Remember the Depression

In the book by Liaquat Ahmed, Lords of Finance, he recounts the major bankers whose actions through and post WW I led inevitably to the Depression of the 1930s. He also intertwines Keynes as a shadow like figure lurking in and out of the process. However he makes two interesting points.

First, one immediate result of financial instabilities of then and now is massive inflation. This inflation benefits some and disadvantages many. It benefits those with hard assets, the land owners, and it benefits the civil servant, since Government keeps raising their salaries and benefits. I can recall my mother's fear that after WW II we would face another Depression and that my father should take a job with eh Police Department as her father had worked with the Ports and Harbors Department. It would guarantee an income. The logic here befuddled me then and now. In New Jersey the State workers are now compensated at industry levels if not higher and their benefits are massive. This places a burden on the state taxpayers which is exploding. However we now hear outbursts from the people about the state workers and the state workers response are hostile, not a good way to deal with those who are putting gold in their mouths! It may be different this time around. But the ones who did poorly in the Depression were doctors, professionals of many types, and the laborers. Also not to mention the entrepreneurs just disappeared, and they and they alone are the engine that drives the US economy, more than any other country.

Second, the collapse of London as the world's financial capital occurred since the US, especially New York, was the financier of the European parties in WW I. This was the tipping point for the loss of London's preeminence. This time around the swap may be from New York to Shanghai.

In the Appendix, there is reference to a 1999 Time magazine cover story about "The Committee to Save the World" composed of Alan Greenspan, Robert Rubin, and Larry Summers. Somehow one always gets to the top and then descends again. The Camus tale of the Myth of Sisyphus as played out again and again. Clearly there is a mapping between the Lords of Finance and the Committee to Save the World, I leave the details to the reader.

Now back to the G20, one of my favorite issues. The BBC quotes Sarkozy as saying, "Capitalism must be given a new foundation!" The BBC continued:

"....As well as greater supervision of all financial markets and instruments, leaders underlined the need to reassess the issue of pay at finance firms. Mr Sarkozy added said people could "no longer tolerate the reward package system for traders and bankers". There has been much criticism of bankers' bonuses, which have been high despite their bank's poor performance. Leaders also said they wanted to crack down on tax havens. Ms Merkel said: "As far as uncooperative players, tax havens or areas where non-transparent business is carried out are concerned, we need to develop sanction mechanisms. These must be made very concrete," she said She added that a list would be drawn up "clearly showing which the uncooperative jurisdictions are.""

Sarkozy is playing a dangerous hand. He fells that France is in a strong position and that now he can dictate to all the others. Sarkozy is not DeGaulle. DeGaulle, a French father and Irish mother, was French. Sarkozy still is Hungarian in many ways. That results in a dissonances that must be dealt with, for it is a historical world view that will not lead to a safe conclusion for all.

The China People's Daily states:

"In view of the seriousness of the ongoing, surging global financial crisis, leaders participating in the meeting called for assuring, without fail, the success of imminent London financial summit. The crisis can be phased out only when the structural reform is done to the international financial system, they noted. At a news conference held at the end of the meeting, Chancellor Angela Merkel called for adopting a "sanction mechanism" to penalize "tax havens" and establishing a blacklist of those unwilling to adhere to the international cooperation prior to April 2. The incoming April London Summit, the follow-up meeting of the Washington Summit on Financial Market and World Economy which was convened on 14-15 November 2008, is primarily up to the task of designing a suitable response to the global financial crisis. To this end, said Chancellor Merkel, the Berlin meeting is hoped to contribute in reforming the international financial system. "A clear message and concrete actions are necessary to engender new confidence in the markets and to put the world back on a path toward more growth and employment," Merkel said. Leading EU nations, nevertheless, have their own respective expectations for the London financial summit."

China is watching to Europe talking and to the US swinging in the breeze. There may very well be a repeat of what occurred a century ago. The names are different but the characters are the same. This time, however, there is a sleeping giant in China on the edge, safe and secure, able to redirect its stored up resources for internal infrastructure buildup, and when this ends they will emerge a true giant against a very injured United States.