Subtitled:
The Great Restructure, Vol. 3
You may track my goals for this diary in these two previous diaries:
The Great Restructure
The Great Restructure, Vol. 2
We are not facing a rerun of The Great Depression. What is coming will be both worse and not as bad, in different ways.
A more appropriate term is
The Great Restructure.
As announced in the two previous diaries, I am reporting on GEAB's open letter to the heads of state of the G20 nations meeting on April 2nd.
GEAB = GlobalEurope Anticipation Bulletin, a European think tank which earlier sounded warnings about this debacle.
GEAB has just posted this letter on their website. It was also printed in the Financial Times where you will find a similar call directly from China's central bank
Ladies and Gentlemen,
Your next summit takes place in a few days in London; but are you aware that you have less than a semester to prevent the world from plunging into a crisis that will take at least a decade to resolve, accompanied by a whole series of tragedies and ferment?
Your choice: a 3- to 5-year crisis or a decade-at-least long crisis?
Until now you have merely been concerned with the symptoms and secondary effects of this crisis because, unfortunately, nothing prepared you to face a crisis of such an historic scale. You thought that adding more oil to the global engine would be enough, unaware of the fact that the engine was broken, with no hope of repair. In fact, a new engine must be built, and time is running out, as the international system deteriorates further each month.
LEAP'S THREE STRATEGIC RECOMMENDATIONS
- The key to solving the crisis lies in creating a new international reserve currency!
As long as this strategic problem is not directly addressed and solved, the crisis will grow. Indeed it is at the heart of the crises of derivative financial products, banks, energy prices... and of their consequences in terms of mass unemployment and collapsing living standards.
. . .creating an international reserve currency (which could be called the « Global ») based on a basket of currencies corresponding to the world’s largest economies, i.e. US dollar, Euro, Yen, Yuan, Khaleeji (common currency of oil-producing Gulf states, to be launched in January 2010), Ruble, Real..., managed by a « World Monetary Institute » whose Board will reflect the respective weight of the economies whose currencies comprise the « Global ». You must ask the imf and concerned central banks to prepare this plan for June 2009, with an implementation date of January 1st, 2010. This is the only way for you to regain some control over currently unwinding events
- Set up bank control schemes as soon as possible!
Make up your mind now: nationalize financial institutions as soon as is necessary! It is the only way to prevent a new episode of massive indebtment by them (the kind of episode which significantly contributed to the current crisis), and to show to the general public that you have some credibility to deal with bankers.
- Get the IMF to assess the US, UK and Swiss financial systems!
The third recommendation relates to a politically sensitive issue, which cannot be ignored. It is essential that, no later than July 2009, the imf presents to the G20 an independent assessment of the three national financial systems at the heart of the current financial crisis: US, UK and Switzerland.
Echoing GEAB in the Financial Times,
In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency "that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies".
In my humble opinion, we need to turn our attention to the global picture and make a case for global remedies prior to the G20 Summit in nine days.
I am asking for Kossacks to gather here in a series of diaries meant to focus on outlining the steps that need to be taken to preserve the global monetary system before it is too late. I am not an economist or financial expert. I am just a reasonably well educated person with an increasing interest in understanding how our global financial system works.
I would like to collate any and all information we may have in this series of diaries as an heuristic for thinking about what is facing us.
UPDATE:
After thinking about this prescription and reading the comments below, I would have to say that what GEAB is calling for cannot possibly be implemented in the time frame they suggest, unless what they really want to see is movement in the direction of a global currency, more than the instantaneous creation of one. However, the Breton Woods agreement was negotiated in only three weeks. Admittedly, that was an entirely different set of circumstances. Internal US politics and ego about our status, politically and economically, on the world stage would ensure that Obama would reject any such proposal; however, as we wait all this out, our general position will weaken. By the time we are ready to agree, we will be irrelevant.
All this seems far, far more important to me than squabbles about political metaphors and accusing each other of either abandoning Obama or worshiping him.
In addition:
UN panel calls for council to replace G20
The proposal, made by an 18-member UN commission headed by Joseph Stiglitz, the Nobel-prizewinning economist, will be raised at next week’s expanded G20 summit in London, at which heads of state will debate a global response to the world financial crisis. It is part of a draft 10-point plan put forward by the panel, appointed last October by the 192-member UN General Assembly, to study reform of international financial institutions, including the World Bank and International Monetary Fund. The team includes academics, central bank officials, and former and serving ministers from Japan, western Europe, Africa, Latin America and Asia.
And Gordon Brown is positioning himself to speak for the EU:
Diplomats in Brussels have been struck in recent weeks at how Mr Brown has come to view the European Union as a means for influencing decisions at a global level. But the prime minister also sees domestic political advantage in portraying himself as being at the heart of the EU.