtesting, bank run, banking crisis, Berlin Wall, Bernie Madoff, Black Swan, Branko Milanovic, Bretton Woods, BRICs, business climate, capital asset pricing model, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, crony capitalism, cuban missile crisis, currency manipulation / currency intervention, debt deflation, Elliott wave, en.wikipedia.org, Fall of the Berlin Wall, feminist movement, fiat currency, fixed income, floating exchange rates, Fractional reserve banking, full employment, German hyperinflation, housing crisis, income inequality, index fund, inflation targeting, Joseph Schumpeter, laissez-faire capitalism, land reform, liquidity trap, Long Term Capital Management, McMansion, moral hazard, mortgage tax deduction, naked short selling, offshore financial centre, Ponzi scheme, price stability, pushing on a string, quantitative easing, RAND corporation, rent control, reserve currency, riskless arbitrage, Ronald Reagan, school vouchers, seigniorage, short selling, Silicon Valley, six sigma, statistical arbitrage, statistical model, Steve Jobs, The Great Moderation, the scientific method, time value of money, too big to fail, upwardly mobile, War on Poverty, Yogi Berra, young professional

Once you start issuing $1 trillion to $2 trillion . . . we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.” Who benefits? Like Germany of the 1930s, the United States does, because being the operator of the world’s reserve currency, even if the creditor nations pull out of the dollar or other perhaps equally inflated paper currencies, it can make one last withdrawal of seigniorage from its money supply by monetizing it. But the cost would be the loss of operating the world reserve currency. Gao Xiqing continues, “‘If China has $2 trillion, Japan has almost $2 trillion, and Russia has some, and all the others, then—let’s throw away the ideological differences and think about what’s good for everyone.’ We can get all the relevant people together and think up what people are calling the second Bretton Woods system, like the first Bretton Woods convention did.”33 The replacement might be gold-based, especially if China has a say in the matter, but the United States would be ill advised not to monetize its debt first, since there is nothing stopping it from doing so.

For this reason, the architects of the gold exchange standard restored after World War I (when exchangeability had been suspended) promoted the use of gold bullion over specie. A key feature of that variant of the gold standard was the recruitment of major trading partners to substitute English pounds or U.S. dollars for their central bank reserves, 40 ENDLESS MONEY depending upon which currency or trading block in which they operated. From the perspective of the operator of the reserve currency, this simultaneously discouraged citizens from demanding gold in return for dollars, and it injected a cumbersome intermediate step before foreign currencies might be subject to the discipline of redemption. It also allowed British and U.S. banks to inflate and build up trade imbalances without fear of immediate settlement. Eventually this would cause the British pound to accumulate considerable stress in the late 1920s when its value was erroneously pegged to prewar parity, leading Britain to be the first major nation to break from the gold standard in the depression.

Yet losses then are estimated at only 2 percent, far less than the inflation to which the government subjected the people once the Act was legislated and the need to finance the Civil War became pressing.33 By 1903 the weakened state of silver globally provided the perfect opportunity for Britain and the United States to approach friendly countries with an opportunity to base their national currencies upon the pound or the dollar, respectively, which were grounded upon gold and could serve as a reserve base underneath foreign money supplies instead of silver. Seigniorage as well as control over financial affairs would accrue to the issuer of the reserve currency, the United States or Britain, and their client states would be subservient. The idea was to replace a genuine gold standard, in which each country (or, domestically, each bank) maintains its reserves in gold, by a pseudo-gold standard in which the central bank of the client country maintains its reserves in some key or base currency, say pounds or dollars . . . during the 1920s, most countries 56 ENDLESS MONEY maintained their reserves in pounds, and only Britain purported to redeem pounds in gold.


pages: 422 words: 113,830

Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism by Kevin Phillips

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algorithmic trading, asset-backed security, bank run, banking crisis, Bernie Madoff, Black Swan, Bretton Woods, BRICs, British Empire, collateralized debt obligation, computer age, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency peg, diversification, Doha Development Round, energy security, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, George Gilder, housing crisis, Hyman Minsky, imperial preference, income inequality, index arbitrage, index fund, interest rate derivative, interest rate swap, Joseph Schumpeter, Kenneth Rogoff, large denomination, Long Term Capital Management, market bubble, Martin Wolf, Menlo Park, mobile money, Monroe Doctrine, moral hazard, mortgage debt, new economy, oil shale / tar sands, oil shock, peak oil, Plutocrats, plutocrats, Ponzi scheme, profit maximization, Renaissance Technologies, reserve currency, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, sovereign wealth fund, The Chicago School, Thomas Malthus, too big to fail, trade route

The United States, although it had become the world’s principal creditor nation after World War I, had yet to establish the dollar as the world’s reserve currency. Britain, meanwhile, was clearly a faded global military and political hegemon, but through 1931 sterling remained the leading and most trusted currency. Neither nation fit the role of lender of last resort—the United States didn’t want to be, and Britain didn’t have the wherewithal. As 2008 ended, kindred warning flags flew. China was the leading creditor nation, with huge currency reserves. The United States was the weakening principal power that still printed the accepted reserve currency. The crux was whether the United States, having become the world’s principal debtor nation, could afford to provoke its global creditors with its biggest ever round of massive budget deficits and monetary expansion.

To some commentators, the currency markets in the autumn of 2007 were behaving as if the dollar were forfeiting its status as the world’s reserve currency.44 Such thoughts were no echo of August, because the initial, temporary reaction that month as the panic spread around the world had been a flight to safety—the old and familiar safety of U.S. dollars and treasury bills. Not until two reconsiderations took hold—better understanding of the U.S. credit crisis as a dollar-negative rather than dollar-supportive event, and appreciation of the importance of dollar weakness in promoting oil price rises—did the dollar start to plummet, pushing to the forefront questions about its possible global dethronement. This possibility, in turn, directed attention to historical precedents. Long-established reserve currencies do not hit the skids overnight; more often, inertia keeps them in place long after the deterioration begins.

That was soon unsustainable—the British economy of 1949, pallid and stressed, was still implementing wartime food rationing, and the government was forced to devalue to a humbler $2.80 exchange rate. So much for a onetime reserve currency. Thirty-five years had passed since the early warnings of 1914, not too different from Americans in 2008 harking back thirty-seven years to when a Vietnam-wearied United States closed the gold convertibility window for foreign central banks. My point is that the dollar crisis has been taking shape for many years. Any abandonment of the greenback as the world’s reserve currency could hardly occur “overnight.” Unfortunately, a second yardstick is also relevant, one that the pound did not have to confront back in the first half of the twentieth century—the semiofficial link between U.S. currency and a strategic energy commodity.


pages: 524 words: 143,993

The Shifts and the Shocks: What We've Learned--And Have Still to Learn--From the Financial Crisis by Martin Wolf

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air freight, anti-communist, Asian financial crisis, asset allocation, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, Ben Bernanke: helicopter money, Berlin Wall, Black Swan, bonus culture, Bretton Woods, call centre, capital asset pricing model, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, debt deflation, deglobalization, Deng Xiaoping, diversification, double entry bookkeeping, en.wikipedia.org, Erik Brynjolfsson, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, floating exchange rates, forward guidance, Fractional reserve banking, full employment, global rebalancing, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, inflation targeting, invisible hand, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, margin call, market bubble, market clearing, market fragmentation, Martin Wolf, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, new economy, North Sea oil, Northern Rock, open economy, paradox of thrift, price stability, private sector deleveraging, purchasing power parity, pushing on a string, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, Richard Feynman, Richard Feynman, risk-adjusted returns, risk/return, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, shareholder value, short selling, sovereign wealth fund, special drawing rights, The Chicago School, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tyler Cowen: Great Stagnation, very high income, winner-take-all economy

Alternatively, the emerging and developing countries could now go further in pooling their own resources. Third, create a global money. The most radical suggestion is the creation of a global reserve asset. The idea was recently presented by a panel of experts commissioned by the UN Secretary General: [T]he idea of an international reserve currency issued by a supranational bank is not new. It was broached more than seventy-five years ago by John Maynard Keynes in his 1930 Treatise on Money, and refined in his Bretton Woods proposals for an International Clearing Union. There currently exist a number of alternative proposals for a new global reserve currency, for how the system might be administered, how the emissions of the new currency might be allocated, and how the transition to the new system might be managed. Considerable international discussion will be required for the international community to decide the precise arrangements.

However, this is an idea whose time has come.49 Needless to say, the US will oppose this idea. Yet it is far from clear that the US benefits from being the supplier of the reserve currency. On the contrary, the evidence from the recent crisis is that the consequences for financial stability in the US are highly adverse. It seems likely that the Chinese government will have that view of a comparable role for the renminbi. It surely should do so. Maybe, the possibility of a transition to the kind of monetary regime Keynes envisaged may now emerge. It is at least clear that the world of floating fiat currencies, one of which is a reserve currency, is highly unstable. The experience already forced a drastic shift in the policies of emerging and developing countries after 1997, as this book has noted (see Chapter Five).

Average Current Account Balance 2000–2007 (percentage points) Source: IMF World Economic Outlook Database Like the countries of southern Europe discussed in Chapter 2, the countries of Central and Eastern Europe became vast importers of capital, at least relative to the size of their own economies, as Figure 23 shows. That did not end well. During the crisis, the finance they depended upon dried up. This was another ‘sudden stop’, very much the same as those that afflicted Ireland and southern Europe at that time. For investors, flight to safety is almost always also a rush back home, except if the economy to which the capital previously flowed is the home of a reserve, or near-reserve, currency, and possesses triple-A or close to triple-A status as a sovereign borrower (such as the US). The countries of Central and Eastern Europe did not possess those attributes. So the money took flight, whereupon these countries were forced to retrench suddenly and brutally. The result was deep recessions, with few exceptions. (Poland did well during the recession year of 2009. But its current-account deficit was also relatively small in the period before the crisis.)


pages: 276 words: 82,603

Birth of the Euro by Otmar Issing

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accounting loophole / creative accounting, Bretton Woods, business climate, capital controls, central bank independence, currency peg, financial innovation, floating exchange rates, full employment, inflation targeting, labour market flexibility, labour mobility, market fundamentalism, moral hazard, oil shock, open economy, price anchoring, price stability, purchasing power parity, reserve currency, Y2K, yield curve

Notably on account of its stability, but also because of favourable market conditions, the euro was also attractive for investments by monetary authorities – generally speaking, central banks. In this reserve currency role, the euro in practical terms initially superseded the D-Mark, which over time had become the second most important reserve currency after the US dollar. The D-Mark had come to play this role when the US dollar exchange rate weakened appreciably in the 1970s and a growing number of central banks sought an alternative to dollar investments. Meanwhile, the euro is playing an increasing part in the diversification of foreign exchange reserves by many central banks. The euro is – albeit a long way behind the US dollar – the world’s second most important reserve currency. Table 6 shows the euro’s share in the official foreign exchange reserves of various groups of countries.

Current account balances and cumulated ULC (percentage points; percentages of GDP; percentages) 172 173 209 210 211 212 215 216 Tables 1. Conversion rates 2. Key characteristics of the euro area 3. Per capita GDP in purchasing power standards relative to the euro area average 4. Annual change in the Harmonised Index of Consumer Prices (in %) 5. The euro as an international currency 6. Official foreign exchange reserves: currency shares 7. Countries with exchange rate regimes linked to the euro 8. Three-group rotation system (second stage); voting frequencies of governors in each group ix 20 44 46 142 179 180 182 225 Preface The date 1 January 1999 marks a milestone in monetary history. Eleven national currencies – not least among them the D-Mark, held in such high esteem by the citizens of Germany – ceased to exist.

, ECB Working Paper, no. 488 (May 2005), ECB, Monthly Bulletin, April 2007. In reality, the market rate is in most cases allowed to fluctuate within certain bounds. This does not alter the principle of the central bank’s obligation to intervene. The same considerations apply if the currency is linked to a metal (such as under the gold standard) or the price of a basket of commodities (commodity-reserve currency). 170 • The ECB – monetary policy for a stable euro If, in contrast, the market is left to determine the exchange rate, and the central bank therefore has no obligation to intervene, it can in principle direct its policy measures towards fulfilling a domestic mandate. Only with a flexible (floating) exchange rate is the central bank able to achieve a domestic objective (generally speaking, the objective of price stability).32 The choice of exchange rate regime is of central importance for monetary policy and also for the place of the central bank in the macroeconomic policy framework.


pages: 394 words: 85,734

The Global Minotaur by Yanis Varoufakis, Paul Mason

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banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, business climate, capital controls, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, colonial rule, corporate governance, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, declining real wages, deindustrialization, eurozone crisis, financial innovation, first-past-the-post, full employment, Hyman Minsky, industrial robot, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, market fundamentalism, Mexican peso crisis / tequila crisis, mortgage debt, new economy, Northern Rock, paper trading, planetary scale, post-oil, price stability, quantitative easing, reserve currency, rising living standards, Ronald Reagan, special economic zone, Steve Jobs, structural adjustment programs, systematic trading, too big to fail, trickle-down economics, urban renewal, War on Poverty, Yom Kippur War

According to what Connally told reporters, what he said to the Europeans was mild and affable: We told them that we were here as a nation that had given much of our resources and our material resources and otherwise to the World to the point where frankly we were now running a deficit and have been for twenty years and it had drained our reserves and drained our resources to the point where we could no longer do it and frankly we were in trouble and we were coming to our friends to ask for help as they have so many times in the past come to us to ask for help when they were in trouble. That is in essence what we told them. His real message is still ringing in European ears: It’s our currency but it’s your problem! What Connally meant was that, as the dollar was the reserve currency (i.e. the only truly global means of exchange), the end of Bretton Woods was not America’s problem. The Global Plan was, of course, designed and implemented to be in the interests of the United States. But once the pressures on it (caused by Vietnam and internal US tensions that required an increase in domestic government spending) became such that the system reached breaking point, the greatest loser would not be the United States, but Europe and Japan – the two economic zones that had benefited most from the Global Plan.

In contrast, the tribute of capital that fed the Global Minotaur flooded into the United States voluntarily. Why? How did US policy makers persuade capitalists from all over the world to fund the superpower’s twin deficits? What was in it for them? The answer turns on four factors. To stick to the mythological narrative, let’s call them the Minotaur’s charismas. The Minotaur’s four charismas Reserve currency status While the Global Plan lasted, it did not matter much which currency one held, since the exchange rates against the dollar were more or less fixed and the exchange rate between the dollar and gold was welded at $35 to an ounce of the gleaming metal. Nevertheless, oil magnates, German industrialists, French winemakers and Japanese bankers preferred to store their cash in dollars simply because of capital controls – that is, restrictions on how much cash one could convert to dollars or other currencies at any one time.

Rising energy costs As this point was made earlier, in explaining America’s acquiescence to the OPEC-led oil price increases, a brief summary will suffice here: in the early 1970s, the US economy imported 32.5 per cent of its oil, Europe imported almost all of its, and Japan imported every single drop. Increasing energy prices damaged the relative competitiveness of Germany and Japan vis-à-vis the United States. Moreover, the oil trade was intimately linked to US multinationals, and thus the higher oil prices meant a larger revenue base for them, higher profits, and a strengthening of their capacity to diversify internationally. As for non-US producers, the dollar’s reserve currency status, coupled with Volcker’s huge interest rates, magnetized their petrol dollars to New York where they metamorphosed into shares or US government bonds. Interestingly, it was not long before Japanese and German industry reacted to the shock by taking innovative paths that transformed their industrial production in ways that clawed back some of the relative gains that the United States had snatched from them by making energy so expensive.


pages: 859 words: 204,092

When China Rules the World: The End of the Western World and the Rise of the Middle Kingdom by Martin Jacques

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Admiral Zheng, Asian financial crisis, Berlin Wall, Bretton Woods, BRICs, British Empire, credit crunch, Dava Sobel, deindustrialization, Deng Xiaoping, deskilling, discovery of the americas, Doha Development Round, energy security, European colonialism, failed state, Fall of the Berlin Wall, Francis Fukuyama: the end of history, global reserve currency, global supply chain, illegal immigration, income per capita, invention of gunpowder, James Watt: steam engine, joint-stock company, Kenneth Rogoff, land reform, land tenure, Malacca Straits, Martin Wolf, Naomi Klein, new economy, New Urbanism, open economy, pension reform, price stability, purchasing power parity, reserve currency, rising living standards, Ronald Reagan, Scramble for Africa, Silicon Valley, South China Sea, sovereign wealth fund, special drawing rights, special economic zone, spinning jenny, Spread Networks laid a new fibre optics cable between New York and Chicago, the scientific method, Thomas L Friedman, trade liberalization, urban planning, Washington Consensus, Xiaogang Anhui farmers

As a harbinger of the decline, and ultimate demise, of the present US-DOMINATED system, there is the prospect of the emergence over the next decade of the renminbi as a reserve currency, which would mean it could be used for trade and be held by countries as part of their reserves.180 Having acquired full convertibility against other currencies, it could rapidly assume a very important role outside China, acting as the de facto reserve currency in East Asia, marginalizing the yen, and challenging the position of the euro and ultimately the dollar as global reserve currencies.181 It is clear from the American financial meltdown in 2008 that the days when the US economy could sustain the global reserve currency are now numbered. The present international system is designed primarily to represent and promote American interests. As China’s power grows, together with that of other outsiders like India, the United States will be obliged to adapt the system and its institutions to accommodate their demands and aspirations, but, as demonstrated by the slowness of reform in the IMF and even the G8, there is great reluctance on the part of both the US and Europe.182 Fundamental to this has been the desire to retain these institutions for the promotion of Western interests and values.

They are open-ended and multi-layered, and could yet acquire another dimension, with the involvement of India and perhaps other South Asian countries in the future.55 It has been suggested that one day there might be a fully-fledged East Asia Economic Union, perhaps even with a common currency, although the latter seems fanciful given the huge economic disparities across the region.56 Nonetheless, the renminbi is likely to play a growing role in the region, especially if China further eases the restrictions on its use, as is likely over the next five years or so. In that eventuality, and assuming the dollar declines, the renminbi will increasingly be used for trading purposes, other countries in the region will peg their currencies to it, and in time it will surely assume the role of the reserve currency of choice in the region.57 It is worth noting that in the zones around China’s borders - Myanmar, Mongolia, Laos, Cambodia and Vietnam - the renminbi, though not yet convertible, is already traded freely and used as a de facto reserve currency, sometimes instead of theUSdollar.58 Not surprisingly, China’s rapidly developing economic influence in the region is having wider political and cultural repercussions.59 Everywhere, in varying degrees, the impact of China can be felt. The willingness of China to foster interdependence, to seek new arrangements, and to take into account the needs and interests of other nations has had an extremely favourable effect on how it is seen in most countries.60 David Shambaugh, a leading US writer on China, argues: ‘Bilaterally and multilaterally, Beijing’s diplomacy has been remarkably adept and nuanced, earning praise around the region.

Given that China is likely to be the main trading partner of every East Asian nation, it will be natural for trade to be conducted in the renminbi, for the value of their currencies to be fixed against it rather than the dollar, which is largely the case now, and for the renminbi to be used as the reserve currency of choice. As the dollar continues to weaken with the relative decline of the US economy and the emergence of developing countries like China and India, it will steadily lose its global pre-eminence, to be replaced by a basket of currencies, with power initially being shared by the dollar and the euro, and perhaps the yen.50 When the renminbi is made fully convertible, it is likely to become one of the three major reserve currencies, along with the dollar and the euro, and in time will replace the dollar as the world’s major currency. This is a likely scenario within the next fifty years, more probably twenty to thirty years, perhaps even less.51 As I discussed in the last chapter, the present international financial institutions could well, in time, be superseded by new ones.


pages: 287 words: 81,970

The Dollar Meltdown: Surviving the Coming Currency Crisis With Gold, Oil, and Other Unconventional Investments by Charles Goyette

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bank run, banking crisis, Ben Bernanke: helicopter money, Berlin Wall, Bernie Madoff, Bretton Woods, British Empire, Buckminster Fuller, California gold rush, currency manipulation / currency intervention, Deng Xiaoping, diversified portfolio, Elliott wave, fiat currency, fixed income, Fractional reserve banking, housing crisis, If something cannot go on forever, it will stop, index fund, Lao Tzu, margin call, market bubble, McMansion, money: store of value / unit of account / medium of exchange, mortgage debt, oil shock, peak oil, pushing on a string, reserve currency, rising living standards, road to serfdom, Ronald Reagan, Saturday Night Live, short selling, Silicon Valley, transaction costs

If the fiscal policy of Bolivia is reckless, the global economy is unaffected. Not so with the United States. Since the end of World War II, the U.S. dollar has been the reserve currency of the world. Just as central banks including our own once held gold and issued their currencies as a marker for gold, under the Bretton Woods agreement, foreign central banks have held U.S. dollars against which they issue their own currencies. Despite the abrogation of the U.S. promise of dollar /gold redeemability, the dollar standard has persisted. Almost two thirds of foreign currency reserves are held in dollars. As the world’s leading reserve currency, the advantages for the United States are several. This dollar standard results in greater market demand for dollars and therefore a higher exchange rate than would otherwise exist.

It is signaling the meltdown of the dollar. Conventional investments have been the place to be in the recent past: stocks from 1982 to 2000; real estate boomed as the authorities engineered a loose credit environment to cushion the consequences of their prior bubble popping; the dot-com market. But gold’s recent advances signal that we are in a period of major transition now. The American dollar’s role as the world’s reserve currency is inherently unstable and the signs of a breakdown are all around. Just as the monetary authorities have been unable to reinflate the high-tech bubble or the real estate bubble, when the dollar bubble is finally burst, no other paper currency will be able to take its place—at least for a generation or two when the costly lessons of irredeemable currency may have to be relearned in another era.

To illustrate the point of Gresham’s law, you will have noted that you can get change in paper dollars for any transaction, but the clerk at 7-Eleven has never given you change in silver dollars. Instead of trading side-by-side forever as the president had claimed, the real silver coins began to disappear from circulation at once. Despite the disappearance of gold and silver coins from the domestic monetary scene, as far as foreigners were concerned the dollar still had some ties to gold. Since the end of World War Two the dollar has been the accepted reserve currency of the world, initially because of its promised convertibility to gold. The London Gold Pool was established in 1961 to maintain the fiction of dollar convertibility at the rate of $35 to the ounce. To keep the price stable, the pool was supposed to sell gold when the price rose above that benchmark and buy when it fell. Like all convoluted monetary schemes, it wasn’t to be trusted. Hadn’t the United States repudiated the gold claims and bonds of its own citizens?


pages: 348 words: 99,383

The Financial Crisis and the Free Market Cure: Why Pure Capitalism Is the World Economy's Only Hope by John A. Allison

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Affordable Care Act / Obamacare, bank run, banking crisis, Bernie Madoff, clean water, collateralized debt obligation, correlation does not imply causation, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, disintermediation, fiat currency, financial innovation, Fractional reserve banking, full employment, high net worth, housing crisis, invisible hand, life extension, low skilled workers, market bubble, market clearing, minimum wage unemployment, moral hazard, obamacare, price mechanism, price stability, profit maximization, quantitative easing, race to the bottom, reserve currency, risk/return, Robert Shiller, Robert Shiller, The Bell Curve by Richard Herrnstein and Charles Murray, too big to fail, transaction costs, yield curve

Second, there were housing bubbles created by the central banks in a number of other countries (such as Ireland and Spain), and these bubbles also burst. Finally, and most important, the U.S. dollar is the world’s reserve currency. If the Fed makes a mistake, its error will be transmitted to the global economy. The Fed increased the world’s monetary reserves, creating a global financial bubble. It is surprising to me, given the Fed’s string of errors, that international players have not abandoned the dollar and moved to a different standard. Of course, the Chinese have threatened to do just this. (Also, it can be argued that gold is rapidly becoming the world’s reserve currency.) It was previously outlined how subdivision zoning laws played an important role in driving up residential land site values and contributed to the housing bubble.

Gold has not become more valuable; the dollar has become materially less valuable. The United States effectively operated on a gold standard for many years. As was discussed earlier, the gold standard was falsely accused of being a major contributor to the Great Depression. The benefit of the gold standard is that it limits the ability of politicians and government bureaucrats to debase the value of the dollar. After World War II, the U.S. dollar became the reserve currency of the world and foreign governments could ask the United States to convert dollars to gold. Under Lyndon Johnson, the Fed printed so many dollars that the U.S. Treasury did not have enough gold to make the dollar-to-gold conversion. For this reason, Richard Nixon completely decoupled the dollar from gold in 1971. For the first time in 5,000 years, there was no connection of the world’s base currency to a naturally occurring standard (such as gold) that could not be manipulated by politicians.

For the first time in 5,000 years, there was no connection of the world’s base currency to a naturally occurring standard (such as gold) that could not be manipulated by politicians. Of course, politicians had found other ways to cheat, but, at least, with a gold standard debasing the currency was harder. We have been running a high-risk experiment since 1971 by relying on government bureaucrats to self discipline. The problems with the euro reflect the risk in this experiment. Should the U.S. dollar lose its status as the world’s reserve currency, the consequences would be severe. The Fed’s radical expansion of the money supply in reaction to the recent financial crisis is a form of Russian roulette. It may work but is very risky. It is noteworthy that most liberal economists treat the advocates of the gold standard without any respect. Yet, the gold standard was fundamentally successful for long periods of time. The fact is these economists and their political cronies do not want to be disciplined by the rationality of markets.


pages: 261 words: 86,905

How to Speak Money: What the Money People Say--And What It Really Means by John Lanchester

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asset allocation, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, blood diamonds, Bretton Woods, BRICs, Capital in the Twenty-First Century by Thomas Piketty, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collective bargaining, credit crunch, Credit Default Swap, crony capitalism, Dava Sobel, David Graeber, disintermediation, double entry bookkeeping, en.wikipedia.org, estate planning, financial innovation, Flash crash, forward guidance, Gini coefficient, global reserve currency, high net worth, High speed trading, hindsight bias, income inequality, inflation targeting, interest rate swap, Isaac Newton, Jaron Lanier, joint-stock company, joint-stock limited liability company, Kodak vs Instagram, liquidity trap, London Interbank Offered Rate, London Whale, loss aversion, margin call, McJob, means of production, microcredit, money: store of value / unit of account / medium of exchange, moral hazard, neoliberal agenda, New Urbanism, Nick Leeson, Nikolai Kondratiev, Nixon shock, Northern Rock, offshore financial centre, oil shock, open economy, paradox of thrift, Plutocrats, plutocrats, Ponzi scheme, purchasing power parity, pushing on a string, quantitative easing, random walk, rent-seeking, reserve currency, Richard Feynman, Richard Feynman, road to serfdom, Ronald Reagan, Satoshi Nakamoto, security theater, shareholder value, Silicon Valley, six sigma, South Sea Bubble, sovereign wealth fund, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, trickle-down economics, Washington Consensus, working poor, yield curve

Sometimes, it’s for pretty much the same reasons people go to pawnshops—because they need the cash immediately, in order to balance their books; sometimes it’s as a part of much more complicated strategies to do with the mix of risks and assets on their books; and sometimes it’s a bit more shady than that, as when Lehman Brothers, just before the bank collapsed, used a repo to hide $50 billion of dodgy assets from the Feds. reserve currency A currency held in large quantities by foreign governments and companies: at the moment, the global reserve currency is the US dollar. (In the first quarter of 2013, the dollar made up 62.2 percent of foreign exchange reserves, the euro 23.7 percent). That means in effect that the dollar is the earth’s currency: for instance, almost all commodity transactions are priced in dollars, including the most important one of all, oil. Being able to print as much of the global reserve currency as it wants is a huge economic advantage for the USA. resource curse A bitter thing. It refers to the tragic fact that the discovery of natural resources in a poor or developing country often turns into a disaster.

In the case of a public company, this usually means the lender swaps bonds in return for shares. decoupling What happens when two processes that used to be linked start to operate independently. In recent years it has taken on a specific meaning, to do with the separation of the rest of the world economy from the performance of the United States. Because the USA is the biggest economy in the world, and because the US dollar is the world’s reserve currency, the US economy and the spending power of the US consumer have since the Second World War in effect been the driving force of the world economy. The question at issue after the credit crunch and during the Great Recession was whether new sources of growth in the world, particularly the developing and emerging world and very specifically China, would be able to keep growing at a sufficiently strong rate to keep the global economy in motion.

paradis fiscal The wonderful French term for tax haven—I love the idea that a tax-free location is a form of paradise, in which people spend all their time cavorting on yachts. petrodollar Money made by selling oil; these transactions are denominated in US dollars because the USA made a deal with Saudi Arabia, after the collapse of the Bretton Woods agreement in 1971, as a way of maintaining demand for the US dollar as the de facto global reserve currency. positional goods Things whose value is determined not by how useful they are in themselves but by the fact that other people can’t have them. The term was coined by Fred Hirsch in his 1976 book Social Limits to Growth. Positional goods are tools for signaling status, and the fact that the owner of the positional good is doing better than the people around her. The idea is that as economies grow, more things become more available and more affordable to more people; but some things don’t, because their supply is fixed.


pages: 344 words: 93,858

The Post-American World: Release 2.0 by Fareed Zakaria

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affirmative action, agricultural Revolution, airport security, anti-communist, Asian financial crisis, battle of ideas, Berlin Wall, Bretton Woods, BRICs, British Empire, call centre, capital controls, central bank independence, centre right, collapse of Lehman Brothers, conceptual framework, Credit Default Swap, currency manipulation / currency intervention, delayed gratification, Deng Xiaoping, double entry bookkeeping, failed state, Fall of the Berlin Wall, financial innovation, global reserve currency, global supply chain, illegal immigration, interest rate derivative, knowledge economy, Mahatma Gandhi, Martin Wolf, mutually assured destruction, new economy, oil shock, open economy, out of africa, postindustrial economy, purchasing power parity, race to the bottom, reserve currency, Ronald Reagan, Silicon Valley, Silicon Valley startup, South China Sea, Steven Pinker, The Great Moderation, Thomas L Friedman, Thomas Malthus, trade route, Washington Consensus, working-age population, young professional

These two superpowers helped create and maintain an open world economy, protecting trade routes and sea lanes, acting as lenders of last resort, holding the reserve currency, investing abroad, and keeping their own markets open. They also tipped the military balance against the great aggressors of their ages, from Napoleon’s France, to Germany, to the Soviet Union. For all its abuses of power, the United States has been the creator and sustainer of the current order of open trade and democratic government—an order that has been benign and beneficial for the vast majority of humankind. As things change, and as America’s role changes, that order could begin to fracture. The collapse of the dollar—to the point where there was no global reserve currency—would be a problem for the world just as much as for America. And solving common problems in an era of diffusion and decentralization could turn out to be far more difficult without a superpower.

In each case, the hegemon was the dominant economic and military player, becoming the market and lender of last resort, home to the world financial center, and holder of the reserve currency. In politico-military terms, each secured the sea lanes, balanced against rising threats, and intervened when it thought necessary to prevent disorder. Although both made many mistakes, the stability of the system and the success of the world economy and the open societies it created are an extraordinary legacy of Anglo-American hegemony. What if that hegemony is waning? America no longer has the only large market in the world. The dollar is unlikely to retain its totemic position forever as the reserve currency, yielding to a basket that is largely composed of euros and dollars but includes other currencies too. In certain areas—the South China Sea, for example—U.S. military force is likely to be less relevant than that of China.

Britain had acquired an empire in a period before the onset of nationalism, and so there were few obstacles to creating and maintaining control in far-flung places. Its sea power was unrivaled for over a century. It had also proved to be highly skilled at the art of empire. As a result of the empire, it remained dominant in banking, shipping, insurance, and investments. London was still the center of global finance and the pound still the reserve currency of the world. Even in 1914, Britain invested twice as much capital abroad as its closest competitor, France, and five times as much as the United States. The economic returns of these investments and other “invisible trades” in some ways masked Britain’s decline. The reality, however, was that Britain’s economy was sliding. In those days, manufacturing still accounted for the bulk of a national economy, and the goods Britain was producing represented the past rather than the future.


pages: 710 words: 164,527

The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order by Benn Steil

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Albert Einstein, Asian financial crisis, banks create money, Bretton Woods, British Empire, capital controls, currency manipulation / currency intervention, currency peg, deindustrialization, European colonialism, facts on the ground, fiat currency, financial independence, floating exchange rates, full employment, global reserve currency, imperial preference, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Rogoff, margin call, means of production, money: store of value / unit of account / medium of exchange, Monroe Doctrine, New Journalism, open economy, Potemkin village, price mechanism, price stability, psychological pricing, reserve currency, road to serfdom, seigniorage, South China Sea, special drawing rights, The Great Moderation, the market place, trade liberalization, Works Progress Administration

“The acceptance of credit-based national currencies as major international reserve currencies, as is the case in the current system, is a rare special case in history,” Zhou observed. But issuers of reserve currencies “cannot pursue different domestic and international objectives at the same time”; this is the heart of the Triffin critique of Bretton Woods. “Although crisis may not necessarily be an intended result of the issuing authorities,” he argued, “it is an inevitable outcome of the institutional flaws.” White’s blueprint had failed. “The collapse of the Bretton Woods system, which was based on the White approach,” he concluded, “indicates that the Keynesian approach may have been more farsighted.” He called on the IMF to take the lead in boosting the all-but-forgotten SDR—to make it into a true “super-sovereign reserve currency,” using the model of Keynes’s bancor.37 Xinhua, after blasting the United States for its “debt addiction” in 2011, repeated Zhou’s call for a “new, stable, and secured global reserve currency.”38 China, though a huge creditor of the United States, is, unlike the United States in the 1940s, in no position to orchestrate a Bretton Woods–type refashioning of the global monetary architecture.

