Baseball91's Weblog

March 25, 2009

Spring Flooding

After February comes March. In February the attention was on Davos where the spin had been that the current system of capitalism was an American system. Wen Jiabao lashed out at the ‘blind pursuit of profit’ in some countries in what he called the ‘American financial crisis.’ The view from China was that stocks and bonds were an American system. When it collapsed, it was the fault of one nation. ‘There was no effective management of the astronomical salaries of those greedy senior executives.”

Wen Jiabao said that the quality of financial assets must be assured. One of the most profound lessons to be learnt from the ‘American financial crisis’ was the relaxation of the supervision or ‘even no management at all’ of the financial industry.”

And so comes March. The most significant story of the month was out of Beijing:

BEIJING (AP) — China is calling for a new global currency to replace the dominant dollar, showing a growing assertiveness on revamping the world economy ahead of next week’s London summit on the financial crisis. The surprise proposal by Beijing’s central bank governor reflects unease about its vast holdings of U.S. government bonds and adds to Chinese pressure to overhaul a global financial system dominated by the dollar and Western governments. Both the United States and the European Union brushed off the idea.
The world economic crisis shows the “inherent vulnerabilities and systemic risks in the existing international monetary system,” Gov. Zhou Xiaochuan said in an essay released Monday by the bank. He recommended creating a currency made up a basket of global currencies and controlled by the International Monetary Fund and said it would help “to achieve the objective of safeguarding global economic and financial stability.”

Zhou did not mention the dollar by name. But in an unusual step, the essay was published in both Chinese and English, making clear it was meant for a foreign audience.

China has long been uneasy about relying on the dollar for the bulk of its trade and to store foreign reserves. Premier Wen Jiabao publicly appealed to Washington this month to avoid any response to the crisis that might weaken the dollar and the value of Beijing’s estimated $1 trillion in Treasuries and other U.S. government debt.

The U.S government did change the rules of engagement. And it ain’t over yet. Washington was trying to decide in 2009 who would survive? Who would be saved? First it was companies like AIG, Citibank, while Lehman Brothers vanished. Darwin and Natural Selection. Fear came down to survival. China was apparently not going to let Washington take over the paradigm of geopolitics as had been done on Wall Street.

“Any system produces winners and losers. If the gap between them gets too great, the losers will organize themselves politically and seek to recast the existing system — within nations and between them.” – Henry Kissinger, in The Economist

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