Meghnad, Lord Desai, in his latest column, has called for “a new world economic order.” The idea is to revamp the IMF. Lord Desai notes:
“Since the breakdown of fixed exchange rates in 1971, we have had a dysfunctional IMF and no oversight of global financial problems. The developing countries got nothing but bad advice and a lot of bullying from the IMF.”
What happened in 1971 was that the US dollar de-linked itself from gold and became a fiat paper currency. Then, one ounce of gold was US$35. It is over US$900 now. People in the know expect gold to cross US$2000 an ounce over the next two years.
What can a revamped IMF do? And what is the exact “revamp” the IMF needs?
Lord Desai admits that economic power has shifted since the days when Keynes & Co. created the Bretton Woods system. Western powers like the US are now debtors, and the creditors are in the east, mainly China. Lord Desai says:
“China has to state its conditions for the reform of IMF. The main need is for extra resources for the IMF and the rich countries are bankrupt. China will have to foot the bill.”
What will the new IMF, funded by China, accomplish? Here, Lord Desai says:
“In principle, the world needs a mechanism whereby surplus financial reserves of nations need not all be put in US Treasury Bills but can form the basis of a global reserve asset. Thus the billions of Chinese, Japanese and other Asian economies’ surpluses can be banked with the IMF, which can loan it out to deficit countries. Of course, it needs to get a better economics tool kit than the one it has been using, which has harassed developing countries for decades.”
Lord Desai concludes that the “IMF can begin to perform the task of oversight of global financial flows and of helping the deficit countries in a way which does not kill the growth process and hurt the poorest people.”
Lord Desai’s parting shot again invokes the poor: he says that the new world economic order he contemplates “must be an order which never again neglects the needs of the poor.”
I think that the poor can look after their own interests best. And they can do this most easily when the commodity we use as money is in their own hands, beyond the manipulations of their governments. When central bankers inflate, the poor lose. It is unthinkable that the power to inflate the world should be given to a revamped IMF, which will work like a central banker to the whole world. Where national central banking has failed, a global central bank can only do worse. And in such a regime the poor will remain poor forever.
I such moments of crisis, the option always exists for calling for a “higher power.” Where the world’s central banks have failed, there is thus the call for a supra-national central bank.
And there is the other option: close down all central banking and let money be the commodity that people spontaneously choose for the purpose. Only “sound money” can be a safeguard for the poor. With sound money, their savings will never be eroded. The poor will steadily accumulate capital. Their consumption will improve. Their investments will increase, And they will gradually climb out of poverty. Indeed, as Ludwig von Mises said, “In an unhampered market economy, there is no poverty of the kind we see today, especially in the anti-capitalist parts of the world.” True capitalism is based on sound money. Lord Desai wants a global fiat money to replace national fiat money. This can never help the poor.
Lord Desai’s false concern for the poor is aptly brought out by this news from Bangalore:
First: Governor’s car knocks down motorcyclist.
And second: Cops sell unclaimed body for research.
This is precisely what a revamped IMF will mean for the world’s poor.
Its incredible how many "experts" assume that the so called deficits, surpluses etcetera are "usual" market outcomes and we need a way to balance things, a supra government.
ReplyDeleteIts ought to be quite obvious that the Chinese governments reserves are the result of a massive tax imposed on consumption of imported goods by Chinese Households. The poor are consuming too much, we must tax them!
Also the whole scheme of things runs quite contrary to the logic of captial. In the 19th century much capital flowed from UK to the newly emerging US. Richer people and hence nations lend to exports of captial, thus improving income of poorer people. But the Chinese government taxes its own people and exports captial to US by buying Treasury Bills.
The whole scheme reminds me of Mao exports millions of tons or rice to USSR (in exchange for a promise of nuclear technology) and east European communist nations (to gain greater dominance than USSR) in the middle of mass famine in China itself.