In his monumental 1936 General Theory, Keynes had argued, with his unrivaled wicked wit and self-assuredness, that what governments thought was eternally sound policy was actually reckless when it came to confronting a depression. The key insight, he held, was that the very existence of money at the heart of the economy wreaked havoc with the self-stabilizing mechanisms that classical economists believed to be at constant work. Keynes would apply his insight in the design of a new global monetary architecture, built around a new international reserve currency—one that would be a threat to the global supremacy of the U.S. dollar and which White was determined to keep from seeing the light of day. His visionary monetary schemes notwithstanding, Keynes had ultimately come to the United States with the mission of conserving what he could of bankrupt Britain’s historic imperial prerogatives—what little room for maneuver it would be allowed in what seemed sure to be a dollar-dominated postwar world.

The United Kingdom, he argued, needed a China sterling peg more than the United States needed a dollar peg, “partly because of England’s greater need for foreign trade, and her traditional role in international finance, and partly because the United States is a coming nation and England is a going one.” White was thinking eight years ahead toward U.S. positioning at Bretton Woods, observing that “the more sterling countries there are, the stronger will be England’s position around a conference table with the gold countries should an international conference take place.”85 The question of how to ensure that the dollar permanently supplanted the pound as the global trade, financing, and reserve currency was to occupy him for the remainder of his time at Treasury. On the European front, 1938 was to prove a pivotal year in boosting White’s profile in foreign affairs. Concluded on September 30, the Munich Agreement—now a byword for shameful appeasement of aggression—saw Britain and France accede to Germany’s annexation of the Czech Sudetenland, paving the way for Hitler’s occupation of Prague the following March.


pages: 349 words: 114,038

Culture & Empire: Digital Revolution by Pieter Hintjens

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4chan, airport security, anti-communist, anti-pattern, barriers to entry, Bill Duvall, bitcoin, blockchain, business climate, business intelligence, business process, Chelsea Manning, clean water, congestion charging, Corn Laws, correlation does not imply causation, cryptocurrency, Debian, Edward Snowden, failed state, financial independence, Firefox, full text search, German hyperinflation, global village, GnuPG, Google Chrome, greed is good, Hernando de Soto, hiring and firing, informal economy, invisible hand, James Watt: steam engine, Jeff Rulifson, Julian Assange, Kickstarter, M-Pesa, mutually assured destruction, Naomi Klein, national security letter, new economy, New Urbanism, Occupy movement, offshore financial centre, packet switching, patent troll, peak oil, pre–internet, private military company, race to the bottom, rent-seeking, reserve currency, RFC: Request For Comment, Richard Feynman, Richard Feynman, Richard Stallman, Satoshi Nakamoto, security theater, Skype, slashdot, software patent, spectrum auction, Steve Crocker, Steve Jobs, Steven Pinker, Stuxnet, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, trade route, transaction costs, union organizing, web application, WikiLeaks, Y2K, zero day, Zipf's Law

Currency was coin of the realm, and the realm could make it, or break it. Often, the world had a "reserve currency" that was considered the most stable and convertible, and held by governments as part of their foreign exchange reserves. For a long time, this was the British Pound Sterling. Then in the middle of the last century, the US Dollar became a significant reserve currency, and at the start of this century, the Euro joined. The government behind a reserve currency tends to use it to create debt, which then causes the currency to deflate and the world to switch to another. This seems to be happening with the US Dollar today, though it's unclear what the future reserve currency would be. The Internet has been searching for a reserve currency, indeed any currency that could be used to buy goods and services on line, for a long time.


pages: 438 words: 109,306

Tower of Basel: The Shadowy History of the Secret Bank That Runs the World by Adam Lebor

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banking crisis, Basel III, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, central bank independence, corporate governance, corporate social responsibility, deindustrialization, eurozone crisis, fiat currency, financial independence, financial innovation, forensic accounting, Goldman Sachs: Vampire Squid, haute cuisine, IBM and the Holocaust, Occupy movement, offshore financial centre, Ponzi scheme, price stability, quantitative easing, reserve currency, special drawing rights, V2 rocket

The continuing drain on Britain’s economy of its empire and the country’s general economic malaise made sterling increasingly vulnerable. But sterling was also a reserve currency, especially across Britain’s current and former dominions. Thus sterling, like the price of gold, had to be stabilized. The BIS was not a lender of last resort, but it could arrange loans to troubled central banks. In June 1966 a group of European central banks, the New York Federal Reserve, and the BIS agreed to make around $1 billion available to the Bank of England to defend sterling. This was significant, not just because of the sums involved, but because the BIS was its center. All the monies involved, apart from French and American funds, would be paid through a single account at the BIS. The bank was now coordinating a long-term strategic rescue of one of the world’s reserve currencies. However opaque the governors’ meetings were, they were a more edifying spectacle than the farcical and very public scenes at the November 1968 G10 conference in Bonn.

In July 1944 more than seven hundred delegates from the forty-four Allied nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire, for the United Nations Monetary and Financial Conference. Henry Morgenthau and Harry Dexter White led the American delegation. The conference agreed on the creation of the International Monetary Fund (IMF) and an International Bank for Reconstruction and Development (BRD), which became part of the World Bank. The IMF would monitor exchange rates and lend reserve currencies to indebted countries. The new bank would provide loans to underdeveloped countries. Bretton Woods also gave its name to a new international currency exchange system, where currencies were linked to the US dollar. In exchange the United States agreed to fix the price of gold at $35 an ounce. There would be no more currency warfare or manipulation. But if there was consensus on the basics, there was none on the future of the BIS.

Truman Library and Museum, http://www.trumanlibrary.org IG Farben historical resources, http://www.wollheim-memorial.de US Department of State, Office of the Historian, http://www.history.state.gov Index A Abacha, Sani, 259 Abs, Hermann, 153–154, 184, 187–188, 192–193, 197 Adenauer, Konrad, 159 Agreement for Intra-European Payments and Compensation, 166 The Alchemy Murder (Jacobssen), 52 Aldrich, Nelson, 137 Aldrich, Richard, 173 Aldrich, Winthrop, 137 Alien Property Custodian, 102, 118, 146 Alkali Export Association (Alkasso), 143 Allied Chemical & Dye Corporation, 37 Allied Tripartite Commission, 127, 132–133 Ambros, Otto, 159 American Committee for a United Europe, 173 American-Nazi financial network, 99–102, 104–109 Anschluss, 47, 53 Arendt, Hannah, 183 Argentina, dispute over reserves of, 260–261 Arnold, Thurman, 101 Ashton-Gwatkin, Frank, 70–71 Asian debt crisis (1997), 238 Auboin, Roger, xviii, 61, 81, 86, 94, 116, 192 Auschwitz, 116, 144, 158, 162 See also IG Auschwitz Australia, 198 Austrian National Bank, 53, 182 Autarky, 35, 84, 166 Axis powers, BIS gold transactions for, 86–87 B Baer, Gunther, 212 Baker, Dean, 252 Baltic gold, management of by BIS, 79–80, 206 Banco Zaragozano, 57 Bank deutscher Länder, 151, 175, 219 Bank for International Settlements (BIS) adaptability of, xxi, 193 American presidents of, 109 amorality of, 52–54, 63–66 annual reports, 25, 52–53, 208, 236, 256–254 Argentine reserves, dispute over, 260–261 authorized activities of, 21–22 available information about, xvi–xvii, xvii–xviii Baltic gold, management of, 79–80, 206 Basel Committee rules, 241 buy-back of shares, dispute over, 242–243 as Cold War information channel, 201–202 collapse of Soviet Union, role of in, 205 current status, 255–257 Czechoslovak gold affair, 59–63 ECSC, as transitional bank for, 174–175 effect of World War II on, 84–85 employees, 23–24 European Currency Unit (ECU), agent for, 210 European Monetary Cooperation Fund, agent for, 210 European Payments Union (EPU), agent for, 167 European unification, role in, 208–211, 258 Eurozone crisis, role in, xx–xxi evacuation of headquarters in World War II, 80–81 existence, question of need for, 262–263 founding of, xvii, 20–21 fund transfer procedure, 22–23 funding of Holocaust by, 258 future of, 270 globalization of, 228 gold, looted, 53, 78, 85, 132, 261–263 gold standard and, 42 gold transactions of, 67–68, 86–87, 114–115 governors’ monthly meeting, xii–xiii, 49–50, 256 Hague Convention, signing of, 20 headquarters, xix, 199–201 hostility toward, 89 insider trading by, 41 legal inviolability of, 14, 20, 42, 263, 265–268 liquidation of, motion for, 122–124 location, choice of, 13 Marshall Plan payments, as clearinghouse for, 146–147 Nazi Germany, relationship with, 33, 51, 78–79, 84–87, 114–115, 123, 125–127, 256 neutrality of, 78, 87 post–World War II survival of, 139–140, 147–148, 167, 175–176 privileges of, xiv, 81–82 problems caused by member financial policies, 245–246 purpose, xix–xxi, 5, 20, 42–43, 53–54 Reichsbank gold account in, 85 rescue packages, coordination of, 206–207 reserve currency rescue, coordination of, 193 as safe haven from creditors, 261–262 secrecy, tradition of, xv–xviii, 259 social responsibility, need for, 268–269 transnational economy, role of in, xxii–xxiii transparency, need for, 267–268 United States, blockage of transactions by, 95, 111, 133 warnings about easy credit, 238–240 wartime intelligence, conduit for, 113, 116–117, 127–131 See also BIS committees Bank of America, 169 Bank of England, 28, 29, 59–61, 67, 83, 110, 122, 189, 191, 245, 257 Bank of France, 28, 29, 61, 62, 65, 69, 85, 175 Bank of France (Vichy), 86–87 Bank of Greece’s missing gold, 23 Bank of Japan, 257 Bank of Portugal, 114 Bank of Russia, 206 Bank of Spain, 44, 56 Bank Voor Handel en Scheepvaart, 145 Bankers’ Almanac and Yearbook, 64 Bankers’ Magazine, on neutrality of BIS reports, 52 Bankhaus Herstatt, 207 Banks, war and, 29–30 Baranski, Leon, 79 Basel Committee on Banking Supervision, xxi–xxiv, 207–208, 240, 256–257, 271 BASF, 225 Bayer, 225 Bear Sterns, 239 Beevor, Antony, 218 Behn, Sosthenes, 37, 75 Belgian gold reserves, fate of, 85–86 Belgium, xvii, 20, 79, 146, 167, 188, 217 Bell, Geoffrey, 225 Beneduce, Alberto, 29 Beneduce Committee, 29 Bernanke, Ben, xi, 230, 251, 263 Berner Tagblatt, on insider trading by BIS officials, 39, 41 Bernstein, Bernard, 187 Bevin, Ernest, 45 Beyen, Johan Willem, 39, 50, 60–62, 73, 122, 124, 266 Biddle, Francis, 162 BIS.


pages: 823 words: 206,070

The Making of Global Capitalism by Leo Panitch, Sam Gindin

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accounting loophole / creative accounting, airline deregulation, anti-communist, Asian financial crisis, asset-backed security, bank run, banking crisis, barriers to entry, Basel III, Big bang: deregulation of the City of London, bilateral investment treaty, Branko Milanovic, Bretton Woods, BRICs, British Empire, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collective bargaining, continuous integration, corporate governance, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency peg, dark matter, Deng Xiaoping, disintermediation, ending welfare as we know it, eurozone crisis, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, full employment, Gini coefficient, global value chain, guest worker program, Hyman Minsky, imperial preference, income inequality, inflation targeting, interchangeable parts, interest rate swap, Kenneth Rogoff, land reform, late capitalism, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, manufacturing employment, market bubble, market fundamentalism, Martin Wolf, means of production, money: store of value / unit of account / medium of exchange, Monroe Doctrine, moral hazard, mortgage debt, mortgage tax deduction, new economy, non-tariff barriers, Northern Rock, oil shock, precariat, price stability, quantitative easing, Ralph Nader, RAND corporation, regulatory arbitrage, reserve currency, risk tolerance, Ronald Reagan, seigniorage, shareholder value, short selling, Silicon Valley, sovereign wealth fund, special drawing rights, special economic zone, structural adjustment programs, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transcontinental railway, trickle-down economics, union organizing, very high income, Washington Consensus, Works Progress Administration, zero-coupon bond

The CEO of Caterpillar, the world’s largest manufacturer of construction and mining equipment, called Washington’s debt-ceiling saga in the summer of 2011 not only “ugly” but also “a red herring,” which got in the way of Congress’s ratification of outstanding free-trade agreements, as well as much-needed domestic infrastructure programs.5 The Fed’s Ben Bernanke, noting that Congress had “disrupted financial markets,” warned that “similar events in the future could, over time, seriously jeopardize the willingness of investors around the world to hold US financial assets or to make direct investments in job-creating US businesses.”6Yet, although it was precisely on these grounds that the credit-rating agency Standard & Poor’s downgraded US Treasury bonds, what was especially remarkable was that the appetite for these bonds, even at record-low interest rates, far from abating, increased.7 Ruminations about an alternative reserve currency went nowhere—especially as the smoldering crisis in Europe’s interbank markets burst into flames, sending the widespread earlier expectations that the euro would challenge the dollar up in smoke. Much like Germany in the crisis of the 1970s, even China today explicitly speaks in terms of the US’s unique responsibilities for “the world’s economic soundness,” given its status as “the world’s largest economy and the issuer of the dominant international reserve currency.” American political leaders were reminded that “political brinkmanship in Washington is dangerously irresponsible . . . It risks, among other consequences, strangling the still fragile economic recovery of not only the United States but also the world as a whole.”8 Similarly, the concerns of many capitalists in developing states were that the US might now abandon them.

Whereas in 1812 Jefferson had seen conquering Canada as the only way of preventing “difficulties with our neighbors,” exactly a century later President Taft could celebrate the “greater economic ties” that were making Canada “only an adjunct of the USA.”69 US economic penetration of Canada had the added advantage of “providing access to unfettered trade within the British Empire which could look like part of the scaffolding of a new world order, all the more as American capital had a growing stake in it.”70 Yet the latitude that even Canada could claim within the American informal empire was demonstrated in 1911 when Canadian voters (spurred by fears of annexation) rejected a free trade agreement with the US, and when Canada immediately entered into World War I in support of Britain, while the US initially stayed out.71 It was nevertheless a mark of the status of Canada as a “rich dependency” within the American empire that Canadian banks were virtually unique internationally in utilizing the dollar as a reserve currency, and maintained large external balances in New York as a source of liquidity and to cover the massive flow of goods and capital across the border. This would presage the type of relationship that would develop between the American empire and so many other capitalist countries, including the most advanced, before the twentieth century had run its course. Yet it was precisely the fact that the dollar and New York as a financial center still lacked such status internationally that indicated the limitations of the American imperial role before World War I.

The Republican administrations made sure, moreover, that all of Congress’s tariff bills of the 1920s, which in any case did not go back to the levels of the nineteenth century, remained linked to the Open Door reciprocity and non-discrimination principles of the 1913 Underwood Tariff. By the mid 1920s manufactured goods exports were double what they had been before the war, and from 1922 to 1928 total exports grew almost 50 percent faster even than domestic GDP, which grew in real terms by 40 percent.19 The dollar became the major reserve currency in the world financial system, albeit still sharing the stage with sterling, and to a lesser extent the franc. Moreover, the flow of private American capital to Europe after World War I was considerably greater than immediately after World War II.20 The US Department of Commerce itself claimed that the rapidity with which the US acquired foreign assets through the 1920s was “unparalleled in the experience of any major creditor nation in modern times.”21 Over the decade of the 1920s, the book value of total American foreign direct investment increased by 129 percent in manufacturing, and 95 percent overall.

Global Financial Crisis by Noah Berlatsky

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accounting loophole / creative accounting, asset-backed security, banking crisis, Bretton Woods, capital controls, Celtic Tiger, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, deindustrialization, Doha Development Round, energy security, eurozone crisis, financial innovation, Food sovereignty, George Akerlof, Gordon Gekko, housing crisis, illegal immigration, income inequality, market bubble, market fundamentalism, moral hazard, new economy, Northern Rock, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, reserve currency, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, South China Sea, structural adjustment programs, too big to fail, trade liberalization, transfer pricing, working poor

She also states that China would be better off working with— rather than trying to compete against—the United States. Jing Men further believes that China should focus on its own economic development. As you read, consider the following questions: 1. Since the 1970s, China’s economy has grown annually by what percentage rate? 2. With what does the head of the People’s Bank of China think a new world reserve currency will help? 3. What leads China’s development? T he 20th century was the century of the United States. Will the 21st century be the one of China? China is rising. Since its reform policy at the end of the 1970s, China’s economy has been growing at an average rate Jing Men, “World Financial Crisis: What It Means for Security,” NATO Review, May 2009. Copyright © NATO Review, 2009. Reproduced by permission. 143 The Global Financial Crisis of 9 percent annually.

It overtook the United States as Japan’s largest trading partner in 2004, as India’s in 2008, and as Brazil’s in 2009. China is the largest source of US imports, with which it enjoyed a trade surplus of $266.3 billion in 2008. In the same year, China became the largest foreign owner of American government debt, overtaking Japan. Zhou Xiaochuan, the head of the People’s Bank of China, feels that the flaws in the international monetary system could be dealt with to a certain degree by creating a new world reserve currency. The financial crisis has further enhanced China’s importance in the world economy. It is said to have about $2 trillion in foreign currency reserves. This huge reserve of US currency contrasts sharply with the US, whose budget deficit is likely to exceed $2 trillion this year [2009]. The Chinese government’s $586 billion stimulus package demonstrated its determination to keep the crisis at bay.

China Looks to Avoid Financial Crisis in the Future Chinese leaders are not only trying to find solutions for the problems that have occurred, but are also interested in finding out why they occurred in the first place, so as to avoid similar problems in the future. Zhou Xiaochuan, the head of the People’s Bank of China, feels that the flaws in the international monetary system could be dealt with to a certain degree by creating a new world reserve currency. His controversial idea alarmed the Americans, but was quietly welcomed by many Europeans and Asians. Although Zhou’s idea is not to replace the dominant status of the dollar in the near future, it may provoke a revolution in the international monetary system. Together with China’s rising economic power, China has also steadily increased its military expenditure, with double digit annual growth.


pages: 372 words: 107,587

The End of Growth: Adapting to Our New Economic Reality by Richard Heinberg

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3D printing, agricultural Revolution, back-to-the-land, banking crisis, banks create money, Bretton Woods, carbon footprint, Carmen Reinhart, clean water, cloud computing, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, David Graeber, David Ricardo: comparative advantage, dematerialisation, demographic dividend, Deng Xiaoping, Elliott wave, en.wikipedia.org, energy transition, falling living standards, financial deregulation, financial innovation, Fractional reserve banking, full employment, Gini coefficient, global village, happiness index / gross national happiness, I think there is a world market for maybe five computers, income inequality, invisible hand, Isaac Newton, Kenneth Rogoff, late fees, money: store of value / unit of account / medium of exchange, mortgage debt, naked short selling, Naomi Klein, Negawatt, new economy, Nixon shock, offshore financial centre, oil shale / tar sands, oil shock, peak oil, Ponzi scheme, post-oil, price stability, private military company, quantitative easing, reserve currency, ride hailing / ride sharing, Ronald Reagan, short selling, special drawing rights, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade liberalization, tulip mania, working poor

In effect, the nation’s government and its central bank are together becoming the lender of last resort and the borrower of last resort — and (via the military) increasingly also both the consumer of last resort and the employer of last resort. How can the US continue to run up deficits at a sizeable proportion of GDP? If other nations did the same, the result would be currency devaluation and inflation. America can get away with it for now because the dollar is the reserve currency of the world, and so if the dollar entirely failed most or all of the global economy would go down with it. Other nations are willing to continue holding dollar-denominated debt obligations simply because they see no better alternative. Meanwhile some currency devaluation actually works to America’s advantage by making its exports more attractively priced. Over the short to medium term, then, the US — and, by extension, most of the rest of the world — appears to have achieved a kind of tentative and painful balance.

17 Currency Wars Since the economic crisis began, stresses in trade between the US and China have led to unfriendly official comments on both sides regarding the other nation’s currency. Some financial commentators suggest that “currency wars,” which might also embroil the European Union and other nations, may be in the offing, and that these could eventually turn into trade wars or even military conflicts. The US dollar, as the world’s reserve currency and as the national currency of the country leading the world into the post-growth era, appears to be central to these “money wars.” It takes a little history to understand what currency conflicts are about.18 Prior to the 20th century, most national currencies either consisted of gold or were tied to gold; therefore the currency of one nation was fairly easily convertible to that of another.

At the Bretton Woods monetary conference of 1944 the Allied nations laid the groundwork for a postwar international economic system that included new institutions such as the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), which today is part of the World Bank. The US would assume a dominant role in these institutions, and the (partially) gold-backed dollar became, in effect, the world’s reserve currency. Throughout the next half-century and more, citizens and businesses in nations around the world — even in the Soviet Union — who wanted a hedge against instability in their own national currency would hoard US greenbacks. In the early 1970s, as the US borrowed heavily to finance the Vietnam War, France insisted on trading its surplus dollars for gold; this had the effect of emptying out US gold reserves.

The Future of Money by Bernard Lietaer

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agricultural Revolution, banks create money, barriers to entry, Bretton Woods, clean water, complexity theory, dematerialisation, discounted cash flows, diversification, fiat currency, financial deregulation, financial innovation, floating exchange rates, full employment, George Gilder, German hyperinflation, global reserve currency, Golden Gate Park, Howard Rheingold, informal economy, invention of the telephone, invention of writing, Lao Tzu, Mahatma Gandhi, means of production, microcredit, money: store of value / unit of account / medium of exchange, Norbert Wiener, North Sea oil, offshore financial centre, pattern recognition, post-industrial society, price stability, reserve currency, Ronald Reagan, seigniorage, Silicon Valley, South Sea Bubble, the market place, the payments system, trade route, transaction costs, trickle-down economics, working poor

Some currencies are operational only among a small group of friends (like tokens used in card games), for certain time periods (like the cigarette medium of exchange among frontline soldiers during World War II), or among the citizens of one particular nation (like most 'normal' national currencies today). Such a community can be the entire global community (as is the case of the US dollar by treaty, as long as it is accepted as reserve currency), or a geographically disparate group (such as Internet participants). Finally, the key function that transforms the chosen object into a currency is its role as means of payment. Notice that the words 'means of payment' are used instead of the more traditional 'medium of exchange' (see sidebar). The nuance is useful to be able to include transactions, which have ritual or customary purposes, instead of just commercial exchanges.

It therefore guarantees the full integration of the proposed currency in the existing market system of the 'real' economy in all its aspects. There are indeed real costs associated with storing commodities, and the sustainability Fee would simply be the cost of storing the basket of commodities agreed upon. These storage costs (and therefore the sustainability fees) have been estimated in a detailed study for a Commodity Reserve Currency at 3 to 3.5% per annum. Note that these costs are not new additional costs to the economy as a whole. They are indeed already factored in the current economy. What is proposed is simply transferring these existing costs to the bearer of the Terra, thereby giving them the useful social function of a sustainability fee. Economic tech talk Economic textbooks define money in terms of its functions, me three most important of which are: Standard of Value, Medium of Exchange and Store of Value (definitions in Appendix A).

Bonds: Financial instrument sold by a borrower against periodic payment of interest and of the principal at maturity. Bretton Woods: Township in New Hampshire where the Bretton Woods Agreement was finalised in 1945 after negotiations mainly between the British and the US. The system agreed upon has also been called the dollar gold equivalence standard, because it gave the status of official global reserve currency to the US$, on condition that the US guaranteed the convertibility of dollars into gold on demand of other central banks, at a fixed rate of 535 per ounce. In August 1971, President Nixon unilaterally reneged on that latter clause by 'closing the gold window' when France and the UK requested such redemptions. This also inaugurated the era of floating exchanges in which the values of each currency and of gold would be left free to be determined by market forces.


pages: 484 words: 136,735

Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis by Anatole Kaletsky

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bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Black Swan, bonus culture, Bretton Woods, BRICs, Carmen Reinhart, cognitive dissonance, collapse of Lehman Brothers, Corn Laws, correlation does not imply causation, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, Edward Glaeser, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, F. W. de Klerk, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, global rebalancing, Hyman Minsky, income inequality, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Rogoff, laissez-faire capitalism, Long Term Capital Management, mandelbrot fractal, market design, market fundamentalism, Martin Wolf, moral hazard, mortgage debt, new economy, Northern Rock, offshore financial centre, oil shock, paradox of thrift, peak oil, pets.com, Ponzi scheme, post-industrial society, price stability, profit maximization, profit motive, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, statistical model, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, Washington Consensus

Within this system of floating but partially managed exchange rates, the dollar will almost certainly retain its pivotal global role. A serious challenge to the dollar’s reserve currency status is almost impossible to imagine because there is no alternative reserve currency and no reason to expect one to emerge. Those who believe that U.S. budget deficits and monetary expansion will destroy the dollar’s international status must point to another currency that is underpinned by stronger fiscal and monetary foundations. At present, the only possible contender might be the Chinese yuan—and that cannot be considered a serious international currency because it cannot even be legally owned outside China. For the yuan even to begin the long journey toward reserve currency status, China must make its currency fully convertible and open its capital markets to foreign investors.

However nervous investors may feel about the dollar, they can sell it only by buying some other currency in which they have greater confidence. And when the prophets of doom who see the United States heading down the road to Zimbabwe are asked what other currency investors should buy in exchange for the trillions of dollars they hold, the answer is silence. Why is there no serious alternative to the dollar as an international reserve currency? The absence of serious currency competition has little, if anything, to do with America’s military hegemony, its globally dominant culture, or even the depth and sophistication of its financial markets (an argument that now looks frayed). The main reason is simply that the world has only two other very large advanced economies—the eurozone and Japan—and America, for all its problems, has generally better prospects than either.

Such an effort to reconcile market prices with social values could surprise politicians with its economic effects: On any reasonable measure of economic performance, putting high prices on public goods and environmental resources would lead to higher, not lower, economic growth. Currencies and Financial Relations: Will There Be a New Bretton Woods? A comprehensive reform of the global currency system has been widely demanded in the aftermath of the crisis. The French, Chinese, and many other governments have called for a new Bretton Woods and for a new international reserve currency to replace the dollar. These calls have sometimes been endorsed by such prominent U.S. and British policymakers as Paul Volcker and Gordon Brown. Yet a diminution in the international role of the dollar, or a return to the fixed currencies of the postwar period, are extremely unlikely in the decades ahead. One thing the crisis beyond doubt proved was the value of floating currencies. Exchange rate flexibility gave governments around the world the freedom to cut interest rates and to support their economies with fiscal stimulus that could never have been imagined in the days of Bretton Woods.


pages: 497 words: 143,175

Pivotal Decade: How the United States Traded Factories for Finance in the Seventies by Judith Stein

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1960s counterculture, affirmative action, airline deregulation, anti-communist, Ayatollah Khomeini, barriers to entry, Berlin Wall, blue-collar work, Bretton Woods, capital controls, centre right, collective bargaining, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, deindustrialization, desegregation, energy security, Fall of the Berlin Wall, falling living standards, feminist movement, financial deregulation, floating exchange rates, full employment, income inequality, income per capita, intermodal, invisible hand, knowledge worker, laissez-faire capitalism, Long Term Capital Management, manufacturing employment, market bubble, Martin Wolf, new economy, oil shale / tar sands, oil shock, open economy, payday loans, post-industrial society, post-oil, price mechanism, price stability, Ralph Nader, RAND corporation, reserve currency, Robert Gordon, Ronald Reagan, Simon Kuznets, strikebreaker, trade liberalization, union organizing, urban planning, urban renewal, War on Poverty, Washington Consensus, working poor, Yom Kippur War

This was obviously true for the United States, but it was also true for Germany and Japan, which depended upon the U.S. market for its exports-led growth.39 The world was awash with solutions for fixing the system, among them returning to the gold standard, creating a new reserve currency, and finding better means of addressing deficits and surpluses. But nothing was done because Europe and the United States each nursed its own grievance and failed to see the other’s complaint. The Europeans, led by the French, believed that the reserve currency role of the dollar encouraged American businessmen to buy up European industries and allowed the U.S. government to spend beyond its means. Yet they benefited from the overvalued dollar. The French finance minister admitted that if the choice was between inflation (the result of U.S. deficits) and a parity adjustment (a cheaper dollar), he would prefer inflation.

The trade act was “the administration’s Holy Cause,” and “decent people are prepared to lie for it,” said Oscar Gass, an economist in FDR’s Treasury Department.37 Gass was referring to the congressional testimony of Kennedy’s cabinet—Arthur Goldberg, Orville Freeman, Luther Hodges, George Ball—all of whom stated that the United States would be the net gainer from the trade negotiations and U.S. exports to Europe would rise. Gass predicted mounting trade deficits, and then foreigners would exchange their accumulating dollars for gold. Because the U.S. dollar was in practice the reserve currency, the United States bolstered faith in the greenback by promising to exchange $35 for one ounce of gold. If too many nations got rid of their dollars, the only solution would be to raise U.S. interest rates, which would bring back the dollars but also significantly increase American unemployment.38 Seymour Harris, an economist in the Treasury Department, had other misgivings. Harris doubted that the president’s men could reduce European tariffs.

Declining exports were more important than upbeat tourists. Beginning in the 1950s and escalating during the 1960s, the U.S. trade surplus disappeared. That surplus “paid” for military expenditures abroad and net foreign investment. When the surplus went, the U.S. balance of payments turned negative. The deficits were financed by the creation of liabilities: dollars. The dollars became, willy-nilly, the major reserve currency, lubricating growth everywhere. In the Euro-dollar market big sums moved from one country to another in search of profit after 1958, when European currencies became convertible, meaning that they could be bought and sold freely.36 Speculators, short-term investors, moved money quickly in response to differences in national interest rates. This global activity was unregulated. Deposits in London branches of U.S. banks were not subject to reserve requirements applicable to those at home; ceilings on interest rates did not apply to overseas deposits.


pages: 385 words: 128,358

Inside the House of Money: Top Hedge Fund Traders on Profiting in a Global Market by Steven Drobny

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Albert Einstein, asset allocation, Berlin Wall, Bonfire of the Vanities, Bretton Woods, buy low sell high, capital controls, central bank independence, Chance favours the prepared mind, commodity trading advisor, corporate governance, correlation coefficient, Credit Default Swap, diversification, diversified portfolio, family office, fixed income, glass ceiling, high batting average, implied volatility, index fund, inflation targeting, interest rate derivative, inventory management, Long Term Capital Management, margin call, market bubble, Maui Hawaii, Mexican peso crisis / tequila crisis, moral hazard, new economy, Nick Leeson, oil shale / tar sands, oil shock, out of africa, paper trading, Peter Thiel, price anchoring, purchasing power parity, reserve currency, risk tolerance, risk-adjusted returns, risk/return, rolodex, Sharpe ratio, short selling, Silicon Valley, The Wisdom of Crowds, too big to fail, transaction costs, value at risk, yield curve, zero-coupon bond

The reason that trade is attractive is that cyclically the UK economy has been weakening, while the U.S. economy has been surprisingly robust. More importantly, on a secular basis, the United Kingdom has moved from being a high-inflation country to a very low-inflation country.The UK inflation rate is strikingly low. (See Figure 6.8.) The U.S. dollar, as the reserve currency of the world, is in decline. When the British pound was the reserve currency of the world and in decline, there were periodic currency crises and an uptrend in underlying inflation, and a trend up in the relative interest rate against the rest of the world. So long UK Gilts against U.S.Treasuries is a relative value trade that fits in the macro sphere. There are other relative value trades that people do, but they may be doing them simply because of price.This bond is priced 3 basis points higher than that bond kind of thing.That’s not global macro, in my opinion.

