Japan: The Triumph of Crony Corporatism Over the Individual

Japanese officials sometimes have the endearing quality of coming out and openly saying what they are doing, or intend to do, in support of dodgy political and financial arrangements that would make a Wall Street banker blush, if they are still capable of such an act of modesty.

The former Japanese Central Banker Toshiro Muto said in March that '"in principle equity values should be set by the market and authorities should avoid manipulating prices because doing so would hurt the stock market’s reputation."

Apparently in this case 'in principle' means 'theoretically, as is convenient," because Mr. Muto goes on to recommend that the Japanese Central Bank and government throw principles aside and buy stocks to support the Japanese banking cartel, which has crippled that country for the past fifteen to twenty years.

Notice how in his talk, Muto says that this arrangement will be temporary, until Japan can export its way out of its financial difficulties.

The challenge might be that most of the countries intend to 'export' their way out of their central bank created economic difficulties. China and India have already passed on the notion of becoming mass importers in the foreseeable future.

Perhaps the fate of the world rests on the ability of the nations of Africa and Polynesia to obtain the suitable credit ratings and FICO scores to become mass consumers with debts that can not possibly ever be repaid, à la mode Amerique? Is South America willing to once again mortgage its future for the sake of the financiers? I am sure that any appropriate arrangements can be made by the Central Banks with the target nations' ruling elites.

Japan is one of the worst examples of crony capitalism in the world. Its ruling LDP party has been a disgraceful example of serving private corporate interests, and acting without honor, honesty, and integrity.

Why doesn't the Bank of Japan just give the money to the banks, and let them buy stocks higher using leverage in the futures index markets like the Anglo-American crony capitalists? This is considered much more respectful of the market driven economy in the West.

"As the boom developed, the big men became more and more omnipotent in the popular or at least the speculative view... the big men decided to put the market up, and even some serious scholars have been inclined to think that a concerted move catalyzed this upsurge." J. K. Galbraith, The Great Crash of 1929

After all, as the industrialist, financier, and Democratic National Chairman John Jacob Raskob observed in August 1929, "Everybody ought to be rich." And so for a time they were, seemingly all powerful, invincible, as gods.

And the abyss swallowed them all. And then the descent into madness in Asia, Africa, the Mideast, and in Europe: and finally a world in flames. Monstrous actions done in the name of economic necessity, room for growth, fuel for industry, a new order for the ages, and at all times the will to power of the few. All the gods of greed.

And at last, the twilight of the gods. Götterdämmerung. Until the old gods rise again.

And so here we are, trembling at the veil.

(Note: this news piece below is not current. It is from earlier this year. It demonstrates the 'roots' of the rallies which we are seeing today in the world bourses. They are an illusion.)

Bloomberg
Japan May Need to Buy Stocks, Ex-BOJ Deputy Muto Says
By Mayumi Otsuma

March 10 (Bloomberg) -- Former Bank of Japan Deputy Governor Toshiro Muto said the government and the central bank may need to buy shares temporarily to support the country’s ailing stock market.

When global equities plunge, “it’s very meaningful for the government’s share-buying institution and the Bank of Japan to buy stocks to support the market,” Muto said at a forum co- hosted by Bloomberg News in Tokyo today. “However, such purchases cannot last forever and should be justified only as a tool to avert a crisis.”

The Nikkei 225 Stock Average is at a 26-year low, eroding banks’ capital and making them reluctant to lend. Finance Minister Kaoru Yosano said today that the government has a “strong will” to combat the credit squeeze resulting from the stock-market slump.

Muto, currently head of the Daiwa Institute of Research, added that "in principle" equity values should be set by the market and authorities should avoid manipulating prices because doing so would hurt the stock market’s reputation.

The government has already allocated 20 trillion yen ($203 billion) and the Bank of Japan has set aside 1 trillion yen to buy shares owned by banks. Yosano last month ordered lawmakers within the ruling Liberal Democratic Party to study ways to bolster stocks, including the feasibility of the government directly purchasing equities in the market.

Keidanren’s Plea

Keidanren, Japan’s largest business lobby, yesterday called on the government to allow a public entity to sell state-backed bonds and funnel the proceeds into the flagging stock market.

The Nikkei slid 0.4 percent today to 7,054.98, the lowest since October 1982, on concern shrinking global demand and rising fuel prices will weigh on company earnings.

