Money and Monetary Regimes: Struggle for Monetary Supremacy

Dollars and Politics

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Most independent African governments, for example, sought to promote industrialization, in an effort to develop local production and reduce imports, promote employment, raise the standard of living, and break out of the vicious circle of trade patterns epitomized in the Prebisch-Singer hypothesis unfavorable terms of trade for commodity-exporting and manufacturer-importing countries. There were usually two major stages of intervention: the first focused on macroeconomic stability and structural adjustment programs, and the second included such objectives as improving institutions, reducing corruption or dealing with infrastructure inefficiency Naim, The debt crisis that first affected a number of Latin American countries and then African and Asian countries, in the s and s, further increased their dependence on external loans, leaving them no other option than to follow the prescriptions that enabled them to access financing.

Most notably, Joseph Stiglitz, chief economist at the World Bank from to , criticized the policies prescribed by the IMF in response to the financial crises in Russia and Asia Stiglitz, ; Paul Krugman was in favor of Asian governments imposing controls on capital flows in The debate generated over the response to the crisis provided a good illustration of the deep divide between leading economists, who either supported or opposed the IMF.

The Washington Consensus purists insisted on the importance of stabilizing exchange rates in times of crisis through public budget cuts, higher taxes and interest rates and other recessive measures. Their opponents criticized such policies, arguing that they would lead to recession Naim, Stiglitz called attention to the fact that sharp increases in interest rates would contribute towards the deepening of the crisis Stiglitz, The share of Africa in agricultural and food exports dropped from 21 to 8.

Fiscal Policy vs. Monetary Policy: Pros & Cons

Some critics pointed out that liberalization policies, and such policies as the elimination of subsidies for fertilizers, had a negative impact on agricultural productivity and output. Price reform promoted export crops over traditional food crops. A structurally unequal donor—recipient relationship was established, in part due to the weakening of the public sector induced by the drastic reduction of the administrative machine. The fast and uncontrolled liberalization of small African economies presented additional dangers, such as the high volatility of capital flows, but.

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Limited market access for low-cost textiles, cotton, and agricultural products and competition from heavily subsidized industrial economy exports effectively prevent growth. Manuel, Many economists recognized that the difficulties associated with the promotion of economic stability and liberalization had a disproportionate impact on the poor, leading to greater poverty and unequal income distribution.

The Asian crisis also raised some important questions about the consequences of the deregulation of financial markets and demonstrated the limits of Washington-based policy thought. First, the domination of the financial sector over the real economy had led to the creation of bubbles, to unpredictability for the future of economies, and increased vulnerability of populations, simultaneously increasing unequal income distribution and the gap between rich and poor.

The Real Story of How America Became an Economic Superpower

Second, it called into question the prevailing economic theories that served as a basis for formulating and prescribing policies, including those formulated by Bretton-Woods institutions at global level, in particular structural adjustment programs. Production and consumption patterns reveal an abnormal deformation of priorities, where military budgets and luxury consumer goods dominate over access to basic services, education and health:. The planet produces almost a kilo of grain per day per inhabitant and we have more than one billion people going hungry.

The ten million children who die of hunger, no access to clean water and other absurd causes constitutes an unbearable scandal. But from the private investment point of view, solving essential problems generates no profits, and the orientation of our production capacity is radically deformed. The power imbalance within the global structures of financial and economic governance, namely the IMF and the World Bank, is evident on three levels:. First, the prevailing ideology, entirely dominated by monetarist thought, imposed on the countries of the South and transition economies for more than 20 years, despite blatant failures and disastrous social impact;.

Second, the power structure established by voting shares within the IMF and the World Bank, which still does not reflect the size of economies, not to mention the representation of the interests of the poorest;. Third, the strong belief that wealthy countries would never be affected by crises, something that justified discriminatory practices in terms of surveillance before IEO, and the application of double standards during the crisis.

Thus, the financial crisis that resulted from spiraling deregulation did not come as a complete surprise. When theoretical tools designed to help comprehend reality are used without regard to their limitations, or when findings are selectively adjusted to endorse one single view premised on wishful thinking, then science becomes ideology. The most radical and vocal opponents of the Washington Consensus accused Bretton Woods institutions and wealthy countries of spreading a new ideology — neoliberalism.

Leading economists got blinded by the myth of perfect markets, either by choice or circumstance. The truth is that the blind belief in markets has enjoyed great popularity in the last two decades. Led by Milton Friedman, monetarism invaded economic thought in the s, seeking to reconcile macroeconomics with neoclassical microeconomic postulates in order to bring back to center stage the idea of market efficiency. Monetarists admitted only limited forms of government intervention, linked to a very modest regulation of money supply.

Famously, Milton Friedman called for the dissolution of the IMF since it interfered with the workings of the free market. It was this approach that led the IMF to believe that its main job was to liberalize the market in the countries of the South, and later in so-called transition economies since these represented the major obstacle to an open economy.

First, intellectual narrow-mindedness creates situations where the line between what we see and what we want to see is too easy to cross. The IMF epitomized the major drawbacks of modern knowledge production and applied research, characterized by sectoral approaches and lack of holistic analysis. More specifically, it opted for economic theories, quantitative and data selection methods that sustained the coherence of its neoclassical assumptions.