They will get it and their taxes.They have the best tax system in the world now with their flat tax.The only question is how far Putin goes with respect to property rights. On the positive side, they’re unbelievably rich in natural resources and a real comer with an unbelievably educated population.The communists had a great education system. On the United States, I’m not very positive.That could change if they start cutting these deficits. Everybody says this time it’s different, but when the world’s biggest debtor is also the world’s reserve currency, you have a problem. The only way out of deflation is through the printing press, which is problematic for the whole global financial system. China will always be an interesting story but it’s one of those places where it’s probably too good to be true. I won’t be surprised if a lot of people lose a fortune in China.The Chinese are going to do what’s good for the Chinese. The more you badger them, the more the inscrutable Asians will wait you out.

At the moment,American politicians want the dollar to go down, they are encouraging it to go down, and they think it’s good. It is a horrible policy that has never worked for any country in the world. I suggest that your American readers be patriotic, help support the government, and sell dollars. Get your money out of the country. How low will it go? Well, the pound sterling was once the world’s reserve currency and it went down 80 percent from top to bottom.The dollar went up 400 percent against it, top to bottom, which is the other side. (See Figure 11.1.) Likewise, the Japanese yen was at 500 to the U.S. dollar after World War II. Now it’s at 100, so the yen has gone up 400 percent and the dollar has gone down 80 percent.Yet Japan is still very competitive. (See Figure 11.2.) In my view, the dollar is certainly going to go down another 40 to 50 percent over the next few years.


pages: 222 words: 70,559

The Oil Factor: Protect Yourself-and Profit-from the Coming Energy Crisis by Stephen Leeb, Donna Leeb

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Buckminster Fuller, diversified portfolio, fixed income, hydrogen economy, income per capita, index fund, mortgage debt, North Sea oil, oil shale / tar sands, oil shock, peak oil, profit motive, reserve currency, rising living standards, Ronald Reagan, shareholder value, Silicon Valley, Vanguard fund, Yom Kippur War, zero-coupon bond

If oil exporters had been pricing their oil in terms of those currencies rather than the dollar, the U.S. would have been paying 20 percent more for its oil just like that. There’s another benefit to the U.S. from having oil priced in dollars: it helps maintain the dollar as the world’s reserve currency, which loosely means that banks and corporations need the dollar more than other currencies to pay for internationally based transactions. If some other currency replaced the dollar as the world’s reserve currency, the U.S. would lose a lot of control over its economic fate. Oil sales are probably the most important of all internationally based transactions, and the willingness of oil exporters to price oil in terms of dollars is a big reason that the dollar remains the world’s reserve currency. We would argue that the chief reason oil exporters have remained so loyal to the dollar is their undoubted awareness of our military resources—again, the silently effective big stick.


pages: 471 words: 124,585

The Ascent of Money: A Financial History of the World by Niall Ferguson

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Admiral Zheng, Andrei Shleifer, Asian financial crisis, asset allocation, asset-backed security, Atahualpa, bank run, banking crisis, banks create money, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, BRICs, British Empire, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collateralized debt obligation, colonial exploitation, Corn Laws, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, deglobalization, diversification, diversified portfolio, double entry bookkeeping, Edmond Halley, Edward Glaeser, Edward Lloyd's coffeehouse, financial innovation, financial intermediation, fixed income, floating exchange rates, Fractional reserve banking, Francisco Pizarro, full employment, German hyperinflation, Hernando de Soto, high net worth, hindsight bias, Home mortgage interest deduction, Hyman Minsky, income inequality, interest rate swap, Isaac Newton, iterative process, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour mobility, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, means of production, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, mortgage tax deduction, Naomi Klein, Nick Leeson, Northern Rock, pension reform, price anchoring, price stability, principal–agent problem, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, quantitative hedge fund, RAND corporation, random walk, rent control, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, seigniorage, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spice trade, structural adjustment programs, technology bubble, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, too big to fail, transaction costs, value at risk, Washington Consensus, Yom Kippur War

This doctrinal volte-face represents a widespread disillusionment resulting from the destructive behaviour of these movements in the interwar years.54 At Bretton Woods, in New Hampshire’s White Mountains, the soon-to-be-victorious Allies met in July 1944 to devise a new financial architecture for the post-war world. In this new order, trade would be progressively liberalized, but restrictions on capital movements would remain in place. Exchange rates would be fixed, as under the gold standard, but now the anchor - the international reserve currency - would be the dollar rather than gold (though the dollar itself would notionally remain convertible into gold, vast quantities of which sat, immobile but totemic, in Fort Knox). In the words of Keynes, one of the key architects of the Bretton Woods system, ‘control of capital movements’ would be ‘a permanent feature of the post-war system’.55 Even tourists could be prevented from going abroad with more than a pocketful of currency if governments felt unable to make their currencies convertible.

Much aid was disbursed to poor countries, but the greater part of it was either wasted or stolen. 58 In so far as Bretton Woods did succeed in generating new wealth by expediting the recovery of Western Europe, it could only frustrate those investors who saw the risk in excessive home bias. And, in so far as it allowed countries to subordinate monetary policy to the goal of full employment, it created potential conflicts even between options 2 and 3 of the trilemma. In the late 1960s, US public sector deficits were negligible by today’s standards, but large enough to prompt complaints from France that Washington was exploiting its reserve currency status in order to collect seigniorage from America’s foreign creditors by printing dollars, much as medieval monarchs had exploited their monopoly on minting to debase the currency. The decision of the Nixon administration to sever the final link with the gold standard (by ending gold convertibility of the dollar) sounded the death knell for Bretton Woods in 1971.59 When the Arab-Israeli War and the Arab oil embargo struck in 1973, most central banks tended to accommodate the price shock with easier credit, leading to precisely the inflationary crisis that General de Gaulle’s adviser Jacques Rueff had feared.60 With currencies floating again and offshore markets like the Eurobond market flourishing, the 1970s saw a revival of non-governmental capital export.

Davis, Jefferson 93 Dawkins, Richard 356 Dearborn 242 death, causes of 183-4 debt/debts: debtors’ prisons 60 debt vs. income balance 282 moratoria 301 mountain image 71 origins of see credit securitization see securitization transferability (pay the bearer) 30 unreliability and hostility of debtors 2 decimal system 32 defence see arms deficits, government 118 deflation 106 Defoe, Daniel 145-6 Delane, John 95 Delors, Jacques 312 democracies see property-owning democracies; representative governments Department of Housing and Urban Development (HUD) 266-7 deposit insurance 57 depreciation 263 depressions 163 absence of after Second World War 164-6 Depression economics 313 see also financial crises; Great Depression Derenberg & Co. 299 derivatives 4-5 dangers of 228 ‘over-the-counter’ (OTC) 4-5 surge in 228 see also futures contracts; swaps Derry, Dr George H. 245-6 de Soto, Hernando 274-8 Detroit 234 Deuteronomy 36 developed countries 4 developing countries see emerging markets; ‘Third World’ Devonshire, Dukes of 235 diamonds 123 DiFatta, Joseph 178 ‘Disaster Capitalism Complex’ 182 disasters 6 hedge funds and 227-8 discount houses 301 discount window 164 discrezione 44 distribution curves 154-5 dividends 125 Dixon, Don 255 dollar: bills 27-8 China and 334 falling value 10 as international reserve currency 305 origin of word 25 pegs 300 dot.com mania 6. see also bubbles Douai 73 Double Eagle 319 Dow Jones Industrial Average 6 1929: 158 1987: 165-6 1995-7: 167 falls 6 and 9/11: 6 Druckenmiller, Stanley 319 drug addiction 292 Dunscombe, Thomas, MP 78 DuPont 160 Dutch East India Company see VOC Dutch East Indies 134-5 Dutch Empire 3. see also Netherlands, The; United Provinces Dutch Republic see United Provinces earthquakes 176 East Africa 38 East Asia 283. see also Asia Eastern Europe 112 East India companies 128. see also VOC East India Company (British) 129 East Indies 127 economic hit men 309-11 economies of scale and scope 352 economists: Chicago and Harvard theorists 214 economic forecasting 347 evolutionary economics 348 and Great Depression 163-4 and real humans 345 and stock market 126 Ecuador 2 Edinburgh 190-1 education 209 Japan 207 public expenditure on 220 Edward IV, King 47 Egibi family 31 Egypt 96 Eilbaum, Roberto 112 El Alto 278 El Dorado 21 electoral reform: in Britain 99 in Europe 100 see also property-owning democracies electricity industry 169-72 electronic herd see investors electronic money 29-30 El Salvador 219 emergency currency 301 emerging markets/developing countries 4 emerging market bonds 6 .


pages: 464 words: 116,945

Seventeen Contradictions and the End of Capitalism by David Harvey

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accounting loophole / creative accounting, bitcoin, Branko Milanovic, Bretton Woods, BRICs, British Empire, business climate, California gold rush, call centre, central bank independence, clean water, cloud computing, collapse of Lehman Brothers, colonial rule, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Deng Xiaoping, deskilling, falling living standards, fiat currency, first square of the chessboard, first square of the chessboard / second half of the chessboard, Food sovereignty, Frank Gehry, future of work, global reserve currency, Guggenheim Bilbao, income inequality, informal economy, invention of the steam engine, invisible hand, Isaac Newton, Jane Jacobs, Jarndyce and Jarndyce, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Just-in-time delivery, knowledge worker, low skilled workers, Mahatma Gandhi, market clearing, Martin Wolf, means of production, microcredit, new economy, New Urbanism, Occupy movement, peak oil, phenotype, Plutocrats, plutocrats, Ponzi scheme, quantitative easing, rent-seeking, reserve currency, road to serfdom, Robert Gordon, Ronald Reagan, short selling, Silicon Valley, special economic zone, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, Tyler Cowen: Great Stagnation, wages for housework, Wall-E, women in the workforce, working poor, working-age population

First, this monopoly power is generic to the state and not particular. The global monetary system is hierarchical in character. The US dollar has functioned as the reserve currency for the global monetary system since 1945 and the USA has exclusive rights of seignorage (creation) of that money. The monetary powers of other states are circumscribed because international debts are typically denominated in US dollars and have to be paid in dollars. An individual state cannot monetise its debts by printing its own currency because the immediate effect will be to devalue the local currency against the US dollar. There are other currencies which might be used for global trade – pounds sterling (which used to be the global reserve currency), the euro and the yen and maybe in the future the Chinese yuan. But these have so far not threatened the position of the US dollar and occasional proposals to replace the dollar with a market-basket of currencies (of the sort that Keynes originally proposed at Bretton Woods in 1944) have so far been rebuffed by the USA.

But these have so far not threatened the position of the US dollar and occasional proposals to replace the dollar with a market-basket of currencies (of the sort that Keynes originally proposed at Bretton Woods in 1944) have so far been rebuffed by the USA. Considerable benefits accrue to the USA, after all, from its control over the global reserve currency. US imperial power has been exercised either directly or indirectly by dollar diplomacy. The hegemony of the US state in the world system is largely sustained by its control over the world currency and its ability to print money to pay, for example, for its excessive military expenditures. In the face of this, individual states may give up their role over their own currency. Ecuador, for example, uses US dollars. When the euro came into being, the individual states surrendered their monopoly power over their currencies to a set of supra-national institutions (the European Central Bank) dominated by Germany and to a lesser degree by France.

283 Maddison, Angus 227 Maghreb 174 Malcolm X 291 Maldives 260 Malthus, Thomas 229–30, 232–3, 244, 246, 251 Manchester 149, 159 Manhattan Institute 143 Mansion House, London 201 manufacturing 104, 239 Mao Zedong 291 maquilas 129, 174 Marcuse, Herbert 204, 289 market cornering 53 market economy 198, 205, 276 marketisation 243 Marshall Plan 153 Martin, Randy 194 Marx, Karl 106, 118, 122, 142, 207, 211 and alienation 125, 126, 213 in the British Museum library 4 on capital 220 conception of wealth 214 on the credit system 239 and deskilling 119 on equal rights 64 and falling profits 107 and fetishism 4 on freedom 207, 208, 213 and greed 33 ‘industrial reserve army’ 79–80 and isolation of workers 125 labour theory of value 109 and monetary system reforms 36 monopoly power and competition 135 reality and appearance 4, 5 as a revolutionary humanist 221 and social reproduction 182 and socialist utopian literature 184 and technological innovation 103 and theorists of the political left 54 and the ‘totally developed individual’ 126–7 and world crises xiii; Capital 57, 79–80, 81, 82, 119, 129, 132, 269, 286, 291–2 The Economic and Philosophic Manuscripts of 1844 269, 286 Grundrisse 97, 212–13 Theories of Surplus Value 1 Marxism contradiction between productive forces and social relations 269 ‘death of Marxism’ xii; ecologically sensitive 263 and humanism 284, 286, 287 ‘profit squeeze’ theory of crisis formation 65 traditional Marxist conception of socialism/ communism 91 Marxists 65, 109 MasterCard Priceless 275 Mau Mau movement 291 Melbourne 141 merchants 67 and industrial capital 179 price-gouging customers 54 and producers 74–5 Mercosur 159 Mexican migrants 115, 175, 195–6 Mexico 123, 129, 174 Mexico City riots (1968) x microcredit 194, 198 microfinance 186, 194, 198, 211 Microsoft 131 Middle East 124, 230 Milanovic, Branko 170 military, the capacities and powers 4 dominance 110 and technology 93, 95 ‘military-industrial complex’ 157 mind-brain duality 70 mining 94, 113, 123, 148, 239, 257 MIT (Massachusetts Institute of Technology) 292 Mitchell, David: Cloud Atlas 264 Mitchell, Timothy 122 Modern Times (film) 103 Mondragon 180 monetarism xi monetary wealth and incomes, inequalities in (1920s) x 1071 monetisation 44, 55, 60, 61, 62, 115, 192–3, 198, 235, 243, 250, 253, 261, 262 money abandonment of metallic basis of global moneys 30, 37, 109 circulation of 15, 25, 30–31, 35 coinage 15, 27, 29, 30 commodification of 57 commodity moneys 27–31 creation of 30, 51, 173, 233, 238–9, 240 credit moneys 28, 30, 31, 152 cyber moneys 36, 109–10 electronic moneys 27, 29, 35, 36, 100 and exchange value 28, 35, 38 fiat 8, 27, 30, 40, 109, 233 gap between money and the value it represents 27 global monetary system 46–7 love of money as a possession 34 measures value 25, 28 a moneyless economy 36 oxidisation of 35 paper 15, 27, 29, 30, 31, 37, 40, 45 power of 25, 36, 59, 60, 62, 65–66, 131–6, 245, 266 quasi-money 35 relation between money and value 27, 35 represented as numbers 29–30 and social labour 25, 27, 31, 42, 55, 88, 243 and the state 45–6, 51, 173 storage of value 25, 26, 35 the US dollar 46–7 use value 28 money capital 28, 32, 59, 74, 142, 147, 158, 177, 178 money laundering 54, 109 ‘money of account’ 27–8, 30 monopolisation 53, 145 monopoly, monopolies 77 and competition 131–45, 218, 295 corporate 123 monetary system 45, 46, 48, 51 monopoly power 45, 46, 51, 93, 117, 120, 132, 133–4, 136, 137, 139, 141, 142–3 monopoly pricing 72, 132 natural 118, 132 of state over legitimate use of force and violence 42, 44, 45, 51, 88, 155, 173 see also prices, monopoly monopsony 131 Monsanto 123 Montreal Protocol 254, 259 ‘moral restraints’ 229, 233 mortgages 19, 21, 28, 32, 54, 67, 82, 239 multiculturalism 166 Mumbai 155, 159 Murdoch, Rupert xi Myrdal, Gunnar 150 N NAFTA 159 name branding 31, 139 nano-trading 243 Nation of Islam 291 national debt 45, 226, 227 National Health Service 115 National Labor Relations Board 120 National Security Administration 136 nationalisation 50 nationalism 7, 8, 44, 289 natural resources 58, 59, 123, 240, 241, 244, 246, 251 nature 56 alienation from 263 capital’s conception of 252 capital’s relation to 246–63 commodification of 59 domination of 247, 272 Heidegger on 59, 250 Polanyi on 58 power over 198 process-thing duality 73 and technology 92, 97, 99, 102 Nazis 151 neoclassical economists 109 neocolonialism 143, 201 neoliberal era 128 neoliberal ethic 277 neoliberalisation x, 48 neoliberalism xiii, 68, 72, 128, 134, 136, 176, 191, 234, 281 capitalism 266 consensus 23 counter-revolution 82, 129, 159, 165 political programme 199 politics 57 privatisation 235 remedies xi Nevada, housing in 77 ‘new economy’ (1990s) 144 New York City 141, 150 creativity 245 domestic labour in 196 income inequality 164 rental markets 22 social reproduction 195 Newton, Isaac 70 NGOs (non-governmental organisations) 189, 210, 284, 286, 287 Nike 31 Nkrumah, Kwame 291 ‘non-coincidence of interests’ 25 Nordic countries 165 North America deindustrialisation in 234 food grain exports 148 indigenous population and property rights 39 women in labour force 230 ‘not in my back yard’ politics 20 nuclear weapons 101 Nyere, Julius 291 O Obama, Barack 167 occupational safety and health 72 Occupy movement 280, 292 Ohlin Foundation 143 oil cartel 252 companies 77, 131 ‘Seven Sisters’ 131 embargo (1973) 124 ‘peak oil’ 251–2, 260 resources 123, 240, 257 oligarchy, oligarchs 34, 143, 165, 221, 223, 242, 245, 264, 286, 292 oligopoly 131, 136, 138 Olympic Games 237–8 oppositional movements 14, 162, 266–7 oppression 193, 266, 288, 297 Orwell, George 213 Nineteen Eighty-Four 202 overaccumulation 154 overheating 228 Owen, Robert 18, 184 Oxfam xi, 169–70 P Paine, Tom: Rights of Man 285 Paris 160 riots (1968) x patents 139, 245, 251 paternalism 165, 209 patriarchy 7 Paulson, Hank 47 pauperisation 104 Peabody, George 18 peasantry ix, 7, 107, 117, 174, 190, 193 revolts 202 pensions 134, 165, 230 rights 58, 67–8, 84, 134 people of colour: disposable populations 111 Pereire, Emile 239 pesticides 255, 258 pharmaceuticals 95, 121, 123, 136, 139 Philanthropic Colonialism 211 philanthropy 18, 128, 189, 190, 210–11, 245, 285 Philippines 115, 196 Picasso, Pablo 140–41, 187, 240 Pinochet, Augusto x Pittsburgh 150, 159, 258 planned obsolescence 74 plutocracy xi, xii, 91, 170, 173, 177, 180 Poland 152 Polanyi, Karl 56, 58, 60, 205–7, 210, 261 The Great Transformation 56–7 police 134 brutality 266 capacities and powers 43 powers xiii, 43, 52 repression 264, 280 surveillance and violence 264 violence 266, 280 police-state 203, 220 political economy xiv, 54, 58, 89, 97, 179–80, 182, 201, 206–9 liberal 204, 206, 209 political parties, incapable of mounting opposition to the power of capital xii political representation 183 pollutants 8, 246, 255 pollution 43, 57, 59, 60, 150, 250, 254, 255, 258 Pontecorvo, Gillo 288 Ponzi schemes 21, 53, 54, 243 population ageing 223, 230 disposable 108, 111, 231, 264 growth 107–8, 229, 230–31, 242, 246 Malthus’s principle 229–30 Portugal 161 post-structuralism xiii potlatch system 33 pounds sterling 46 poverty 229 anti-poverty organisations 286–7 and bourgeois reformism 167 and capital 176 chronic 286 eradication of 211 escape from 170 feminisation of 114 grants 107 and industrialisation 123 and population expansion 229 and unemployment 170, 176 US political movement denies assistance to the poor 292–3 and wealth 146, 168, 177, 218, 219, 243 world xi, 170 power accumulation of 33, 35 of capital xii, 36 class 55, 61, 88, 89, 97, 99, 110, 134, 135, 221, 279 computer 105 and currencies 46 economic 142, 143, 144 global 34, 170 the house as a sign of 15–16 of labour see under labour; of merchants 75 military 143 and money 25, 33, 36, 49, 59, 60, 62, 63, 65–6, 245, 266 monopoly see monopoly power; oligarchic 292 political 62, 143, 144, 162, 171, 219, 292 purchasing 105, 107 social 33, 35, 55, 62, 64, 294 state 42–5, 47–52, 72, 142, 155–9, 164, 209, 295 predation, predators 53, 54, 61, 67, 77, 84, 101, 109, 111, 133, 162, 198, 212, 254–5 price fixing 53, 118, 132 price gouging 132 Price, Richard 226, 227, 229 prices discount 133 equilibrium in 118 extortionate 84 food 244, 251 housing 21, 32, 77 land 77, 78, 150 low 132 market 31, 32 and marketplace anarchy 118 monopoly 31, 72, 139, 141 oil 251, 252 property 77, 78, 141, 150 supermarket 6 and value 31, 55–6 private equity firms 101, 162 private equity funds 22, 162 private property and the commons 41, 50, 57 and eradication of usufructuary rights 41 and individual appropriation 38 and monopoly power 134–5, 137 social bond between human rights and private property 39–40 and the state 47, 50, 58, 59, 146, 210 private property rights 38–42, 44, 58, 204, 252 and collective management 50 conferring the right to trade away that which is owned 39 decentralised 44 exclusionary permanent ownership rights 39 and externality effects 44 held in perpetuity 40 intellectual property rights 41 microenterprises endowed with 211 modification or abolition of the regime 14 and nature 250 over commodities and money 38 and state power 40–41, 42–3 underpinning home ownership 49 usufructuary rights 39 privatisation 23, 24, 48, 59, 60, 61, 84, 185, 235, 250, 253, 261, 262, 266 product lines 92, 107, 219, 236 production bourgeois 1 falling value of 107 immaterial 242 increase in volume and variety of 121 organised 2 and realisation 67, 79–85, 106, 107, 108, 173, 177, 179, 180, 221, 243 regional crises 151 workers’ dispossession of own means of 172 productivity 71, 91, 92, 93, 117, 118, 121, 125, 126, 132, 172, 173, 184, 185, 188, 220, 239 products, compared with commodities 25–6 profitability 92, 94, 98, 102, 103, 104, 106, 112, 116, 118, 125, 147, 184, 191–2, 240, 252, 253, 256, 257 profit(s) banking 54 as capital’s aim 92, 96, 232 and capital’s struggle against labour 64, 65 and competition 93 entrepreneurs 24, 104 falling 81, 107, 244 from commodity sales 71 and money capital 28 monopoly 93 rate of 79, 92 reinvestment in expansion 72 root of 63 spending of 15 and wage rates 172 proletarianisation 191 partial 175, 190, 191 ‘property bubble’ 21 property market boom (1920s) 239 growth of 50 property market crashes 1928 x, 21 1973 21 2008 21–2, 54, 241 property rights 39, 41, 93, 135 see also intellectual property rights; private property property values 78, 85, 234 ‘prosumers’ 237 Proudhon, Pierre-Joseph 183 Prozac 248 public goods 38 public utilities 23, 60, 118, 132 Q quantitative easing 30, 233 R R&D ix race 68, 116, 165, 166, 291 racial minorities 168 racialisation 7, 8, 62, 68 racism 8 Rand, Ayn 200 raw materials 16, 17, 148, 149, 154 Reagan, Ronald x, 72 Speech at Westminster 201 Reagan revolution 165–166 realisation, and production 67, 79–85, 106, 107, 108, 173, 177, 179, 180, 221, 243 reality contradiction between reality and appearance 4–6 social 27 Reclus, Elisée 140 regional development 151 regional volatility 154 Reich, Robert 123, 188 religion 7 religious affiliation 68 religious hatreds and discriminations 8 religious minorities 168 remittances 175 rent seeking 132–3, 142 rentiers 76, 77, 78, 89, 150, 179, 180, 241, 244, 251, 260, 261, 276 rents xii, 16–19, 22, 32, 54, 67, 77, 78, 84, 123, 179, 241 monopoly 93, 135, 141, 187, 251 repression 271, 280 autocratic 130 militarised 264 police-state 203 violent 269, 280, 297 wage 158, 274 Republican Party (US) 145, 280 Republicans (US) 167, 206 res nullius doctrine 40 research and development 94, 96, 187 ‘resource curse’ 123 resource scarcity 77 revolution, Fanon’s view of 288 revolutionary movements 202, 276 Ricardo, David 122, 244, 251 right, the ideological and political assault on the left xii; response to universal alienation 281 ‘rights of man’ 40, 59, 213 Rio de Janeiro 84 risk 17, 141, 162, 219, 240 robbery 53, 57, 60, 63, 72 robotisation 103, 119, 188, 295 Rodney, Walter 291 romantic movement 261 Roosevelt, Theodore 131, 135 Four Freedoms 201 Rousseau, Jean-Jacques 213, 214 Ruhr, Germany 150 rural landscapes 160–61 Russia 154 a BRIC country 170, 228 collapse of (1989) 165 financial crisis (1998) 154, 232 indebtedness 152 local famine 124 oligarchs take natural resource wealth 165 S ‘S’ curve 225, 230–31 Saint-Simon, Claude de Rouvroy, comte de 183 sales 28, 31, 187, 236 San Francisco 150 Santiago, Chile: street battles (2006–) 185 Sao Paulo, Brazil 129, 195 savings the house as a form of saving 19, 22, 58 loss of 20, 58 private 36 protecting the value of 20 Savings and Loan Crisis (USA from 1986) 18 savings accounts 5, 6 Scandinavia 18, 85, 165 scarcity 37, 77, 200, 208, 240, 246, 260, 273 Schumpeter, Joseph 98, 276 science, and technology 95 Seattle 196 Second Empire Paris 197 Second World War x, 161, 234 Securities and Exchange Commission 120, 195 security xiii, 16, 121, 122, 165, 205, 206 economic 36, 153 food 253, 294, 296 job 273 national 157 Sen, Amartya 208–11, 281 Development as Freedom 208–9 senior citizens 168 Seoul 84 serfdom 62, 209 sexual hatreds and discriminations 8 Shanghai 153, 160 share-cropping 62 Sheffield 148, 149, 159, 258 Shenzhen, China 77 Silicon Valley 16, 143, 144, 150 silver 27–31, 33, 37, 57, 233, 238 Simon, Julian 246 Singapore 48, 123, 150, 184, 187, 203 slavery 62, 202, 206, 209, 213, 268 slums ix, 16, 175 Smith, Adam 98, 125–6, 157, 185, 201, 204 ‘invisible hand’ 141–2 The Wealth of Nations 118, 132 Smith, Neil 248 social distinction 68, 166 social inequality 34, 110, 111, 130, 171, 177, 180, 220, 223, 266 social justice 200, 266, 268, 276 social labour 53, 73, 295 alienated 64, 66, 88 and common wealth 53 creation of use values through 36 expansion of total output 232 household and communal work 296 immateriality of 37, 233 and money 25, 27, 31, 42, 55, 88, 243 productivity 239 and profit 104 and value 26, 27, 29, 104, 106, 107, 109 weakening regulatory role of 109, 110 social media 99, 136, 236–7, 278–9 social movements 162–3 social reproduction 80, 127, 182–98, 218, 219, 220, 276 social security 36, 165 social services 68 social struggles 156, 159, 165, 168 social value 26, 27, 32, 33, 55, 172, 179, 241, 244, 268, 270 socialism 215 democratic xii; ‘gas and water’ 183 socialism/communism 91, 269 socialist revolution 67 socialist totalitarianism 205 society capitalist 15, 34, 81, 243, 259 civil 92, 122, 156, 185, 189, 252 civilised 161, 167 complex 26 demolition of 56 and freedom 205–6, 210, 212 hope for a better society 218 industrial 205 information 238 market 204 post-colonial 203 pre-capitalist 55 primitive 57 radical transformation of 290 status position in 186 theocratic 62 women in 113 work-based 273 world 204 soil erosion 257 South Africa 84–5, 152, 169 apartheid 169, 202, 203 South Asia labour 108 population growth 230 software programmers and developers 115, 116 South Korea 123, 148, 150, 153 South-East Asia 107–8 crisis (1997–8) 154, 232, 241 sovereign debt crises 37 Soviet Bloc, ex-, labour in 107 Soviet Union 196, 202 see also Russia Spain xi, 51, 161 housing market crash (2007–9) 82–3 spatio-temporal fixes 151–2, 153, 154, 162 spectacle 237–8, 242, 278 speculative bubbles and busts 178 stagnation xii, 136, 161–2, 169 Stalin, Joseph 70 standard of life 23, 175 starvation 56, 124, 246, 249, 260, 265 state, the aim of 156–7 brutality 266, 280 and capital accumulation 48 and civil society 156 curbing the powers of capital as private property 47 evolution of the capitalist state 42 and externality effects 44 guardian of private property and of individual rights 42 and home ownership 49–50 interstate system 156, 157 interventionism 193, 205 legitimate use of violence 42, 44, 45, 51, 88, 155, 173 loss of state sovereignty xii; and money 1, 45–6, 51, 173 ‘nightwatchman’ role 42, 50 powers of 42–5, 47–52, 57–8, 65, 72, 142, 155–9, 209, 295 and private property 47, 50, 58, 59, 146, 210 provision of collective and public goods 42–3 a security and surveillance state xiii; social democratic states 85 war aims 44 state benefits 165 state regulatory agencies 101 state-finance nexus 44–5, 46–7, 142–3, 156, 233 state-private property nexus 88–9 steam engine, invention of the 3 steel industry 120, 121, 148, 188 steel production 73–4 Stiglitz, Joseph 132–4 stock market crash (1929) x Stockholm, protests in (2013) 171, 243 strikes 65, 103, 124 sub-prime mortgage crisis 50 suburbanisation 253 supply and demand 31, 33, 56, 106 supply chain 124 supply-side remedies xi supply-side theories 82, 176 surplus value 28, 40, 63, 73, 79–83, 172, 239 surveillance xiii, 94, 121, 122, 201, 220, 264, 280, 292 Sweden 166, 167 protests in (2013) 129, 293 Sweezy, Paul 136 swindlers, swindling 45, 53, 57, 239 ‘symbolic analysts’ 188 Syntagma Square, Athens 266, 280 T Tahrir Square, Cairo 266 Taipei, Taiwan 153 Taiwan 123, 150, 153 Taksim Square, Istanbul 266, 280 Tanzania 291 tariffs 137 taxation 40, 43, 47, 67, 84, 93–4, 106, 133, 150, 155, 157, 167, 168, 172, 190 Taylor, Frederick 119, 126 Taylorism 103 Tea Party faction 205, 280, 281, 292 technological evolution 95–6, 97, 101–2, 109 technological imperatives 98–101 technological innovation 94–5 technology changes involving different branches of state apparatus 93–4 communicative technologies 278–9 and competition 92–3 constraints inhibiting deployment 101 culture of 227, 271 definition 92, 248 and devaluation of commodities 234 environmental 248 generic technologies 94 hardware 92, 101 humanising 271 information 100, 147, 158, 177 military 93, 95 monetary 109 and nature 92, 97, 99, 102 organisational forms 92, 99, 101 and productivity 71 relation to nature 92 research and development 94 and science 95 software 92, 99, 101 a specialist field of business 94 and unemployment 80, 103 work and labour control 102–11 telephone companies 54, 67, 84, 278 Tennessee 148 Teresa, Mother 284 Thatcher, Margaret (later Baroness) x, 72, 214, 259 Thatcherism 165 theft 53, 60, 61, 63 Thelluson, Peter 226, 227 think tanks 143 ‘Third Italy’ 143 Third World debt crisis 240 Toffler, Alvin 237 tolls 137 Tönnies, Ferdinand 122, 125 tourism ix, 16, 140, 141, 187, 236 medical 139 toxic waste disposal 249–50, 257 trade networks 24 trade unions xii, 116, 148, 168, 176, 184, 274, 280 trade wars 154 transportation 23, 99, 132, 147–8, 150, 296 Treasury Departments 46, 156 TRIPS agreement 242 tropical rainforest 253 ‘trust-busting’ 131 trusts 135 Turin, Italy 150 Turkey 107, 123, 174, 232, 280, 293 Tuscany, Italy 150 Tutu, Archbishop Desmond 284 Twitter 236 U unemployment 37, 104, 258, 273 benefits 176 deliberately created 65, 174 high xii, 10, 176 insurance 175 and labour reserves 175, 231 and labour-saving technologies 173 long-term 108, 129 permanent 111 echnologically induced 80, 103, 173, 274 uneven geographical developments 178, 296 advanced and underserved regional economies 149–50 and anti-capitalist movements 162 asset bubbles 243 and capital’s reinvention of itself 147, 161 macroeconomic processes of 159 masking the true nature of capital 159–60 and technological forms 219 volatility in 244 United Fruit 136 United Kingdom income inequality in 169; see also Britain United Nations (UN) 285 United States aim of Tea Party faction 280 banking 158 Bill of Rights 284 Britain lends to (nineteenth century) 153 capital in (1990s) 154 Constitution 284 consumption level 194 global reserve currency 45–6 growth 232 hostility towards state interventions 167 House of Representatives 206 human rights abuses 202 imperial power 46 indebtedness of students in 194 Indian reservations 249 interstate highway system 239 jobless recoveries after recession 172–3 liberty and freedom rhetoric 200–201, 202 Midwest ‘rust belt’ 151 military expenditures 46 property market crashes x, 21–2, 50, 54, 58, 82–3 racial issues 166 Savings and Loan Crisis (from 1986) 18 social mobility 196 social reproduction 196–7 solidly capitalist 166 steel industry 120 ‘symbolic analysts’ 188 ‘trust-busting’ 131 unemployment 108 wealth distribution 167 welfare system 176 universal suffrage 183 urbanisation 151, 189, 228, 232, 239, 247, 254, 255, 261 Ure, Andrew 119 US Congress 47 US dollar 15, 30, 45–6 US Executive Branch 47 US Federal Reserve xi, 6, 30, 37, 46, 47, 49, 132, 143, 233 monetary policy 170–71 US Housing Act (1949) 18 US Treasury 47, 142, 240 use values collectively managed pool of 36 commodification of 243 commodities 15, 26, 35 common wealth 53 creation through social labour 36 and entrepreneurs 23–4 and exchange values 15, 35, 42, 44, 50, 60, 65, 88 and housing 14–19, 21–2, 23, 67 and human labour 26 infinitely varied 15 of infrastructural provision 78 loss of 58 marketisation of 243 monetisation of 243 of money 28 privatised and commodified 23 provision of 111 and revolt of the mass of the people 60 social demand for 81 usufructuary rights 39, 41, 59 usury 49, 53, 186, 194 utopianism 18, 35, 42, 51, 66, 119, 132, 183, 184, 204, 206–10, 269, 281, 282 V value(s) commodity 24, 25 failure to produce 40 housing 19, 20, 22 net 19 production and realisation of 82 production of 239 property 21 relation between money and value 27, 35 savings 20 storing 25, 26, 35 see also asset values; exchange values; social value; use values value added 79, 83 Veblen, Thorstein: Theory of the Leisure Class 274 Venezuela 123, 201 Vietnam, labour in 108 Vietnam War 290 violence 53, 57, 72, 204–5, 286 against children 193 against social movements 266 against women 193 colonial 289–90, 291 and contemporary capitalism 8 culture of 271 of dispossession 58, 59 in a dystopian world 264 and humanism 286, 289, 291 of the liberation struggle 290 militarised 292 as the only option 290–91 political 280 in pursuit of liberty and freedom 201 racialised 291 state’s legitimate use of 42, 44, 45, 51, 88, 155, 173 of technology 271 and wage labour 207 virtual ecological transfer 256 Volcker, Paul 37 W wages 103 basic social wage 103 falling 80, 82 for housework 115, 192–3 low xii, 114, 116, 186, 188 lower bound to wage levels 175 non-payment of 72 and profits 172 reduction in 81, 103, 104, 135, 168, 172, 176, 178 rising 178 and unskilled labour 114 wage demands 150, 274 wage levels pushed up by labour 65 wage rates 103, 116, 172, 173 wage repression 158–9 weekly 71 see also income Wall Street criticised by a congressional committee 239–40 illegalities practised by 72, 77 and Lebed 195 new information-processing technologies 100 Wall Street Crash (1929) x, 47 Wall-E (film) 271 Walmart xii, 75, 84, 103, 131 war on terror 280 wars 8, 60, 229 currency 154 defined 44 monetisation of state war-making activities 44–5 privatisation of war making 235 resource 154, 260 and state aims 44 state financing of 32, 44, 48 and technology 93 trade 154 world 154 water privatisation 235 wave theory 70 wave-particle duality 70 wealth accumulation of 33, 34, 35, 157, 205 creation of 132–3, 142, 214 disparities of 164–81 distribution of 34, 167 extraction from non-productive activities 32 global 34 the house as a sign of 15–16 levelling up of per capita wealth 171 and poverty 146, 168, 177, 218, 219, 243 redistribution of 9, 234, 235 social 35, 53, 66, 157, 164, 210, 251, 265, 266, 268 taking it from others 132–3 see also common wealth weather futures 60 Weber, Max 122, 125 Weimar Republic 30 welfare state 165, 190, 191, 208 Wells Fargo 61 West Germany 153, 154, 161 Whitehead, Alfred North 97 Wilson, Woodrow 201 Wolf, Martin 304n2 Wollstonecraft, Mary: A Vindication of the Rights of Woman 285 women career versus family obligations 1–2 disposable populations 111 exploitation of 193 housework versus wage labour 114–15 oppression against 193 social struggle 168 trading of 62 violence against 193 in the workforce 108, 114, 115, 127, 174, 230 women’s rights 202, 218 workers’ rights 202 working classes and capital 80 consumer power 81 crushing organisation 81 education 183, 184 gentrified working-class neighbourhoods ix; housing 160 living conditions 292 wage repression and consumption 158–9 working hours 72, 104–5, 182, 272–5, 279 World Bank 16, 24, 100, 186, 245 World Trade Organization 138, 242 WPA programmes (1930s) 151 Wright, Frank Lloyd: Falling Water 16 Wriston, Walter 240 Y YouTube 236 Yugoslavia, former 174 Z Zola, Émile 7


