Too many problems, too few solutions
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Last week I took part in a conference in Hong Kong organised by the Institute for New Economic Thinking. The event, co-sponsored by the Fung Global Institute, of Hong Kong, and the Centre for International Governance Innovation, of Waterloo, Canada, broug
The conference took on ambitious macro-economic policy issues facing us today, but one did not get the full impression of the scope of the financial crisis, the banking crisis and the currency war that are ravaging the global system and how we can get out of the quagmire. For at the heart of the crisis we are now facing is a concerted effort by the US Federal Reserve, the Bank of England, the Bank of Japan and, to a lesser extent, the European Central Bank, to prop up the financial system via money printing. These measures tear up the economic textbooks and push the world into uncharted territory. The grand experiment with money printing by the global financial centres has distorted global macroe-conomics and complicated policy-making at the national level to anchor the appropriate measures for each country.
The subjects discussed at the conference were informative though rather technical, ranging from lessons of historical experience with fiat money, the yuan and the future of Asian finance, the euro-zone currency system, the role of China in world growth, capitalism and the rule of law to the future of central banking.
On the sidelines of the INET conference, George Soros, the international financier, went on CNBC to warn about Japan’s do-or-die move to reflate its economy via money printing, or “quantitative easing” (QE). He said the total amount of quantitative easing underway in the Japan is the same as in America. However, Japan is only one-third the size of the US. Therefore, the money printing going on in Japan is three times as large as that of the US Federal Reserves’s QE.
“What Japan is doing is actually quite dangerous…. They may not be able to stop it,” Soros said. “If the Japanese yen starts to fall in value and the people of Japan lose faith and don’t want to invest their money in the yen, they may put their money abroad, which could cause the yen’s fall to become an avalanche.”
Absent from the conference discussion was the geopolitics of immediate concern – the Korea peninsula crisis, which could wreak havoc not only on Asia but also the global economy as a whole. The news surrounding North Korea reached fever pitch during the week, with harsh rhetoric from both Pyongyang and Washington DC.
It is not clear whether there is genuine new thinking about a new model or how new institutions could be built in place of the old ones, which have failed to guard financial stability. If so, who would provide the leadership? The world’s monetary and socio-economic institutions, built largely after the Second World War, no longer serve their primary objectives of providing peace, security and prosperity for the world. On the other hand, we continue to see unending wars, boom-bust cycles ever larger in scale and more damaging in bailout costs, and the erosion of trust in these institutions – the banks and the authorities that supervise the banks.
The discussion on China did get full attention from the conference. Yet most panellists were still on guard, believing that the yuan will go through gradual transition to become an international currency, and that China still faces several domestic hurdles in its drive to become a global economic power.
The discussion on the euro-zone crisis did provide some insights over the complications and the lack of a way out for the euro-zone countries as their finances are crippled. The institutional framework of the EU also makes it cumbersome in trying to resolve the crisis. There were moves for fiscal union, banking union, political union – which means that the EU nation states would have to cede their sovereignty to Brussels – but the mechanism to reach these goals is far from smooth.
The INET conference offered a wide array of opinions on the global situation, and some insights into the roots of the problems, but it remains unclear how we can overcome all these predicament and arrive at a more stable, prosperous and peaceful society.