An unprecedented drop in exports since last quarter has forced Japanese manufacturers to cut production at a record pace and fire thousands of workers. The central bank forecasts the economy will shrink 2 percent in the year starting April 1, the worst in 60 years.

Muto said exports will drive Japan’s eventual recovery. Deflationary risks outweigh concerns about inflation in the world’s second-largest economy, he added.

Muto served as the central bank’s deputy chief for five years following a 37-year career at Finance Ministry. He was the government’s first choice to succeed Toshihiko Fukui as governor last year, only to be rejected by the opposition- controlled upper house, which said his stint at the ministry may hamper the bank’s independence.

Barrick Capitulates

Barrick Gold and their bullion bank partner J.P. Morgan were the target of lawsuits by the gold bulls, most recently Blanchard and Company, for price manipulation through the use of forward sales in their hedge book. The contention was that the selling was being used to manipulate the price of gold.

Barrick's initial defense was that if they were acting in conjunction with the central banks, they were therefore immune from prosecution since the central banks are immune from prosecution. Details of that story are here. The public document that Blanchard had put forward was shocking in its implications indeed, and can be seen here.

Almost as shocking as the complete lack of interest and follow up in such a potential scandal by the financial community, market regulators, and the media.

One has to wonder what Barrick's management now sees in the precious metal markets, in order to accept this significant shareholder dilution to take down those fixed price contracts now.

On a related note, one of the current largest holders of the gold ETF (GLD) is now reported to be J.P Morgan, which is also a holder of one of the largest short gold positions on the COMEX. There was a bit of a row last year when it was revealed that the rules of the exchange would allow holders of short gold positions to make delivery good in, wait for it, the GLD ETF rather than in physical bullion.

In an ideal, efficient market there would have been transparency and symmetric disclosure of information under the auspices of the CFTC and the SEC, rather than cross accusations and lawsuits. The exact details of what had transpired are not known as the Blanchard lawsuit was settled.

The CFTC seems to be finally willing to act to place position limits on some of the commodity markets, such as oil, that have been the subject of speculative manipulation in recent years. Perhaps some day this will also include other reforms, and will include all the commodity markets.

How sweet it must be for the 'gold bugs' who had repeatedly cautioned Barrick's management on their use of hedges and fixed priced arrangement with the bullion banks.

Although for a large shareholder or group of shareholders in Barrick, one would think that a much more complete disclosure of the nature of this loss and the counter parties would be expected. How involved was J. P. Morgan? Was the Federal Reserve or any other central bank an actual counterparty or collaborator as Barrick apparently claimed in court in 2003? Does this have anything to do with China's recent position on derivatives obligations held by its State Owned Enterprises?

It does sound like there is now a Barrick put under the price of gold, in addition to the China put, that is, a floor under the price of the metal in the front month or spot markets.

In these opaque markets one can still only wonder what is really going on behind the scenes, in a number of financial arrangements. Yes we can.

Reuters
Barrick to Sell $3 Billion in Stock to Buy Back Hedges
By Cameron French
Tuesday, September 8, 2009

TORONTO -- Barrick Gold, the world's biggest gold producer, said on Tuesday it will issue $3 billion in stock and use the proceeds to buy back all of its fixed-price gold hedges and a portion of its floating hedges.

Barrick will take a $5.6 billion charge on its third-quarter earnings as a result of the move.

During times of weak prices, gold miners often sell a portion of their future production to protect, or hedge, against the possibility that prices will fall.

When prices rise, as they have done since 2001, the company suffers because value of the future production they've sold does not increase with the gold price. (The central banks of the world have turned from net sellers to buyers of gold this year, led by the BRIC countries who wish to hedge their reserves against a declining dollar - Jesse)

"The gold hedge book has been a particular concern among our shareholders and the broader market, which we believe has obscured the many positive developments within the company," Barrick Chief Executive Aaron Regent said in a statement.

Barrick stopped hedging, or forward-selling, its gold in 2003.

It exited its production hedge book two years ago, and the company has faced repeated questions from analysts and shareholders since then about its plans for the remaining 9.5 million ounces it had hedged to finance projects.

The equity deal comes as a resurgent gold price and healing credit markets have prompted investors to snap up gold stocks, bullion and equity.

The metal's price hovered just below $1,000 an ounce on Tuesday.

Barrick will issue 81.2 million shares at $36.95 a share, a 6 percent discount to the stock's New York closing price of $39.30 on Tuesday.

