Wednesday, April 8, 2015

Larry Summers: Time US Leadership woke up to new Economic Era

Former Treasury Secretary Larry Summers writes this new article warning that the US is in position to lose its status as the world's financial leader. Below are some quotes from his article and then a few added comments.


"This past month may be remembered as the moment the United States lost its role as the underwriter of the global economic system. True, there have been any number of periods of frustration for the US before, and times when American behaviour was hardly multilateralist, such as the 1971 Nixon shock, ending the convertibility of the dollar into gold. But I can think of no event since Bretton Woods comparable to the combination of China’s effort to establish a major new institution and the failure of the US to persuade dozens of its traditional allies, starting with Britain, to stay out of it."

. . . . . . 

"Largely because of resistance from the right, the US stands alone in the world in failing to approve the International Monetary Fund governance reforms that Washington itself pushed for in 2009. By supplementing IMF resources, this change would have bolstered confidence in the global economy. More important, it would come closer to giving countries such as China and India a share of IMF votes commensurate with their new economic heft."

. . . . . . 

"First, American leadership must have a bipartisan foundation at home, be free from gross hypocrisy and be restrained in the pursuit of self-interest. As long as one of our major parties is opposed to essentially all trade agreements, and the other is resistant to funding international organisations, the US will not be in a position to shape the global economic system."

. . . .

"The legitimacy of US leadership depends on our resisting the temptation to abuse it in pursuit of parochial interest, even when that interest appears compelling. We cannot expect to maintain the dollar’s primary role in the international system if we are too aggressive about limiting its use in pursuit of particular security objectives."
My added comments:

Here, in this article, we can see the frustration being expressed with anyone who opposes the idea of international problem solving using the IMF, World Bank, etc. It is clear that an effort is made here to paint those currently in control of the US Congress as isolated from the rest of the world. We can expect this kind of pressure to only increase the longer Congress refuses to approve the IMF governance reforms and increased quota. If we do get another major financial crisis, I think it is likely that the US Congress will be blamed for not giving the IMF what it wants. 

Note that this article says "as long as one of our major parties is opposed to all trader agreements (here he means the Democrats), and the other is resistant to funding international organisations (here he means GOP controlled Congress), the US will not be in a position to shape the global economic system." There are critics of these international organisations who would argue with this line of thinking. Right now, they control the US Congress. This is where the real battle is being waged. It's not between the US and the BRICS. It's between the US Congress and the BRICS/IMF. The current Obama Adminstration sides with the BRICS/IMF so there is no one "US" position on this.

So far, Congress seems unfazed and shows no signs whatsover of changing direction. We'll continue to follow it here.

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