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Sunday, April 25, 2010

Can US dollar remain world's currency? Part Four

The world wants a new reserve currency - would be good for Americans too

Jane D'Arista Interview (Part 4 of 4) (April 20 2010)

Jane D'Arista is a research associate with the Political Economy Research Institute (PERI), University of Massachusetts, Amherst where she also co-founded an Economists' Committee for Financial Reform called SAFER, that is, stable, accountable, efficient & fair reform: She is also a research associate at the Economic Policy Institute. Jane served as a staff economist for the Banking and Commerce Committees of the US House of Representatives, as a principal analyst in the international division of the Congressional Budget Office. Representing Americans for Financial Reform, Jane has currently given Congressional testimony at financial services hearings. Jane has lectured at the Boston University School of Law, the University of Massachusetts at Amherst, the University of Utah and the New School University and writes and lectures internationally. Her publications include The Evolution of US Finance (1994) a two-volume history of US monetary policy and financial regulation.


PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I'm Paul Jay in Washington. And we're joined again by Jane D'Arista. She's an economist at the Political Economy Research Institute (PERI), in Amherst, Massachusetts. She also cofounded Committee of Economists for Financial Reform, Called SAFER. So thanks for joining us again.


JAY: So we're talking about different possible solutions. So you've got another one. What is it?

D'ARISTA: Well, an investment fund, global investment fund that would take the balance of payments surpluses of countries and put them into - give them securities for them, sell them securities, and invest the money back into developing countries.

JAY: So if I'm China or India or somebody that's got a lot of exports and I'm holding on to a lot of US dollars, as an alternative to just coming back and buying US Treasury bills, I would buy this security from some kind of international, World Bank, global kind of financial institution.

D'ARISTA: Right.

JAY: So why would I do that?

D'ARISTA: They're getting very worried. The Chinese are not happy. And last year they said we want another system. We want the dollar out of the system. Big shock. And the BRICs joined in. That is Brazil, Russia, India, China. Very powerful emerging nations now have a real voice in the global economy. So the idea that an investment fund is one in which you can attract, also, not only the savings that end up in central banks and government treasuries around the world, but the private savings, the important private savings, which are pension funds, not only in the US and other developed countries, but also in emerging market countries where pension funds are growing like crazy and they have no place to put them. I mean, you can't keep it all in Chile, as they found out. They have to diversify. So where do they go? What's the safety for them? Does Brazil go to India? What kind of guarantees are there? So if you have a global fund that looks at this and is guaranteed by all the member countries, so that if it makes mistakes, you know, then everybody's on the hook - you got to put in more money at the government level to make it work all right.

JAY: So to sum it all up - if I get your main points - number one: the current global system, where the US currency is the currency for all global trade - the reserve currency for the world - is not very good for most of the countries of the world and is not very good for the American people, but it's pretty good if you're in the American banking system and you own a bank. So the move towards some kind of reform is really being blocked at the level of finance. But as speculative and, as many people call it, parasitical, this financial sector is, we're at a time when politicians in the US - but certainly not only the US, in much of the world - are so entwined with this finance sector, that the politics is pretty much as parasitical as the banks. Especially in US right now, you can't get any kind of serious legislation through, that would just mildly reform the system that caused such crisis. Then the other thing we've been talking about, is on the other side, the fact that the wages have been static for so long is one of the fundamental roots of the problem. There is no real purchasing power. So sum it all up for us, where we're at and where do you think ordinary people, what conclusions they should come to.

D'ARISTA: Well, I think, you know, the power in the US financial sector is, as you say, the roadblock, and its alliance with the political sector, yes.

JAY: Of both parties.

D'ARISTA: Yes, both parties, absolutely. But at the same time what we're seeing is other countries, they may not be more democratic, they may not be more holier than thou than we are, they may have their crony capitalism, et cetera, but they also have their self interests, and they don't necessarily see it as allied with ours. So they're making waves, and in some sense they may force an issue here.

JAY: And your point is the American people should not consider this a threat, that to reform this global system the way some of the other countries want is actually good for Main Street.

D'ARISTA: It is, absolutely, because we've gotten the global system into - there's no fear of inflation. Why? We have so much overcapacity in the world. And we have forgotten the sort of basic economic, practical position that Henry Ford offered us back in the 1920s when he said, pay my workers five dollars a day, because that way they can buy what they make. The world cannot buy - the workers of the world cannot buy what they make.

JAY: Well, even more specifically, the workers of Detroit that used to make $28 an hour are now making $14 an hour. So for the first time since Henry Ford, they can't buy cars.

D'ARISTA: That's right. What they haven't focused on is, well, so why is the dollar so strong? So why can't we make, and sell abroad and here in the United States, our own goods? It's not only the cost of labor. It is the fact that the dollar is overpriced, and consistently so, because that is what the central bank does in order to keep Wall Street running at its fast pace. This is incredibly unknown, if you will, that the value of your currency can change your life. Most people do not understand this. They assume it's wages or other things that are going on in the economies. But it is so important to look at this particular element in the global system and understand that what is happening now, as economies are under the gun and very vulnerable and exchange rates are moving around rather volatilely, that you have an exacerbation, if you will, of competitiveness, and we are repeating to some extent those things that happened in the 1930s.

JAY: Which wind up leading to world war.

D'ARISTA: Exactly.

JAY: Thank you. And thank you for joining us on The Real News Network.


DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.

Bill Totten


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