The company will use $1.9 billion of the proceeds to eliminate all of its fixed-price gold contracts -- on which the company effectively lost money every time the gold price rose -- by purchasing gold on the open market and delivering it into the contracts.

It will use about $1 billion to eliminate some of its floating spot price contracts. (Are they buying them out from the counterparties? Is J. P. Morgan one of them? - Jesse)

After the deal, Barrick will still hold floating hedges with a negative mark-to-market value of $2.7 billion, but the $5.6 billion charge will remove it from the balance sheet. (It sound as if they are writing them off as a loss - Jesse)

Bill O'Neill, a partner at LOGIC Advisors in Upper Saddle River, New Jersey, said the deal would not likely have a material impact on the gold market. (Off the cuff, the Barrick statement implies that they will be purchasing 4% of total world production in the open market for bullion which is already tight at these prices in addition to taking an enormous amount of forward selling off the market. Unless, of course, they can take delivery directly from existing reserves, such as from the Fed via the IMF. - Jesse)

US Dollar Seasonality

Rough seas ahead for Uncle Buck.



Chart Courtesy of ContraryInvestor.com

Fed: Consumer Credit Contracted at an annual rate of 10 1/2 Percent

Federal Reserve G.19 Report

Consumer credit decreased at an annual rate of 10-1/2 percent in July 2009.

Revolving credit decreased at an annual rate of 8 percent, and
nonrevolving credit decreased at an annual rate of 11-3/4 percent.

Cuomo: Bank of America Officials May Be Charged

The charges center around the acquisition of Merrill Lynch, and the lack of disclosure regarding losses, and the accelerated bonuses paid to Merrill.

Cuomo also cites their indiscriminate use of attorney - client privilege to mask wrongdoing.

Cuomo's action is a slap at the SEC which has crafted a settlement with the Bank, which has been challenged repeatedly by the Judge as a wristslap, defying commen sense and basic justice.

This comes as the SEC faces further charges of a whitewash of their involvement with the Madoff Ponzi scheme scandal, and the lack of discovery of the fate of the billions which Madoff took from investors.

Reminds one of the Spitzer actions as the New York Attorney General in which he brought Wall Street to judgement and a settlement on its scandals regarding analysts improper rating of stocks from the tech bubble. There had been repeated attempts by the federal regulators to short circuit Spitzer.

Reuters
UPDATE 1-NY's Cuomo may charge BofA execs over Merrill
Tue Sep 8, 2009 3:05pm EDT

NEW YORK, Sept 8 (Reuters) - New York's attorney general threatened on Tuesday to file charges against top executives of Bank of America Corp over the disclosure of details regarding bonuses it authorized to Merrill Lynch & Co employees before the company's merger.

Andrew Cuomo, the attorney general, made the threat as U.S. District Judge Jed Rakoff considers whether to approve the bank's $33 million civil settlement with the U.S. Securities and Exchange Commission about the disclosures.

The judge has rejected the settlement twice, and Bank of America and the SEC are expected to made new submissions in the matter by Wednesday.

Cuomo accused Bank of America of using a defense of attorney-client privilege to explain why it should not release more information about who authorized the payment of billions of dollars of bonuses.

"We cannot simply accept Bank of America's officers' naked assertions that they sought and relief on advice of counsel in good faith, and that, therefore, they should not be charged," Cuomo wrote in a letter to the bank's lawyer.

He gave the bank until Sept 14 to provide more information.

Bank of America did not immediately return a call seeking comment. (Reporting by Jonathan Stempel; Additional reporting by Elinor Comlay and Grant McCool; Editing by Ted Kerr)

China Admonishes US Monetization, Sees a Hard Fall for the Dollar Over Time

China is saying many things which are true.

They are also omitting many things that are key to the cause of our financial problems. They bought the silence of a succession of US political administrations over their blatant currency manipulation in support of trade subsidies, including the outright contributions to Clinton and Gore, and the cronyism with Bush.

China is a significant part of the problem, and like so many dogs that Wall Street helps to set up to further their gains, this one refuses to wag its tail on command.

The blowback on the US dollar will be significant.

Telegraph UK
China alarmed by US money printing
By Ambrose Evans-Pritchard
Cernobbio, Italy
9:06PM BST 06 Sep 2009

The US Federal Reserve's policy of printing money to buy Treasury debt threatens to set off a serious decline of the dollar and compel China to redesign its foreign reserve policy, according to a top member of the Communist hierarchy.