Dissenting views were silenced given the power chain reaction between the largest shareholder countries and senior management. The authors of the evaluation report also noted the complaints about lack of even-handedness in the treatment of different countries IEO, The immediate question for Americans? Commentators in India are quite correct in their assessment that a U.

If it [U. Regime change will only worsen global Islamist terror, and in any case, Saudi Arabia is a fitter case for democratic intervention, if at all. Colin Powell as the Secretary of the State, has moderated neoconservative military designs regarding Iran, but Powell has stated that he will be leaving at the end of Bush's first term. Of course if John Kerry wins in November, he might pursue a similar military strategy. However, it is my opinion that Kerry is more likely to pursue multilateral negotiations regarding the Iranian issues.

Clearly, there are numerous risks regarding neoconservative strategy towards Iran. First, unlike Iraq, Iran has a robust military capability.

Secondly, a repeat of any "Shock and Awe" tactics is not advisable given that Iran has installed sophisticated anti-ship missiles on the Island of Abu Musa, and therefore controls the critical Strait of Hormuz. World oil production is now flat out, and a major interruption would escalate oil prices to a level that would set off a global Depression. Why are the neoconservatives willing to takes such risks? Simply stated - their goal is U. A successful Iranian bourse would solidify the petroeuro as an alternative oil transaction currency, and thereby end the petrodollar's hegemonic status as the monopoly oil currency.

Therefore, a graduated approach is needed to avoid precipitous U. No one liked the outcome. As an Air Force source tells it, "The war games were unsuccessful at preventing the conflict from escalating.

INTRODUCTION

S to intervene in Iran given the dire situation in Iraq. The Monterey Institute of International Studies provided an extensive analysis of the possible consequences of a preemptive attack on Iran's nuclear facilities and warned of the following: "Considering the extensive financial and national policy investment Iran has committed to its nuclear projects, it is almost certain that an attack by Israel or the United States would result in immediate retaliation. A likely scenario includes an immediate Iranian missile counterattack on Israel and U.

Iran could also opt to destabilize Saudi Arabia and other Gulf states with a significant Shi'i population, and induce Lebanese Hizbullah to launch a series of rocket attacks on Northern Israel. An attack on Iranian nuclear facilities Most important, in the absence of evidence of an Iranian illegal nuclear program, an attack on Iran's nuclear facilities by the U. Such an event is more likely to embolden and expand Iran's nuclear aspirations and capabilities in the long term" This essay was written out of my own patriotic duty in an effort to inform Americans of the challenges that lie ahead.

Security Council if the results are unsatisfactory. Pentagon sources confirm the Bush administration could undertake a desperate military strategy to thwart Iran's nuclear ambitions while simultaneously attempting to prevent the Iranian oil Bourse from initiating a euro-based system for oil trades.

The later would require forced "regime change" and the U. Obviously this would require a military draft. All had gone as planned, but then, in another case, the Louisiana Supreme Court ruled that the Separate Car Act did not apply to interstate passengers. Because Desdunes had been going to another state, he could not be required to use a separate car, and the prosecution dropped the case.

The interstate-travel issue was a persistent wrinkle in the Jim Crow era, and it inspired some impressive judicial contortions. In , for example, the U. Supreme Court struck down a Reconstruction-era Louisiana statute requiring integrated facilities on steamboats. Under the Constitution, only Congress has the power to regulate interstate commerce. Because riverboats stopped in many states, the Court said, they could not be bound by the regulations of one state.

You might assume that a state law requiring segregated facilities on interstate carriers would be subject to the same prohibition. In , however, the Supreme Court held otherwise. The Court somehow parsed its way around its own earlier decision. Fortunately, he had one at hand: Homer Plessy. He was twenty-nine years old, married, and in the shoemaking business. Like Desdunes, he followed the script.

On June 7, , he boarded a train, one travelling only within the state of Louisiana, and sat in the car for white passengers. When the conductor asked if Plessy was colored, he said yes, and was removed from the train and booked. Train conductors were in a ridiculous position: even if the law required trains to have separate cars, riders could still sue the conductor for misclassifying them.

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The Louisiana Supreme Court agreed, adding that, if the Separate Cars Act were declared unconstitutional, many other state laws—on separate schools, intermarriage, and so forth—would be affected. Supreme Court finally heard the case four years later, and on May 18, , it issued its opinion. It had been a customary way to throw out complaints about segregation since before the Civil War.

Everyone knew the assumption was false. In Brown v. Board of Education, the Warren Court would cite psychological studies showing that black children are harmed by segregation. In cases like Plessy v. Ferguson, the Court looked to the text of the statute. If the statute did not prescribe unequal conditions, then, legally, conditions were not unequal. The Justices in the Plessy case were aware of the repercussions that a robust interpretation of the Fourteenth Amendment would have, of course.

Political realities, as always, put a constraint on judicial reasoning. The Supreme Court in the early twentieth century did decide cases in favor of African-American and Asian-American plaintiffs, but it mostly kept its hands off state racial regulations.

Douglass refused. He said he could not see how the case could help things. Douglass was proved correct. It stamped a constitutional seal of approval on state-mandated racial segregation.

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