Can US dollar remain world's currency?

Can US dollar remain world's currency?

Source: The Real News Network

Transcript

Jane D'Arista Interview (Part 1 of 6)

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Washington. Between 1983 and 1990, the Reagan era, the total US debt—and by total US debt we mean households and businesses big and small, governments state, local, and federal. Under Reagan the debt grew from $5 trillion to $10 trillion. This has all been pointed out by Jane D'Arista in some of her recent writing. And she also points out it took 200 years to get to $5 trillion, so that move from 5 to 10 is rather significant. Jane also writes: now there's a possibility that a monetary collapse could engulf the entire global economy, that a loss in the value of the key currency, which means the US dollar, could precipitate a worldwide shrinkage in credit that would deepen the financial and economic crisis already underway. Now joining us is Jane D'Arista. She's an economist at the Political Economy Research Institute, known as PERI, at the University of Massachusetts Amherst, where she's also a cofounder of the Committee of Economists for Financial Reform, called SAFER, for Stable, Accountable, Fair and Efficient Reform. Thanks for joining us, Jane.

JANE D'ARISTA, ECONOMISTS FOR FINANCIAL REFORM: Thank you for having me.

JAY: So if I understand your basic point is that the global economic system, based on the US dollar as the reserve currency of all international transactions, is actually exacerbating the crisis. Why and how?

D'ARISTA: Well, very much so, because it has played out its ability to perform the function that was in place before, namely, the US was the banker to the world and was in effect doing the transactions that allowed the global trade and investment regime to work. Now that we are so much in debt, and that it began, as you point out, with the Reagan administration and has run up precipitously over time, we are now at historic levels in terms of debt. And the household sector in this country, which we shifted to when in the Clinton administration we took down the federal deficit, the household sector has played out. As you know, unemployment is high. People are losing their houses. They cannot borrow money to continue to buy. And the whole global system came to be based on the idea that the American consumer was the engine for the global economy, and it is no longer.

JAY: So if I understand it correctly, your argument is that in '71, when Nixon decouples the dollar from gold, more or less institutionalized something that had already been happening anyway, 'cause there essentially wasn't enough gold to fuel the amount of international global trade, so people had kind of already began relying on the dollar as the main means of exchange. They institutionalized it in '71. But by everyone needing the US dollar to participate in global trade, it means everybody has to do something to get dollars. So what do they do, and what's the effect of that?

D'ARISTA: Well, the effect of it is, as you say, that they have to export, they have to sell into the United States in order to earn those dollars. The alternative is to borrow them, and if they borrow them, they go into debt, and then they have to service the debt. Where do they get the dollars to service the debt? Exports to the US. And that has been the regime as it grew up. In 1971 you had a situation where the US was running out of gold. It had agreed among the central banks that if they needed to exchange their dollars for gold, the US would give them gold at $35 for an ounce of gold. The US reserves got much too low. And when some of the countries asked for gold at that time, 'cause they were in trouble, Nixon closed the gold window. And what he did was to take the monetary system, the payment system, out of the hands of central banks and put in the hands of the private sector, the private international banks, the big ones, the ones whose names we know—Citibank, etc. And they began to be able to speculate on changes in the value of currencies over that period of time. Now, we got into a situation in 1970s where there was a good deal of inflation, and by the end of the 1970s the dollar did collapse. Paul Volcker came in and rushed up interest rates to 20 percent and absolutely flattened the country. That was the worst recession we had had since the 1930s.

JAY: And flattened a lot of other countries, because a lot of countries, like Brazil and others, have been pushed into getting these loans from the IMF and World Bank and other places at what was supposedly practically zero interest rates, except they were floating interest rates.

D'ARISTA: Exactly.

JAY: So when they go from 1 or 2 percent up to 20 percent, it could completely transform many of these economies.

D'ARISTA: It was a disaster. There were 15 middle-income countries that were so highly indebted at that point that they did collapse, and we had what is called the lost generation in the '80s for those countries. Meanwhile, the US get back on its feet. Why? The value of the dollar went up with those high interest rates. The privatized system now saw the virtue of investing in the dollar—you got all that currency appreciation with high interest rates.

JAY: Because most of this money that Brazil and others are doing is they're using it to pay back debt back into the United States.

D'ARISTA: That is correct.

JAY: So this becomes this vacuum cleaner sucking back up all the dollars.

D'ARISTA: Right. So how could we get so much debt, $5 trillion national debt in the 1970s? Foreign savings—not our own savings, not our own wealth that we had created in our own economy. But the fact that the dollar was at the center of the monetary system, and if you put that interest rate up high enough, everybody wants more dollars. So they come into the US; they flood the markets; there's a lot more credit.

JAY: Flood the markets with cheap products.

D'ARISTA: Well, no. Flood the markets with cheap money, and everybody then can buy. Remember, we had a housing crisis at the end of the '80s because, again, housing prices had gone up as a result. I mean, we had a sort of a preview of what we have just now experienced at that time. And indeed, beginning in 2000, we had a similar episode of enormous increase in credit in every sector over a decade of time. Household sector debt went from 66 percent to 114 percent, and the most dramatic of all was the rise in the debt of the financial sector. So the financial sector has been running a casino, and it has put everybody into a very difficult situation. Meanwhile, of course, our problem is—and Nicolas Caldor pointed this out in 1971—that we necessarily are a country that will lose its ability to compete in the world if we continue to be the key currency country. People must sell us goods in order to earn the dollars that they need to conduct their international transactions—buy oil, buy food, whatever it is they need to buy in the world—and therefore, in selling to us, putting us into a situation where the cheap goods undermine the wages of our own workers.

JAY: But doesn't it depend on how you define "us"? Because it hasn't been so bad if you happen to own a bank.