Cheng Siwei, former vice-chairman of the Standing Committee and now head of China's green energy drive, said Beijing was dismayed by the Fed's recourse to "credit easing".

"We hope there will be a change in monetary policy as soon as they have positive growth again," he said at the Ambrosetti Workshop, a policy gathering on Lake Como.

"If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies," he said. (China is already a strong buyer in the precious metals markets, and is encouraging its citizens to buy gold and silver as well - Jesse)

China's reserves are more than – $2 trillion, the world's largest.

"Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets," he added. (The short interest being held by three or four US banks is grown remarkably large. As Barrick gold claimed in their lawsuit with JP Morgan by Blanchard, they are being backstopped by the US government. Larry Summers has been a long time proponent of controlling the price of gold to influence longer term interest rates. See his paper on Gibson's Paradox. Greenspan understood the same relationship all too well, as does Bernanke. - Jesse)

The comments suggest that China has become the driving force in the gold market and can be counted on to buy whenever there is a price dip, putting a floor under any correction. (The other central banks of the world have put a significant halt to their own selling, now realizing that the US Federal Reserve and Treasury are fighting a losing battle. - Jesse)

Mr Cheng said the Fed's loose monetary policy was stoking an unstable asset boom in China. "If we raise interest rates, we will be flooded with hot money. We have to wait for them. If they raise, we raise. (How about releasing the peg to the US dollar and allowing the yuan to appreciate, dampening your exports, Uncle Cheng? Along with encouraging domestic consumption and higher wages. - Jesse)

"Credit in China is too loose. We have a bubble in the housing market and in stocks so we have to be very careful, because this could fall down." (Apparently the Chinese do not lie to their people yet about the true state of their economy. Greenspan and Geithner have much to teach them. - Jesse)

Mr Cheng said China had learned from the West that it is a mistake for central banks to target retail price inflation and take their eye off assets.

"This is where Greenspan went wrong from 2000 to 2004," he said. "He thought everything was alright because inflation was low, but assets absorbed the liquidity." (He didn't go wrong. He did not care. He was willfully blind. He was brought in to the banking ponzi scheme in 1996 - Jesse)

Mr Cheng said China had lost 20m jobs as a result of the crisis and advised the West not to over-estimate the role that his country can play in global recovery. (We should have NO illusion about China doing anything to promote imports and growth for anyone but themselves, ever. It is not a free market, it is a command economy with a strong mercantilist bent. - Jesse)

China's task is to switch from export dependency to internal consumption, but that requires a "change in the ideology of the Chinese people" to discourage excess saving. "This is very difficult". (No it is not. It is hard because the Chinese elites are afraid to lose control of the country to a growing merchant and middle class. - Jesse)

Mr Cheng said the root cause of global imbalances is spending patterns in US (and UK) and China. (One of the root causes was the devaluation of the Chinese yuan in the mid-1990's, and the allowance thereafter of China into most favored nation trading status with the US after making considerable contributions to Bill Clinton and Al Gore, through the Chinese military. Remember that scandal? - Jesse)

"The US spends tomorrow's money today," he said. "We Chinese spend today's money tomorrow. That's why we have this financial crisis...."

(Perhaps it is more correct to say that we have this crisis because statist governments and crony capitalists continually interfere with market mechanisms, creating unintended consequences and downtream crises that are growing increasingly severe and systemically threatening. - Jesse)

The Will to Power and Its Followers in the Socially Immature

"I am afraid we may have, in the near future, friendly fascism. And I do not use the term lightly. I grew up under fascism, in Franco’s Spain, and if nothing else, I recognize fascism when I see it. And we are seeing a growing fascism with a working-class base in the U.S. This is why we cannot afford to see Obama fail. But his staff and advisors are doing a remarkable job to achieve this. Ideologues such as chief-of-staff Rahm Emanuel (who, when a congressman, was the most highly funded by Wall Street) and his brother, Ezekiel Emanuel (who did indeed write that old people should have a lower priority for health care spending) are leading the country along a wrong path."

Vincente Navarro, Obama's Mistakes in Health Care Reform

Vincent Navarro writes an amazingly insightful political analysis of health care reform and the Obama Adminstration. This is as we would expect, since Navarro, is an M.D., Ph.D., and professor of Health Policy at The Johns Hopkins University and editor-in-chief of the International Journal of Health Services.