pages: 435 words: 127,403

Panderer to Power by Frederick Sheehan

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Asian financial crisis, asset-backed security, bank run, banking crisis, Bretton Woods, British Empire, call centre, central bank independence, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, deindustrialization, diversification, financial deregulation, financial innovation, full employment, inflation targeting, interest rate swap, inventory management, Isaac Newton, Long Term Capital Management, margin call, market bubble, McMansion, Menlo Park, mortgage debt, new economy, Northern Rock, oil shock, place-making, Ponzi scheme, price stability, reserve currency, rising living standards, rolodex, Ronald Reagan, Sand Hill Road, savings glut, shareholder value, Silicon Valley, Silicon Valley startup, South Sea Bubble, supply-chain management, supply-chain management software, The Great Moderation, too big to fail, transaction costs, trickle-down economics, VA Linux, Y2K, Yom Kippur War

Mullaney, “Voters Will Assess Nixon’s Game Plan to Revive Economy,” New York Times, November 1, 1970, p. 139. 5 William Greider, Secrets of the Temple: How the Federal Reserve Runs the Country (New York: Simon and Schuster, 1987), p. 67. 6 Ibbotson Associates, Stocks, Bonds, Bills and Inflation, 2000 Yearbook, Market Results for 1926–1999, 2000, p. 226, Table A-15. How the United States Inflated the World After the United States discarded the gold standard, the dollar remained the world’s reserve currency. Trade around the world was still conducted in dollars even though it had depreciated against most currencies. This created havoc. Exporters to the United States received the depreciated dollars for their goods. OPEC (the Organization of Petroleum Exporting Countries), an exporter of oil to the United States, received less value for each gallon of oil exported. (The dollar fell about 50 percent against other currencies during the 1970s.

Greenspan might differ from Volcker in many ways, but one thing was the same: the Federal Reserve chairmanship had evolved into a brokerage operation for insolvent financial institutions. Whatever claims Greenspan might make (or Paul Volcker had made) about the stability and resiliency of the American financial system, former Fed Chairman William McChesney Martin would find it unrecognizably frenetic. Finance and financial institutions were more fluid than when the gold standard existed. Alan Greenspan explained the traditional reserve currency’s balancing properties in “Gold and Economic Freedom” (discussed in Chapter 2). The world bond market increased from less than $1 trillion in 1970 to $23 trillion by 1987.24 Without a gold standard, there was no ultimate settlement, so unredeemable currency and bond claims grew. Asset inflation and concentration of credit gave those who possessed “native cunning and access to leverage” an opportunity to apply their skills.

And it was not a world for mad financial conquest. 4 John Lukacs, A New Republic: A History of the United States in the Twentieth Century (New Haven, Conn.: Yale University Press, 2004), p. 425. 5 There are calls today for a return to a Bretton Woods gold standard. This is posed as an agreement that worked for nearly 30 years (1944–1971). However, it was already failing in the 1950s. It was failing because the United States did not live within the limits imposed on the reserve currency. It was able to fail because, as with the CDO trade, there were no market prices. Only governments could redeem currency for gold. This led to subterfuges, which were hidden from the people when it was thought better to do so. In 1934, Simone Weil, a young French philosopher, expressed how capitalism had changed. She wrote, in Sketch of Contemporary Social Life: “[C]apital increase brought about by actual production … counts for less and less as compared with the constant supply of fresh capital.”6 She made this observation without the advantage of having participated in a leveraged buyout.


pages: 424 words: 115,035

How Will Capitalism End? by Wolfgang Streeck

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accounting loophole / creative accounting, Airbnb, Ben Bernanke: helicopter money, Bretton Woods, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, Clayton Christensen, collective bargaining, conceptual framework, corporate governance, credit crunch, David Brooks, David Graeber, debt deflation, deglobalization, deindustrialization, en.wikipedia.org, eurozone crisis, failed state, financial deregulation, financial innovation, first-past-the-post, full employment, Gini coefficient, global reserve currency, Google Glasses, haute cuisine, income inequality, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labour market flexibility, labour mobility, late capitalism, market bubble, means of production, moral hazard, North Sea oil, offshore financial centre, open borders, pension reform, Plutocrats, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, post-industrial society, private sector deleveraging, profit maximization, profit motive, quantitative easing, reserve currency, rising living standards, Robert Gordon, savings glut, secular stagnation, shareholder value, sharing economy, sovereign wealth fund, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transaction costs, Uber for X, upwardly mobile, winner-take-all economy, Wolfgang Streeck

Moreover, local collaboration is needed to hold down traditionalist opposition to capitalist Landnahme outside the developed world. Contemporary capitalism increasingly suffers from global anarchy, as the United States is no longer able to serve in its post-war role, and a multipolar world order is nowhere on the horizon. While there are (still?) no Great-Power clashes, the dollar’s function as international reserve currency is contested – and cannot be otherwise, given the declining performance of the American economy, its rising levels of public and private debt and the recent experience of several highly destructive financial crises. The search for an international alternative, perhaps in the form of a currency basket, is getting nowhere since the United States cannot afford to give up the privilege of indebting itself in its own currency.

In particular, the United States began to sell its public debt abroad to sovereign investors, especially to the governments of oil-producing countries looking for opportunities to ‘recycle’ their surpluses and in return gain military protection against regional adversaries and their own peoples. In subsequent years ‘financial services’ became the most important growth industry by far in both the United States and the United Kingdom.16 After the end of the Bretton Woods monetary regime, with the dollar continuing to be the leading global reserve currency, the United States enjoyed the ‘exorbitant privilege’ (Giscard d’Estaign) of being able to indebt itself internationally in its own currency and repay its debt, if need be, by printing basically unlimited amounts of it. The rich supply of fiat dollars that ensued nourished an expanding financial industry about to turn into the financial sector of capitalism worldwide. Aggressive deregulation of financial institutions allowed for unprecedented ‘financial innovations’ that attracted capital from all over the world and became a major instrument for governments not only looking for new economic growth but also desperately seeking access to credit.

In fact, shrinking the deficit by shrinking public spending was accompanied by substantial tax cuts which, while repeatedly renewing the deficit, created pressures for more spending cuts once ‘fighting the deficit’ had been established as the supreme principle of the new regime.49 Clinton’s successor immediately squandered the Clinton surplus on tax cuts, advertised by George W. Bush during his presidential campaign in 2000 as ‘returning to citizens what is rightfully theirs’. Yet neither this nor the wars in Afghanistan and Iraq did anything to diminish the confidence of financial markets. The United States has more than one way to reassure its creditors, including its capacity to produce unlimited amounts of a global reserve currency out of thin air. That the American government nevertheless administered the bitter medicine of domestic austerity to its already anaemic welfare state in the 1990s can only have added to financial markets’ trust in its ‘full credit’, on top of the culturally established primacy of financial market obligations over citizen entitlements. Moreover, to the extent that the United States runs a deficit to finance its military and its wars, it can ask resource-rich allies to buy treasury bonds in return for protection, making it unnecessary for the latter to maintain military forces of their own.


pages: 310 words: 90,817

Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown by Detlev S. Schlichter

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bank run, banks create money, British Empire, capital controls, Carmen Reinhart, central bank independence, currency peg, Fractional reserve banking, German hyperinflation, global reserve currency, inflation targeting, Kenneth Rogoff, Long Term Capital Management, market clearing, Martin Wolf, means of production, moral hazard, mortgage debt, open economy, Ponzi scheme, price discovery process, price mechanism, price stability, pushing on a string, quantitative easing, reserve currency, rising living standards, risk tolerance, savings glut, the market place, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, Y2K

In any case, the following decades saw further institutional changes to the monetary infrastructure designed to facilitate more money creation, to make the currency more elastic. In 1933 President Roosevelt took the United States off the gold standard domestically. A tenuous connection to gold was sustained for a few decades after World War II, but in 1971 President Nixon took the dollar off gold internationally, too. Most other currencies had already severed direct links to gold and had only maintained an indirect one through the dollar as the global reserve currency. Since 1971, the entire world has thus been on a paper money standard for the first time in history. Money can now be created out of nothing, at no cost and without limit. When money was ultimately still gold, money-induced business cycles used to be fairly short, although still painful. The credit boom was limited by the inelasticity of bank reserves. When banks had lowered reserve ratios too much, they had to cut back on new lending, and when this occurred nobody could provide extra reserves to the banks and thereby extend the credit boom further.

It is this internationally coordinated paper money production that explains all the phenomena that the savings glut theorists concern themselves with: the large United States current account deficit and the corresponding Asian surpluses; the concurrence of low savings and high levels of consumption with extensive investment in real estate in the United States, coupled with relatively low levels of official consumer goods inflation; and simultaneously, on the part of China, the extraordinary accumulation of foreign currency reserves and of Treasury securities holdings, and the explosion in domestic credit and in domestic investment activity. Whether this process was the outcome of the deliberate design of U.S. policy makers is immaterial. It may simply be that the dollar’s status as a global reserve currency and the importance of the U.S. goods market for the export sectors of other countries lead to policies that furthered a de facto globally coordinated money and credit boom. Summary In the context of the stylized history of state-sponsored fractional-reserve banking just described, the pinnacle of paper money production has now been reached. All inhibiting factors that have the power to short-circuit the artificial money–induced boom have now been removed: true interbank competition with real risk of bankruptcy, commodity money of strictly limited supply and outside the control of the state, and feedback from tight money regimes abroad.

See also money, paper money Enron equilibrium, economic European Central Bank (ECB) evenly rotating economy F Fannie Mae Federal Reserve establishment of fiat money fiduciary model Fisher, Irving foreign exchange market Foster, William Trufant fractional-reserve banking as Ponzi scheme controls of misconceptions about stability of state and understanding franc France, paper money and Freddie Mac Friedman, Milton functions of money G GDP. See gross domestic product Geldwertstabilisierung und Konjunkterpolitik The General Theory of Employment, Interest, and Money Germany, paper money and global foreign exchange market global reserve currency global state fiat money standard gold gold standard Nixon and resurrecting Roosevelt and goldsmiths Goldtheorie und Konjunkturtheorie goods production, money production versus government debt, monetization of government, funding Great Depression greenbacks Gresham’s law gross domestic product (GDP) effect of money injections on H Harrison, Henry Hayek, Fredrich August von hyperinflation I IMF.


pages: 364 words: 99,613

Servant Economy: Where America's Elite Is Sending the Middle Class by Jeff Faux

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back-to-the-land, Bernie Sanders, Black Swan, Bretton Woods, BRICs, British Empire, call centre, centre right, cognitive dissonance, collateralized debt obligation, collective bargaining, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, David Brooks, David Ricardo: comparative advantage, falling living standards, financial deregulation, financial innovation, full employment, hiring and firing, Howard Zinn, Hyman Minsky, illegal immigration, indoor plumbing, informal economy, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, lake wobegon effect, Long Term Capital Management, market fundamentalism, Martin Wolf, McMansion, medical malpractice, mortgage debt, Naomi Klein, new economy, oil shock, Plutocrats, plutocrats, price mechanism, price stability, private military company, Ralph Nader, reserve currency, rising living standards, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, school vouchers, Silicon Valley, single-payer health, South China Sea, statistical model, Steve Jobs, Thomas L Friedman, Thorstein Veblen, too big to fail, trade route, Triangle Shirtwaist Factory, union organizing, upwardly mobile, urban renewal, War on Poverty, We are the 99%, working poor, Yogi Berra, Yom Kippur War

But the world’s supply of gold depended on how much was produced rather than how much money the world needed to finance growth. As nations industrialized and expanded in the nineteenth century, gold production could not keep pace. The British pound sterling, the currency of the world’s greatest creditor, was redeemable for gold and was therefore a substitute. So it functioned as the world’s reserve currency; that is, along with gold, it could be used to support the value of other nation’s money. But World War I sapped Britain’s economic strength and destroyed its capacity to play the role of world creditor. As a result, the world had no new source of credit when the private banking sector collapsed in the 1930s. In July 1944, confident that Germany would be defeated, the United States and Britain hosted a forty-four-nation conference at Bretton Woods, New Hampshire, to design a new international monetary system.

Since increasing the supply of anything relative to demand lowers the price, the value of the currency will fall. This raises the price—and reduces the demand for—imports, and it causes the opposite effect for exports. So, goes the argument, exports will rise faster than imports, and eventually trade balance will be restored. The conventional wisdom is not wrong, but the case of the United States is different, in part because the U.S. dollar is still the most important reserve currency for the world’s central banks and for writing contracts in oil and other globally traded goods. It is also seen as a safe political haven in times of turmoil and economic stress. Demand for the dollar is therefore somewhat independent of the U.S. trade balance. In addition, the central banks of nations whose currency is not freely traded often manipulate the value of their currency to keep it low relative to the dollar and thus keep their exports more competitively priced.

Both Wall Street and the Pentagon favor a highly valued dollar because it enables them to buy assets around the world more cheaply. In Wall Street’s case, this means foreign business assets. In the Pentagon’s, a higher valued dollar makes it less costly to maintain its bases, its foreign missions, and its wars. Sooner or later, as the U.S. economy naturally shrinks in importance, the dollar will have to give way as the world reserve currency. Already, the leaders of the BRIC nations—Brazil, Russia, India, and China—have called for a new global credit system managed by the International Monetary Fund (IMF) or a new institution and based on a basket of currencies, which would diminish the dollar’s global importance. But this would be an enormously complex process that would take at least a decade of negotiation among the world’s two hundred and some nations—starting with a commitment from the United States.


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The Democracy Project: A History, a Crisis, a Movement by David Graeber

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Bretton Woods, British Empire, corporate personhood, David Graeber, deindustrialization, dumpster diving, East Village, feminist movement, financial innovation, George Gilder, Lao Tzu, late fees, Occupy movement, payday loans, planetary scale, Plutocrats, plutocrats, Ralph Nader, reserve currency, Ronald Reagan, seigniorage, too big to fail, trickle-down economics, unpaid internship, We are the 99%, working poor

The easiest way to illustrate might be to make note of the following facts: • The United States spends more on its military than all other countries on earth combined. It maintains at least two and a half million troops in 737 overseas military bases, from Paraguay to Tajikistan, and, unlike any other military power in history, retains the power to direct deadly force anywhere on earth. • The U.S. dollar is the currency of global trade, and since the 1970s has replaced gold as the reserve currency of the global banking system. • Also since the 1970s, the United States has come to run an ever-increasing trade deficit whereby the value of products flowing into America from abroad far outweighs the value of those America sends out again. Set these facts out by themselves, and it’s hard to imagine they could be entirely unrelated. And indeed, if one looks at the matter in historical perspective, one finds that for centuries the world trade currency has always been the money of the dominant military power, and that such military powers always have more wealth flowing into them from abroad than they send out again.j Still, the moment one begins to speculate on the actual connections between U.S. military power, the banking system, and global trade, one is likely to be dismissed—in respectable circles, at least—as a paranoid lunatic.

.), even in staunch U.S. allies like Germany, the fact that the world’s financial architecture was created by, and is sustained by, U.S. military power is simply assumed as a matter of course. This is partly because people outside the United States have some knowledge of the relevant history: they tend to be aware, for instance, that the current world financial architecture, in which U.S. Treasury bonds serve as the principal reserve currency, did not somehow emerge spontaneously from the workings of the market but was designed during negotiations between the Allied powers at the Bretton Woods conference of 1944. In the end, the U.S. plan prevailed, despite the strenuous objections of the British delegation, led by John Maynard Keynes.k Like the “Bretton Woods institutions” (the IMF, World Bank) that were created at that same conference to back up the system, these were political decisions, established by military powers, which created the institutional framework in which what we call the “global market” has taken shape.

The Third World fought back: a global popular uprising (dubbed by the media the “anti-globalization movement”) made such an issue out of such policies that by 2002 or 2003, the IMF had been effectively kicked out of East Asia and Latin America, and by 2005 was itself on the brink of bankruptcy. The financial crisis of 2007 and 2008, which struck as U.S. military forces remained embarrassingly quagmired in Iraq and Afghanistan, has led, for the first time, to a serious international discussion of whether the dollar should remain the international reserve currency. At the same time, the formula the major powers once applied to the Third World—declare a financial crisis, appoint a supposedly neutral board of economists to slash social services, reallocate even more wealth to the richest 1 percent, and open the economy to even more pillaging by the financial services industry—is now being applied at home, from Ireland and Greece to Wisconsin and Baltimore.


pages: 741 words: 179,454

Extreme Money: Masters of the Universe and the Cult of Risk by Satyajit Das

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affirmative action, Albert Einstein, algorithmic trading, Andy Kessler, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Basel III, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, capital asset pricing model, Carmen Reinhart, carried interest, Celtic Tiger, clean water, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, debt deflation, Deng Xiaoping, deskilling, discrete time, diversification, diversified portfolio, Doomsday Clock, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, financial independence, financial innovation, fixed income, full employment, global reserve currency, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, happiness index / gross national happiness, haute cuisine, high net worth, Hyman Minsky, index fund, interest rate swap, invention of the wheel, invisible hand, Isaac Newton, job automation, Johann Wolfgang von Goethe, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, Kevin Kelly, labour market flexibility, laissez-faire capitalism, load shedding, locking in a profit, Long Term Capital Management, Louis Bachelier, margin call, market bubble, market fundamentalism, Marshall McLuhan, Martin Wolf, merger arbitrage, Mikhail Gorbachev, Milgram experiment, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Naomi Klein, Network effects, new economy, Nick Leeson, Nixon shock, Northern Rock, nuclear winter, oil shock, Own Your Own Home, pets.com, Plutocrats, plutocrats, Ponzi scheme, price anchoring, price stability, profit maximization, quantitative easing, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Ray Kurzweil, regulatory arbitrage, rent control, rent-seeking, reserve currency, Richard Feynman, Richard Feynman, Richard Thaler, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, Robert Shiller, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Ronald Reagan: Tear down this wall, savings glut, shareholder value, Sharpe ratio, short selling, Silicon Valley, six sigma, Slavoj Žižek, South Sea Bubble, special economic zone, statistical model, Stephen Hawking, Steve Jobs, The Chicago School, The Great Moderation, the market place, the medium is the message, The Myth of the Rational Market, The Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trickle-down economics, Turing test, Upton Sinclair, value at risk, Yogi Berra, zero-coupon bond

The communist Soviet Union, emerging as a rival to the United States in the post-war order, also controlled a sizeable proportion of known gold reserves. Keynes’ bold solution was a world reserve currency (the bancor) administered by a global central bank. White rejected the proposal: “We have been perfectly adamant on that point. We have taken the position of absolutely no.” The United States was the undisputed preeminent economic and military great power as well as the world’s richest nation and the biggest creditor. The British and the French, devastated by two world wars, needed American money to rebuild their economies. White’s view prevailed. Bretton Woods established a system of fixed exchange rates where countries would establish parity of their national currencies in terms of gold (the peg). All countries would peg their currencies to the U.S. dollar as the principal reserve currency and, after convertibility was restored, would buy and sell U.S. dollars to keep market exchange rates within plus or minus 1 percent of parity (the band).

This created inflation and increased dollar outflows to pay for the expenditures. The dollar became overvalued relative to the German Deutsche Mark and the Japanese yen. Faced with the choice of devaluing the dollar or imposing protectionist measures, President Johnson argued: “The world supply of gold is insufficient to make the present system workable—particularly as the use of the dollar as a reserve currency is essential to create the required international liquidity to sustain world trade and growth.”19 It was the Triffin dilemma, identified by Belgian-American economist Robert Triffin in the 1960s. As the dollar was the global reserve and trade currency, the United States had to run large trade deficits to meet the world’s demand for foreign exchange. By the early 1970s, the ratio of gold available to dollars deteriorated from 55 percent to 22 percent.

A history of political instability and the absence of extensive social welfare systems forced the Chinese to save a large portion of their income. The reserves and savings became a giant lending scheme, allowing China to finance and boost global trade, accelerating its own growth. The build-up of foreign reserves in central banks of emerging markets and developing countries was really a liquidity creation scheme reliant on the U.S. dollar’s position in trade and as a reserve currency in the post-Bretton-Woods era.13 Dollars received from exports and foreign investment have to be exchanged into Chinese renminbi. To maintain the competitiveness of exporters, China invested the foreign currency overseas to mitigate upward pressure on the renminbi. As reserves grew, China invested 60–70 percent of its reserves in dollar-denominated investments, primarily U.S. Treasury bonds and other high-quality securities.


pages: 903 words: 235,753

The Stack: On Software and Sovereignty by Benjamin H. Bratton

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1960s counterculture, 3D printing, 4chan, Ada Lovelace, additive manufacturing, airport security, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, algorithmic trading, Amazon Mechanical Turk, Amazon Web Services, augmented reality, autonomous vehicles, Berlin Wall, bioinformatics, bitcoin, blockchain, Buckminster Fuller, Burning Man, call centre, carbon footprint, carbon-based life, Cass Sunstein, Celebration, Florida, charter city, clean water, cloud computing, connected car, corporate governance, crowdsourcing, cryptocurrency, dark matter, David Graeber, deglobalization, dematerialisation, disintermediation, distributed generation, don't be evil, Douglas Engelbart, Edward Snowden, Elon Musk, en.wikipedia.org, Eratosthenes, ethereum blockchain, facts on the ground, Flash crash, Frank Gehry, Frederick Winslow Taylor, future of work, Georg Cantor, gig economy, global supply chain, Google Earth, Google Glasses, Guggenheim Bilbao, High speed trading, Hyperloop, illegal immigration, industrial robot, information retrieval, intermodal, Internet of things, invisible hand, Jacob Appelbaum, Jaron Lanier, Jony Ive, Julian Assange, Khan Academy, linked data, Mark Zuckerberg, market fundamentalism, Marshall McLuhan, Masdar, McMansion, means of production, megacity, megastructure, Menlo Park, Minecraft, Monroe Doctrine, Network effects, new economy, offshore financial centre, oil shale / tar sands, packet switching, PageRank, pattern recognition, peak oil, performance metric, personalized medicine, Peter Thiel, phenotype, place-making, planetary scale, RAND corporation, recommendation engine, reserve currency, RFID, Sand Hill Road, self-driving car, semantic web, sharing economy, Silicon Valley, Silicon Valley ideology, Slavoj Žižek, smart cities, smart grid, smart meter, social graph, software studies, South China Sea, sovereign wealth fund, special economic zone, spectrum auction, Startup school, statistical arbitrage, Steve Jobs, Steven Levy, Stewart Brand, Stuxnet, Superbowl ad, supply-chain management, supply-chain management software, TaskRabbit, the built environment, The Chicago School, the scientific method, Torches of Freedom, transaction costs, Turing complete, Turing machine, Turing test, universal basic income, urban planning, Vernor Vinge, Washington Consensus, web application, WikiLeaks, working poor, Y Combinator

An internal Cisco white paper describes Planetary Skin as “an open network platform for real-time, highly distributed mass remote sensing, authentication, risk-profiling, certification and monitoring of carbon stocks and flows that generates trust and enables collaboration between actors in all three sectors (industry, government, academia).” Its ultimate ambition is to provide an open and comprehensive multiconstituent platform for monitoring and governing planetary biological-ecological systems, with particular emphasis on water distribution and carbon quantification (ultimately to support pricing of these reserve currencies, we imagine). One early pilot project, Rainforest Skin, would measure the total quantity of carbon contained within the planet's rain forests, perhaps the most immediately leverageable carbon governance opportunity and where carbon dioxide sinks are concentrated but threatened by land misuse. The project would combine data sets drawn from “geo-referenced satellites, unmanned aerial vehicles and multiple ground based sensor networks to estimate the forest's carbon stock and flow dynamics, so as to allow for trading and risk management of this new commodity.”44 Stack-scale initiatives such as Planetary Skin (and there are many others) certainly qualify as frames in Grosz's sense, as they frame the totality of Earth at once so as to identify and track strategic chemical subroutines, such as carbon flows, and to present these totalities back to the whole.

They perform this role both as privately held corporations and also, as Umberto Eco pointed out years before (1994) in his prescient satirical essay, “The Holy War: Mac vs. DOS,” even as exemplars of alternative techno-theological programs.46 In sequence, we'll examine the models posed by Facebook, Apple, Amazon, and perhaps the most significant for this stage of the argument, Google.47 29.  Facebook Facebook's Cloud Polis is built directly on its Users’ personal lives and their interest in each other's personal lives. Its reserve currency is what the theory of symbolic interactionism in sociology calls the “presentation of self-identity.”48 In the reconstruction of the social networks that link the social-psychological capital of hundreds of millions of people, Facebook represents a voluntary and highly limited simulation of human culture, and for this, it is a singular achievement. Whereas Wikipedia, for example, publicly automates topical consensus, Facebook captures that social capital and guards it from strangers, displaying it through limited interfacial prisms.

Nevertheless, as the geopolitics of climate change–related energy production and consumption effects looms larger, the questions of energy provision, dissemination, transparency, monitoring, alliance, and allegiance will (as discussed in the Earth chapter) drive realignments of jurisdictional loyalties around common predicaments, whether we prefer them to do so or not. Going forward, there is no Earth layer without the Cloud layer, and vice versa. Because energy is so essential and its calculative rationalization so attractive, it may drive the determining variables—its planetary limits, its antagonistic territories, its reserve currencies, and its included and excluded populations of Users—not just for Google's model of the Cloud Polis, but for the political geographic alignments of the entire Stack. 33.  Future Cloud Polis and Platforms The geopolitical design question for the Cloud layer of The Stack circulates around what forms different Cloud polities will take in the near future and how they will draw on alternative organizational logics in their emergence.


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Financial Market Meltdown: Everything You Need to Know to Understand and Survive the Global Credit Crisis by Kevin Mellyn

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asset-backed security, bank run, banking crisis, Bernie Madoff, bonus culture, Bretton Woods, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, disintermediation, diversification, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Francis Fukuyama: the end of history, global reserve currency, Home mortgage interest deduction, Isaac Newton, joint-stock company, liquidity trap, London Interbank Offered Rate, margin call, market clearing, moral hazard, mortgage tax deduction, Northern Rock, offshore financial centre, paradox of thrift, pattern recognition, pension reform, pets.com, Plutocrats, plutocrats, Ponzi scheme, profit maximization, pushing on a string, reserve currency, risk tolerance, risk-adjusted returns, road to serfdom, Ronald Reagan, shareholder value, Silicon Valley, South Sea Bubble, statistical model, The Great Moderation, the payments system, too big to fail, value at risk, very high income, War on Poverty, Y2K, yield curve

The Fed Demystified A WORLD RESTORED: THE DOLLAR BECOMES THE NEW GOLD The Conference held at the Bretton Woods Hotel in New Hampshire during 1944 was a blend of British brain and American brawn acting to put the world economy back together. Keynes had the plan, and the United States had the money. The big idea was to turn the U.S. dollar into the global reserve currency, meaning the money that all central banks paid each other in to settle the ‘‘balance of payments’’ mismatches that always arose from cross-border trade and investment. Under the old gold standard, the global reserve currency was the British Pound but only because it was fully convertible to gold at a fixed rate. The new Bretton Woods system pegged each country’s currency to the U.S. dollar within a fixed range and in turn pegged the dollar to gold. A machinery called the International Monetary Fund (IMF) was set up to police the whole system and provide dollar loans to countries having temporary balance of payments problems.


pages: 192 words: 72,822

Freedom Without Borders by Hoyt L. Barber

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accounting loophole / creative accounting, Affordable Care Act / Obamacare, Albert Einstein, banking crisis, diversification, El Camino Real, estate planning, fiat currency, financial independence, fixed income, high net worth, illegal immigration, interest rate swap, obamacare, offshore financial centre, passive income, quantitative easing, reserve currency, road to serfdom, too big to fail

In 1971, the dollar was taken off the gold standard, thanks to President Nixon, and even the Swiss franc today is not backed by gold. So there you go. And where are we today? The launch of this “Bancor” could come at anytime, maybe, even in the very near future. They are working on it now as a means to stabilize exchange rates, balance trade payments, and stabilize the global economy. Of course, centralized power is their main interest. A gold-backed currency in the world sounds positive, and likely it would become the reserve currency of Global Investing and Investment Opportunities 57 the world. Initially, 19 countries may utilize it, but the globalists are likely to try to get 40 or more countries to join in. It will take some time for it to work, but the fact that it’s gold-backed will give it a greater chance for acceptance and success. Currencies of the world, in particular the U.S. dollar and the euro, will be hit hard, and this undermining of these countries’ currencies can also undermine their economies and threaten their national sovereignties—and likely will.

