Portuguese Newspaper Interviews EW Chief Political Economist Dr David Caploe
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Jorge Nascimento Rodrigues is the Executive Editor of the Portuguese and Brazilian Management Review. Since 1983, he has been a contributor to the Economic section of EXPRESSO weekly newspaper in Lisbon, Portugal, writing about Economics, Geopolitics and Technology. His most recent book is Pioneers of Globalization: How the Portuguese Surprised the World (Centro Atlantico, 2007, 2009). His articles in English can be found at: http://www.janelanaweb.com.
Jorge Nascimento Rodrigues is the Executive Editor of the Portuguese and Brazilian Management Review. Since 1983, he has been a contributor to the Economic section of EXPRESSO weekly newspaper in Lisbon, Portugal, writing about Economics, Geopolitics and Technology. His most recent book is Pioneers of Globalization: How the Portuguese Surprised the World (Centro Atlantico, 2007, 2009). His articles in English can be found at: http://www.janelanaweb.com.
Jorge Nascimento Rodrigues is the Executive Editor of the Portuguese and Brazilian Management Review. Since 1983, he has been a contributor to the Economic section of EXPRESSO weekly newspaper in Lisbon, Portugal, writing about Economics, Geopolitics and Technology. His most recent book is Pioneers of Globalization: How the Portuguese Surprised the World (Centro Atlantico, 2007, 2009). His articles in English can be found at: http://www.janelanaweb.com.
The following interview with our Chief Political Economist, Dr David Caploe, will appear next week, at which time we will give you a link to the site on which it can be found. [br]
1 Do you think the Volcker Plan is appropriate to reform the financial system and the financialization risky trend from the 1970s and the 1980s?
While I don’t think the Volcker Plan is particularly bad from an economic point of view —
all it does is re-instate the division between commercial banking, which is relatively safe and boring and can legitimately receive deposit banking insurance from the Federal government …
and investment banking, which is much more speculative, and should NOT receive insurance from the government —
it’s yet another example of, as we say in the US, “closing the barn door after the horse has already run out”:
that is, it is simply not adequate to the issues the US and global financial systems currently confront.
And from a political point of view, it’s, as we also say, DOA — dead on arrival. No one in Congress is taking it very seriously. [br]
2 Isn’t it too late? Or it’s the right time now to enforce limitations to the fat cats?
As my previous answer indicated, Jorge, it’s WAY too late.
There certainly needs to be both regulatory reform and — just as importantly — actual enforcement of regulations that already, and may soon, exist.
But the Volcker Plan is just not relevant to either the immediate problems — above all, absolute transparency for ALL derivatives transactions, although, again, it’s also way too late for that as well —
or the overarching ideological and ethical breakdown that began in the Reagan era and reached its unfortunate apotheosis during the nightmare years of Cheney / Bush.
3 It seems Volcker wants to return to some of the discipline rules of the Glass-Steagall Act of FDR times that were revised in the 1990s giving full speed to the financial innovations in leverage, high speed trading, derivatives, etc. This shift in legislation, if passed in the Senate and Congress, will bring a sound financial system in the US?
It’s precisely the return of Glass-Steagall, which the Democrats stupidly revoked when Clinton was in charge, under the direction of the “destructor-in-chief” Treasury Secretary Robert Rubin —
former head of Goldman Sachs, then head of Citigroup, where he did such an excellent job of helping run it into the ground —
and his loyal henchman, Larry Summers — now head of the National Economic Council — and HIS henchman, now Treasury Secretary, Tim Geithner.
But as you note, it does nothing to deal with the serious issues that were raised by the “under cover of night” revocation of any sort of regulation of derivatives in the waning days of the Clinton administration,
which are the real problems today, and which Volcker simply doesn’t deal with in any way.
4 Financial people react saying that this movement from the Administration will provoke a double dip in the stock markets and probably an economic double dip. Seems possible? Or it’s a pure political forcing from the financialization ecosystem?
Not to speak too broadly, but financial people almost always argue that ANY kind of regulation is going to “shake investor confidence” and create problems in the markets, and, hence the real economy.
How they have the nerve to say things like this after the absolute mess they created in the US and — because the US is the center of the world political economy — global economies is absolutely beyond me.
