Revise regulation, the theory of market equilibrium is wrong By George Soros

[D-Mack]

I apologize for it not being so new, but what is he up to ?

What is he suggesting with this whole SDR, IMF stuff?

Revise regulation, the theory of market equilibrium is wrong

Monday, December 22, 2008

We are in the midst of the worst financial crisis since the 1930s. The salient feature of the crisis is that it was not caused by some external shock like OPEC raising the price of oil. It was generated by the financial system itself. This fact - a defect inherent in the system - contradicts the generally accepted theory that financial markets tend toward equilibrium and deviations from the equilibrium occur either in a random manner or are caused by some sudden external event to which markets have difficulty in adjusting. The current approach to market regulation has been based on this theory, but the severity and amplitude of the crisis proves convincingly that there is something fundamentally wrong with it.

...


The race to save the international financial system is still in progress. Even if it is successful, consumers, investors, and businesses are undergoing a traumatic experience whose full impact is yet to be felt. A deep recession is inevitable and the possibility of a depression cannot be ruled out.

So what is to be done?

Because financial markets are prone to creating asset bubbles, regulators must accept responsibility for preventing them from growing too big. Until now, financial authorities have explicitly rejected that responsibility.

....


Today's sophisticated financial engineering can render the calculation of margin and capital requirements extremely difficult, if not impossible. Therefore new financial products must be registered and approved by the appropriate authorities before being sold.



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The US consumer can no longer serve as the motor of the world economy. To avoid a global depression other countries must also stimulate their domestic economies. But periphery countries without large export surpluses are not in a position to employ countercyclical policies. It is up to the IMF to find ways to finance countercyclical fiscal deficits. This could be done partly by enlisting sovereign wealth funds and partly by issuing Special Drawing Rights so that rich countries that can finance their own fiscal deficits could cede to poorer countries that cannot.

While international regulation must be strengthened for the global financial system to survive we must also beware of going too far. Markets are imperfect but regulations are even more so. Regulators are not only human; they are also bureaucratic and subject to political influences. Regulations should be kept to the minimum necessary to maintain stability.

http://www.dailystar.com.lb/article....ticle_id=98601

[cobben]

Re: Revise regulation, the theory of market equilibrium is wrong By George Soros

The IMF can already apparently "print money" like a central bank, there have been some movements to give it power & status as a "world CB", have not heard any more about that lately, not since this article:

http://www.telegraph.co.uk/finance/c...s-spreads.html

" . . .
The IMF, led by Dominique Strauss-Kahn, has the power to raise money on the capital markets by issuing 'AAA' bonds under its own name. It has never resorted to this option, preferring to tap members states for deposits.

The nuclear option is to print money by issuing Special Drawing Rights, in effect acting as if it were the world's central bank. This was done briefly after the fall of the Soviet Union but has never been used as systematic tool of policy to head off a global financial crisis.

"The IMF can in theory create liquidity like a central bank," said an informed source. "There are a lot of ideas kicking around."
. . . "

[GRG55]

Re: Revise regulation, the theory of market equilibrium is wrong By George Soros

The IMF can already apparently "print money" like a central bank, there have been some movements to give it power & status as a "world CB", have not heard any more about that lately, not since this article:

http://www.telegraph.co.uk/finance/c...s-spreads.html

" . . .
The IMF, led by Dominique Strauss-Kahn, has the power to raise money on the capital markets by issuing 'AAA' bonds under its own name. It has never resorted to this option, preferring to tap members states for deposits.

The nuclear option is to print money by issuing Special Drawing Rights, in effect acting as if it were the world's central bank. This was done briefly after the fall of the Soviet Union but has never been used as systematic tool of policy to head off a global financial crisis.

"The IMF can in theory create liquidity like a central bank," said an informed source. "There are a lot of ideas kicking around."
. . . "

Quite some time ago bart made the observation that in the absence of any obvious or viable alternative to the US $ as international reserve currency, some sort of SDR-type instrument may come from an eventual multi-lateral agreement to reform the international financial system.

Confidence in a national fiat currency is presumably due to holder's expectation that national governments have unlimited claim, via taxation or nationalization of the means of production, on their economies.

What is it that "backs" any IMF SDR issuance?

[Jay]

Re: Revise regulation, the theory of market equilibrium is wrong By George Soros

What is it that "backs" any IMF SDR issuance?

Dark matter.

[phirang]

Re: Revise regulation, the theory of market equilibrium is wrong By George Soros

Wow, Soros is taking his job as an economic hitman seriously, eh?

It's pretty f'ing clear that he wants to stuff dollars down the gullet of the world and dollarize everything. Maybe Kissinger consulted him before creating the oil embargo...:rolleyes:

[cobben]

Re: Revise regulation, the theory of market equilibrium is wrong By George Soros

What is it that "backs" any IMF SDR issuance?

"The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. "

The SDR seems in short to be an historical anomaly, that might possibly be revived:

http://www.imf.org/external/np/exr/facts/sdr.htm

Why was the SDR created and what is it used for today?

The Special Drawing Right (SDR) was created by the IMF in 1969 to support the Bretton Woods fixed exchange rate system. A country participating in this system needed official reserves—government or central bank holdings of gold and widely accepted foreign currencies—that could be used to purchase the domestic currency in world foreign exchange markets, as required to maintain its exchange rate. But the international supply of two key reserve assets— gold and the U.S. dollar—proved inadequate for supporting the expansion of world trade and financial development that was taking place. Therefore, the international community decided to create a new international reserve asset under the auspices of the IMF.
However, only a few years later, the Bretton Woods system collapsed and the major currencies shifted to a floating exchange rate regime . . . .