I don’t consider IOU’s very valuable, especially when the return these days is so low. The only thing that makes a bond valuable is if it’s issued by a very solid, creditworthy borrower, of which there are fewer and fewer these days, whether corporate or government issuers. Let’s start at the top. Do you consider the largest economy and most powerful country in the world, whose currency is the reserve currency of the world, a safe bet? The economy is still looking for the recovery, the United States is involved in three wars and more are on the horizon, the total national debt exceeds $130 trillion, our currency is not backed by anything of value, we are monetizing the debt by printing new worthless money to pay off old debts such as T-bills and T-bonds, because we can’t pay back the money we already borrowed without creating more, and our lenders, such as China, are about to stop investing in our government Treasuries for this very reason.

Rethinking Money: How New Currencies Turn Scarcity Into Prosperity by Bernard Lietaer, Jacqui Dunne

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3D printing, agricultural Revolution, Albert Einstein, Asian financial crisis, banking crisis, Berlin Wall, BRICs, business climate, business process, butterfly effect, carbon footprint, Carmen Reinhart, clockwork universe, collapse of Lehman Brothers, complexity theory, conceptual framework, credit crunch, discounted cash flows, en.wikipedia.org, Fall of the Berlin Wall, fear of failure, fiat currency, financial innovation, Fractional reserve banking, full employment, German hyperinflation, happiness index / gross national happiness, job satisfaction, Marshall McLuhan, microcredit, mobile money, money: store of value / unit of account / medium of exchange, more computing power than Apollo, new economy, Occupy movement, price stability, reserve currency, Silicon Valley, the payments system, too big to fail, transaction costs, trickle-down economics, urban decay, War on Poverty, working poor

That is why our working definition of money is: an agreement, within a community, to use something standardized as a medium of exchange.2 These agreements manifest in very different scenarios and levels of society, ranging from tokens used among a small group of friends playing cards or cigarettes traded among prisoners to conventional 57 58 PROSPERITY bank-debt money exchanged among the citizens of a particular nation as “legal tender” (i.e., accepted in payment of taxes). A community can be geographically disparate, such as Internet users; it can exist in virtual realities, such as Second Life; or it can include large segments of the global population, as is the case with the U.S. dollar in its role as the international reference and reserve currency. Therefore, money really lives in the same space as other social constructs, like marriage, club memberships, and business contracts. These constructs are real, even if they exist only in people’s minds. A monetary covenant can be made formally or informally, freely or by coercion, consciously or unconsciously. Most people do not consciously agree to use dollars, euros, or yuan, nor do they consider their nature.

See Short-termism Immigration, 156 Income, 51, 108 255 Industrial Age, 2, 15, 203; Information Age and, 120; Third Industrial Revolution, 218; values, 28 Inflation, 91– 93; of creditos, 184–185; hyperinflation, 70, 176, 178–179 Information Age, 50, 120, 201 Infrastructure, 15, 20–21, 103, 194 Inheritance, 18 Innernet, 223 InspirePay, 116 Instability, 134 Insurance, 114, 121–122, 216 Interconnectivity, 32, 62 Interest, 37– 42; bankruptcy and, 39, 41; competition and, 37– 40; compound, 42– 43; JAK and, 110; regio and, 191; scarcity and, 37– 40; short-termism and, 45– 46, 52– 53, 85– 86; wealth transfer via, 49– 50; WIR and, 99–100 Intergenerational thinking, 44 Intern, 16–17, 120 International Architecture Exhibition, 85 International Monetary Fund (IMF), 144, 182, 184 International reserve currency, 57– 58 Internet: community, 57– 58; technologies, 115–116. See also Mobile phone Internet access: enabling currencies, 60– 61, 117; Human Right, A, and, 165–166, 166; in multicurrency world, 55 Internship, 16–17 Intolerance, 182 Intrinsic risk, 45 Intrinsic value, 64 Investing class, 193–194 Ireland, 96– 98 Irrigation, 187 Isolation, 19 Ithaca Health Alliance (IHA), 163, 164 Ithaca Health Fund (IHF), 164 Ithaca HOURS, 162–165, 163 Job: creation, 119, 145–146, 216; satisfaction, 18; work and, 219–220 John Galt, 113 Jord Arbete Kapital (JAK), 109–113, 111 256 INDEX Junk mail, 152 Jury duty, 83 Juvenile justice, 80, 83 Keynesian stimulus, 23–24, 145–146 Keynesian School of Economics, 35 Knowledge exchange network, 184 Krama, 190 KTA, 157 Kukuyu, 209 !


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How to Run the World: Charting a Course to the Next Renaissance by Parag Khanna

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Albert Einstein, Asian financial crisis, back-to-the-land, bank run, blood diamonds, borderless world, BRICs, British Empire, call centre, carbon footprint, charter city, clean water, cleantech, cloud computing, corporate governance, corporate social responsibility, Deng Xiaoping, Doha Development Round, don't be evil, double entry bookkeeping, energy security, European colonialism, facts on the ground, failed state, friendly fire, global village, Google Earth, high net worth, index fund, informal economy, invisible hand, labour mobility, laissez-faire capitalism, Masdar, megacity, microcredit, mutually assured destruction, Naomi Klein, New Urbanism, offshore financial centre, oil shock, open economy, out of africa, private military company, Productivity paradox, race to the bottom, RAND corporation, reserve currency, Silicon Valley, smart grid, South China Sea, sovereign wealth fund, special economic zone, sustainable-tourism, The Fortune at the Bottom of the Pyramid, The Wisdom of Crowds, too big to fail, trade liberalization, trickle-down economics, UNCLOS, uranium enrichment, Washington Consensus, X Prize

The China Investment Corporation spent as much per month in late 2009 as it did in all of 2008—but now it focuses on American mortgages and real estate rather than treasuries. When Treasury Secretary Timothy Geithner went to China and told an audience that their holdings of U.S. bonds were safe, they laughed. The United States wants a “Buy American” policy, and China is buying America. Soon America will be borrowing just to pay the interest on its debt, hardly in tune with its officials’ frequent touting of their responsibility in managing the world’s main reserve currency. China is leading the charge toward the next monetary order with calls for a stable neutral currency dominated by no one nation. Some believe the IMF should manage this most delicate transition—and even become something of a Global Central Bank. During the past decade’s commodities boom, the IMF’s role was reduced to that of a lifeguard watching an empty pool, but in the aftermath of the 2008 financial crisis, its funds were tripled by G-20 countries.

The global economy is very much still in uncharted territory: The state has an uncertain role, a precarious imbalance exists between savers and consumers, global trade reform is a stalled process, and the role of international financial institutions is unclear. Even as economies recover, they face huge public deficits that can be redressed only through default, inflation, higher taxes, or tighter spending—all politically volatile options. From banking regulations to reserve currencies, building the next global architecture won’t happen through grand design but rather, in the words of financial journalist Moisés Naím, by “focusing on the plumbing and wiring.” Human nature is hard to regulate. Not just greed but other equally human traits such as creativity were in play to bring about the massive privatized gains and socialized losses that Western economies experienced in the financial crisis.


pages: 91 words: 26,009

Capitalism: A Ghost Story by Arundhati Roy

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Bretton Woods, corporate governance, feminist movement, Frank Gehry, ghettoisation, Howard Zinn, informal economy, land reform, Mahatma Gandhi, means of production, megacity, microcredit, neoliberal agenda, Occupy movement, RAND corporation, reserve currency, special economic zone, spectrum auction, stem cell, The Chicago School, Washington Consensus, WikiLeaks

Rockefeller bought the land on which the United Nations’ New York headquarters stands.36 All eleven of the World Bank’s presidents since 1946—men who have presented themselves as missionaries to the poor—have been members of the CFR. (The exception was George Woods. And he was a trustee of the Rockefeller Foundation and vice president of Chase Manhattan Bank.)37 At Bretton Woods, the World Bank and IMF decided that the US dollar should be the reserve currency of the world, and that in order to enhance the penetration of global capital it would be necessary to universalize and standardize business practices in an open marketplace.38 It is toward that end that they spend a large amount of money promoting Good Governance (as long as they control the strings), the concept of the Rule of Law (provided they have a say in making the laws), and hundreds of anticorruption programs (to streamline the system they have put in place).


pages: 586 words: 159,901

Wall Street: How It Works And for Whom by Doug Henwood

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accounting loophole / creative accounting, affirmative action, Andrei Shleifer, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, capital asset pricing model, capital controls, central bank independence, corporate governance, correlation coefficient, correlation does not imply causation, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, dematerialisation, diversification, diversified portfolio, Donald Trump, equity premium, Eugene Fama: efficient market hypothesis, experimental subject, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, George Gilder, hiring and firing, Hyman Minsky, implied volatility, index arbitrage, index fund, interest rate swap, Internet Archive, invisible hand, Isaac Newton, joint-stock company, Joseph Schumpeter, kremlinology, labor-force participation, late capitalism, law of one price, liquidationism / Banker’s doctrine / the Treasury view, London Interbank Offered Rate, Louis Bachelier, market bubble, Mexican peso crisis / tequila crisis, microcredit, minimum wage unemployment, moral hazard, mortgage debt, mortgage tax deduction, oil shock, payday loans, pension reform, Plutocrats, plutocrats, price mechanism, price stability, prisoner's dilemma, profit maximization, Ralph Nader, random walk, reserve currency, Richard Thaler, risk tolerance, Robert Gordon, Robert Shiller, Robert Shiller, shareholder value, short selling, Slavoj Žižek, South Sea Bubble, The Market for Lemons, The Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, transcontinental railway, women in the workforce, yield curve, zero-coupon bond

Countries could hold dollar reserves in their central bank for the settlement of international trade and finance on the knowledge that they could cash those dollars in for a fixed amount of gold. The dollar, as was said, was as good as gold. The designers of the Bretton Woods system feared floating rate systems were unstable, undermining trade through uncertainty and market over-reactions. Keynes wanted a much more elastic system than the U.S. paymasters would permit; ironically, though, the emergence of the dollar as the central reserve currency meant that world reserves were essentially a matter of U.S. monetary policy, and the U.S. did not stint on supplying these. From soon after the war was over until today, the U.S. has acted as the final source of world demand. There was the Marshall Plan, global military expansion, investment abroad by newly globalizing U.S. multinationals, and always more and more imports — all of which scattered dollars around the world.

While this is down from 90% three years earlier, it's evidence that the dollar is still the dominant world currency by far; even something as decentered as the FX market needs a fixed referent. Part of this dominance, however, is the result of "vehicle trading" — the practice of using the dollar as an intermediary currency. Instead of someone who wants to buy lire for D-marks waiting to find someone eager to sell D-marks for lire, the trader exchanges D-marks for dollars, and then dollars for lire. The dollar is also the world's main reserve currency — according to the IMF, 59% of world foreign exchange reserves were held in dollars in 1996, up from 1990's low of 50%. As the European Union moves towards its single currency, the euro is likely to account for a larger share of world reserves, making it a rival to the dollar as the world reserve and vehicle currency. Loss of the dollar's central role would decrease demand for the greenback, and would probably nudge up U.S. interest rates, and maybe even spell the end of the U.S.'

., dismal returns, 117 disclosure requirements, corporate, 91 discounting, interest rates and, 119-120 distribution Gini index, 115 income CEO vs. worker pay, 239 Manhattan's inequality, 79 polarization in 1920s, 200 wealth, 4, 64-68 dividends, 73, 135 changes in, and excess volatility, 175 payout ratios, and investment, 154 retention ratio, 75 unexpected changes in, 169 yields, 125 dollar, U.S. market share, 46 policy, 44, 54 as reserve currency, 43-44 during trading week, 130-131 Dow Jones Industrial Average, 21 downsizing, 4 rentier responsibility for, 290 unthinkabiliry in Golden Age, 259 Drexel Burnham Lambert, 83, 100, 101, 271 Jensen mourns collapse, 286-287 Drucker, Peter, 306 dumb money, 53 Dutch East India Co., 13 Eastman Kodak, 130 econometrics, 139 failures of, 142 theory precedes observation, 140 economic forecasting, poor results, 141-142 economics appeal to privileged, 183 banality of, 138 assumption of rationality, 175; see also assumptions centrality of self-interest, 143 devolution from political economy, 139 institutional limits of, 250 radical, 250-251 lack of interest in institutions, 247 radical/"heterodox," math-happiness, 183 role of firm in, 248 study of, makes you meaner, 143 supply-side, 47, 103, 274 transaction-cost, 248-251 economic statistics imprecision of, 139 privatization of, 136 revisions of, 133, 179 Wall Street vulgarization of, 133 We Economist, 102, 103, 168 economists.


pages: 475 words: 155,554

The Default Line: The Inside Story of People, Banks and Entire Nations on the Edge by Faisal Islam

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Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, Basel III, Ben Bernanke: helicopter money, Berlin Wall, Big bang: deregulation of the City of London, British Empire, capital controls, carbon footprint, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, credit crunch, Credit Default Swap, crony capitalism, dark matter, deindustrialization, Deng Xiaoping, disintermediation, energy security, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, financial repression, floating exchange rates, forensic accounting, forward guidance, full employment, ghettoisation, global rebalancing, global reserve currency, hiring and firing, inflation targeting, Irish property bubble, Just-in-time delivery, labour market flexibility, London Whale, Long Term Capital Management, margin call, market clearing, megacity, Mikhail Gorbachev, mini-job, mittelstand, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, North Sea oil, Northern Rock, offshore financial centre, open economy, paradox of thrift, pension reform, price mechanism, price stability, profit motive, quantitative easing, quantitative trading / quantitative finance, race to the bottom, regulatory arbitrage, reserve currency, reshoring, rising living standards, Ronald Reagan, savings glut, shareholder value, sovereign wealth fund, The Chicago School, the payments system, too big to fail, trade route, transaction costs, two tier labour market, unorthodox policies, uranium enrichment, urban planning, value at risk, working-age population

And by 2012, GM was planning an extensive foreign sales push and sponsorship of the world’s biggest football team. In America, the Stimulus Party was winning the austerity war. The Apprentice Chancellor and the spending cuts Right from the beginning of his tenure as chancellor, George Osborne was asked why he was pursuing austerity while the US government was not. ‘I don’t have the world’s reserve currency,’ was his answer to me in early 2011. The chancellor was referring to what French presidents have called the ‘exorbitant privilege’ enjoyed by the USA of getting a large flow of global savings, rather cheaply, on the back of the dollar’s status as world currency. What worked for Washington would not necessarily work for Britain. I happened to be standing outside the Treasury when George Osborne returned from Buckingham Palace in May 2010 having received the ‘Great Seal of the Exchequer’ from the Queen.

. – those high priests of Western globalisation – calculate that there is a $20 trillion investment shortfall in infrastructure around the world, as Western countries have drastically slashed their investment budgets. Leading Chinese officials such as Justin Lin point the finger of blame for this, and for the imbalances generally, firmly at the USA. There are three reasons, the Chinese argue: lax regulation of Wall Street, super-low interest rates from 2001, and the role of the dollar as the global reserve currency. China, they point out, has trade deficits with other East Asian countries. Over the past twenty-five years, China has simply replaced Japan as the main contributor to the US trade deficit. As much as 60 per cent of China’s exports are made by foreign-owned companies, many from the USA. The iPad and iPhone are the most famous US-invented contributors to the USA–China trade deficit. So exporting China’s infrastructure boom around the world is China’s preferred route for the much-vaunted ‘global rebalancing’ agenda.

In this situation, the USA does appear to have obliged China to become a forced lender, a type of bonded banker for its ever-growing debts. It is a form of international financial repression. China’s currency policy, in effect, holds down the living standards of its people, obliging them, and the nation generally, to lend its hard-earned dollars back to the USA. This arises because the dollar is the world reserve currency, and US Treasury bonds are a trusted form of liquid international mega-cash to be swapped with other nations, banks and pensions funds. For the past decade China has had nowhere else to go to park its massive reserves. The USA enjoys what France has referred to for half a century as the ‘exorbitant privilege’ of being the world reserve. The fundamental question is whether the status of the dollar will change.


pages: 411 words: 114,717

Breakout Nations: In Pursuit of the Next Economic Miracles by Ruchir Sharma

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3D printing, affirmative action, Albert Einstein, American energy revolution, anti-communist, Asian financial crisis, banking crisis, Berlin Wall, BRICs, British Empire, business climate, business process, business process outsourcing, call centre, capital controls, Carmen Reinhart, central bank independence, centre right, cloud computing, collective bargaining, colonial rule, corporate governance, crony capitalism, deindustrialization, demographic dividend, Deng Xiaoping, eurozone crisis, Gini coefficient, global supply chain, housing crisis, income inequality, indoor plumbing, inflation targeting, informal economy, Kenneth Rogoff, knowledge economy, labor-force participation, labour market flexibility, land reform, M-Pesa, Mahatma Gandhi, market bubble, megacity, Mexican peso crisis / tequila crisis, new economy, oil shale / tar sands, oil shock, open economy, Peter Thiel, planetary scale, quantitative easing, reserve currency, Robert Gordon, Shenzhen was a fishing village, Silicon Valley, software is eating the world, sovereign wealth fund, The Great Moderation, Thomas L Friedman, trade liberalization, Watson beat the top human players on Jeopardy!, working-age population

The big fear has been that the rise of the emerging markets will ultimately persuade countries that they would rather hold savings in Chinese yuan or other star emerging-market currencies than in dollars, ending the status the greenback has held for a century: the world’s reserve currency. This status is, indeed, a huge benefit to Americans, and its loss would be painful. The fact that foreigners are eager to store money in dollars (often in Treasury bills) lowers the cost of borrowing for the government and for consumers. Over many years, according to Berkeley political economist Barry Eichengreen, cheap borrowing costs have effectively raised U.S. income levels by as much as 3 percent. For all the worried talk about the dollar’s demise, the facts show that its status has not slipped in decades, with the dollar share of the global reserve holding steady at more than 60 percent. It is very difficult to gain reserve currency status, but that status is also difficult to lose. In theory, reserves should be held in various currencies in proportion to their weight in the global economy, and the U.S. share of the world economy is obviously nowhere near 60 percent, but old habits and relationships make governments slow to adjust.

In theory, reserves should be held in various currencies in proportion to their weight in the global economy, and the U.S. share of the world economy is obviously nowhere near 60 percent, but old habits and relationships make governments slow to adjust. Officials seeking a safe, secure haven do not move their national treasure lightly. The United States surpassed Britain as the world’s largest economy in the 1870s, but British sterling held on to its reserve status for another fifty years. To become the world’s reserve currency holder, a nation needs to have a large economy that dominates global transactions. It also has to offer a vast pool of ways to hold its currency that pose essentially zero risk of loss through confiscation or revolution, an example being U.S. government bonds. Right now, Europe has a large economy with no safe or vast pool of Eurobonds. China is becoming a large but not a dominant economy, and it severely limits foreign access to its primitive capital markets.


pages: 700 words: 201,953

The Social Life of Money by Nigel Dodd

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accounting loophole / creative accounting, bank run, banking crisis, banks create money, Bernie Madoff, bitcoin, blockchain, borderless world, Bretton Woods, BRICs, capital controls, cashless society, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, computer age, conceptual framework, credit crunch, cross-subsidies, David Graeber, debt deflation, dematerialisation, disintermediation, eurozone crisis, fiat currency, financial innovation, Financial Instability Hypothesis, financial repression, floating exchange rates, Fractional reserve banking, German hyperinflation, Goldman Sachs: Vampire Squid, Hyman Minsky, illegal immigration, informal economy, interest rate swap, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, Kula ring, laissez-faire capitalism, land reform, late capitalism, liquidity trap, litecoin, London Interbank Offered Rate, M-Pesa, Marshall McLuhan, means of production, mental accounting, microcredit, mobile money, money: store of value / unit of account / medium of exchange, mortgage debt, new economy, Nixon shock, Occupy movement, offshore financial centre, paradox of thrift, payday loans, Peace of Westphalia, peer-to-peer lending, Ponzi scheme, post scarcity, postnationalism / post nation state, predatory finance, price mechanism, price stability, quantitative easing, quantitative trading / quantitative finance, remote working, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Satoshi Nakamoto, Scientific racism, seigniorage, Skype, Slavoj Žižek, South Sea Bubble, sovereign wealth fund, special drawing rights, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, Wave and Pay, WikiLeaks, Wolfgang Streeck, yield curve, zero-coupon bond

But of crucial importance to Graeber’s analysis is that, quite unlike previous credit money regimes, the post-1971 period has been far from peaceful. The foundations of trust that credit money has hitherto relied upon have been replaced by an asymmetrical regime in which one country (the United States) enjoys a unique status. At the heart of this system is the dollar, which has been acting as the world’s reserve currency since World War II. Even before Nixon abandoned the dollar–gold peg in 1971, the international monetary system rested on U.S. debt. The phrase “exorbitant privilege” was used by Valéry Giscard d’Estaing to describe the position of the United States under the gold standard, denoting the advantages that accrue to any country when others are bound (or merely inclined) to use its currency for their international trade.

Third, there is a transnational monetary union: although the Eurozone has been in crisis, it is by no means clear that the project will be abandoned altogether; indeed, with the inclusion of Latvia on January 1, 2014, the Eurozone has now expanded to a membership of eighteen states. Meanwhile, other major unions, such as one among Gulf states, are being discussed (Rutledge 2009). Monetary union seems desirable for such states because of the scale of the threat posed by unrestricted capital flows to most existing national currencies when their exchange rates are not fixed (Eichengreen 2008).9 Fourth, there is the decline of the U.S. dollar as the world’s reserve currency, and relatedly, the “currency wars” and the strengthening of the Chinese renminbi, along with other BRIC (Brazil, Russia, India, and China) currencies (Cohen 2011; Fratzscher and Mehl 2011; Rickards 2011). Fifth, in the wake of that decline, there is the prospect of a global currency such as the special drawing rights (SDRs) issued by the IMF (Cohen 2011; Mundell 2012). Sixth, and finally, there is the growth of monetary forms that are not issued by states, such as digital monies.

In doing so, however, they collapse the very distinction that globalization throws into question, namely, between payment and finance money. In the next section, I turn to an example of “transnational” money, an empirical case that illustrates and operationalizes these dilemmas. This case is the hybrid, seemingly “post-Deleuzian” landscape of the Eurozone. EUROLAND When the euro was introduced on January 1, 1999, it was the world’s second largest reserve currency, after the U.S. dollar. The Eurozone itself—often referred to as “Euroland” in its earliest days, with a mixture of affection and irony—was probably the clearest (and certainly the biggest) example of a formally homogeneous transnational monetary space. With no central political authority but only a central bank with a strict legal mandate to focus on only the technical efficiency of its currency, this was arguably deterritorialized money par excellence.


pages: 258 words: 83,303

Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization by Jeff Rubin

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air freight, banking crisis, big-box store, BRICs, carbon footprint, collateralized debt obligation, collective bargaining, credit crunch, David Ricardo: comparative advantage, decarbonisation, energy security, food miles, hydrogen economy, illegal immigration, immigration reform, invisible hand, James Watt: steam engine, Just-in-time delivery, market clearing, megacity, North Sea oil, oil shale / tar sands, oil shock, peak oil, profit maximization, reserve currency, South Sea Bubble, the market place, The Wealth of Nations by Adam Smith, trade liberalization

Those who financed the deficits from the Korean War weren’t as badly fleeced, but, nevertheless, the resulting rise in inflation knocked 5 percent off their real return. And twenty years later, investors were once again swindled out of the return from financing the Vietnam War. They lost nearly a third. Monetizing deficits is particularly attractive for a country like the United States, whose greenback is still the reserve currency of the world. The fact that other countries want to hold your money allows you to sell them bonds that are denominated in your own currency. That gives the borrower a huge advantage, because the creditor is at the mercy of the borrower’s currency’s exchange rate. The easiest way to stiff a foreign creditor is to simply devalue your currency. And the higher the inflation rate you run, the more your currency will fall.

After all, the US dollar lost 40 percent of its value against the yen between 1971 and 1981. That probably didn’t go over well with all the Japanese financial institutions that held Treasury bonds over that period. Just as the domestic bondholder loses his return to inflation, inflation robs the foreign bondholder of his return through the fall in the value of the US dollar against the currency of the lender. That’s the beauty of being a reserve currency. You get to devalue at other people’s expense. Better to rip off some foreign central bank than your own taxpayers. And it’s an option that has become far more important to monetizing Washington’s deficits than at any time in the past. Back at the time of the OPEC oil shocks, only about 10 percent of the Washington’s debt was owned abroad. If Washington was going to cheat its creditors, it was by and large American taxpayers who were lending it the money.


pages: 369 words: 94,588

The Enigma of Capital: And the Crises of Capitalism by David Harvey

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accounting loophole / creative accounting, anti-communist, Asian financial crisis, bank run, banking crisis, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, call centre, capital controls, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, deskilling, equal pay for equal work, European colonialism, failed state, financial innovation, Frank Gehry, full employment, global reserve currency, Google Earth, Guggenheim Bilbao, illegal immigration, indoor plumbing, interest rate swap, invention of the steam engine, Jane Jacobs, joint-stock company, Joseph Schumpeter, Just-in-time delivery, land reform, liquidity trap, Long Term Capital Management, market bubble, means of production, megacity, microcredit, moral hazard, mortgage debt, new economy, New Urbanism, Northern Rock, oil shale / tar sands, peak oil, place-making, Ponzi scheme, precariat, reserve currency, Ronald Reagan, sharing economy, Silicon Valley, special drawing rights, special economic zone, statistical arbitrage, structural adjustment programs, the built environment, the market place, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, Thorstein Veblen, too big to fail, trickle-down economics, urban renewal, urban sprawl, white flight, women in the workforce

Keynes’ idea of a neutral global currency in the form of ‘special drawing rights’, based on the value of five major currencies and managed by the IMF, was revived in 1969. But this threatened US hegemony. A more acceptable solution to the US, worked out in a series of complicated international accords between 1968 and 1973, was for the fixed exchange rate with gold to be abandoned. All the major currencies of the world would then float against the dollar. While this introduced both flexibility and volatility into the international trading system, the global reserve currency remained under US control. The effect was to displace one challenge to US hegemony by another. If the dollar was to remain strong, the US productive economy had to perform as well as, if not better than, its rivals. By the 1980s it was clear that the economies of Japan and West Germany were way ahead of the US in terms of productivity and efficiency and that there were other competitive threats lurking in the wings.

The ability of the US to launch a go-it-alone debt-financed recovery plan is limited politically by staunch conservative opposition at home as well as by the huge debt-overhang accumulated from the 1990s on. The US has been borrowing at the rate of around $2 billion a day for several years now and while the lenders – such as Chinese and other East Asian Central banks along with those of the Gulf States – have so far kept lending because the US economy is far too big to fail, the increasing power of the lenders over US policy is palpable. Meanwhile, the position of the dollar as the global reserve currency is threatened. The Chinese have resurrected Keynes’ original suggestion and urged the creation of a global currency of special drawing rights to be managed by a presumably democratised IMF (in which the Chinese would have an important voice). This threatens US financial hegemony. The end of the Cold War has also rendered military protection against the communist menace irrelevant, even as the ex-Soviet Bloc countries, along with China and Vietnam by very different paths, have become integrated into the global capitalist economic system.


pages: 576 words: 105,655

Austerity: The History of a Dangerous Idea by Mark Blyth

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accounting loophole / creative accounting, balance sheet recession, bank run, banking crisis, Black Swan, Bretton Woods, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, deindustrialization, disintermediation, diversification, en.wikipedia.org, ending welfare as we know it, Eugene Fama: efficient market hypothesis, eurozone crisis, financial repression, fixed income, floating exchange rates, Fractional reserve banking, full employment, German hyperinflation, Gini coefficient, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, interest rate swap, invisible hand, Irish property bubble, Joseph Schumpeter, Kenneth Rogoff, liquidationism / Banker’s doctrine / the Treasury view, Long Term Capital Management, market bubble, market clearing, Martin Wolf, moral hazard, mortgage debt, mortgage tax deduction, Occupy movement, offshore financial centre, paradox of thrift, price stability, quantitative easing, rent-seeking, reserve currency, road to serfdom, savings glut, short selling, structural adjustment programs, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, unorthodox policies, value at risk, Washington Consensus

Mark Blyth South Boston, Massachusetts December 2012 AUSTERITY 1 A PRIMER ON AUSTERITY, DEBT, AND MORALITY PLAYS Why Austerity? On Friday, August 5, 2011, what used to be the fiscally unthinkable happened. The United States of America lost its triple A (AAA) credit rating when it was downgraded by the ratings agency Standard & Poor’s (S&P’s). This is a bit of a problem since the US dollar is the world’s reserve currency, which means (basically) that the dollar is treated as the emergency store of value for the rest of the world; practically all tradable commodities, for example, are valued in relation to the dollar, and the dollar serves as the anchor of the world’s monetary system. The following Monday, August 8, 2011, the Dow Jones Industrial Average (DJIA) lost 635 points, its sixth worst loss ever. At the same time, a continent away, the turmoil in the European bond market that began in Greece in 2009 now threatened to engulf Italy and Spain, undermining the European single currency while raising doubts about the solvency of the entire European banking system.

If the United States ever gets to the point that it cannot roll over its debt, the supposed big fear, we can safely assume that all other sovereign debt alternatives are already dead. The United States prints the reserve asset (the dollar) that all other countries need to earn in order to conduct international trade. No other country gets to do this. Regardless of ratings agency downgrades, the US dollar is still the global reserve currency, and the fact that there are no credible alternatives (the Europeans are busy self-immolating their alternative, the euro) tilts the balance even more in favor of the United States. US debt is still the most attractive horse in the glue factory, period. Second, we tend to forget that budget deficits (the increase in new debt accrued—the short-term worry that piles up and becomes “the Debt”) follow the business cycle: they are cyclical, not secular.


pages: 318 words: 85,824

A Brief History of Neoliberalism by David Harvey

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affirmative action, Asian financial crisis, Berlin Wall, Bretton Woods, business climate, capital controls, centre right, collective bargaining, crony capitalism, debt deflation, declining real wages, deglobalization, deindustrialization, Deng Xiaoping, Fall of the Berlin Wall, financial deregulation, financial intermediation, financial repression, full employment, George Gilder, Gini coefficient, global reserve currency, illegal immigration, income inequality, informal economy, labour market flexibility, land tenure, late capitalism, Long Term Capital Management, low-wage service sector, manufacturing employment, market fundamentalism, means of production, Mexican peso crisis / tequila crisis, Mont Pelerin Society, mortgage tax deduction, neoliberal agenda, new economy, phenotype, Ponzi scheme, price mechanism, race to the bottom, rent-seeking, reserve currency, Ronald Reagan, Silicon Valley, special economic zone, structural adjustment programs, the built environment, The Chicago School, transaction costs, union organizing, urban renewal, urban sprawl, Washington Consensus, Winter of Discontent

The only way ahead was to construct the right blend of state, market, and democratic institutions to guarantee peace, inclusion, well-being, and stability.9 Internationally, a new world order was constructed through the Bretton Woods agreements, and various institutions, such as the United Nations, the World Bank, the IMF, and the Bank of International Settlements in Basle, were set up to help stabilize international relations. Free trade in goods was encouraged under a system of fixed exchange rates anchored by the US dollar’s convertibility into gold at a fixed price. Fixed exchange rates were incompatible with free flows of capital that had to be controlled, but the US had to allow the free flow of the dollar beyond its borders if the dollar was to function as the global reserve currency. This system existed under the umbrella protection of US military power. Only the Soviet Union and the Cold War placed limits on its global reach. A variety of social democratic, Christian democratic and dirigiste states emerged in Europe after the Second World War. The US itself turned towards a liberal democratic state form, and Japan, under the close supervision of the US, built a nominally democratic but in practice highly bureaucratic state apparatus empowered to oversee the reconstruction of that country.

