01 April 2009
Money is Just Another Commodity
Sarkozy, Merkel, and their sympathizers are truly resentful of their second-tier status in the G-20 and see their insistence on a policy of financial-regulation-first as a good way to take advantage of the egg put on the face of the U.S. by the global credit crisis. Yes, greater transparency, not to mention predictability, of the latest instruments of financial wizardry must be sought in order to avoid crises like the current one in the future.
As an analogy for the global surplus of easy money, let us consider the parallel case of a world glut of another commodity, like wheat or corn. Surely, the collapse of the world price of an important food commodity could cause widespread harm to the global agricultural industry. So, how does Europe respond to the genetic engineering of seeds that could increase crop yields?--by clamoring for more regulation and even advocating import restrictions. The immediate victims of scientifically expanded food production might be the farmers dislocated from their traditional way of life. They would get the financial aid they needed in order to emerge from the crisis with improved methods of farming or with transformed livelihoods. Certainly, the genetic engineering that caused their dislocation must be regulated to prevent real harm to consumers; but the regulation would have second priority to relieving the economic victims of the advance in agricultural technology.
There was an abusive use of complex credit tools, like CDOs, CDS, etc., that led to the global credit crisis. However, It is most important first to relieve the economic harm that resulted from the inattention of financial regulators that permitted things to get out of hand. We learned that lesson in the 1930s. After setting the world back on a healthy material growth path, we should definitely correct the regulatory defects that allowed the crisis to happen. Even France and Germany will suffer from unnecessarily prolonging the recession.
Sarkozy, Merkel, and their sympathizers are truly resentful of their second-tier status in the G-20 and see their insistence on a policy of financial-regulation-first as a good way to take advantage of the egg put on the face of the U.S. by the global credit crisis. Yes, greater transparency, not to mention predictability, of the latest instruments of financial wizardry must be sought in order to avoid crises like the current one in the future.
As an analogy for the global surplus of easy money, let us consider the parallel case of a world glut of another commodity, like wheat or corn. Surely, the collapse of the world price of an important food commodity could cause widespread harm to the global agricultural industry. So, how does Europe respond to the genetic engineering of seeds that could increase crop yields?--by clamoring for more regulation and even advocating import restrictions. The immediate victims of scientifically expanded food production might be the farmers dislocated from their traditional way of life. They would get the financial aid they needed in order to emerge from the crisis with improved methods of farming or with transformed livelihoods. Certainly, the genetic engineering that caused their dislocation must be regulated to prevent real harm to consumers; but the regulation would have second priority to relieving the economic victims of the advance in agricultural technology.
There was an abusive use of complex credit tools, like CDOs, CDS, etc., that led to the global credit crisis. However, It is most important first to relieve the economic harm that resulted from the inattention of financial regulators that permitted things to get out of hand. We learned that lesson in the 1930s. After setting the world back on a healthy material growth path, we should definitely correct the regulatory defects that allowed the crisis to happen. Even France and Germany will suffer from unnecessarily prolonging the recession.
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