[D-Mack]

Re: Revise regulation, the theory of market equilibrium is wrong By George Soros

"The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. "

The SDR seems in short to be an historical anomaly, that might possibly be revived:

http://www.imf.org/external/np/exr/facts/sdr.htm

Why was the SDR created and what is it used for today?

The Special Drawing Right (SDR) was created by the IMF in 1969 to support the Bretton Woods fixed exchange rate system. A country participating in this system needed official reserves—government or central bank holdings of gold and widely accepted foreign currencies—that could be used to purchase the domestic currency in world foreign exchange markets, as required to maintain its exchange rate. But the international supply of two key reserve assets— gold and the U.S. dollar—proved inadequate for supporting the expansion of world trade and financial development that was taking place. Therefore, the international community decided to create a new international reserve asset under the auspices of the IMF.
However, only a few years later, the Bretton Woods system collapsed and the major currencies shifted to a floating exchange rate regime . . . .

I remember reading something by Engdahl on De Gaulle and SDR

....

De Gaulle is toppled

The crisis gathered momentum into 1968, and between March 8 and March 15 of that year the Gold Pool in London had to provide nearly 1,000 tons to hold the gold price. The weighing-room floor, loaded with gold at the Bank of England, almost collapsed under the weight. U.S. Air Force planes were commandeered to rush gold in from the U.S. depot at Fort Knox. On March 15, the U.S. requested a two-week closing of the London gold market.

By April, 1968, a special meeting of the Group of Ten was con-vened, on Washington's request, in Stockholm. U.S. officials planned to unveil yet another scheme, the creation of a new "paper gold" substitute through the IMF, so-called Special Draw-ing Rights (SDK), in an effort to postpone the day of reckoning. At the Stockholm gathering, designed to set the stage for official IMF adoption of the Washington SDR scheme at the upcoming IMF meeting the following month, France defiantly blocked unan-imous agreement, with France's Minister Michel Debre reassert-ing traditional French policy on a return to the original rules of Bretton Woods. De Gaulle's adviser Rueff had repeatedly pro-posed a "shock" devaluation of the U.S. dollar of 100% against gold, which would have been elegantly simple, would have doubled official U.S. gold reserves in dollar terms and would have been sufficient to allow the U.S. to convert the approximate $10 billion of foreign-held dollars, while still maintaining the value of its gold reserves as before. This would have been far more rational and painless, in human terms, than what ensued from Wash-ington's side. But, tragically, it did not happen.

Within days of the French refusal to back Washington's SDR dollar bailout scheme, France itself was the target of the most serious political destabilization of the postwar period. Beginning with leftist students at the University of Strasbourg, soon all of France was brought to a chaotic halt as students rioted and struck across France. Coordinated with the political unrest (which, interestingly the French Communist Party attempted to calm down), U.S. and British investment houses started a panic run on the French Franc which gained momentum as it was touted loudly in Anglo-American financial media. The May 1968 student riots in France were the response of the vested London and New York financial interests to the one G-10 nation which continued to defy their mandate. Taking advantage of the new French law allowing full currency convertibility, these financial houses began to cash in Francs for gold, draining French gold reserves by almost 30% by the end of 1968, and bringing a full-blown crisis in the Franc.

Sadly, the counterattack of the Anglo-Americans succeeded. Within a year, de Gaulle was out of office and France's voice severely weakened. In one of his last meetings while still President, de Gaulle agreed to meet with British Ambassador to France, Christopher Soames, in February 1969. The General told Soames, in a broad review of French postwar policy, once again, that Europe must be independent, and that that independent stance had been profoundly compromised by various "pro-American" senti-ments of many European countries, most especially Britain.

One other country openly daring to defy the powerful financial interests of London and New York at this time was the largest gold-producer in the west, the Republic of South Africa. During the early part of 1968, South Africa refused to sell its newly-mined gold for Pounds or dollars at the official price of $35/ounce. France and South Africa had been holding talks to form a new gold basis for reforming the Bretton Woods monetary order. This provoked a U.S.-led central bank boycott of South Africa, a move again repeated by the same interests almost exactly 20 years later, in the mid-1980's. Despite the apparent elimination of the French "threat," it was to prove a phyrric victory for Washington and London.

[F. William Engdahl, A Century of War, 1992; pp. 139-143]

http://www.questionsquestions.net/do..._degaulle.html

[D-Mack]

Re: Revise regulation, the theory of market equilibrium is wrong By George Soros

Wow, Soros is taking his job as an economic hitman seriously, eh?

It's pretty f'ing clear that he wants to stuff dollars down the gullet of the world and dollarize everything. Maybe Kissinger consulted him before creating the oil embargo...:rolleyes:

He is also on the green train

Why George Soros has lost faith in America
2008-12-31 10:05:00

...

“We have [another] big problem,” Soros says. “Global warming. It requires big investment. And that could be the motor of the world economy for years to come... instead of consuming, building an electricity grid, saving on energy, rewiring the houses, adjusting your lifestyle where energy has got to cost more until you introduce those new things. So it will be painful. But at least we will survive and not cook.”

The Green New Deal

Concerns over global warming and the high cost of fossil fuels are closely aligned. Whether or not you embrace the concept of global warming -- and there is still real debate on the subject -- you no doubt remember the sky-high fuel prices the world had to deal with earlier this year.

Energy prices are falling now, mainly due to deflation fears and the phenomenon of “demand destruction.” But when global growth resumes, energy prices will go right back up again. And then there are the indirect costs, like the rampant pollution and quality-of-life issues that plague China and India.

Many top thinkers thus agree with Soros. There is a very strong feeling that the world needs a “Green New Deal”... an alternative-energy-focused motor that can get the global economy humming again.

...

http://www.commodityonline.com/news/...13742-3-1.html