D'ARISTA: It's been great if you own a bank. What we have to say is: why was the decision to keep the US dollar the key currency? It doesn't do a thing for Main Street.

JAY: Okay. So in the next segment of our interview, let's go back and answer the question.

D'ARISTA: Okay.

JAY: Please join us for the next segment of our interview with Jane D'Arista on The Real News Network.

END OF TRANSCRIPT

The World is not Kind

The increase of power and control of organizations such as the World Bank and the WTO exacerbate the problem. They replace national food banks without a care for local conditions. They promote cash crops for export over basic foodstuffs. They force concentrations of production into areas far from markets. Sharply rising fuel costs can have an exponential effect on commodity prices. A relatively small number of traders in futures can devastate the lives of ordinary citizens.
Already, the Americans speak of geopolitical power by allocating grains to offset the fuel advantages of potential foes. I'm waiting for them to shift water supplies to their advantage.
The world is not kind.

Blowing the World Bank Whistle in Armenia

Blowing the World Bank Whistle

Bruce Tasker

Blowing the World Bank Whistle is an ongoing effort which started in 2004 with a Parliamentary Commission study into a World Bank financed project in the Republic of Armenia, and it continues on to an effort to persuade the Bank’s watchdog organisation, the Department of Institutional Integrity (INT), to instigate a full investigation into the wide-ranging and high-level fraud, corruption and embezzlement, exposed by the study.

In 2004, the Commission reported the fraud, corruption and embezzlement to the World Bank Armenia Country Manager and to the Department of Institutional Integrity, but by the end of 2006, rather than the problems being resolved, the individual who managed the study found that he had become the subject of World Bank ‘Whistleblower’ reprisals.

The whistleblower then found that the Bank's own Department of Institutional Integrity often prefers to punish whistleblowers rather than to solve the problems within the Bank and despite ever-increasing commitments by the major international institutions to clamp down on corruption, it is virtually impossible to find an organisation to support a claim against the Bank.

But Washington’s most influential human rights and freedom of speech organisation, the Government Accountability Project (GAP), after carefully studying the study documents, submitted a 'Demand Letter' to the INT, in support of a claim by the Whistleblower against the Bank. Later, the British Government, which had been informed of the problems since the time of the study in 2004, formally added its support.

On the 6^th September, GAP released a report of its study into the INT and highlighted four claims of corruption in World Bank projects. This claim was one of those projects, and because of the wide-ranging nature of the corruption, plus the comprehensive and compelling evidence, GAP singled it out with a special request to the INT to conduct a full investigation. Armenia’s Municipal Development Project is now featured on GAP’s website.

Just prior to the GAP report, Mr. Shapiro of the World Bank’s Department of Institutional Integrity eventually responded to the letters from GAP, explaining that the INT has three categories for claims, ‘High’, ‘Medium’ and ‘Low’, and Armenia is ‘Medium’. Mr. Shapiro however declined to commit to when a full investigation will be carried out.

This claim has also been officially registered with the Volcker Panel, which has been studying INT operations and which released its report on the 13^th September. The report does not feature any specific projects, because although according to the Volcker report, the “INT plays an important role in the Bank’s overall good governance and anti-corruption drive”, the “Purpose and Scope” of the Volcker Panel study was to “carry out a comprehensive review of the INT to assess how it can best contribute to the Bank’s poverty reduction mission and to safeguard the institution from legal, fiduciary and other risks”.

It is clear from the Purpose and Scope of the Volcker Panel study that the Bank is more concerned about its own security than about protecting the interests of those who would like a reduction in the level of corruption in World Bank projects, those generally referred to as ‘Whistleblowers’.

Prior to reading the Volcker Panel study report, it was assumed that the Armenian claim was near the bottom of the INT list for investigation, because according to INT procedures, low category claims are simply filed and receive no further attention. But the Volcker study has found that “Generally, INT has been able to investigate only high priority cases” and normally medium priority cases are NOT investigated.

So although an Armenian Parliamentary Commission has submitted comprehensive and compelling evidence to the World Bank, claiming tens of millions of dollars worth of corruption, according to Volcker, the Armenian people should not expect an INT inquiry.

In July the UK Foreign & Commonwealth Office established an ‘International Development Committee’, which invites organizations and individuals to “submit 'evidence' to ensure that assistance delivered through the World Bank is in line with the priorities and objectives of the Department for International Development (DFID)”. Details of this claim are being prepared as the basis for ‘evidence’ for the committee and that will include how the UK representation at the World Bank in Washington continually ignores letters from the British Ambassador in Armenia, in which he requests their support and information about the status of the claim.

The World Bank and the International Monetary Fund will be meeting in Washington at the end of October to present requests for continued finance to the U.S. Congress. GAP will be working with Congress to make sure it is aware of how inadequately the INT responds to claims of World Bank corruption. That will be followed by work with the U.S. Senate, which has just unanimously voted to investigate World Bank corruption.

Whilst the INT is deciding on how and when it may be able to respond to the 'Demand Letter' it received from GAP in March this year, Armenian corruption is being subjected to high-level exposure in Washington and in London; corrupt World Bank consultants continue with their corruption in Armenia; the World Bank Armenia country manager is free to orchestrate more corruption (now in Kyrgyzstan), and nine months after his departure from Armenia, the World Bank's Armenia office still awaits the arrival of its replacement country manager.

This blog covers the process from the beginning; it details the fraud and corruption, the Bank’s reprisals to the whistleblower, and continues with the ongoing action to persuade the Department of Institutional Integrity to initiate a full investigation into the matter.

Bruce Tasker

Senior Specialist

Armenian Parliamentary Commission (2004)

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