But then he goes on to end his essay with this remarkably bad prescription.

"Given this reality, it seems to me that the role of the left is to initiate a program of social political agitation and rebellion (I applaud the health professionals who disrupted the meetings of the Senate Finance Committee), following the tactics of the Civil Rights and anti-Vietnam War movements of the 1960s and 1970s. It is wrong to expect and hope that the Obama administration will change. Without pressure and agitation, not much will be done."

The Will to Power has a bewitching siren call. It offers simple solutions to complex problems. It provokes the cycle of problem - reaction - solution, and the eye for an eye approach that 'makes the whole world blind.'

"Communism and fascism or nazism, although poles apart in their intellectual content, are similar in this, that both have emotional appeal to the type of personality that takes pleasure in being submerged in a mass movement and submitting to superior authority." James A. C. Brown

And yet, like most dark powers, it decimates and destroys who pick up the sword, and lays waste to them, their country, and their children.

This is the lesson of history, the abyss of madness into which a great leader can bring a nation once it loses its sense of proportion, that people in their passionate desire for power often forget.

Peter Schiff on the Surge in Gold; Jesse Weighs in on Inflation and Deflation

Peter Schiff has not always been correct, most notably on the decoupling theory of foreign markets with the US, and the desirability of their equity markets, at least so far.

It is the case, of course, that the US lagged emergence from the Great Depression as compared to a number of overseas economies, for a variety of reasons on which we have speculated in the past.

Will this happen again? Perhaps, we cannot know. But the US is 'ground zero' for the Wall Street debt fraud and bubble economy based on the dollar reserves, and seems utterly incapable of taking action except to print more money and give it to Wall Street.

The decline in the value of the dollar does seem like a very high probability, as well as the rather severe stagflation which this may eventually produce. On this point Mr. Schiff seems most insightful, especially compared to the commentators on financial television.

The discussion which Peter has towards the end is particularly interesting about inflation and deflation. We tend to diverge again a bit from his analysis there however. He references monetary inflation. But this is not the only cause of price change.

There are definite and easily observable deflationary forces at work in the economy today in the form of slack demand, unemployment, and net credit contraction. This is putting severe downward pressure on prices as one would expect.

This will become worse as people realize that our current 'recovery' is a public relations event, and it may even result in a 'credit crunch' once again as it did last year. This is the 'dollar short' phenomenon that we have described, which particularly impacted European banks holding dollar assets.

At the same time, Bernanke has the printing presses running from the Adjusted Monetary Base up, and is pushing on the monetary inflation button, monetizing bad debts of non-traditional sorts, and weakening the dollar.

Foreign holders of US debt are starting to make their first moves in this game of prisoner's dilemma. At some point if confidence breaks, things might start moving much more quickly. Until then it will be a slow grind, an erosion of value and wealth.

The general American public is, in a sense, caught in the middle, with a lack of jobs and income for the working classes, but higher prices in imports and essentials. This is the stagflation outcome which we had feared. One bright spot is that it might be good for exports, if the Asian countries can generate domestic consumption and decide to free up access to their markets.

See Price Demand and Money Supply As They Relate to Inflation and Deflation You might also take a look at Some Common Fallacies About Inflation and Deflation.

Inflation and Deflation are not linear, that is, not straightforward and simple economic functions with a few variables, except at the tails of probability where the power of the extreme crushes the equation into simplicity by overwhelming other factors into insignificance. You print enough dollars, and consumer demand matters much less as an input to inflation.

Approaching the future with one dimensional game plans can be quite risky. But for some reason gold, and to a less extent silver, always appear to work to some degree in the solution mix, hence their continuing rally despite the best efforts of the powers that be to talk them down. As Bernard Baruch famously observed, "Gold has 'worked' down from Alexander's time... When something holds good for two thousand years I do not believe it can be so because of prejudice or mistaken theory."

The lack of coherent financial reform from the Obama Administration, and their ludicrous proposal to create a 'super-regulator' in the privately owned Federal Reserve, after a landslide victory in an election based on change and reform, is an outcome almost too bizarre to be believable. Unless, that is, you accept that Obama and those around him are either incredibly naive or corrupt. We suspect that as in all things it is some of both.

By the way, in case you missed it, Charlie Rangel, in charge of Ways and Means and the major proponent of a new military draft, is being investigated as another tax cheat among the Democratic leadership.