It would entail reversing the monetarist course that Volcker and Greenspan have generally followed. At the least hint of such a switch away from monetarism (in effect declaring neoliberalism dead), however, central bankers everywhere would almost certainly create a run on the dollar and thus prematurely precipitate a crisis of capital flight that would be unmanageable by US financial institutions alone. The US dollar would lose all credibility as a global reserve currency and lose all the future benefits (for example of seignorage—the power to print money) of being the dominant financial power. That mantle would then be assumed either by Europe or East Asia or both (the world’s central bankers are already exhibiting a preference to hold more of their balances in euros). A more modest return to inflation may also be on the cards, for there is abundant evidence that inflation is by no means the inherent evil that monetarists describe, and that some modest relaxation of monetary targets (as Thatcher showed in the more pragmatic phases of her drive towards neoliberalization) is workable.


pages: 391 words: 102,301

Zero-Sum Future: American Power in an Age of Anxiety by Gideon Rachman

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Asian financial crisis, bank run, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, Bonfire of the Vanities, borderless world, Bretton Woods, BRICs, capital controls, centre right, clean water, collapse of Lehman Brothers, colonial rule, currency manipulation / currency intervention, deindustrialization, Deng Xiaoping, Doha Development Round, energy security, failed state, Fall of the Berlin Wall, financial deregulation, Francis Fukuyama: the end of history, full employment, global reserve currency, greed is good, Hernando de Soto, illegal immigration, income inequality, invisible hand, Jeff Bezos, laissez-faire capitalism, market fundamentalism, Martin Wolf, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, moral hazard, mutually assured destruction, Naomi Klein, offshore financial centre, open borders, open economy, Peace of Westphalia, peak oil, pension reform, Plutocrats, plutocrats, price stability, RAND corporation, reserve currency, rising living standards, road to serfdom, Ronald Reagan, shareholder value, Sinatra Doctrine, sovereign wealth fund, special economic zone, Steve Jobs, Stewart Brand, The Chicago School, The Great Moderation, The Myth of the Rational Market, Thomas Malthus, trickle-down economics, Washington Consensus, Winter of Discontent

But it would be a mistake to see the Europeans as bit players in the creation of a globalized world. Taken as a whole the European Union single market that was put together in the mid-1980s is now the world’s largest economy—bigger than the United States or China. And for all its troubles, the euro, the European single currency, is so far the only plausible alternative to the U.S. dollar as a global reserve currency. At the beginning of the 1980s, however, communism was still a force even in Western Europe. In April 1981, in my gap year between school and university, I traveled to Paris to watch a mass rally for Georges Marchais, the French Communist Party leader, who was running in the presidential election that year. The rally was held, evocatively, in the Place de la Bastille, the birthplace of the French revolution.

There is also likely to be an attempt to take on the symbols of American economic power. Iran and Venezuela have often talked of changing the way in which oil is priced, so that it is no longer automatically quoted in dollars. This would be an important symbolic move, although its practical effect is questionable. China has also spoken with increasing urgency of the need to find an alternative global reserve currency to the dollar. Any such move is likely to be the work of many years. But China’s growing importance as a market, customer, and source of cash is already increasing its global influence. The Beijing government’s willingness to extend aid to African nations without imposing the political conditions that Western nations liked to insist on has made China a favored partner for a range of African governments from Zimbabwe to Sudan and Angola.

When the Money Runs Out: The End of Western Affluence by Stephen D. King

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Albert Einstein, Asian financial crisis, asset-backed security, banking crisis, Basel III, Berlin Wall, Bernie Madoff, British Empire, capital controls, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, congestion charging, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-subsidies, debt deflation, Deng Xiaoping, Diane Coyle, endowment effect, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial repression, floating exchange rates, full employment, George Akerlof, German hyperinflation, Hyman Minsky, income inequality, income per capita, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, London Interbank Offered Rate, loss aversion, market clearing, moral hazard, mortgage debt, new economy, New Urbanism, Nick Leeson, Northern Rock, Occupy movement, oil shale / tar sands, oil shock, price mechanism, price stability, quantitative easing, railway mania, rent-seeking, reserve currency, rising living standards, South Sea Bubble, sovereign wealth fund, technology bubble, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, trickle-down economics, Washington Consensus, women in the workforce, working-age population

Meanwhile, as international trust ebbs, so nations will attempt to impose their will on others, attempting to rewrite the international rules of the game to suit their own interests. US regulators have increasingly extended their reach over dollar transactions, threatening to revoke US banking licences for institutions carrying out allegedly illicit dollar transactions between customers outside of America’s borders. In time, the implied restrictions on cross-­border dollar-­based financial activity outside American jurisdiction may encourage the emergence of other reserve currencies to rival the dollar: China, likely to become the biggest economy in the world and with a foreign policy indifferent to the behaviour of other regimes, may find that, as it deregulates its own capital markets, the renminbi will grow to rival the dollar as a major international currency. As Western debtors and creditors continue their dispute over who, ultimately, should foot the bill for the financial crisis, the centre of gravity for the world economy and its financial markets will shift east and south, marking the end of Western dominance.

Who ends up carrying the can, however, is not immediately obvious, partly because relations with the rest of the world differ. Japan is a net creditor, having built up a vast array of foreign assets thanks to its persistently high level of domestic savings relative to its domestic investment. For years, the US and the UK have run current account deficits, implying exactly the opposite. For the US, it helps to have the world’s reserve currency, allowing easy access to the world’s capital markets: its deficit has been persistently higher than the UK’s. Japan’s position is remarkable for the simple reason that savings are high enough not only to fund a huge level of government debt but also to acquire an extraordinary range of foreign assets. Those assets are important: they are the lifeline for future Japanese governments that wish to avoid bankruptcy.

Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America by Matt Taibbi

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affirmative action, Affordable Care Act / Obamacare, Bernie Sanders, Bretton Woods, carried interest, clean water, collateralized debt obligation, collective bargaining, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, David Brooks, desegregation, diversification, diversified portfolio, Donald Trump, financial innovation, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, illegal immigration, interest rate swap, laissez-faire capitalism, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, medical malpractice, moral hazard, mortgage debt, obamacare, passive investing, Ponzi scheme, prediction markets, quantitative easing, reserve currency, Ronald Reagan, Sergey Aleynikov, short selling, sovereign wealth fund, too big to fail, trickle-down economics, Y2K, Yom Kippur War

She makes a great show of saying things that would get a kindergartner busted to the special ed bus—shrieking, for instance, that AmeriCorps was a plot to force children into liberal “reeducation camps” (Bachmann’s own son, incidentally, was a teacher in an AmeriCorps program), or claiming that the U.S. economy was “100 percent private” before Barack Obama’s election (she would later say Obama in his first year and a half managed to seize control of “51 percent of the American economy”). When the Chinese proposed replacing the dollar as the international reserve currency, Bachmann apparently thought this meant that the dollar itself was going to be replaced, that Americans would be shelling out yuan to buy six-packs of Sprite in the local 7-Eleven. So to combat this dire threat she sponsored a bill that would “bar the dollar from being replaced by any foreign currency.” When reporters like me besieged Bachmann’s office with calls to ask if the congresswoman, a former tax attorney, understood the difference between currency and reserve currency, and to ask generally what the hell she was talking about, her spokeswoman, Debbee Keller, was forced to issue a statement clarifying that “she’s talking about the United States … The legislation would ensure that the dollar would remain the currency of the United States.”


pages: 725 words: 221,514

Debt: The First 5,000 Years by David Graeber

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Admiral Zheng, anti-communist, back-to-the-land, banks create money, Bretton Woods, British Empire, carried interest, cashless society, central bank independence, colonial rule, corporate governance, David Graeber, delayed gratification, dematerialisation, double entry bookkeeping, financial innovation, full employment, George Gilder, informal economy, invention of writing, invisible hand, Isaac Newton, joint-stock company, means of production, microcredit, money: store of value / unit of account / medium of exchange, moral hazard, oil shock, payday loans, place-making, Ponzi scheme, price stability, profit motive, reserve currency, Ronald Reagan, seigniorage, short selling, Silicon Valley, South Sea Bubble, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transatlantic slave trade, transatlantic slave trade, tulip mania, upwardly mobile, urban decay, working poor

(Henry Ford once remarked that if ordinary Americans ever found out how the banking system really worked, there would be a revolution tomorrow.) What is remarkable for present purposes is not so much that American dollars are created by banks, but that one apparently paradoxical result of Nixon’s floating the currency was that these bank-created dollars themselves replaced gold as the world’s reserve currency: that is, as the ultimate store of value in the world, yielding the United States enormous economic advantages. Meanwhile, the U.S. debt remains, as it has been since 1790, a war debt: the United States continues to spend more on its military than do all other nations on earth put together, and military expenditures are not only the basis of the government’s industrial policy; they also take up such a huge proportion of the budget that by many estimations, were it not for them, the United States would not run a deficit at all.

In fact, a case could well be made that it is this very power that holds the entire world monetary system, organized around the dollar, together. Because of United States trade deficits, huge numbers of dollars circulate outside the country; and one effect of Nixon’s floating of the dollar was that foreign central banks have little they can do with these dollars except to use them to buy U.S. treasury bonds.12 This is what is meant by the dollar becoming the world’s “reserve currency.” These bonds are, like all bonds, supposed to be loans that will eventually mature and be repaid, but as economist Michael Hudson, who first began observing the phenomenon in the early ’70s, noted, they never really do: To the extent that these Treasury IOUs are being built into the world’s monetary base they will not have to be repaid, but are to be rolled over indefinitely. This feature is the essence of America’s free financial ride, a tax imposed at the entire globe’s expense.13 What’s more, over time, the combined effect of low interest payments and the inflation is that these bonds actually depreciate in value—adding to the tax effect, or as I preferred to put it in the first chapter, “tribute.”

Economists prefer to call it “seigniorage.” The effect, though, is that American imperial power is based on a debt that will never—can never—be repaid. Its national debt has become a promise, not just to its own people, but to the nations of the entire world, that everyone knows will not be kept. At the same time, U.S. policy was to insist that those countries relying on U.S. treasury bonds as their reserve currency behaved in exactly the opposite way as they did: observing tight money policies and scrupulously repaying their debts. As I’ve already observed, since Nixon’s time, the most significant overseas buyers of U.S. treasury bonds have tended to be banks in countries that were effectively under U.S. military occupation. In Europe, Nixon’s most enthusiastic ally in this respect was West Germany, which then hosted more than three hundred thousand U.S. troops.


pages: 264 words: 115,489

Take the money and run: sovereign wealth funds and the demise of American prosperity by Eric Curt Anderson

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asset allocation, banking crisis, Bretton Woods, business continuity plan, business intelligence, business process, collective bargaining, corporate governance, credit crunch, currency manipulation / currency intervention, currency peg, diversified portfolio, floating exchange rates, housing crisis, index fund, Kenneth Rogoff, open economy, passive investing, profit maximization, profit motive, random walk, reserve currency, risk tolerance, risk-adjusted returns, risk/return, Ronald Reagan, sovereign wealth fund, the market place, The Wealth of Nations by Adam Smith, too big to fail, Vanguard fund

The three-week conference resulted in the signing of the Bretton Woods Agreement, a system of rules, institutions, and procedures designed to regulate the international monetary system and thereby avoid a repeat of the conflicting national policies that contributed to the Great Depression of the 1930s.10 The chief features of the Bretton Woods system were an agreement that each nation would adopt a monetary policy that maintained the exchange rate of its currency within a fixed value, and the use of the International Monetary Fund to temporarily bridge payment imbalances. The devil, as the saying goes, is in the details. While the intention of the original Bretton Woods Agreement was to establish a “pegged-rate” currency regime based on the gold standard, in reality the delegates established a principle “reserve currency”—the U.S. dollar. Under this gentlemen’s agreement, Washington promised to link the dollar to gold at the rate of $35 an ounce, and other nations would then “peg” their currencies to the U.S. dollar. As such, the original Bretton Woods Agreement (henceforth “Bretton Woods I”) directly lashed the currencies of a re-emerging Europe and Japan to the U.S. dollar. This meant the values of all other currencies were to be based on their dollar conversion rate.

However, he went on to declare “of course, China doesn’t want any undesirable phenomenon in the global financial order.” He Fan, an official at the Chinese Academy of Social Sciences, took matters a step further by letting it be known that Beijing has the power to set off a dollar collapse. According to He Fan, “China has accumulated a large sum of U.S. dollars. Such a big sum, of which a considerable portion is in U.S. Treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced their dollar holdings. China is unlikely to follow suit as long as the yuan’s exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar.” (Ambrose Evans-Pritchard, “China Threatens ‘Nuclear Option’ of Dollar Sales,” The Telegraph, 10 August 2007). 15.


pages: 543 words: 147,357

Them And Us: Politics, Greed And Inequality - Why We Need A Fair Society by Will Hutton

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Andrei Shleifer, asset-backed security, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, capital controls, carbon footprint, Carmen Reinhart, Cass Sunstein, centre right, choice architecture, cloud computing, collective bargaining, conceptual framework, Corn Laws, corporate governance, credit crunch, Credit Default Swap, debt deflation, decarbonisation, Deng Xiaoping, discovery of DNA, discovery of the americas, discrete time, diversification, double helix, Edward Glaeser, financial deregulation, financial innovation, financial intermediation, first-past-the-post, floating exchange rates, Francis Fukuyama: the end of history, Frank Levy and Richard Murnane: The New Division of Labor, full employment, George Akerlof, Gini coefficient, global supply chain, Growth in a Time of Debt, Hyman Minsky, I think there is a world market for maybe five computers, income inequality, inflation targeting, interest rate swap, invisible hand, Isaac Newton, James Dyson, James Watt: steam engine, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, knowledge worker, labour market flexibility, Long Term Capital Management, Louis Pasteur, low-wage service sector, mandelbrot fractal, margin call, market fundamentalism, Martin Wolf, means of production, Mikhail Gorbachev, millennium bug, moral hazard, mortgage debt, new economy, Northern Rock, offshore financial centre, open economy, Plutocrats, plutocrats, price discrimination, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, railway mania, random walk, rent-seeking, reserve currency, Richard Thaler, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, Rory Sutherland, shareholder value, short selling, Silicon Valley, Skype, South Sea Bubble, Steve Jobs, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, the scientific method, The Wealth of Nations by Adam Smith, too big to fail, unpaid internship, value at risk, Washington Consensus, working poor, éminence grise

There was already a vast pool of money available to the banks and other companies, managed by professional treasury managers – the so-called interbank money market. This had been developing since the 1960s and was given a huge boost when the era of floating exchange rates began. Companies, banks and even countries dealing in cash denominated in one of the world’s reserve currencies could lend to each other in that currency or access the interbank market in another reserve currency – principally the dollar and the yen, but also the pound, the Swiss franc and German mark – and hedge against the risk of potentially adverse, loss-making movements. They could buy derivatives – essentially promises to settle a deal in the future at a rate linked to today’s rate (arithmetically connected to relative future interest rates) – or they could swap each other’s liabilities and assets.


pages: 537 words: 149,628

Ghost Fleet: A Novel of the Next World War by P. W. Singer, August Cole

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3D printing, Admiral Zheng, augmented reality, British Empire, energy security, Firefox, glass ceiling, global reserve currency, Google Earth, Google Glasses, IFF: identification friend or foe, Just-in-time delivery, Maui Hawaii, new economy, RAND corporation, reserve currency, RFID, Silicon Valley, Silicon Valley startup, South China Sea, sovereign wealth fund, stealth mode startup, trade route, Wall-E, We are Anonymous. We are Legion, zero day

“Oil’s finally coming off the two-hundred-ninety-dollar peak after the attack, but you don’t want to know how much this cruise is costing the taxpayers. Put it this way: enjoy yourselves and all this sunshine because your grandkids are still going to be paying the tab.” “They’ll be paying in ramen,” said Lieutenant Gupal, one of the ship’s newest officers. Ramen was slang for RMN, renminbi, the Chinese currency that, along with the euro, had joined the American dollar as the global reserve currency following the dollar’s post-Dhahran crash. “At least we can sail with our own oil now,” said Captain Riley. “When I joined back in the Stone Age, Middle East oil owned the market.” “True enough,” said Simmons. “And shale extraction is coming back at even higher levels than before the moratorium after the New York quake. Dhahran made people stop caring so much about groundwater seepage.”

Energy Information Administration, August 12, 2012, accessed August 16, 2014, http://www.eia.gov/countries/regions-topics.cfm?fips=wotc&trk=p3. 13 ever since Chinese special operations forces: Dean Cheng, “The Chinese People’s Liberation Army and Special Operations,” Special Warfare 25, no. 3 (July–September 2012), accessed March 18, 2014, http://www.dvidshub.net/publication/issues/10629. 14 renminbi, the Chinese currency: Xinhua, “RMB to Be Global Reserve Currency by 2030: Economist,” China Daily, April 9, 2014, accessed August 19, 2014, http://www.chinadaily.com.cn/china/2014-04/09/content_17420923.htm. 14 “sail with our own oil”: Mark Thompson, “U.S. to Become Biggest Oil Producer — IEA,” CNN, November 12, 2012, accessed November 12, 2012, http://money.cnn.com/2012/11/12/news/economy/us-oil-production-energy/index.html?iid=HP_LN&hpt=hp_c2. 14 “heightening regional tensions”: CNN wire staff, “Obama Announces WTO Case Against China over Rare Earths,” CNN, March 13, 2012, accessed March 14, 2012, http://www.cnn.com/2012/03/13/world/asia/china-rare-earths-case/index.html?


pages: 537 words: 158,544

Second World: Empires and Influence in the New Global Order by Parag Khanna

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Admiral Zheng, affirmative action, anti-communist, Asian financial crisis, Bartolomé de las Casas, Branko Milanovic, British Empire, call centre, capital controls, central bank independence, cognitive dissonance, colonial rule, complexity theory, crony capitalism, Deng Xiaoping, Dissolution of the Soviet Union, Donald Trump, Edward Glaeser, energy security, European colonialism, facts on the ground, failed state, flex fuel, Francis Fukuyama: the end of history, friendly fire, Gini coefficient, global reserve currency, global supply chain, haute couture, Hernando de Soto, illegal immigration, income inequality, informal economy, invisible hand, Islamic Golden Age, Khyber Pass, knowledge economy, land reform, low skilled workers, means of production, megacity, Monroe Doctrine, oil shale / tar sands, oil shock, open borders, open economy, Pax Mongolica, pirate software, Plutonomy: Buying Luxury, Explaining Global Imbalances, Potemkin village, price stability, race to the bottom, RAND corporation, reserve currency, rising living standards, Ronald Reagan, Silicon Valley, Skype, South China Sea, special economic zone, stem cell, Stephen Hawking, Thomas L Friedman, trade route, trickle-down economics, uranium enrichment, urban renewal, Washington Consensus, women in the workforce

The United States’ share of the world economy has fallen from 50 percent to 25 percent since World War II—with Europe and Asia building the other two world-regions. During the Cold War, American allies tolerated the overvalued dollar, knowing it was necessary to sustain America’s military commitment to protect them, but the goodwill on which that exceptionalism rests is quickly evaporating. Not only are China and Japan the two largest holders of U.S. dollar reserves, but for the first time in history, the world’s main reserve currency belongs to a debtor nation—and one indebted to its rivals.18 America’s fiscal and trade imbalances make the dollar no longer the safest haven of investment, inspiring a gradual diversification of both currency holdings and the pricing of commodities such as oil. Though the world has several major currencies, there are three whose value all are constantly watching: the U.S. dollar, the Euro, and the Chinese renminbi.

Jeane Kirkpatrick, American ambassador to the UN during the 1980s, justified supporting autocrats because such regimes did not seek to reinvent society (as totalitarian systems do). See Kirkpatrick, “Dictatorships and Double-Standards,” Commentary, November 1979. 18. Though control over the global money supply is a key vehicle of exporting influence, the paramount status of the U.S. dollar as a global reserve currency is not coterminous with American monetary dominance when currencies are denationalized as they are today. See Benjamin J. Cohen, “The Geopolitics of Currencies and the Future of the International System,” University of California, Santa Barbara, Global and International Studies Program, Paper no. 10, 2003. For background on the relationship between money and territory, see Cohen, The Geography of Money (Ithaca, N.Y.: Cornell University Press), 18. 19.


pages: 127 words: 51,083

The Oil Age Is Over: What to Expect as the World Runs Out of Cheap Oil, 2005-2050 by Matt Savinar

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Albert Einstein, clean water, energy security, hydrogen economy, illegal immigration, invisible hand, new economy, oil shale / tar sands, oil shock, peak oil, post-oil, Ralph Nader, reserve currency, Rosa Parks, The Wealth of Nations by Adam Smith, Y2K

While Iraq is one of the few remaining countries with an ability to increase its production, its infrastructure is so dilapidated that cheap Iraqi oil won't be finding its way into your gas tank for quite a while. While the desire of the US to gain access to Iraqi oil shouldn't be underestimated, it was not the sole or even primary motivation for the invasion. The true target of the invasion was the European economy, not Saddam Hussein. The true weapon of mass destruction was the euro, not anthrax. For the past 60 years, the dollar has served as the international reserve currency for global oil transactions. This allowed the US to effectively control global oil transactions. The dollar's hegemony faced a serious threat in 88 The Oil Age is Over November 2000, when France persuaded Saddam to switch from the dollar to the euro as the currency for its oil transactions. This caused the euro to gain considerably against the dollar. Had OPEC followed Iraq's lead, the US economy would have experienced a complete meltdown.


pages: 248 words: 57,419

The New Depression: The Breakdown of the Paper Money Economy by Richard Duncan

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asset-backed security, bank run, banking crisis, banks create money, Ben Bernanke: helicopter money, Bretton Woods, currency manipulation / currency intervention, debt deflation, deindustrialization, diversification, diversified portfolio, fiat currency, financial innovation, Flash crash, Fractional reserve banking, income inequality, inflation targeting, Joseph Schumpeter, laissez-faire capitalism, liquidity trap, market bubble, market fundamentalism, Mexican peso crisis / tequila crisis, money: store of value / unit of account / medium of exchange, mortgage debt, private sector deleveraging, quantitative easing, reserve currency, Ronald Reagan, savings glut, special drawing rights, The Great Moderation, too big to fail, trade liberalization

Impact on Asset Prices How would asset prices respond? In this scenario, stock prices would move significantly higher from the time that QE3 is announced. Gold and silver would spike higher. The price of food and other commodities would also jump. Bond yields would be kept low (effectively set) by Fed purchases of government bonds. The dollar would fall relative to other currencies, as faith in the reserve currency status of the dollar continued to erode. QE3 would prevent the economy from collapsing into a severe depression by pushing up stock prices. Higher stock prices would create a positive wealth effect that would give a short-term boost to the economy. The recovery, however, would be short-lived because inflation (caused by rapidly rising commodity prices) would accelerate after a lag of six months or so.


pages: 160 words: 46,449

The Extreme Centre: A Warning by Tariq Ali

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Affordable Care Act / Obamacare, Berlin Wall, bonus culture, BRICs, British Empire, centre right, deindustrialization, Edward Snowden, Fall of the Berlin Wall, financial deregulation, first-past-the-post, full employment, labour market flexibility, land reform, means of production, Mikhail Gorbachev, Monroe Doctrine, mortgage debt, North Sea oil, obamacare, offshore financial centre, reserve currency, Ronald Reagan, South China Sea, The Chicago School, The Wealth of Nations by Adam Smith, trade route, trickle-down economics, Washington Consensus, Wolfgang Streeck

It was only a joke, but its timing was significant, touching as it did on what is likely to be the most sensitive and loaded topic in international politics over the next fifty years. Between 2002 and 2008, the dollar steadily devalued under the burden of the balance of payments and the government deficit, losing 40 per cent of its value. The slide was briefly checked by the recession, but by March 2009 it had resumed. In an ominous move for the US, in 2009 China suggested that the dollar be phased out as the world’s reserve currency, to be replaced by a basket of currencies. There is already a currency war underway with China, accused by the US – and to a lesser extent the EU – of keeping the renminbi artificially low to boost exports. In 2011, as the crisis showed few signs of abating at home and with the interrelationship of the global economy on public display, Admiral Mike Mullen, the retiring chairman of the Joint Chiefs of Staff, declared that US debt was now the most serious threat to national security.


pages: 200 words: 47,378

The Internet of Money by Andreas M. Antonopoulos

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AltaVista, altcoin, bitcoin, blockchain, clean water, cognitive dissonance, cryptocurrency, ethereum blockchain, global reserve currency, litecoin, London Interbank Offered Rate, Oculus Rift, packet switching, peer-to-peer lending, Ponzi scheme, ransomware, reserve currency, Satoshi Nakamoto, self-driving car, Skype, smart contracts, the medium is the message, trade route, underbanked, WikiLeaks

To use the trite expression, “First they ignore us, then they laugh at us, then they fight us, then we win.” We’re still at the laughing-at-us stage. That’s quite all right, because by the time they get to fighting us, they’ve already lost. This technology just went global with the introduction of more than $2.5 billion from Chinese investors who discovered a counterbalance to the world domination of the global reserve currency of the US dollar. 1.5.1. Altcoins: Currencies for Everyone There are almost 200 currencies of the world, but there’s only one international currency. There are almost 200 currencies controlled by central banks and governments, but there is only one mathematical currency today, and that is bitcoin. "Cryptographic currencies are going to be a mainstay of our financial future. You cannot un-invent this technology.


pages: 222 words: 50,318

The Option of Urbanism: Investing in a New American Dream by Christopher B. Leinberger

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American Society of Civil Engineers: Report Card, asset allocation, big-box store, centre right, credit crunch, David Brooks, desegregation, Donald Trump, drive until you qualify, edge city, full employment, Jane Jacobs, knowledge economy, McMansion, mortgage tax deduction, new economy, New Urbanism, peak oil, Ponzi scheme, postindustrial economy, RAND corporation, Report Card for America’s Infrastructure, reserve currency, Richard Florida, Seaside, Florida, the built environment, transit-oriented development, urban planning, urban renewal, urban sprawl, walkable city, white flight

The future higher price for imported oil will put an even greater strain on the U.S. economy, compounding the continued balance of trade deficits, which are running at historically high levels (more than six percent of the gross domestic product) during the 2000s.57 The value of residential and commercial real estate that can be reached only by cars will certainly be significantly devalued when peak oil is reached, whenever that may be. The dollar will probably fall in value, making imported goods much more expensive, and the dollar 82 | THE OPTION OF URBANISM may lose its status as the world’s reserve currency. Some forecasters have suggested that peak oil, if it occurs without alternative energy sources under development, could trigger a global depression similar to the 1930s. The U.S. economy will have painted itself into a corner if peak oil arrives and the only option is drivable sub-urban development. James Kunstler, the author of The Long Emergency,58 painted a bleak picture of the United States’ future due to a “prodigious, unparalleled misallocation of resources” for drivable sub-urban development, which he forecasted will result in the collapse of the U.S. economy to a medieval level of output.


pages: 322 words: 77,341

I.O.U.: Why Everyone Owes Everyone and No One Can Pay by John Lanchester

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asset-backed security, bank run, banking crisis, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black-Scholes formula, Celtic Tiger, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, diversified portfolio, double entry bookkeeping, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, financial innovation, fixed income, George Akerlof, greed is good, hindsight bias, housing crisis, Hyman Minsky, interest rate swap, invisible hand, Jane Jacobs, John Maynard Keynes: Economic Possibilities for our Grandchildren, laissez-faire capitalism, liquidity trap, Long Term Capital Management, loss aversion, Martin Wolf, mortgage debt, mortgage tax deduction, mutually assured destruction, new economy, Nick Leeson, Northern Rock, Own Your Own Home, Ponzi scheme, quantitative easing, reserve currency, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, South Sea Bubble, statistical model, The Great Moderation, the payments system, too big to fail, tulip mania, value at risk

When the dot-com crash came, the fear was that the stock market bust would spread into the rest of the economy and bring it grinding to a halt; so Greenspan responded by cutting interest rates. Non-American readers may wonder what this has to do with them. The answer is twofold. One, the U.S. economy is the biggest in the world, and to a large extent it drives world output and the world economy. Two, the U.S. dollar is what is known as the world’s reserve currency: it is the currency in which a majority of other countries save money and also the currency in which a number of global commodities such as oil and coffee (the world’s number one and number two most traded commodities) are priced. The dollar interest rate is not the planetary interest rate, but in many respects it comes close. In May 2000, the U.S. federal funds rate was 6.5 percent; Greenspan cut it and kept cutting.


pages: 235 words: 65,885

Peak Everything: Waking Up to the Century of Declines by Richard Heinberg, James Howard (frw) Kunstler

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anti-communist, back-to-the-land, clean water, Community Supported Agriculture, deindustrialization, delayed gratification, demographic transition, ending welfare as we know it, energy transition, Fractional reserve banking, greed is good, Haber-Bosch Process, happiness index / gross national happiness, income inequality, land reform, means of production, oil shale / tar sands, peak oil, Plutocrats, plutocrats, post-oil, reserve currency, ride hailing / ride sharing, Ronald Reagan, the built environment, the scientific method, Thomas Malthus, too big to fail, urban planning

Thus the payoff that came at the end of World War II carried an historic inevitability: with its resource base, factories, and highly motivated work force, the US had helped win the war without damage to its internal infrastructure. In contrast, Britain and the USSR had also emerged winners, but only after seeing their cities, railroads, and factories bombed. While the rest of the industrial world lay in ruins, America stood unscathed. Because of the American economy’s stability, the US dollar was adopted as a reserve currency by other nations. American oil wells supplied over half the total amount of petroleum being extracted globally. Sixty percent of all export goods delivered throughout the world carried a “Made in USA” tag. General Motors was the world’s biggest corporation and Hollywood films were on screens everywhere. US factories made so many manufactured goods that Americans had to be cajoled into a permanent buying frenzy by the greatest propaganda system the world has ever seen — the American advertising industry — which made brilliant use of history’s greatest propaganda medium — television.

Blindside: How to Anticipate Forcing Events and Wild Cards in Global Politics by Francis Fukuyama

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Asian financial crisis, banking crisis, Berlin Wall, Bretton Woods, British Empire, capital controls, Carmen Reinhart, cognitive bias, cuban missile crisis, energy security, flex fuel, income per capita, informal economy, invisible hand, John von Neumann, Menlo Park, Mikhail Gorbachev, moral hazard, Norbert Wiener, oil rush, oil shale / tar sands, oil shock, packet switching, RAND corporation, Ray Kurzweil, reserve currency, Ronald Reagan, The Wisdom of Crowds, trade route, Vannevar Bush, Vernor Vinge, Yom Kippur War

But the United States today appears to be more vulnerable to a balance-ofpayments crisis than East Asia was a decade ago. It has a large current account deficit because of a government budget deficit and a lack of private savings. East Asia had large current account deficits because of a high level of private investment. The U.S. dollar is less vulnerable to a crisis than East Asian currencies were in the mid-1990s because of the dollar’s global role as a reserve currency and the large size of America’s asset markets. The current account deficit is large in relation to GDP (7 percent), but it is not large in relation to America’s asset markets. The household sector has assets of $64 trillion, and the nonfinancial business sector has assets of $32 trillion. If debt is subtracted, the net value of private assets is about $70 trillion. The current account deficit is therefore equal to only 1 percent of private assets, so dollar optimists are confident there are no fundamental obstacles to funding the U.S. external deficit.


pages: 305 words: 69,216

A Failure of Capitalism: The Crisis of '08 and the Descent Into Depression by Richard A. Posner

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Andrei Shleifer, banking crisis, Bernie Madoff, collateralized debt obligation, collective bargaining, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, diversified portfolio, equity premium, financial deregulation, financial intermediation, Home mortgage interest deduction, illegal immigration, laissez-faire capitalism, Long Term Capital Management, market bubble, moral hazard, mortgage debt, oil shock, Ponzi scheme, price stability, profit maximization, race to the bottom, reserve currency, risk tolerance, risk/return, Robert Shiller, Robert Shiller, savings glut, shareholder value, short selling, statistical model, too big to fail, transaction costs, very high income

But that would depend on how much the cushion had shrunk and whether the crunch had so damaged the economy that the demand for loans would drop. In fact the banks were unable to attract enough new private capital to assure their solvency. Warren Buffett's $5 billion loan to Goldman Sachs in September 2008 was an exception—Mitsubishi's $9 billion investment in Morgan Stanley the following month was not, because it was guaranteed by the federal government. At least until the U.S. dollar ceases to be the world's principal reserve currency (a currency held by foreign banks as well as by the issuing country's own banks, and used as a major medium for international transactions), the federal government has almost unlimited capital because of its taxing, borrowing, and money-creating powers, and it is not constrained by having to make a profit or even cover its costs to survive. Government officials thought at first that the credit crunch was the result of a kind of panic —that the banks were scared to lend because they didn't know how thick their equity cushion was.


pages: 580 words: 168,476

The Price of Inequality: How Today's Divided Society Endangers Our Future by Joseph E. Stiglitz

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affirmative action, Affordable Care Act / Obamacare, airline deregulation, Andrei Shleifer, banking crisis, barriers to entry, Basel III, battle of ideas, Berlin Wall, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collapse of Lehman Brothers, collective bargaining, colonial rule, corporate governance, Credit Default Swap, Daniel Kahneman / Amos Tversky, Dava Sobel, declining real wages, deskilling, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, framing effect, full employment, George Akerlof, Gini coefficient, income inequality, income per capita, indoor plumbing, inflation targeting, invisible hand, John Harrison: Longitude, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labour market flexibility, London Interbank Offered Rate, lone genius, low skilled workers, Mark Zuckerberg, market bubble, market fundamentalism, medical bankruptcy, microcredit, moral hazard, mortgage tax deduction, obamacare, offshore financial centre, paper trading, patent troll, payday loans, price stability, profit maximization, profit motive, purchasing power parity, race to the bottom, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, shareholder value, short selling, Silicon Valley, Simon Kuznets, spectrum auction, Steve Jobs, technology bubble, The Chicago School, The Fortune at the Bottom of the Pyramid, The Myth of the Rational Market, The Spirit Level, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, trickle-down economics, ultimatum game, uranium enrichment, very high income, We are the 99%, women in the workforce

In chapter 8 we explained how one could stimulate the economy even within the confines of a limited budget deficit, but the politics of what is required (under current circumstances) may make even this unachievable. 16. Part of the reason for the trade imbalances is the role of the United States as a reserve currency. Others want to hold dollars as backing for their country and their currency. The consequences is that we are exporting T-bills (U.S. short-term bonds), rather than automobiles. Exporting T-bills, however, doesn’t create jobs. In spite of global recognition of the anachronistic system—it makes no sense for the United States to play such a disproportionate role in the global monetary system in the multipolar world of the twenty-first century—the Obama administration has resisted change, partially out of worry that if the United States was not the reserve currency, it would be more difficult to borrow so cheaply. But the United States pays a high price for this exorbitant privilege.


pages: 593 words: 189,857

Stress Test: Reflections on Financial Crises by Timothy F. Geithner

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Affordable Care Act / Obamacare, asset-backed security, Atul Gawande, bank run, banking crisis, Basel III, Bernie Madoff, Bernie Sanders, Buckminster Fuller, Carmen Reinhart, central bank independence, collateralized debt obligation, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, David Brooks, Doomsday Book, eurozone crisis, financial innovation, Flash crash, Goldman Sachs: Vampire Squid, housing crisis, Hyman Minsky, illegal immigration, implied volatility, London Interbank Offered Rate, Long Term Capital Management, margin call, market fundamentalism, Martin Wolf, McMansion, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, Nate Silver, Northern Rock, obamacare, paradox of thrift, pets.com, price stability, profit maximization, pushing on a string, quantitative easing, race to the bottom, RAND corporation, regulatory arbitrage, reserve currency, Saturday Night Live, savings glut, short selling, sovereign wealth fund, The Great Moderation, The Signal and the Noise by Nate Silver, Tobin tax, too big to fail, working poor

I would appear at sixty-seven congressional hearings during my tenure as secretary, and one of my more memorable exchanges occurred with Kevin Brady, a Texas Republican on the Joint Economic Committee, after Barofsky’s report came out. Brady began with a barrage of talking points about how America was bleeding jobs since the passage of the stimulus, when in fact the stimulus had slowed the bleeding; how our out-of-control spending had blown up the deficit, when in fact we had inherited a record deficit; how the world was preparing to abandon the dollar as its reserve currency, which was simply false; and how business investment was down because of fear about health care reform and tax increases, rather than the epic financial crisis we had just endured. “The buck, in effect, stops with you,” said Brady, a former U.S. Chamber of Commerce executive. “Conservatives agree that as point person you failed. Liberals are growing in that consensus as well.… Will you step down from your post?”

