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Inaptly titled, excellent discussion of the US current deficit phenomenon
on February 19, 2009
This book really isn't about fixing global finance. In fact, the author dedicates less than 10% of the book to that prospect and his solutions, rather blithely stated are for 1) developing countries to reform their economic governance so that they can issue own-currency debt (or the pie in the sky fix, to do away with single sovereign currencies); and 2) the IMF specifically and world economic organizations generally to reform themselves (the pie in the sky solution being that participating countries pool their reserves).
Well, golly (long golly ala Gomer Pile) you just done fixed global finance, Sarge!
Thank you, but I think we already know what economic Nirvana looks like and hoped for something other than nostrums as fixes, something like concrete suggestions, say.
Alas, I know, the task is too big for a single man and as such perhaps you may be allowed to take a pass on even attempting to tackle the problem right here and now, Mr. Wolf....but then there is the little issue of the title of the book. H'mmm.
No, this book is more interesting for its extended discussion of the various schools of thought surrounding the phenomenon of the US Current Account deficit. In other words, how the various schools explain the reason for it, and whether it can continue to grow or even remain the same size. The author's discussion of this is mostly transparent and always lucid even if it does take a bit of getting through at times. Reading it will definitely give one a more complete appreciation of what the phenomenon is and how it is caused, if not, perhaps, the exact reasons for it.
In short, it seems that developing countries are willing to lend the US money at very poor rates of return (good for the US) because they have an aversion to undertaking 'hard currency' debt thereby facing the potential for disaster if currency fluctuation or other large scale economic events occur which cause them to default.
The way out of the problem is for them to reform their governments and for the IMF and World Bank to reform themselves and allow developing countries a greater say in how these organizations dispense monetary aid.
One wonders if the author rushed this book out before the full effects of the presently unfolding crisis began to be felt. For, by doing so the book was published at a time when it was still relevant. As it is, the entire discussion has been rendered moot by events.
In fact, now developing countries are buying USA's debt for an entirely different reason than any mentioned by Mr. Wolf: They fear global depression, and our currency is considered a safe haven.
I'd wager that if Mr. Wolf were to begin his book today, it would have some discussion of the necessity of forming a new kind of 'gold standard,' perhaps that single currency which he hinted at but didn't spend much time on.
Indeed, things have changed so radically since the recent publication of this book that it should only be read by those who want to know what the various schools of thought said about the creation of the current account deficit of the USA prior to 2008.