at present,the set back for the washington consensus has turned out to be new opportunities for an anti-neo-liberal alternative.How far it goes-a protectionist state with a welfare angle?
> <[email protected]> wrote: > > > [A very interesting observation from an ex-Director of > the ADB. > > > > Despite the reassuring noises, there is a clear > admission: "Nobody knows > > nothing!" Incidentally, the Right and Centre are > more forthcoming on this > > count. The Left, however, mostly persists with its > pompous all-knowing > > arrogance. > > The fact is that the system is so complex, turned even > more so with > > "globalisation" and astronomical expansion > of the financial sector, its > > future behaviour remains to a very large extent > uncertain and, thereby, > > unpredictable. > > But still more significant, and in fact pretty > comical, is the open and > > ardent advocacy for Keynesianism and deficit financing > overnight throwing > > unceremoniuosly overboard the fundamental tenets of > economic neo-liberalism > > which was being tom-tommed as the final wisdom in the > discipline of > > Economics till last night.] > > > > > > > > > > > http://timesofindia.indiatimes.com/TOP_ARTICLE__Forget_The_Great_Depression/rssarticleshow/4030739.cms > > > > TOP ARTICLE | Forget The Great Depression > > 26 Jan 2009, 0010 hrs IST, Sudipto Mundle > > > > > > > > With rising unemployment, job losses and salary cuts, > there is a great > > deal of fear in Europe and America that the world is > headed for > > another > > great depression. Following the crash of 1929 > thousands of businesses > > collapsed across the world, millions lost their jobs > and hunger > > stalked the cities as well as the countryside. Some > historians believe > > it set the stage for the Second World War. Are we > headed down a > > similar path today? Nobody really knows, but there are > compelling > > reasons to believe that the final denouement may be > much less severe > > than in 1929 > > > > The roots of the current global crisis lie in the > interplay of several > > developments that have fundamentally transformed the > finance > > capitalism that existed in 1929 or even as recently as > just 30 years > > ago. Traditionally banks were careful to lend only to > trusted clients, > > and carried the debt on their books. They bore the > risk. Now there is > > securitisation. Lenders pool the loans and resell them > as asset-backed > > securities. These securities are then repackaged, > leveraged, tranched > > and resold many times over. A second related > development is the > > emergence of highly sophisticated derivative products. > Especially > > important among these today are the credit default > swaps (CDSs). Taken > > together, asset-backed securities and derivatives > widely spread the > > risk, but they also breed complacency towards risk. > The selling and > > reselling of risk also lays the foundation for quick > contagion. > > Defaults on original loans at the base rapidly > contaminate the entire > > superstructure of assets and derivatives that rest on > this base. > > > > The third key development is the rise of > highly-leveraged investment > > banks in the US. Commercial bank leveraging is limited > by stringent > > capital adequacy norms and their exposure to the > capital market is > > regulated under the Glass-Steagal Act. In contrast, > till their recent > > demise, Wall Street investment banks could raise and > invest funds up > > to 30 times their equity base, thus vastly increasing > the fragility of > > the system. Finally, there is globalisation of the > financial system. > > One aspect of this is a major imbalance between > economic and political > > power. China, India and other emerging economies in > Asia and the > > Middle East are now the creditors of the world, > especially the US. Yet > > they have little say in the design of the global > financial > > architecture. Another aspect of this is technological. > Billions of > > dollars can now be transmitted instantaneously across > the globe. But > > so can market information and market sentiments, > unleashing huge waves > > of exuberance or fear among investors. > > > > Securitisation, derivatives, leveraging and > globalisation have made > > the global economy much more volatile and risky than > the world of > > 1929. However, there is another major development that > provides > > comforting insurance against such risks of global > systemic collapse. > > Out of the great depression was born Keynesian > economics. In 1929, > > governments had relatively little understanding of > macroeconomic > > management. Today, governments and central banks have > many tools to > > restore confidence and revive the economy. The pace at > which the US > > subprime loan defaults snowballed into a global > financial crisis was > > astonishing, but so was the speed with which the G-7 > country > > authorities and emerging market economies responded. > > > > In a period of less than two months after the collapse > of Lehman > > Brothers, the advanced countries and emerging > economies had all > > introduced broadly similar measures to deal with the > crisis, a > > remarkable feat of global coordination without a > single formal treaty > > or agreement. The initial interventions were followed > up with further > > measures to revive demand and the flow of credit. Now, > with President > > Barack Obama ready to launch a recovery package worth > trillions of > > dollars, the US is about to resume leadership of the > Keynesian path to > > global recovery. > > > > It is difficult to fully comprehend the depth of the > global crisis in > > a country like India that will record growth of around > 7 per cent for > > fiscal 2008 at a time when most developed countries > are shrinking. > > Some sectors like exports, real estate, textiles, IT > and transport > > equipment have been affected severely. But overall, > the impact has > > been limited, thanks in no small measure to the prompt > and sustained > > measures taken by the RBI and the government. The > markets have > > stabilised. The decline of the rupee has been > arrested. The stock > > market has started recovering, the Satyam shock > notwithstanding, and > > the flow of credit is reviving. > > > > The important question is what more should the > government do now to > > contain the expected decline in growth in fiscal 2009. > Critics point > > out that most of the steps so far have been monetary > measures to ease > > the supply of credit, few fiscal measures to revive > demand. Beyond a > > point, that is like pushing on a loose string if the > binding growth > > constraint is now on the demand side. Actually, a very > substantial > > fiscal stimulus has been provided through the > supplementary demand for > > grants in September and a second supplementary demand > in December. > > > > This should be followed by a large deficit in the > budget for fiscal > > 2009, ignoring the FRBM for now. Also, a part of the > deficit should be > > monetised, temporarily shelving the agreement that the > RBI will not > > finance central government debt, in order to minimise > the crowding out > > of private borrowers. The government is currently > focusing on > > additional spending on infrastructure. This is > welcome. However, it > > should also target additional spending on education > and health. There > > is compelling research evidence that such spending is > not only more > > effective than infrastructure spending in reviving > current demand, but > > also more effective in enhancing future growth > potential. > > > > The writer was a director with the Asian Development > Bank. > > > > Add more friends to your messenger and enjoy! Go to http://messenger.yahoo.com/invite/ --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Green Youth Movement" group. 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