Do these people take us for imbeciles? Do they think that the world does not see their corruption, their greedy, devious nature when it is not masked by a captive media, and is not repelled by it?

In 2005 we forecast this very outcome, that Wall Street and their cronies would push their schemes beyond all reason, like drunk drivers or addicts who cannot quit, until they create a cathartic, catastrophic event which will cause someone to finally take away their keys at the last.

That time is approaching. No one can predict exactly when, but it is there. Make sure you are wearing your seat belts.

"There is precious treasure and oil in the house of the wise, but a fool consumes all that he has and saves none." Proverbs 21:20

(hat tip to Denver Dave for the link)

Stiglitz on the Financial Crisis

Joe Stiglitz describes the current financial crisis and prospective recovery quite well, and the conclusions he draws are remarkably similar to our own which is gratifying.

It's good to hear these things from a distinguished Nobel laureate, and not just from your humble Propriétaire, while puttering over his daily bread.

Bloomberg
Stiglitz Says U.S. Economic Recovery May Not Be ‘Sustainable’
By Michael McKee

Sept. 4 (Bloomberg) -- The U.S. economy faces a “significant chance” of contracting again after emerging from its worst recession since the 1930s, Nobel Prize-winning economist Joseph Stiglitz said.

“It’s not clear that the U.S. is recovering in a sustainable way,” Stiglitz, a Columbia University professor, told reporters yesterday in New York.

Economists and policy makers are expressing concern about the strength of a projected economic recovery, with Treasury Secretary Timothy Geithner saying two days ago that it’s too soon to remove government measures aimed at boosting growth.

Stiglitz said he sees two scenarios for the world’s largest economy in coming months. One is a period of “malaise,” in which consumption lags and private investment is slow to accelerate. The other is a rebound fueled by government stimulus that’s followed by an abrupt downturn -- an occurrence that economists call a “W-shaped’ recovery.

“There’s a significant chance of a W, but I don’t think it’s inevitable,” he said. The economy “could just bounce along the bottom.”

Stiglitz said it’s difficult to predict the economy’s trajectory because “we really are in a different world.” He said the crisis of the past year was made worse by lax regulation that allowed some financial firms to grow so large that the system couldn’t handle a failure of any of them.

Big Banks

“These institutions are not only too big to fail, they are too big to be managed,” he said.

Finance ministers and central bankers from the Group of 20 nations meet in London Sept. 4-5 to lay the groundwork for a summit in Pittsburgh later this month, where leaders will consider measures to overhaul supervision of the financial system...

With so much excess capacity, the American economy faces a short-term threat of disinflation and possibly deflation, Stiglitz said. Wages may even decline, given recent high productivity and the likelihood of an extended period of high unemployment, he said.

Longer term, he said the Fed’s aggressive monetary policy will mean inflation becomes the greater threat. “With the magnitude of the deficits and the balance sheet of the Fed having been blown up, it’s understandable why there are anxieties about inflation,” he said.

While the Fed says it has the tools to deal with it, there are still concerns, Stiglitz said. Because monetary policy takes six to 18 months to have its full effect, the central bank will have to begin withdrawing monetary stimulus on the basis of forecasts.

The Fed’s record on its economic forecasts isn’t enough to reassure investors and, as a result, the U.S. currency may suffer, he said.

Dollar ‘Weakness’

“Whether or not they’re able to do it, the uncertainty today about whether they can do it can contribute to the weakness of the dollar,” Stiglitz said. “That’s one of the reasons there is increasing interest around the world in discussing alternatives to the dollar system.”

Stiglitz, who is a member of a United Nations commission that will study the global financial system and currency regimes, said “the logic is compelling” for a new global currency.

The current system creates instability, weakens global confidence, and is fundamentally unfair to developing countries that are in essence lending the U.S. trillions of dollars and bearing the risk, he said.

“In most quarters, there is a feeling we should move away from the dollar system. The question is do we do it in an orderly way, or a chaotic way,” Stiglitz said. “The size of the deficit and the size of the balance sheet of the Fed have just increased the anxiety and the desire that something be done.”

While some think it would hurt the U.S. to no longer be able to borrow cheaply in dollars, “that era is over,” he said. “We’re moving to a more multi-polar world.”

Between the fall of the Berlin Wall and the collapse of Lehman Brothers was “the short period of American triumphalism, where we dominated the global scene. That period is over,” Stiglitz said.