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Home Publications Blogs Beat the Press The Return of the "Committee to Save the World"

The Return of the "Committee to Save the World"

Thursday, 27 May 2010 07:29

The WSJ reported on Treasury Secretary Timothy Geithner's trip to Europe to push his agenda for financial reform and commented that:

"Mr. Geithner's European tour is reminiscent of the Asian financial crisis of a decade ago when many current Obama economic officials, including Mr. Geithner and White House economic adviser Lawrence Summers, traveled Asia doling out advice and worked behind the scenes at the International Monetary Fund to keep bailout cash flowing. Time magazine dubbed a trio of U.S. officials 'the Committee to Save the World.'"

It is worth noting that this prior effort at salvation did not turn out very well. In fact, it laid the groundwork for the current crisis. The IMF austerity plans were considered so painful that developing countries decided that they never wanted to be in a situation in which the IMF could impose the same sort of austerity plans on them. As a result, they began to accumulate massive amounts of reserves mostly in dollars. This reversed the normal flow of capital, with capital now going from poor countries to rich countries.

This led to the over-valuation of the dollar, which in turn caused the U.S. to run a massive trade deficit. The inflow of foreign capital, coupled with the trade deficit, also laid the basis for the continuation of the stock bubble in the 90s and the housing bubble in the next decade.The collapse of this bubble is the cause of the current economic crisis.

Hopefully, this effort at salvation will turn out better than the last one.

Comments (5)Add Comment
homeopathic medicine
written by frankenduf, May 27, 2010 9:12
this sort of propaganda was foreseen by Nietzsche- international finance policy makers gut civil society's marketplace, and then they are ipso facto the only technicians with the expertise to 'save' the situation that they created- note this is also the analagous template for our banking industry (Geithner's claim that we need the large banks to help work out the solutions, as they are smarter than the regulators), and the current oil spill (Obama administration's reliance on BP to execute the 'salvation' plan, as they have the deep water expertise)
Revenge of Austerity
written by izzatzo, May 27, 2010 12:14
At last, the ultimate source of the housing bubble and Great Crash in the US is revealed. A revenge of austerity from abroad. Who would have known. Asians get bailed out, save, pay down debt, create a global savings glut that exports capital and drives up the value of the dollar while carving out the good ole US of A from the inside out. All orchestrated by the IMF.

It wasn't a failure of free market capitalism after all. It was a government failure, forced austerity in return for bailouts, and the subsequent revenge was even more austerity undertaken successfully to keep the IMF from ever returning again to impose ... more austerity.

So Geithner repeats the cycle with advocacy that Europe get its fiscal house in order with ... more austerity ... so it will be healthy enough to continue imports from the US ... which needs those imports to support its own exports for recovery ... so it's important for both countries to maintain high values of their respective currency with austerity programs, lest they suffer more bubbles and recessions ... which fails to correct trade deficits.

Bubba, this makes my head hurt ... I'm going to ask Mama Grizzly Palin what Keynes would have done, now that there's proof that it all comes from government failure.

Stupid liberals.
Hope is not a plan
written by bobbyp, May 27, 2010 9:39
"Hopefully, this effort at salvation will turn out better than the last one."

Alas. Not likely.

PS: Great post at FDL, Dean.
best, most important post in a long time
written by Erik L, May 28, 2010 8:02
We all accept that the collapse of the housing bubble caused our current problems. So the next interesting question is "what caused the housing bubble?". It is good to see you address this.
systemic collapse
written by moral hazard, May 28, 2010 9:39
The world is falling apart:

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.