Saturday, July 9, 2016

Robert Pringle - Kissinger Calls for US to Save the Global Order

Robert Pringle is a highly respected economics author, editor, and commentator. He is well known to central bankers around the world and has commented on monetary policies of central banks for more than 40 years. In addition he was the Executive Director for the influential Group of 30 from 1979 to 1986. Clearly, he is a high credibility voice on these issues.

Recently, Mr. Pringle published this article on his blog site (The Money Trap) in reaction to the Brexit vote on June 23rd in the UK. Below I have selected some quotes I felt were significant (and used my own bold type for emphasis). Following that are a few added comments.

"Henry Kissinger says that today’s international order was “founded upon conceptions that emerged from the British Isles, were carried by Europe around the world, and ultimately took deep root in North America”
He adds that “American leadership in reinvigorating the contemporary order is imperative.”
In a few words, Kissinger shows a depth of understanding and a grasp of the underlying currents and opportunities that are quite out of reach of today’s politicians on both sides of the Atlantic. Let us hope his words of wisdom bring them to their senses.
Here on earth, Brexit is throwing all the dice up in the air. Economists and politicians now try to push their agendas – whether (on the right) for free trade, or a return to gold, or a bonfire of “burdensome regulations” and curbs on immigration, or (on the left) more employment protection, curbing corporate power, income redistribution and other interventionist policies."
. . . . .
Leaders should use this crisis to reinvigorate the world order, as Kissinger says.
"Europe’s crisis is an opportunity for the US. It can lead in restoring such a global order. Europe cannot sort out its existential crisis except within such a truly global order.
EU leaders will never admit this if left to themselves. Yet they would eagerly seize the chance if the US held out a helping hand across the Atlantic 
In this endeavour, we need to re-establish a sound monetary order. It has been done before. It is not impossible!
The classical gold standard provided a good monetary framework for globalisation. We must learn from that, not reject it out of prejudice. But so did the dollar-based Bretton Woods system (which retained a residual gold link).
I locate the roots of our discontents in the collapse of that international monetary order, which has led since the 1970s to excessive volatility in global money and capital markets, and in exchange rates, and as the old banking order collapsed also, to falling moral standards in finance, ending in an era of gross irresponsibility in banking – a free for all that has not been brought under control by financial regulation, despite increasingly burdensome and punitive restrictions.
Post Brexit leaders seems unable to find the largeness and generosity of vision demanded by Kissinger.
People retreat to traditional Left vs Right squabbles. Yet how boring is the exchange between extreme free marketeers and the socialist rump!  It irritates me to find them all using the Brexit chaos to regress to infantile pleading for old, tired and discredited solutions.
The question is whether governments will finally under the pressure of repeated crises – not only in the EU but the US, Japan and China as well – come together and bind themselves to a system of rules and institutions, as at Bretton Woods, that would serve the long-term interests of their citizens. They  are really no more than a codified book of good international manners. But at their heart must be a return to stable exchange rates, since only with such a mechanism is it possible to monitor the way in which and extent to which an individual country is keeping its house in order or imposing costs on its neighbours.
The IMF is the natural advocate of such a system, but it has been barred by the US from advocating or even researching how such a system would work in modern conditions. The US wants to retain the appearance that is has full freedom of action. The EU also is obsessively focussed on its internal problems – Greece, Brexit, etc. The same goes for China and India. Yet all lose from such a national free-for-all."
My added comments - Here is a bullet point list of takeaways for me from this article:

- Mr. Pringle is expressing genuine concern that the stability of the present system is increasingly at risk after many years of "excessive volatility"
- He sees it being difficult to form a consensus to solve monetary system issues and problems due to the tendency of economists and politicians (on both sides) to "push their agendas". He also laments "falling moral standards in finance, ending in an era of gross irresponsibility in banking"
- He says that he believes in "a sound monetary order" and mentions that we can learn from the classical gold standard as " a good monetary framework for globalisation". Please note that he is not calling for a return to the classical gold standard, but he is calling for "a sound monetary order" and says it can be done. He has proposed ideas for new ways to achieve this which you can review here and here and here. He has also told me by email that he could easily support the Real SDR proposal by Dr. Warren Coats if policy makers were to consider that idea. We discussed this in an earlier blog article here.
- He calls on governments to "come together and bind themselves to a system of rules and institutions" (similar to Bretton Woods) designed to serve their citizens.
- He says the IMF is the natural body to bring about such a system of rules but has been "barred by the US from advocating or even researching how such a system would work"

This article is filled with interesting information and comes from a source highly respected within the present financial and monetary system. I am particularly struck by the statement that the IMF has been barred by the US from advocating or even researching a new system for "rules of the game". I think this would surprise some who believe that plans for such a system are already agreed to and ready to implement at any time. 
My own research (examples here and here and here) indicates that Mr. Pringle is correct on this point. I find that at the present time momentum for major monetary system reforms does not exist nor has a consensus for how those reforms should look been achieved.

On the other hand, we have also pointed out that if we were to get another major financial crisis (worse than 2008) as Jim Rickards has predicted, this could change the landscape and policy makers might become more engaged in system reform.

Also, it is possible that momentum for major change might come from Russia and China in the future. Dutch author Willem Middelkoop (OMFIF Advisory Board) told me this by email:


Brexit can be seen as part of a world wide revolt against the establishment, which gave us the British and American empire (together with a few dozen wars). 

People are 'Fed' up with elites and their game plans (EU being one of them). Desintegration of EU has started now. Had to happen anyway. But I am afraid of the other unintented consequences. 

Sure, insiders know this debt fueled growth model can't go on forever. Stating this in the past was a step out of the official 'party line'. But without anymore QE the whole system (house of cards) will simply start to collapse. 

I will be waiting for insiders to start calling for Debt Restructurings and moves towards creating much more SDR-liquity to know real changes are being prepared.

Until that point more of the same is to expected. But more QE and ever lower rates will increase the flight to gold, which could lead to a paper-gold-default (and silver) on the COMEX (Chicago) and/or LBMA (London) exchanges/systems.

On a side note; Russia and Chinese leaders met twice during last week and called (again) for an end to the current (dollar) system. From my contacts with Chinese insiders I know they really understand our problems well and are clearly preparing for The Next Phase (a monetary and geopolitical reset) 

Time has come to become very defensive now. A new worldwide financial and political crisis could just have been started. When Trump will be elected it's time for the real fire works. It will be the American equivalent of a Brexit. A huge shift from the political past.



Note: Willem gave permission to publish the quote above dated 6-26-16, bold emphasis is mine.

Willem also posted these interesting comments on his twitter feed here and here and here. I will monitor Willem's blog site to see if he provides more details on this. It could be quite significant news. The IMF just released a new report with some interesting comments on the SDR we will look at in a few days.

Update from Willem Middelkoop: Willem just posted this on his twitter feed. I will watch this to see if he follows up with more. He suggests some momentum for monetary system reform may come from China this September at the G20 meeting.

Additional update: George Soros writes this article suggesting that Brexit may lead to reforms in the EU instead of an actual Brexit. This is in line with what we reported here earlier when we said one of our most reliable sources suggested this very same idea (see here - first paragraph)

Added note: A thank you to a reader here for pointing out this article where the chief economist for Duetsche Bank calls for a new 150 Billion Euro bailout program for EU banks. It's important to keep a watchful eye on the banking situation over there.

No comments:

Post a Comment