For months, I had been urging the markets to ignore the political theater, assuring the world it was inconceivable the United States would decide not to pay its bills. But it was starting to look conceivable. Our deadline to raise the debt limit was August 2, and the “fear index” measuring market volatility shot up 40 percent the week before. Analysts questioned the dollar’s status as the world’s reserve currency. Some commentators wanted us to sell gold from Fort Knox to pay our bills, or unilaterally invoke the Fourteenth Amendment’s assurance that U.S. debt “shall not be questioned,” or use a loophole in a law authorizing commemorative coins to mint a trillion-dollar platinum coin to circumvent the debt ceiling. But none of those options were viable. We were not a banana republic. We needed a deal through the democratic process.

Understanding Power by Noam Chomsky

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anti-communist, Ayatollah Khomeini, Berlin Wall, Bretton Woods, British Empire, Burning Man, business climate, cognitive dissonance, continuous integration, Corn Laws, cuban missile crisis, dark matter, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, deskilling, European colonialism, Fall of the Berlin Wall, feminist movement, global reserve currency, Howard Zinn, labour market flexibility, Mahatma Gandhi, Mikhail Gorbachev, Monroe Doctrine, mortgage tax deduction, Ralph Nader, reserve currency, Ronald Reagan, Rosa Parks, school choice, strikebreaker, structural adjustment programs, the scientific method, The Wealth of Nations by Adam Smith, union organizing, wage slave, women in the workforce

See, by 1971 the Vietnam War had already badly weakened the United States economically relative to its industrial rivals, and one of the ways the Nixon administration reacted to that was by simply tearing apart the Bretton Woods system, which had been set up to organize the world economy after World War II. The Bretton Woods system had made the United States the world’s banker, basically—it had established the U.S. dollar as a global reserve currency fixed to gold, and it imposed conditions about no import quotas, and so on. And Nixon just tore the whole thing to shreds: he went off the gold standard, he stopped the convertibility of the dollar, he raised import duties. No other country would have had the power to do that, but Nixon did it, and that made him a lot of powerful enemies—because multinational corporations and international banks relied on that system, and they did not like it being broken down.

There have been two key reasons. The first had to do with the breakdown of the post-war world economic system, which occurred in the early 1970s. See, during the Second World War, the United States basically reorganized the world economic system and made itself into sort of the “global banker” [at the Bretton Woods United Nations Monetary and Financial Conference of 1944]—so, the U.S. dollar became the global reserve currency, it was fixed to gold, and other countries’ currencies were fixed relative to the dollar. And that system was pretty much what lay behind the very substantial economic growth rate that followed in the 1950s and Sixties. But by the 1970s, the “Bretton Woods” system had become unsustainable: the U.S. no longer was strong enough economically to remain the world’s banker, primarily because of the huge costs of financing the Vietnam War.

The Age of Turbulence: Adventures in a New World (Hardback) - Common by Alan Greenspan

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air freight, airline deregulation, Albert Einstein, asset-backed security, bank run, Berlin Wall, Bretton Woods, business process, call centre, capital controls, central bank independence, collateralized debt obligation, collective bargaining, conceptual framework, Corn Laws, corporate governance, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cuban missile crisis, currency peg, Deng Xiaoping, Dissolution of the Soviet Union, Doha Development Round, double entry bookkeeping, equity premium, everywhere but in the productivity statistics, Fall of the Berlin Wall, fiat currency, financial innovation, financial intermediation, full employment, Gini coefficient, Hernando de Soto, income inequality, income per capita, invisible hand, Joseph Schumpeter, labor-force participation, labour market flexibility, laissez-faire capitalism, land reform, Long Term Capital Management, Mahatma Gandhi, manufacturing employment, market bubble, means of production, Mikhail Gorbachev, moral hazard, mortgage debt, new economy, North Sea oil, oil shock, open economy, pets.com, Potemkin village, price mechanism, price stability, Productivity paradox, profit maximization, purchasing power parity, random walk, reserve currency, risk tolerance, Ronald Reagan, shareholder value, short selling, Silicon Valley, special economic zone, the payments system, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, total factor productivity, trade liberalization, trade route, transaction costs, transcontinental railway, urban renewal, working-age population, Y2K

Treasury obligations by other countries' monetary authorities, first Japan and then China, to suppress their exchange rates have elevated the dollar's foreign-exchange value and thereby played a role in the huge increase in U.S. imports (from 13 percent of U.S. GDP in early 2002 to almost 18 percent in late 2006). There is doubtless some truth in that, but the impact of official efforts to manipulate exchange rates, in my experience, is often exaggerated.* Vastly more significant is the U.S. dollar's status as the world's foremost reserve currency, which has so far fostered the financing of our external deficit. Many observers, however, consider this a vulnerability as well—foreign *I have little doubt t h a t China's monetary authorities' purchase of h u n d r e d s of billions of dollars to suppress its exchange rate has been successful. T h e Chinese financial system is still sufficiently primitive t h a t market-generated offsets to those purchases are few.

., 247-62 causes of, 3 4 8 - 5 2 defined, 347 financing of, 348 post-Civil War, 355n current account surpluses, 348, 350, 351, 355 Czechoslovakia, 133-34, 137 Clinton policies and, 148, 149 deregulation and, 82 Nixon and, 58, 59, 245 Reagan and, 87, 94, 109 taxes and, 1 1 3 , 2 2 1 , 2 2 2 , 223 Deng Xiaoping, 295, 300, 302, 304, 309, 502 deposit insurance, 115, 257, 373-74 depression, 28, 86-87 see also Great Depression deregulation, 7 1 - 7 3 , 81-82, 114, 183, 2 4 1 , 255, 279, 366, 502 de Soto, Hernando, 253-54, 296 developing countries, 12-15, 237, 251-55, 385-89, 504 current account surpluses of, 348 dollar ties of, 188-89 Dutch disease and, 257-59 economic growth in, 13, 311 GDP shift toward, 13,459 globalization and, 364 savings in, 13, 385-88, 483 technology in, 388, 389, 459, 473 Diaz, Francisco Gil, 341 Dillon, Doug, 145 DiMaggio, Joe, 22 discomfort index (misery index), 61 discount rate, 103, 111-12 disinflation, 378-84, 389-90, 476n, 478, 482, 491 labor shifts and, 477, 479 in 2000s, 228, 341, 379-84, 388 dividends, 238-39, 353, 398 Doha round of trade negotiations, 315, 365, 398-99 Dole, Bob, 95, 158 dollar, U.S., 82, 102, 104, 110, 159, 161, 188-92, 314, 353n Argentine peso and, 342—43 China's purchase of, 306n current account deficit and, 347, 353n exchange rates of, 188, 259, 347, 349, 3 5 2 - 5 3 , 360-62 as reserve currency, 349 Russian purchase of, 329, 330 Domenici, Pete, 217, 220, 221, 236 Dornbusch, Rudiger, 340 Dorrance, John, 78 dot-com boom, 162, 164, 224, 434 dot-com crash, 5, 7, 228, 230, 485 Douglas, Donald, 44 Douglas, Roger, 292 Douglas, Stephen, 208 Dow Jones Industrial Average, 109, 110 D'Amato,Alfonse, 150 Dana, Richard Henry, Jr., 44 Daniels, Mitch, 239 Darman, Richard, 113, 118-19, 120, 122 Darwin, Charles, 262, 279 Daschle, Tom, 7, 218, 223, 234 David, Paul, 474-75, 476n debt: highly liquid markets for, 151 Mexican crisis and, 156-61, 250, 380 ratio of income to, 232, 3 4 6 ^ 7 , 359 servicing requirements for, 353 short-term consumer, 346—47 see also loans; mortgages; national debt debt leverage, 359-60 DeConcini, Dennis, 479 Defense Department, U.S.


pages: 819 words: 181,185

Derivatives Markets by David Goldenberg

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Black-Scholes formula, Brownian motion, capital asset pricing model, commodity trading advisor, compound rate of return, conceptual framework, Credit Default Swap, discounted cash flows, discrete time, diversification, diversified portfolio, en.wikipedia.org, financial innovation, fudge factor, implied volatility, incomplete markets, interest rate derivative, interest rate swap, law of one price, locking in a profit, London Interbank Offered Rate, Louis Bachelier, margin call, market microstructure, martingale, Norbert Wiener, price mechanism, random walk, reserve currency, risk/return, riskless arbitrage, Sharpe ratio, short selling, stochastic process, stochastic volatility, time value of money, transaction costs, volatility smile, Wiener process, Y2K, yield curve, zero-coupon bond

224; bank borrowing in spot Eurodollar (ED) market 250; ‘buying’ and ‘selling’ Eurodollar (ED) futures 256; calculation of adjusted hedge ratios 245; solution to 269; calculation of optimal (riskminimizing) hedge ratio 240; cash settlement and effective price on S&P 500 spot index units 234; solution to 269; exchange rate risk, currency positions and 218; solution to 268; foreign exchange (FX) risk and jet fuel market 219; solution to 268–9; underlying spot 3-month Eurodollar (ED) time deposit 261; solution to 270; contract month listings 214, 215, 228; contract offerings 227–8; contract size 214, 215, 227, 228; contracts offered 257–8; currency forward positions vs. currency futures positions 220; currency futures 213–17; contract specifications 213–15; pricing vs. currency forward pricing 225; quote mechanism, future price quotes 216–17; risk management strategies using 217–24; daily price limits 228, 229; daily settlements 216, 260; diversifiable risk 225; dividend-adjusted geometric mean (for S&P 500) 227; dollar equivalency 227, 234, 239–40; economy-wide factors, risk and 225–6; effective payoff 220, 233; EFP eligibility 214; Eurodollar (ED) deposit creation 253; Eurodollar (ED) futures 220–1, 245, 246, 249, 250, 252–64; cash settlement, forced convergence and 258–61; contract specifications 254–5; forced convergence, cash settlement and INDEX 258–61; open positions, calculation of profits and losses on 262–4; quote mechanism 256–8; exchange rate risks and currency futures positions 217–20; Lufthansa example 217–20; exchange rule 214, 228; exchange-traded funds (ETFs) 226; exercises for learning development 266–8; Fed Funds Rate (FFR) 251; Federal Funds (FF) 249–50, 251, 252; Federal Reserve system (US) 249; financial futures contracts, selection of 213; FLIBOR (Futures LIBOR) 256, 257, 262, 263, 264, 267–8; forced conversion of Eurodollar (ED) futures 260; foreign exchange (FX) reserves, currency composition of 247–8; forward price change, present value of 242; hedging 224–5; hedging a cross hedge 244; issues in 224–5; quantity uncertainty 224–5; holding period rate of return 237; idiosyncratic risk 225; index points 226; interest rate derivatives (IRDs) 254; International Monetary Fund (IMF) 246; JPY/USD futures 213–15; key concepts 265–6; last trade date/time view calendar 214, 228; lending (offering) Eurodollars (EDs) 249–50; liabilities, Eurodollars (EDs) and 246; LIBID (London Interbank Bid Rate) 249–50, 252; LIBOR (London Interbank Offered Rate) 249, 250–4, 262, 263–4; Federal Funds (FF) vs. 251–2; liquidity and 220, 222, 231, 237, 252, 258; lock-in characteristics 220, 233; market risk 225–6; minimum price increment 214, 215; naive hedge ratio (NHR) 234, 240–1, 243; open interest 258; placing Eurodollars (EDs) 248–9; position accountability 214, 215, 228, 229; raw price change, present value of 243; realized daily cash flows, creation of 243; risk management strategies using currency futures 217–24; risk management using stock index futures 231–45; cross-hedging 243–5; monetizing S&P 500 Spot Index 231–4; naive hedge ratio, adjustment for risk- 645 minimizing hedge ratio 239–41; non S&P 500 portfolios, adjustment of hedge for 243–5; pricing and hedging preliminaries 231; profits from traditional hedge 235–6; risk, return analysis of traditional hedge 236–8; risk minimizing hedge using forward vs. futures contracts 241–3; risk-minimizing hedging 238–9; rolling hedge strategy: efficient market hypothesis (EMH) 223; interpretations of profits from rolling hedge 221–3; Metallgesellschaft example 223; numerical example of 223–4; rule book chapter 228; settlement procedure 214, 228, 229, 258–9; S&P 500 Fact Sheet 226; S&P 500 Futures 228; spot commodities, S&P 500 futures contracts as 233–4; spot Eurodollar market 245–54; Eurodollar time deposits, creation of 252–4; spot 3-month Eurodollar time deposits 246–8; spot trading terminology 248–50; Stigum’s Money Market (Stigum, M.) 252; stock index futures 225–30; commentary 230; S&P 500 futures quotes, quote mechanism for 230; S&P 500 Spot Index 225–7; S&P 500 Spot Index, effective payoff on monetization of 233; S&P 500 Spot Index, monetization of 231–4; S&P 500 Stock Index Futures Contract Specifications 227–9; tailing the hedge 241–2; taking Eurodollars (EDs) 249; ticker symbol 214, 215, 228, 229, 261; timing in Eurodollar (ED) futures 257; tick size 228, 229; trading hours 214, 228; traditional hedge, risk and return analysis on 236–8; basis risk 238; holding period rate 237; intermediate execution, basis risk and 237–8; liquidity advantage in execution 237; unallocated foreign exchange (FX) reserves 248 financial innovation using European PutCall Parity 401–5; American Put-Call Parity (no dividends) 403–5; generalized forward contracts 401–3 financial institutions and use of swaps 299–301 646 INDEX finite-maturity financial instruments, options as 20, 354 fixed leg in interest-rate swaps 293 fixed payments in interest-rate swaps 278–9 fixed-rate mortgages 7 FLIBOR (Futures LIBOR): financial futures contracts 256, 257, 262, 263, 264, 267–8; interest-rate swaps 278, 287 floating leg in interest-rate swaps 293 floating payments in interest-rate swaps 279–80 floating-rate bond implicit in swap 306 floating-rate payments as expected cash flows 306 floor-brokers 140 floor-traders 140 foreign currencies: forward prices on 24–5; futures prices on 25–6; see also currency futures foreign economy (FE) 103–4 foreign exchange (FX) forward contracts: example of pricing 107–9; pricing using no-arbitrage 106–7 foreign exchange (FX) markets, price quotes in 103–5 foreign exchange (FX) rates (New York, March 11, 2014) 30–1 foreign exchange (FX) reserves, currency composition of 247–8 foreign exchange (FX) risk 3–5 forward contracts: differences between futures contracts and 122; on dividendpaying stocks, pricing with no-arbitrage 100–3; hedging with 37, 43–5; on stocks with dividend yield, pricing with net interest model 99–100; swaps as strips of 274–8; valuation of (assets without dividend yield): default on 76; interpretation via synthetic contracts 78–82; leverage and 80–2; no up-front payments on 75; payment on maturity, expectation of 81; price vs. value for 73; valuing at expiration 74–5; valuing at initiation 75–8 forward market contracting: buying forward 7–8; Clearing House intermediation 14–15; concept checks: controlling for counterparty risk 12–13; exploration of forward rates in long-term mortgage market 9–10; exploration of spot rates in long-term mortgage market 11; solution 29; intermediation by Clearing House 15–16; solution 29–30; spot markets, dealing with price quotes in 6–7; counterparty risk 11; default 11–12; exit mechanism 15–16; features of 8; fixedrate mortgages 7; forward agreement, terms of 8; forward contracts, differences between futures contracts and 122; forward market 8; forward prices 9, 24–5; forward transactions 8; historical data, checking on 9–10; interest-rate risk management 9–10; intermediation 13–14, 14–15; liquidity, enablement of 16; locked-in prices 12; market levels 11; market organization, importance of 13, 14; obligations, transfer of 16; offsetting trades 15–16; overnight averages 11; price quotes in forward markets 9–11; problems with forward markets 11–13; ‘reversing’ of trades 15–16; short positions 7; SouthWest Airlines, case example 12–13; spot, forward, and futures contracting 7–13; standardization 14; transfer of obligations 16; see also hedging with forward contracts; valuation of forward contracts forward prices 9, 24–5; change in, present value of 242; no-arbitrage, forward pricing with 102–3 front stub period 294 fundamental theorem of asset pricing number one (FTAP1): equivalent martingale measures (EMMs) 509, 511–12, 517, 528–9, 530, 532, 533; model-based option pricing (MBOP) 450, 451, 452; option pricing in continuous time 540; risk-neutral valuation 596–7, 601–2, 605, 606, 624, 631 fundamental theorem of asset pricing number two (FTAP2): binomial option pricing model (BOPM) 490; modelbased option pricing (MBOP) 452; INDEX option pricing in continuous time 540; risk-neutral valuation 596–7, 601–2, 605, 606, 624, 631; risk-neutral valuation and another version of 606 future value (FV) 69–70, 382, 386, 390, 395 Futures Commission Merchant (FCM) 122, 123, 124, 125, 137, 140 futures contracts: futures market contracting 17; market organization for: ‘buying’ and ‘selling’ of 126–7; daily value of 146; differences between forward contracts and 122; futures price and 127; market participants 122–5 futures market contracting 17–26; concept check, price quotes in futures markets 19; contract size 19; contract specifications 17, 18–19; delivery dates 19; fancy forward prices 19, 25; futures contract 17; futures market 17; futures prices 17, 25–6; futures transaction 17; key definition, futures contract 17; mapping out spot, forward, and futures prices 20–6; ‘Open Outcry Futures’ 19; price quotes in futures markets 17–19; seller’s options 17; as solution to forward market problems 13–16; volatility (uncertainty) 22; see also hedging with futures contracts; market organization for futures contracts futures trading: hedging with forward contracts 35; market organization for futures contracts: cash flow implications of 144; daily settlement, perspectives on 144; delivery obligations 142; offsetting trades 142–4; phases of 125–6 gap management problem, solutions for 300–1 Gaussian distributions 543, 546, 548, 557, 565, 577 general equilibrium (GE) 453; models of, risk-neutral valuation and 615 generalized forward price 402 geometric Brownian motion (GBM) 553–61; continuous version 559–61; discrete version 553–9 647 Girsanov’s theorem 605 Globex and Globex LOB 134–6 Globex trades, rule for recording of 135 Gold pricing on London Bullion Market 20–3 guaranteeing futures obligations 139–41 hedge ratio: dollar bond position and 478; model-based option pricing (MBOP) and 455 hedging: financial futures contracts 224–5; hedging a cross hedge 244; issues in 224–5; quantity uncertainty 224–5; hedged position profits, graphical method for finding 55; hedgers 37; hedging definitions 168; minimum variance hedging 185–8; estimation of risk minimization hedge ratio 187–8; OLS regression 187–8; risk minimization hedge ratio, derivation of 186–7; motivation for hedging with forward contracts 33–7; objective of 167–8; as portfolio theory 165–8; reverse hedge 618, 620, 621; riskless hedge 607, 616, 620, 628, 632; rolling hedge strategy: efficient market hypothesis (EMH) 223; interpretations of profits from rolling hedge 221–3; Metallgesellschaft example 223; numerical example of 223–4; short hedge 168; synthesis of negative correlation, hedging as 165–7 hedging a European call option in BOPM (N=2) 477–85; complete hedging program (for BOPM, N=2) 484–5; concept check, value confirmation 485; hedge ratio and dollar bond position, definition of (step 2) 478; parameterization (step 1) 477–8; replicating portfolio, construction of (step 3) 478–84; concept check: interpretation of hedge ratio 482; down state, replication in 481; hedge ratio, interpretation of 482–3; replication over period 2 (under scenario 1) 479–82; replication under scenario 2 (over period 2) 484; scenarios 478–9; solving equations for ?

224; bank borrowing in spot Eurodollar (ED) market 250; ‘buying’ and ‘selling’ Eurodollar (ED) futures 256; calculation of adjusted hedge ratios 245; solution to 269; calculation of optimal (riskminimizing) hedge ratio 240; cash settlement and effective price on S&P 500 spot index units 234; solution to 269; exchange rate risk, currency positions and 218; solution to 268; foreign exchange (FX) risk and jet fuel market 219; solution to 268–9; underlying spot 3-month Eurodollar (ED) time deposit 261; solution to 270; contract month listings 214, 215, 228; contract offerings 227–8; contract size 214, 215, 227, 228; contracts offered 257–8; currency forward positions vs. currency futures positions 220; currency futures 213–17; contract specifications 213–15; pricing vs. currency forward pricing 225; quote mechanism, future price quotes 216–17; risk management strategies using 217–24; daily price limits 228, 229; daily settlements 216, 260; diversifiable risk 225; dividend-adjusted geometric mean (for S&P 500) 227; dollar equivalency 227, 234, 239–40; economy-wide factors, risk and 225–6; effective payoff 220, 233; EFP eligibility 214; Eurodollar (ED) deposit creation 253; Eurodollar (ED) futures 220–1, 245, 246, 249, 250, 252–64; cash settlement, forced convergence and 258–61; contract specifications 254–5; forced convergence, cash settlement and INDEX 258–61; open positions, calculation of profits and losses on 262–4; quote mechanism 256–8; exchange rate risks and currency futures positions 217–20; Lufthansa example 217–20; exchange rule 214, 228; exchange-traded funds (ETFs) 226; exercises for learning development 266–8; Fed Funds Rate (FFR) 251; Federal Funds (FF) 249–50, 251, 252; Federal Reserve system (US) 249; financial futures contracts, selection of 213; FLIBOR (Futures LIBOR) 256, 257, 262, 263, 264, 267–8; forced conversion of Eurodollar (ED) futures 260; foreign exchange (FX) reserves, currency composition of 247–8; forward price change, present value of 242; hedging 224–5; hedging a cross hedge 244; issues in 224–5; quantity uncertainty 224–5; holding period rate of return 237; idiosyncratic risk 225; index points 226; interest rate derivatives (IRDs) 254; International Monetary Fund (IMF) 246; JPY/USD futures 213–15; key concepts 265–6; last trade date/time view calendar 214, 228; lending (offering) Eurodollars (EDs) 249–50; liabilities, Eurodollars (EDs) and 246; LIBID (London Interbank Bid Rate) 249–50, 252; LIBOR (London Interbank Offered Rate) 249, 250–4, 262, 263–4; Federal Funds (FF) vs. 251–2; liquidity and 220, 222, 231, 237, 252, 258; lock-in characteristics 220, 233; market risk 225–6; minimum price increment 214, 215; naive hedge ratio (NHR) 234, 240–1, 243; open interest 258; placing Eurodollars (EDs) 248–9; position accountability 214, 215, 228, 229; raw price change, present value of 243; realized daily cash flows, creation of 243; risk management strategies using currency futures 217–24; risk management using stock index futures 231–45; cross-hedging 243–5; monetizing S&P 500 Spot Index 231–4; naive hedge ratio, adjustment for risk- 645 minimizing hedge ratio 239–41; non S&P 500 portfolios, adjustment of hedge for 243–5; pricing and hedging preliminaries 231; profits from traditional hedge 235–6; risk, return analysis of traditional hedge 236–8; risk minimizing hedge using forward vs. futures contracts 241–3; risk-minimizing hedging 238–9; rolling hedge strategy: efficient market hypothesis (EMH) 223; interpretations of profits from rolling hedge 221–3; Metallgesellschaft example 223; numerical example of 223–4; rule book chapter 228; settlement procedure 214, 228, 229, 258–9; S&P 500 Fact Sheet 226; S&P 500 Futures 228; spot commodities, S&P 500 futures contracts as 233–4; spot Eurodollar market 245–54; Eurodollar time deposits, creation of 252–4; spot 3-month Eurodollar time deposits 246–8; spot trading terminology 248–50; Stigum’s Money Market (Stigum, M.) 252; stock index futures 225–30; commentary 230; S&P 500 futures quotes, quote mechanism for 230; S&P 500 Spot Index 225–7; S&P 500 Spot Index, effective payoff on monetization of 233; S&P 500 Spot Index, monetization of 231–4; S&P 500 Stock Index Futures Contract Specifications 227–9; tailing the hedge 241–2; taking Eurodollars (EDs) 249; ticker symbol 214, 215, 228, 229, 261; timing in Eurodollar (ED) futures 257; tick size 228, 229; trading hours 214, 228; traditional hedge, risk and return analysis on 236–8; basis risk 238; holding period rate 237; intermediate execution, basis risk and 237–8; liquidity advantage in execution 237; unallocated foreign exchange (FX) reserves 248 financial innovation using European PutCall Parity 401–5; American Put-Call Parity (no dividends) 403–5; generalized forward contracts 401–3 financial institutions and use of swaps 299–301 646 INDEX finite-maturity financial instruments, options as 20, 354 fixed leg in interest-rate swaps 293 fixed payments in interest-rate swaps 278–9 fixed-rate mortgages 7 FLIBOR (Futures LIBOR): financial futures contracts 256, 257, 262, 263, 264, 267–8; interest-rate swaps 278, 287 floating leg in interest-rate swaps 293 floating payments in interest-rate swaps 279–80 floating-rate bond implicit in swap 306 floating-rate payments as expected cash flows 306 floor-brokers 140 floor-traders 140 foreign currencies: forward prices on 24–5; futures prices on 25–6; see also currency futures foreign economy (FE) 103–4 foreign exchange (FX) forward contracts: example of pricing 107–9; pricing using no-arbitrage 106–7 foreign exchange (FX) markets, price quotes in 103–5 foreign exchange (FX) rates (New York, March 11, 2014) 30–1 foreign exchange (FX) reserves, currency composition of 247–8 foreign exchange (FX) risk 3–5 forward contracts: differences between futures contracts and 122; on dividendpaying stocks, pricing with no-arbitrage 100–3; hedging with 37, 43–5; on stocks with dividend yield, pricing with net interest model 99–100; swaps as strips of 274–8; valuation of (assets without dividend yield): default on 76; interpretation via synthetic contracts 78–82; leverage and 80–2; no up-front payments on 75; payment on maturity, expectation of 81; price vs. value for 73; valuing at expiration 74–5; valuing at initiation 75–8 forward market contracting: buying forward 7–8; Clearing House intermediation 14–15; concept checks: controlling for counterparty risk 12–13; exploration of forward rates in long-term mortgage market 9–10; exploration of spot rates in long-term mortgage market 11; solution 29; intermediation by Clearing House 15–16; solution 29–30; spot markets, dealing with price quotes in 6–7; counterparty risk 11; default 11–12; exit mechanism 15–16; features of 8; fixedrate mortgages 7; forward agreement, terms of 8; forward contracts, differences between futures contracts and 122; forward market 8; forward prices 9, 24–5; forward transactions 8; historical data, checking on 9–10; interest-rate risk management 9–10; intermediation 13–14, 14–15; liquidity, enablement of 16; locked-in prices 12; market levels 11; market organization, importance of 13, 14; obligations, transfer of 16; offsetting trades 15–16; overnight averages 11; price quotes in forward markets 9–11; problems with forward markets 11–13; ‘reversing’ of trades 15–16; short positions 7; SouthWest Airlines, case example 12–13; spot, forward, and futures contracting 7–13; standardization 14; transfer of obligations 16; see also hedging with forward contracts; valuation of forward contracts forward prices 9, 24–5; change in, present value of 242; no-arbitrage, forward pricing with 102–3 front stub period 294 fundamental theorem of asset pricing number one (FTAP1): equivalent martingale measures (EMMs) 509, 511–12, 517, 528–9, 530, 532, 533; model-based option pricing (MBOP) 450, 451, 452; option pricing in continuous time 540; risk-neutral valuation 596–7, 601–2, 605, 606, 624, 631 fundamental theorem of asset pricing number two (FTAP2): binomial option pricing model (BOPM) 490; modelbased option pricing (MBOP) 452; INDEX option pricing in continuous time 540; risk-neutral valuation 596–7, 601–2, 605, 606, 624, 631; risk-neutral valuation and another version of 606 future value (FV) 69–70, 382, 386, 390, 395 Futures Commission Merchant (FCM) 122, 123, 124, 125, 137, 140 futures contracts: futures market contracting 17; market organization for: ‘buying’ and ‘selling’ of 126–7; daily value of 146; differences between forward contracts and 122; futures price and 127; market participants 122–5 futures market contracting 17–26; concept check, price quotes in futures markets 19; contract size 19; contract specifications 17, 18–19; delivery dates 19; fancy forward prices 19, 25; futures contract 17; futures market 17; futures prices 17, 25–6; futures transaction 17; key definition, futures contract 17; mapping out spot, forward, and futures prices 20–6; ‘Open Outcry Futures’ 19; price quotes in futures markets 17–19; seller’s options 17; as solution to forward market problems 13–16; volatility (uncertainty) 22; see also hedging with futures contracts; market organization for futures contracts futures trading: hedging with forward contracts 35; market organization for futures contracts: cash flow implications of 144; daily settlement, perspectives on 144; delivery obligations 142; offsetting trades 142–4; phases of 125–6 gap management problem, solutions for 300–1 Gaussian distributions 543, 546, 548, 557, 565, 577 general equilibrium (GE) 453; models of, risk-neutral valuation and 615 generalized forward price 402 geometric Brownian motion (GBM) 553–61; continuous version 559–61; discrete version 553–9 647 Girsanov’s theorem 605 Globex and Globex LOB 134–6 Globex trades, rule for recording of 135 Gold pricing on London Bullion Market 20–3 guaranteeing futures obligations 139–41 hedge ratio: dollar bond position and 478; model-based option pricing (MBOP) and 455 hedging: financial futures contracts 224–5; hedging a cross hedge 244; issues in 224–5; quantity uncertainty 224–5; hedged position profits, graphical method for finding 55; hedgers 37; hedging definitions 168; minimum variance hedging 185–8; estimation of risk minimization hedge ratio 187–8; OLS regression 187–8; risk minimization hedge ratio, derivation of 186–7; motivation for hedging with forward contracts 33–7; objective of 167–8; as portfolio theory 165–8; reverse hedge 618, 620, 621; riskless hedge 607, 616, 620, 628, 632; rolling hedge strategy: efficient market hypothesis (EMH) 223; interpretations of profits from rolling hedge 221–3; Metallgesellschaft example 223; numerical example of 223–4; short hedge 168; synthesis of negative correlation, hedging as 165–7 hedging a European call option in BOPM (N=2) 477–85; complete hedging program (for BOPM, N=2) 484–5; concept check, value confirmation 485; hedge ratio and dollar bond position, definition of (step 2) 478; parameterization (step 1) 477–8; replicating portfolio, construction of (step 3) 478–84; concept check: interpretation of hedge ratio 482; down state, replication in 481; hedge ratio, interpretation of 482–3; replication over period 2 (under scenario 1) 479–82; replication under scenario 2 (over period 2) 484; scenarios 478–9; solving equations for ?


