It is pure guesswork whether last night’s European measures will create stability or trigger a further rout in financial markets when they open this morning. But two things are fairly clear about this surprisingly strong and cohesive package. First, while short-term stock market reactions are unpredictable, there can be reasonable confidence about the package’s economic impact ”” it will avert a catastrophic economic collapse or long-term depression. Secondly, the ability of European governments to launch their own financial rescue without waiting for US leadership represents a fundamental shift in global economic relations.
Let me begin with this second point. Since the creation of the Bretton Woods monetary system in 1944 every global financial initiative of any significance has been devised, led and co-ordinated by the US Government. This US leadership did not mean that America always got its way in financial affairs ”” nor that US co-ordination always succeeded, as exemplified by the breakdown of Bretton Woods in 1971. But it did mean that international financial initiatives were never attempted until ideas and the leadership came from Washington. The sole exception to this rule in the past 30 years was the creation of the euro; but this was viewed in Washington as an intra-European affair with limited global consequences.
Maybe so. But some commenters were lamenting only a few days ago that the EU could not get its financial act together.
Hmmm, how does this jibe with the revelations over the weekend that banks around the world are converting TO U.S. Dollars AND hoarding our currency as a hedge against devaluation!!!
No wonder the Treasury needs to print more dollars. And against the Euro, it keeps going up.
Methinks the demise of the U.S. as a global economic leader is a bit premature.
KTF!…mrb
“This package addresses the two fundamental causes of the present financial crisis: the panic among bank depositors created by Mr Paulson’s disastrous decision to put Lehman Brothers into bankruptcy; and the panic among bank shareholders created by his equally misguided decision to expropriate the shareholders in Fannie Mae” —Anatole Kaletsky
Give this man a pacifier! He seems unready to accept any meaningful market discipline.
Give him some dark glasses too: he must be blind if regards the Lehman failure as a “fundamental cause” of the current crisis. That’s like blaming a disease on its symptoms.
And as for Fannie Mae and Freddie Mac, who ever expected the government to bail out common shareholders? When a firm fails and has liabilities exceeding its assets, its shareholders own only an empty hole (the negative net worth) and should be glad they aren’t personally liable for filling it.
Now, Little Anatole, what would you like in your bottle, Valium or Thorazine?
Where was that G7 meeting? Oh, yeah, it was in Washington, D.C.
Gee, did European governments really launch their own financial rescue without waiting for US leadership?