 | IF 200 -- August 29, 2011 -- 8/20 |
In this special #200 issue, I shall offer you below the full text of a speech I gave, in Montevideo (August 18, 2011), at the “XXVI Jornadas Anuales de Economía” of Banco Central del Uruguay (www.bcu.gub.uy). The roundtable focused on “Debt and Fiscal Problems in the North”.
The world is revealing itself as an extraordinary unstable place. Economic imbalances, wealth disparities and unwieldy finance, all contribute to the current situation bugging global financial markets. Of historical and unprecedented nature are the global expansion of debt and the central bank monetization trend of recent decades. Undoubtedly, the massive growth of debt and ballooning central bank balance sheets nurture a myriad of vulnerabilities, resulting from speculative finance and leading to boom and bust dynamics.
Nowadays, the global sentiment is shifting. Optimism on the sustainability of global recovery is dimming. And the general economic “soft-patch” talk is turning into possible “double-dip” scenario in the largest economies, while some red-hot emerging economies are sliding into “soft-patch” growth territory.
1. Major Power Shifts
I shall begin with my area of experience and tell you what I have observed from the particular angle of Wall Street and global financial markets during the last decades.
A main event, that I would like to mention here is when, on August 15, 1971, the U.S. President Richard Nixon decided to shut down the “Gold Window” and severed the Bretton Woods Agreement. As a result, “paper money” became the common medium of exchange to measure “equality” and “consequences” of economic development. Paper money, not to be confused with wealth, has value on two predominant accounts: 1) because the government in power says so, and 2) because people are willing to accept it as payment. However, governments and central banks retain little control over the actions and reactions of paper money holders throughout the globe.
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