英文論文代寫達人www.china-doll.org

Several prominent newspapers have featured articles that blame the current financial crisis on China's buying of the US treasuries. In this theory, the deficit countries (e.g., Australia, Ireland, Spain, the US, the UK, etc.) are Peking ducks, the surplus countries (e.g., China, Japan, Russia, Saudi Arabia, etc.) are duck farmers, and the later force-feed the former into bloated debt junkies that eventually blow up. Of course, both willing lenders and borrowers must exist for a debt bubble to exist. But, who do you blame, the borrower, the lender, or the middleman? I am sure that stories and theories on all three would be plentiful. But, the accusation against China and other lending nations would be politically convenient. The politicians in the crisis countries could blame someone else and avoid making hard choices. However, the theory has the causality wrong.

Finger pointing in the blame game so far is mostly at Wall Street, i.e., the middleman. It is easy to do that. Just look at the CEOs of these institutions. They have paid themselves hundreds of millions of dollars on supposed accounting profits that have become today's write-offs. Their institutions are either already bankrupt or close to. Bernie Madoff's $50 billion scam crystallized the problem on Wall Street. It is easy for common people to see that this crisis has happened because these greedy people have taken advantage of the system and ruined it for their personal gains. I am sure Hollywood would have a feast with the stories that are coming out of Wall Street. They are so much better than made-up stories. Great movies could be made just by faithfully recording what happened.

I have been writing about Greenspan's guilt for this crisis. For years, I have written his bubble making decisions: I wrote (1) in 1999 that his rate reductions in response to the Asian Financial Crisis led to the IT bubble, (2) in 2000 that his rate reductions in response to the tech burst would lead to a property bubble or bond bubble or both, and (3) in 2003 that a new bubble was emerging with Greenspan as the DJ. When he took over the Fed in 1987, the US's financial sector had $1.9 trillion in debt or 29% of GDP. When he departed in 2005, it rose to $13 trillion or 104% of GDP.

In his appearance at a congressional hearing last year, he professed that he was shocked that the financial institutions that borrowed so much didn't take good care of it. So his explanation was that he didn't know. But, in 1998, when Long Term Capital Management ('LTCM') blew up, it nearly brought down the financial system. The problem was excessive leverage as reflected in the financial sector debt. If one fund could bring the system down, imagine how much risk the massive growth of the hedge fund industry and the proliferation of proprietary activities at investment banks could pose to the system. Indeed, the consensus among regulators and analysts after the LTCM debacle was that such off-balance sheet activities should be regulated. The opposition from him and top officials in the Clinton Administration kept such high risk activities unregulated and laid the foundation for the current crisis.

In a credit bubble, monetary policy plays a dominant role and must be held responsible for it. I had a debate last year with a friend on who was guilty. He argued that the export-led strategy by emerging economies was equally to blame. I argued against it. Some bubble happens somewhere everyday. A bubble forms when everyone bids up the price of an asset solely on the expectation that someone else will pay more latter. Hello Kitty dolls, puer tea, or modern paintings all could become bubbles. As long as supplies cannot increase quickly in response to rising price and something captures the attention of enough people, a bubble can happen. But, such bubbles are small relative to total money supply and can form without the support of monetary policy. A credit bubble is large relative to total money supply. Without an accommodating monetary authority, a credit bubble cannot possibly occur. For example, the increase of the financial sector leverage from 29% to 104% of GDP couldn't have happened without the Fed accommodating. If one person could and should have stopped the bubble, it was Greenspan.

Instead of being alarmed of surging leverage for proprietary investment such as warehousing derivatives in the financial system, Greenspan repeatedly claimed that the proliferation of derivative products was good for efficiency and failed to acknowledge that it was mostly for speculation. I don't know if he was genuinely naïve about what was happening. Mr. Greenspan is the individual most responsible for the crisis.

In his inaugural speech President Obama spoke about the collective failure to make hard choices. It was a euphemism for reckless borrowing by the US households. Should the borrowers who are not paying their debts be blamed? Some prominent analysts think it was all the fault of crafty bankers who cooked up complex products and fooled the masses into taking on debts they wouldn't be able to repay. I don't think so. The US households who took on triple zero mortgages-zero down payment, zero interest rate and principal repayment for two or three years knew they were offered only upside and no downside. If property price rises, they could benefit from the appreciation. If the price falls, they could walk away and go back to where they were from. They were offered a free option plus a nice house they could stay in for the time being for free. It was rational for them to take the deal. But, was it right? I think it would be quite naïve to portray the borrowers as the ultimate Peking ducks.

Of course, if the surplus countries were not willing to lend, what happened in the United States or other deficit countries couldn't have occurred. Greenspan's loose monetary policy would have led to dollar weakness and inflation, which would have forced him to raise interest rate. To what extent the surplus countries should be assigned some of the blame? Initially, the desire to accumulate foreign exchange reserves in dollars was in response the 1997-98 emerging market crises. The crises were triggered by dollar shortage. When Bernanke was at the Fed under Greenspan, he coined the famous term 'savings glut' to explain the US's large and lasting current account deficit. In his theory the US was doing the world a favor spending the money that other countries wouldn't spend.

Bernanke's explanation put the US at a passive position in receiving other's savings surplus. But, if Greenspan had refused to loosen up money supply, if the regulators had stopped the sales of dubious derivative products, if American households had refused to borrow the money they couldn't pay back, the surplus foreign savings couldn't have flowed into the US economy, and the dollar would have risen to keep out the money.