The “lending freeze” is a conscious effort of the Too Big To Fail banks and insurance companies to hold the political system hostage via blackmail and extortion:
until you assure us that you, the government / taxpayers, are going to cover ALL our losses —
and remember, those from both derivatives AND unsecured credit cards have yet to explode, although the Greek crisis is giving us a small taste of the former —
while we retain the profits, we’re not going to lend anybody anything, no matter how low the interest rate may be.
5 Is there a risk of a overlap of this financial reform impacts with a fiscal deficit or a sovereign debt crisis in the US, as the deficit hawks argue?
As Paul Krugman has correctly argued, there MAY be a problem in the distant future with inflation.
At the moment, however, by far the most significant macro-level economic problem is unemployment in all sectors but finance,
and the failure to do something serious about that is not just criminal from a human point of view,
but is also totally destructive economically, since it continues the vicious cycle characterized by little or no growth due to the lack of effective overall demand —
which remains the case, whatever the cooked numbers of the Bureau of Labor Statistics may pretend.
6 Despite the first moves of FED in the discount rates, do you think China will not change so far its policy regarding the support of the US debt?
The Chinese situation is very complicated, and I don’t think anyone really can say for certain what is going to happen there.
There are leading indicators of a bust, to be sure, with evident overcapacity in manufacturing, as well as commercial and residential real estate. But the economy appears to still be moving along, with consistent reports of labor shortages in key sectors.
So while I do think China is due for a slowdown of SOME sort, it’s hard to tell whether the “bust” theorists are correct or the — in my view, extremely intelligent — Chinese political leadership is going to be able to manage a soft landing.
As for their holdings of US debt, they have certainly cut back on new purchases, although the explicit figure is a bit deceiving, as they are continuing to buy Treasury paper via some of their “shadow” corporations.
The problem for them there is that they really can’t engage in a massive sale of their holdings for two reasons:
a) in general, their economy is so tied to exporting to the US, they do better when the US does better, so they have nothing to gain from a further deterioration of the US situation; and
b) they own so much US Treasury paper that if they DO engage in a massive sell-off at any point, all they’ll be doing is radically decreasing the value of their remaining holdings.
So while they may — legitimately — tweak the US about the “value” of their investment, I don’t think there’s much chance of them “pulling out” of the US —
they just have too much invested there that remains RELATIVELY safe, regardless of the problems that DO exist.
A few personal questions:
1 Why you did you decide to move to Singapore, which is one of my favorite cities in the world ?
LOLLL … well, it was a combination of things … I had a good idea that what did happen in the US was going to happen, and I didn’t want to be around when things started to fall apart.
And while I had lived in Europe and the Middle East, I was very interested in Asia and wanted to give it a try.
Unfortunately, my now ex-wife — who was born and raised in Japan — didn’t want to leave the US, and, since we didn’t have any children, it seemed to become clear I would be off on this particular adventure on my own.
That said, Singapore really is an excellent place to do business.
The general culture is extremely entrepreneurial, and you can’t help but respect the way they have created a safe place to live that has achieved extraordinary prosperity despite lacking all natural resources except the skill and hard work of its people.
Beyond that, I could do without the constant humidity, but that’s the major drawback.
2 How you see the Asian economic and financial landscape?
Well, again, a lot depends on China as above.
Obviously, I came here because I thought Asia was going to be much more vibrant economically than either the US or Europe, where I’ve lived and love to visit, and would certainly consider living again, although I’m not sure I could take the northern European winters anymore.
If China goes bust in a radical, “black swan” type of way, then things could get dicey in the region as a whole, especially if the US fails to pick up, as I fear will be the case.
My feeling is that Singapore now is a little overheated in both commercial and residential real estate, so a little cooling off wouldn’t be the worst thing in the world.
But I do think the extraordinary vision and flexibility of the leadership here will make it possible for Singapore, at least, to somehow manage through even an extended difficult time.
And the combination of the generally low price of labor in South East Asia AND its outstanding raw material profile — keep an eye on palm oil — makes me think it will also be able to “muddle through” as the British and Aussies say.
The key, though, remains China, and, while I wish I could give you a definitive analysis, I’m afraid no one will know until we actually see what starts to happen.
Thanks so much, Jorge, for a very enjoyable interview. I’ve enjoyed it greatly,and will be happy to speak with you again whenever it’s mutually convenient.
David Caploe PhD
Chief Political Economist
EconomyWatch.com