pages: 262 words: 83,548

The End of Growth by Jeff Rubin

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Ayatollah Khomeini, Bakken shale, banking crisis, Berlin Wall, British Empire, call centre, carbon footprint, collateralized debt obligation, collective bargaining, Credit Default Swap, credit default swaps / collateralized debt obligations, decarbonisation, deglobalization, energy security, eurozone crisis, Exxon Valdez, Fall of the Berlin Wall, fiat currency, flex fuel, full employment, ghettoisation, global supply chain, Hans Island, happiness index / gross national happiness, housing crisis, hydraulic fracturing, illegal immigration, income per capita, Jane Jacobs, labour mobility, McMansion, Monroe Doctrine, moral hazard, new economy, Occupy movement, oil shale / tar sands, oil shock, peak oil, Ponzi scheme, quantitative easing, race to the bottom, reserve currency, Ronald Reagan, South China Sea, sovereign wealth fund, The Chicago School, The Death and Life of Great American Cities, Thomas Malthus, Thorstein Veblen, too big to fail, uranium enrichment, urban planning, urban sprawl, women in the workforce, working poor, Yom Kippur War

But when a government starts printing money to finance its own debt, isn’t that just another form of default? I bet the Greek government wishes it could do that right about now. But unfortunately, Greece doesn’t have a currency of its own. (And even if the drachma were around, who would want to hold a Greek bond?) But the United States isn’t Greece. Not only does America have its own currency, but the US dollar is also the world’s reserve currency. That means the United States can borrow money from all over the world and then repay foreign lenders with US dollars. Nothing too tricky about that. But consider what happens to the value of that debt if the United States decides to devalue its currency by printing money to buy its own bonds. Sure, the United States still repays its loans, but the actual value of the payments isn’t worth as much.


pages: 378 words: 110,518

Postcapitalism: A Guide to Our Future by Paul Mason

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Alfred Russel Wallace, bank run, banking crisis, banks create money, Basel III, Bernie Madoff, Bill Gates: Altair 8800, bitcoin, Branko Milanovic, Bretton Woods, BRICs, British Empire, business process, butterfly effect, call centre, capital controls, Claude Shannon: information theory, collaborative economy, collective bargaining, Corn Laws, corporate social responsibility, credit crunch, currency manipulation / currency intervention, currency peg, David Graeber, deglobalization, deindustrialization, deskilling, discovery of the americas, Downton Abbey, en.wikipedia.org, energy security, eurozone crisis, factory automation, financial repression, Firefox, Fractional reserve banking, Frederick Winslow Taylor, full employment, future of work, game design, income inequality, inflation targeting, informal economy, Internet of things, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kevin Kelly, knowledge economy, knowledge worker, late capitalism, low skilled workers, market clearing, means of production, Metcalfe's law, money: store of value / unit of account / medium of exchange, mortgage debt, Network effects, new economy, Norbert Wiener, Occupy movement, oil shale / tar sands, oil shock, payday loans, post-industrial society, precariat, price mechanism, profit motive, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, RFID, Richard Stallman, Robert Gordon, secular stagnation, sharing economy, Stewart Brand, structural adjustment programs, supply-chain management, the scientific method, The Wealth of Nations by Adam Smith, Transnistria, union organizing, universal basic income, urban decay, urban planning, wages for housework, women in the workforce

Plus, governments agree to suppress financial mania for all time: they pledge to raise interest rates in response to all future bubbles; they remove for ever the implicit guarantee of bank bailouts. All other markets – for credit, for shares, for derivatives – would then correct, to reflect the increased risk of financial capitalism. Capital would be reallocated to productive investment and away from speculative finance. Ultimately, the world would have to return to exchange rates pegged against a new global currency managed by the IMF, with the Chinese RMB becoming a fully tradable reserve currency like the dollar. That would address the systemic threat posed by fiat money – the lack of credibility arising from the danger that globalization will break up. But the price would be a permanent end to the global imbalances: the currencies of surplus countries would rise, and China, India and the rest would have to give up their cheap labour advantage. At the same time, financialization would have to be reversed.


pages: 329 words: 95,309

Digital Bank: Strategies for Launching or Becoming a Digital Bank by Chris Skinner

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algorithmic trading, Amazon Web Services, Any sufficiently advanced technology is indistinguishable from magic, augmented reality, bank run, Basel III, bitcoin, business intelligence, business process, business process outsourcing, call centre, cashless society, clean water, cloud computing, corporate social responsibility, credit crunch, crowdsourcing, cryptocurrency, demand response, disintermediation, don't be evil, en.wikipedia.org, fault tolerance, fiat currency, financial innovation, Google Glasses, high net worth, informal economy, Infrastructure as a Service, Internet of things, Jeff Bezos, Kevin Kelly, Kickstarter, M-Pesa, margin call, mass affluent, mobile money, Mohammed Bouazizi, new economy, Northern Rock, Occupy movement, platform as a service, Ponzi scheme, prediction markets, pre–internet, quantitative easing, ransomware, reserve currency, RFID, Satoshi Nakamoto, Silicon Valley, smart cities, software as a service, Steve Jobs, strong AI, Stuxnet, trade route, unbanked and underbanked, underbanked, upwardly mobile, We are the 99%, web application, Y2K

As can be seen, the value of Bitcoins swings wildly due to the limited amount of money circulating through the system. For example, the total Bitcoin economy peaked at $2 billion invested in April 2013 and, due to this limited amount of real money in the system, it is subject to wild swings. The question is: what would happen if there were $1 trillion in the Bitcoin system? Then it would be a mainstream currency, and could even start to become a serious contender as a real reserve currency alongside the dollar and euro. This is the concern of governments, as Bitcoin cannot be regulated like the dollar and euro, as no government of central bank is involved. Another key attribute is that there is a limit of 21 million Bitcoins that will ever be issued. This cap was introduced in order to act as a currency control mechanism and ensure the stored value exchange would not break.


pages: 368 words: 32,950

How the City Really Works: The Definitive Guide to Money and Investing in London's Square Mile by Alexander Davidson

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accounting loophole / creative accounting, algorithmic trading, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, Big bang: deregulation of the City of London, capital asset pricing model, central bank independence, corporate governance, Credit Default Swap, dematerialisation, discounted cash flows, diversified portfolio, double entry bookkeeping, Edward Lloyd's coffeehouse, Elliott wave, Exxon Valdez, forensic accounting, global reserve currency, high net worth, index fund, inflation targeting, interest rate derivative, interest rate swap, London Interbank Offered Rate, Long Term Capital Management, margin call, market fundamentalism, Nick Leeson, North Sea oil, Northern Rock, pension reform, Piper Alpha, price stability, purchasing power parity, Real Time Gross Settlement, reserve currency, shareholder value, short selling, The Wealth of Nations by Adam Smith, transaction costs, value at risk, yield curve, zero-coupon bond

The market is driven mainly by speculative flows, and after that by trading from governments, central banks and companies. Foreign exchange, like derivatives, is used for hedging. There are 170 currencies in use worldwide, but most are not very liquid. The US dollar is by far the most widely traded currency, not least because the United States has the biggest and most liquid bond markets, and commodities are priced in dollars. The US dollar is the global reserve currency and an invoice currency in many contracts. However, many believe that, in 10 years’ time, the dollar will no longer have this status. The euro, introduced at the start of 1999, initially in non-physical form, has enabled eurozone member countries to trade with each other directly without the need to exchange their currencies. London was able to increase its share THIS PAGE INTENTIONALLY LEFT BLANK 110 THIS PAGE INTENTIONALLY LEFT BLANK 111  112 HOW THE CITY REALLY WORKS ________________________________ of foreign exchange markets because transactions in sterling no longer had to compete with those in a variety of European currencies.


pages: 391 words: 97,018

Better, Stronger, Faster: The Myth of American Decline . . . And the Rise of a New Economy by Daniel Gross

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2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, Airbnb, American Society of Civil Engineers: Report Card, asset-backed security, Bakken shale, banking crisis, BRICs, British Empire, business process, business process outsourcing, call centre, Carmen Reinhart, clean water, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, demand response, Donald Trump, Frederick Winslow Taylor, high net worth, housing crisis, hydraulic fracturing, If something cannot go on forever, it will stop, illegal immigration, index fund, intermodal, inventory management, Kenneth Rogoff, labor-force participation, LNG terminal, low skilled workers, Mark Zuckerberg, Martin Wolf, Maui Hawaii, McMansion, mortgage debt, Network effects, new economy, obamacare, oil shale / tar sands, oil shock, peak oil, Plutocrats, plutocrats, price stability, quantitative easing, race to the bottom, reserve currency, reshoring, Richard Florida, rising living standards, risk tolerance, risk/return, Silicon Valley, Silicon Valley startup, six sigma, Skype, sovereign wealth fund, Steve Jobs, superstar cities, the High Line, transit-oriented development, Wall-E, Yogi Berra, Zipcar

On August 5, 2011, Standard & Poor’s, the firm that rated Lehman Brothers an investment-grade A credit on the eve of its implosion, that rented out its ancient and venerable name to any investment bank that wanted to shovel junky assets into a credulous market, stripped the United States of its AAA credit rating. In a terse statement, S&P downgraded the credit of the world’s largest economy, the unchallenged military leader, the proprietor of the world’s reserve currency and guardian of the globe’s stability, to AA–. The United States, which first received an AAA score from the credit ratings agency Moody’s in 1917, was suddenly judged to be as likely to make good on its debt as … New Zealand? The downgrade was just the latest humiliation to befall the U.S. economy in a three-year run of epically bad news. It came a week after the Commerce Department announced that the economy had expanded at a near-recessionary 1.3 percent annual rate for the second quarter.


pages: 366 words: 94,209

Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity by Douglas Rushkoff

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3D printing, Airbnb, algorithmic trading, Amazon Mechanical Turk, Andrew Keen, bank run, banking crisis, barriers to entry, bitcoin, blockchain, Burning Man, business process, buy low sell high, California gold rush, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, centralized clearinghouse, citizen journalism, clean water, cloud computing, collaborative economy, collective bargaining, colonial exploitation, Community Supported Agriculture, corporate personhood, crowdsourcing, cryptocurrency, disintermediation, diversified portfolio, Elon Musk, Erik Brynjolfsson, ethereum blockchain, fiat currency, Firefox, Flash crash, full employment, future of work, gig economy, Gini coefficient, global supply chain, global village, Google bus, Howard Rheingold, IBM and the Holocaust, impulse control, income inequality, index fund, iterative process, Jaron Lanier, Jeff Bezos, jimmy wales, job automation, Joseph Schumpeter, Kickstarter, loss aversion, Lyft, Mark Zuckerberg, market bubble, market fundamentalism, Marshall McLuhan, means of production, medical bankruptcy, minimum viable product, Naomi Klein, Network effects, new economy, Norbert Wiener, Oculus Rift, passive investing, payday loans, peer-to-peer lending, Peter Thiel, post-industrial society, profit motive, quantitative easing, race to the bottom, recommendation engine, reserve currency, RFID, Richard Stallman, ride hailing / ride sharing, Ronald Reagan, Satoshi Nakamoto, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Snapchat, social graph, software patent, Steve Jobs, TaskRabbit, trade route, transportation-network company, Turing test, Uber and Lyft, Uber for X, unpaid internship, Y Combinator, young professional, Zipcar

Bernard Lietaer, one of the economists who helped design the euro, has been proposing since 1991 that fiat currencies—money declared legal by the government but not backed by a physical commodity—be replaced or at least augmented with currencies that represent a “basket” of commodities.24 His current suggestion is to create a currency that is backed by one third gold, one third forests, and one third highways. The gold is the fixed-commodity component, as there is only so much of it. Forests are the growth component; trees grow. And highways, thanks to tolls, are the income component. As an investor’s response to deflation, or even as a new reserve currency, it makes sense. But if we’re trying to compensate for the way central currency tends to work its way out of circulation and into the bank accounts of the already wealthy, we should be looking instead for ways to help money move around better. This has less to do with making sure money has some intrinsic value for long-term storage and accumulation into the future, and a lot more to do with making sure it can serve as a medium for exchange right now.


pages: 790 words: 150,875

Civilization: The West and the Rest by Niall Ferguson

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Admiral Zheng, agricultural Revolution, Albert Einstein, Andrei Shleifer, Atahualpa, Ayatollah Khomeini, Berlin Wall, BRICs, British Empire, clean water, collective bargaining, colonial rule, conceptual framework, Copley Medal, corporate governance, credit crunch, David Ricardo: comparative advantage, Dean Kamen, delayed gratification, Deng Xiaoping, discovery of the americas, Dissolution of the Soviet Union, European colonialism, Fall of the Berlin Wall, Francisco Pizarro, full employment, Hans Lippershey, haute couture, Hernando de Soto, income inequality, invention of movable type, invisible hand, Isaac Newton, James Hargreaves, James Watt: steam engine, John Harrison: Longitude, joint-stock company, Joseph Schumpeter, land reform, land tenure, Louis Pasteur, Mahatma Gandhi, market bubble, Martin Wolf, means of production, megacity, Mikhail Gorbachev, new economy, probability theory / Blaise Pascal / Pierre de Fermat, profit maximization, purchasing power parity, quantitative easing, rent-seeking, reserve currency, road to serfdom, Ronald Reagan, savings glut, Scramble for Africa, Silicon Valley, South China Sea, sovereign wealth fund, special economic zone, spice trade, spinning jenny, Steve Jobs, Steven Pinker, The Great Moderation, the market place, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, Thorstein Veblen, total factor productivity, trade route, transaction costs, transatlantic slave trade, transatlantic slave trade, upwardly mobile, uranium enrichment, wage slave, Washington Consensus, women in the workforce, World Values Survey

It is of course true that Japan has been able to increase its public debt to even higher levels relative to GDP without triggering such a crisis of confidence. However, nearly all the Japanese debt is in the hands of Japanese investors and institutions, whereas half the US federal debt in public hands is in the hands of foreign creditors, of which just over a fifth is held by the monetary authorities of the People’s Republic of China. Only the American ‘exorbitant privilege’ of being able to print the world’s premier reserve currency gives the US breathing space.30 Yet this very privilege is under mounting attack from the Chinese government. ‘Because the United States’ issuance of dollars is out of control and international commodity prices are continuing to rise,’ declared the Chinese Commerce Minister Chen Deming in October 2010, ‘China is being attacked by imported inflation.’31 The United States is engaged in ‘uncontrolled’ and ‘irresponsible’ money printing, according to Xia Bin, an economic adviser to the People’s Bank of China: ‘As long as the world exercises no restraint in issuing global currencies such as the dollar … then the occurrence of another crisis is inevitable.’32 Quantitative easing (purchases of Treasury securities by the Federal Reserve) was a form of ‘financial protectionism’, declared Su Jingxiang, a researcher with the China Institute of Contemporary International Relations.33 In November 2010 the Dagong credit rating agency downgraded the US to A+ from AA, with a negative outlook.


pages: 457 words: 128,838

The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order by Paul Vigna, Michael J. Casey

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3D printing, Airbnb, altcoin, bank run, banking crisis, bitcoin, blockchain, Bretton Woods, California gold rush, capital controls, carbon footprint, clean water, collaborative economy, collapse of Lehman Brothers, Columbine, Credit Default Swap, cryptocurrency, David Graeber, disintermediation, Edward Snowden, Elon Musk, ethereum blockchain, fiat currency, financial innovation, Firefox, Flash crash, Fractional reserve banking, hacker house, Hernando de Soto, high net worth, informal economy, Internet of things, inventory management, Julian Assange, Kickstarter, Kuwabatake Sanjuro: assassination market, litecoin, Long Term Capital Management, Lyft, M-Pesa, Mark Zuckerberg, McMansion, means of production, Menlo Park, mobile money, money: store of value / unit of account / medium of exchange, Network effects, new economy, new new economy, Nixon shock, offshore financial centre, payday loans, peer-to-peer lending, pets.com, Ponzi scheme, prediction markets, price stability, profit motive, RAND corporation, regulatory arbitrage, rent-seeking, reserve currency, Robert Shiller, Robert Shiller, Satoshi Nakamoto, seigniorage, shareholder value, sharing economy, short selling, Silicon Valley, Silicon Valley startup, Skype, smart contracts, special drawing rights, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, supply-chain management, Ted Nelson, The Great Moderation, the market place, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, Turing complete, Tyler Cowen: Great Stagnation, Uber and Lyft, underbanked, WikiLeaks, Y Combinator, Y2K, Zimmermann PGP

Those who’ve dreamed of the IMF’s playing an intermediary role in international commerce, who’ve wanted to free the world of its unhealthy dependence on the dollar and to reduce the excessive influence of the Fed and U.S. Treasury, might suddenly feel empowered. The Chinese and the French, who’ve pushed to have the IMF’s Special Drawing Rights elevated from their current role as mere units of accounting to becoming an international reserve currency for storing central bank deposits, might have themselves a new cause. We doubt officials in Paris or Beijing are conceiving of such things right now, but if cryptocurrency technology lives up to its potential, they may have to think about it. Under this imagined Bretton Woods II, perhaps the IMF would create its own cryptocurrency, with nodes for managing the blockchain situated in proportionate numbers within all the member countries, where none could ever have veto power, to avoid a state-run 51 percent attack.


pages: 497 words: 123,718

A Game as Old as Empire: The Secret World of Economic Hit Men and the Web of Global Corruption by Steven Hiatt; John Perkins

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airline deregulation, Andrei Shleifer, Asian financial crisis, Berlin Wall, big-box store, Bretton Woods, British Empire, capital controls, centre right, clean water, colonial rule, corporate governance, corporate personhood, deglobalization, deindustrialization, Doha Development Round, energy security, European colonialism, financial deregulation, financial independence, full employment, global village, high net worth, land reform, large denomination, Long Term Capital Management, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, moral hazard, Naomi Klein, new economy, North Sea oil, offshore financial centre, oil shock, Ponzi scheme, race to the bottom, reserve currency, Ronald Reagan, Scramble for Africa, statistical model, structural adjustment programs, too big to fail, trade liberalization, transatlantic slave trade, transfer pricing, union organizing, Washington Consensus, working-age population, Yom Kippur War

Debt: Owing Their Souls to the Company Store Debt keeps Third World countries under control. Dependent on aid, loan reschedulings, and debt rollovers to survive—never mind actually develop—they have been forced to restructure their economies and rewrite their laws to meet conditions laid down in IMF structural adjustment programs and World Bank conditionalities. Unlike the U.S., they do not control the world’s reserve currency, and so cannot live beyond their means for long without financial crisis. As Doug Henwood, author of After the New Economy, points out: The United States would right now be a prime candidate for structural adjustment if this were an ordinary country. We are living way beyond our means, we have massive and constantly growing foreign debts, a gigantic currency account deficit, and a government that shows no interest in doing anything about it….


pages: 497 words: 144,283

Connectography: Mapping the Future of Global Civilization by Parag Khanna

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1919 Motor Transport Corps convoy, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, 9 dash line, additive manufacturing, Admiral Zheng, affirmative action, agricultural Revolution, Airbnb, Albert Einstein, amateurs talk tactics, professionals talk logistics, Amazon Mechanical Turk, Asian financial crisis, asset allocation, autonomous vehicles, banking crisis, Basel III, Berlin Wall, bitcoin, Black Swan, blockchain, borderless world, Boycotts of Israel, Branko Milanovic, BRICs, British Empire, business intelligence, call centre, capital controls, charter city, clean water, cloud computing, collateralized debt obligation, complexity theory, corporate governance, corporate social responsibility, credit crunch, crony capitalism, crowdsourcing, cryptocurrency, cuban missile crisis, data is the new oil, David Ricardo: comparative advantage, deglobalization, deindustrialization, dematerialisation, Deng Xiaoping, Detroit bankruptcy, diversification, Doha Development Round, edge city, Edward Snowden, Elon Musk, energy security, ethereum blockchain, European colonialism, eurozone crisis, failed state, Fall of the Berlin Wall, family office, Ferguson, Missouri, financial innovation, financial repression, forward guidance, global supply chain, global value chain, global village, Google Earth, Hernando de Soto, high net worth, Hyperloop, ice-free Arctic, if you build it, they will come, illegal immigration, income inequality, income per capita, industrial robot, informal economy, Infrastructure as a Service, interest rate swap, Internet of things, Isaac Newton, Jane Jacobs, Jaron Lanier, John von Neumann, Julian Assange, Just-in-time delivery, Kevin Kelly, Khyber Pass, Kibera, Kickstarter, labour market flexibility, labour mobility, LNG terminal, low cost carrier, manufacturing employment, mass affluent, megacity, Mercator projection, microcredit, mittelstand, Monroe Doctrine, mutually assured destruction, New Economic Geography, new economy, New Urbanism, offshore financial centre, oil rush, oil shale / tar sands, oil shock, openstreetmap, out of africa, Panamax, Peace of Westphalia, peak oil, Peter Thiel, Plutocrats, plutocrats, post-oil, post-Panamax, private military company, purchasing power parity, QWERTY keyboard, race to the bottom, Rana Plaza, rent-seeking, reserve currency, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Scramble for Africa, Second Machine Age, sharing economy, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, six sigma, Skype, smart cities, Smart Cities: Big Data, Civic Hackers, and the Quest for a New Utopia, South China Sea, South Sea Bubble, sovereign wealth fund, special economic zone, spice trade, Stuxnet, supply-chain management, sustainable-tourism, TaskRabbit, telepresence, the built environment, Tim Cook: Apple, trade route, transaction costs, UNCLOS, uranium enrichment, urban planning, urban sprawl, WikiLeaks, young professional, zero day

Collectively, the world’s three largest economic areas and trading powers—Europe, China, and America—represent the vast majority of world GDP, investment, and trade, especially with each other. Conflict, cooperation, and competition thus overlap in a complex interplay where relations become a subtle mix of cooperation on some issues (containing North Korea’s nuclear program, confronting climate change, expanding bilateral trade) and competition on others (reserve currency, regional influence, cyber regulation)—rather than an all-or-nothing proposition. When Presidents Obama and Xi held a 2014 summit at Sunnylands in California and spoke of aspiring toward “a new kind of great power relationship,” that was a reflection of the current reality—not a future scenario. As the University of Virginia political scientist Dale Copeland has demonstrated, interdependence forestalls conflict if leaders expect its benefits to continue—if they learn the benefits of fighting tug-of-war instead of the real thing.


pages: 566 words: 163,322

The Rise and Fall of Nations: Forces of Change in the Post-Crisis World by Ruchir Sharma

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3D printing, Asian financial crisis, backtesting, bank run, banking crisis, Berlin Wall, Bernie Sanders, BRICs, business climate, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, colonial rule, Commodity Super-Cycle, corporate governance, crony capitalism, currency peg, dark matter, debt deflation, deglobalization, deindustrialization, demographic dividend, demographic transition, Deng Xiaoping, Doha Development Round, Donald Trump, Edward Glaeser, Elon Musk, eurozone crisis, failed state, Fall of the Berlin Wall, falling living standards, Francis Fukuyama: the end of history, Freestyle chess, Gini coefficient, hiring and firing, income inequality, indoor plumbing, industrial robot, inflation targeting, Internet of things, Jeff Bezos, job automation, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labor-force participation, Malacca Straits, Mark Zuckerberg, market bubble, megacity, Mexican peso crisis / tequila crisis, mittelstand, moral hazard, New Economic Geography, North Sea oil, oil rush, oil shale / tar sands, oil shock, pattern recognition, Peter Thiel, pets.com, Plutocrats, plutocrats, Ponzi scheme, price stability, Productivity paradox, purchasing power parity, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, Ronald Coase, Ronald Reagan, savings glut, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Simon Kuznets, smart cities, Snapchat, South China Sea, sovereign wealth fund, special economic zone, spectrum auction, Steve Jobs, The Wisdom of Crowds, Thomas Malthus, total factor productivity, trade liberalization, trade route, tulip mania, Tyler Cowen: Great Stagnation, unorthodox policies, Washington Consensus, WikiLeaks, women in the workforce, working-age population

According to the Bank for International Settlements, 87 percent of all global financial transactions conducted through banks use the dollar on one side. That share may sound impossibly high, but it is accurate, because most global commercial deals are conducted in dollars, even if the deal does not involve an American party. A South Korean company that sells smartphones to Brazil will likely request payment in dollars, because most people still prefer to hold the world’s leading reserve currency. The subjective feel of a currency opens up the whole question of how competitive (read: cheap) the currency is to manipulation by politicians. In the early 2010s, for example, officials in Ankara were trying to make the case that the Turkish lira was very competitive by comparing the inflation-adjusted price of the currency to its price in the 1970s. However, if the starting point of this analysis was shifted to the 1990s, the price of the lira came out looking much higher—and that is certainly how it was beginning to feel to foreigners visiting Ankara or Istanbul.


pages: 475 words: 149,310

Multitude: War and Democracy in the Age of Empire by Michael Hardt, Antonio Negri

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affirmative action, Berlin Wall, Bretton Woods, British Empire, conceptual framework, David Graeber, Defenestration of Prague, deskilling, Fall of the Berlin Wall, feminist movement, Francis Fukuyama: the end of history, friendly fire, global village, Howard Rheingold, Howard Zinn, illegal immigration, Joseph Schumpeter, labour mobility, land reform, land tenure, late capitalism, means of production, Naomi Klein, new economy, private military company, race to the bottom, RAND corporation, reserve currency, Richard Stallman, Slavoj Žižek, The Chicago School, The Structural Transformation of the Public Sphere, Thomas Malthus, Thorstein Veblen, Tobin tax, transaction costs, union organizing, War on Poverty, Washington Consensus

In the period from the attacks of September 11, 2001, to the Iraq War in 2003, the dissolution of previously solid ties of loyalty and common political and economic interest among the world aristocracies has been dramatic. One manifestation of the aristocratic crisis that has a strong effect on geopolitics is the competition among currencies. The passage of the euro from a weak to a strong position, for example, and the first threat that the euro poses to the dollar as the reserve currency of international business represents a minefield and a problem that must be resolved before long within the imperial order. The third element of unilateralist strategy has to do with the maintenance of order itself, the form of global governance, and the search for security. The United States’s unilateralist version of Empire has been imposed by military might, but the U.S. military campaigns in Afghanistan and Iraq are proving incapable of meeting the minimum objectives of security and stability.


pages: 331 words: 60,536

The Sovereign Individual: How to Survive and Thrive During the Collapse of the Welfare State by James Dale Davidson, Rees Mogg

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affirmative action, agricultural Revolution, bank run, barriers to entry, Berlin Wall, borderless world, British Empire, California gold rush, clean water, colonial rule, Columbine, compound rate of return, Danny Hillis, debt deflation, ending welfare as we know it, epigenetics, Fall of the Berlin Wall, falling living standards, feminist movement, financial independence, Francis Fukuyama: the end of history, full employment, George Gilder, Hernando de Soto, illegal immigration, income inequality, informal economy, information retrieval, Isaac Newton, Kevin Kelly, market clearing, Martin Wolf, Menlo Park, money: store of value / unit of account / medium of exchange, new economy, New Urbanism, offshore financial centre, Parkinson's law, pattern recognition, phenotype, price mechanism, profit maximization, rent-seeking, reserve currency, road to serfdom, Ronald Coase, school vouchers, seigniorage, Silicon Valley, spice trade, statistical model, telepresence, The Nature of the Firm, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, trade route, transaction costs, Turing machine, union organizing, very high income

The Transaction Cost of "Free" Currency Use of this new cybermoney will substantially free you from the power of the state. Earlier, we cited the dreary record of the world's nation-states in maintaining the value of their currencies over the past half century. No currency has suffered a smaller loss from inflation since World War II than the German mark. Yet even so, 71 percent of its value vanished between January 1, 1949, and the end of June 1995. The world reserve currency during this period, the U.S. dollar, lost 84 percent of its value.'8 This is a measure of the wealth that governments expropriated by exploiting their territorial monopolies on legal tender. Note that there is no intrinsic necessity that currency depreciate or that the nominal cost of living rise every year. To the contrary. The technical challenge of maintaining the purchasing power of savings is trivial.


pages: 650 words: 203,191

After Tamerlane: The Global History of Empire Since 1405 by John Darwin

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agricultural Revolution, Atahualpa, Berlin Wall, Bretton Woods, British Empire, Cape to Cairo, colonial rule, Columbian Exchange, cuban missile crisis, deglobalization, deindustrialization, European colonialism, failed state, Francisco Pizarro, invisible hand, Isaac Newton, joint-stock company, Khartoum Gordon, laissez-faire capitalism, land reform, Mahatma Gandhi, Malacca Straits, mutually assured destruction, new economy, New Urbanism, oil shock, open economy, price mechanism, reserve currency, Ronald Reagan, Scramble for Africa, South China Sea, South Sea Bubble, spice trade, The Wealth of Nations by Adam Smith, trade route, transaction costs, transatlantic slave trade

Exports worldwide doubled in value between 1953 and 1963, and almost doubled in volume.75 The United States had played the most important part in creating the conditions for this extraordinary boom. The International Monetary Fund (to promote exchange-rate stability) and the General Agreement on Tariffs and Trade (to liberalize trade) would have come to nothing without its support. Above all, perhaps, it was the American dollar, convertible into gold, which supplied the universally accepted reserve currency on which trade expansion depended. America, of course, was perfectly placed to reap the rewards of the new commercial economy. Between 1939 and 1950 the value of American investment abroad had more than doubled. American industry reached its competitive peak in the 1950s. In dynamic sectors like air transport and mass entertainment, American products were almost unbeatable. The ‘soft power’ of economic and cultural influence underwrote the ‘hard power’ of strategic might.


pages: 1,088 words: 228,743

Expected Returns: An Investor's Guide to Harvesting Market Rewards by Antti Ilmanen

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Andrei Shleifer, asset allocation, asset-backed security, availability heuristic, backtesting, balance sheet recession, bank run, banking crisis, barriers to entry, Bernie Madoff, Black Swan, Bretton Woods, buy low sell high, capital asset pricing model, capital controls, Carmen Reinhart, central bank independence, collateralized debt obligation, commodity trading advisor, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, deglobalization, delta neutral, demand response, discounted cash flows, disintermediation, diversification, diversified portfolio, dividend-yielding stocks, equity premium, Eugene Fama: efficient market hypothesis, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, framing effect, frictionless, frictionless market, George Akerlof, global reserve currency, Google Earth, high net worth, hindsight bias, Hyman Minsky, implied volatility, income inequality, incomplete markets, index fund, inflation targeting, interest rate swap, invisible hand, Kenneth Rogoff, laissez-faire capitalism, law of one price, Long Term Capital Management, loss aversion, margin call, market bubble, market clearing, market friction, market fundamentalism, market microstructure, mental accounting, merger arbitrage, mittelstand, moral hazard, New Journalism, oil shock, p-value, passive investing, performance metric, Ponzi scheme, prediction markets, price anchoring, price stability, principal–agent problem, private sector deleveraging, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, reserve currency, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Robert Shiller, Robert Shiller, savings glut, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stochastic volatility, systematic trading, The Great Moderation, The Myth of the Rational Market, too big to fail, transaction costs, tulip mania, value at risk, volatility arbitrage, volatility smile, working-age population, Y2K, yield curve, zero-coupon bond

Productivity and real-growth differences, terms of trade, and current account and/or capital flow developments also matter. Yet, many of these statistical relations are weak and are hardly stable over time or across countries. I will not discuss either theories or empirical evidence on exchange rate determination further in this book, nor will I cover the role of global and local risk factors in largely integrated world markets, prospects for dollar, or alternatives to the dollar as global reserve currencies. “Timing” the carry strategy with ex ante opportunity size, seasonals, and various conditioners Ex ante opportunity If carry were the only source of expected return, the evolution of ex ante carry opportunity (signal strength) could be measured by the dispersion of deposit rates or of carry-to-volatility ratios across G10 markets. Intuitively, if yields range across countries between 0% in Japan and 10% in Australia, dispersion is higher and ex ante carry opportunity is better than if all yields are in a narrow range between 0% and 3%.