A more apt explanation is that the US's system evolved to take advantage of this source of cheap money. Self interest prompted the Wall Street to embrace a new business model that centered on pumping the cheap foreign money into the US household sector. Even though they are suffering now, American households had a good time with the money. A big party with cheap foreign money was just too tempting to resist. Indeed, regulations were lightened up to make the party possible. The US took advantage of foreigners' desire to accumulate dollars in the aftermath of the 1997-98 emerging market crises.

By 2004 it was obvious that the surplus countries couldn't get off accumulating dollars without their economies crashing. Their economies restructured for selling to the deficit countries and financing the sales with their surpluses. Private demand for dollars in these countries collapsed. Their central banks had to buy all the surplus dollars. Even though they knew it would crash one day, they didn't have the courage to let it go and bear the economic consequences. They waited for the US to implode.

'We were the Peking duck' is not an acceptable explanation for what happened in the deficit countries. It conjures up lack of free will among the most powerful and richest countries. Indeed, regulatory and monetary policies were accommodating in sustaining the bubble. The deficit countries spent other people's money for a good time. It doesn't make sense for them to blame the lending countries for their own behavior.

It is just unconscionable to blame cheap Chinese imports for the bubble. When Americans go to Wal-Mart for shopping, they want to save money. Cheap imports cannot be the reason for Americans living beyond their means. The driver for the US's deficit is its healthcare cost that has doubled to 16% of GDP in two decades, five percentage points more than in other developed economies. When Americans buy cheap imports, they are pressured to do so by rising healthcare costs. The US's healthcare system is the driver for what happened. Foreigners' desire to accumulate dollars made it possible for the US to defend its living standard despite the out-of-control healthcare cost.

A bubble can be an honest mistake. The herd mentality is a human weakness that underpins bubble phenomenon. However, in some bubbles, there are people who try to incite and take advantage of the herd mentality for their personal gains. These are the people who deserve to be prosecuted. We don't have to look far to see such people. Who have pocketed millions on false profits? Who gave worthless derivatives triple-A ratings? Who have changed the rules for dubious financial products to be sold?

The blame game is not just a rhetorical game. It could have serious consequences on actions. If the deficit countries blame the surplus countries for the crisis, they may just wait for the later to fix the problem. Apart from fiscal and monetary stimulus and bailing out their banks, they may not undertake structural reforms to balance their economies. The inaction could prolong the downturn and lay the foundation for another crisis.

For example, if the US replaces household borrowing with government borrowing to prop up the economy. Instead of Wall Street-issued derivatives, it is trillions of treasuries issued to foreign buyers. On the other side, the surplus countries keep buying the treasuries. The world is sort of back to its old form-unbalanced growth. But, one day, we will face a bigger crisis when foreigners stop buying the treasuries.

It is better to fix the problem now. The US shouldn't rely on stimulus alone to prop up the economy. It should develop a comprehensive plan to rein in healthcare cost to 12% of GDP or lower. On its current path, it would reach 20% of GDP by 2015. It is hard to see how the US could avoid greater financial crisis without serious structural reforms.

President Obama spoke eloquently about responsibility. He hit the hammer on the nail. This is what solving the problem all is about. Instead of blaming someone else and asking for assistance, everyone must cut back to help the economy to live within its means. Spending too much got the US into trouble. Spending more won't get it out of its problem.

Many analysts think that the US could grow out of its problem. The proposed stimulus would focus on investment. Overtime, it could boost the US's income sufficiently high to balance its book. In this strategy, the US will continue to rely on foreign money but for investment, not consumption. This strategy is high risk. How could government investment have the efficiency to boost substantially production capacity? Would foreigners be willing to go along with the program? And, if it works, could the income growth keep pace with escalating healthcare cost?

Unless we see serious reforms in the US's entitlement programs, the dollar would eventually vanish in value, and the US would experience hyperinflation.

The surplus countries are comprised mainly of East Asian manufacturing and oil export economies. Money concentration in the government or a few private entities is the main impediment to expanding their domestic demand. The dollar shortage in emerging markets now, for example, is a distribution issue. There is no absolute dollar shortage among emerging economies. They still have massive foreign exchange reserves. They need to swap the government's dollar assets for domestic currency assets of their dollar debtors. The crisis exposes the money distribution problem in these countries. While their governments were accumulating foreign exchange reserves buying dollars to offset their current account surpluses, their businesses were borrowing dollars from foreigners for investment. Shouldn't their governments have deployed the money better to support investment?

I think that concentration of asset ownership in the government or a few individuals is the key impediment to domestic demand in these countries. Look at China, Russia, Saudi Arabia, etc. They all have unusual ownership concentration. Unless wealth is widely held, it is difficult to have consumption-led economy.

Japan, Germany, and other OECD economies that depend on manufacturing exports have a different problem. Aging is pushing these economies to use exports to support their wealth level for maintaining high living standard in future. But, the other side can no longer support this desire. They may have to consume more now and less in future, i.e., they can't smooth their living standard. It is easy to achieve the later path. Their central banks should monetize their governments' debts. And these governments can decrease taxes to inflate the purchasing power of their household sector.

Most big economies have big but different domestic problems. As they became integrated through globalization, their problems led to the unusual growth path in the past ten years. They can use stimulus to cover up the problems for a few more years. But, it would bring even a bigger crisis. It is better to move towards a balanced growth model through structural reforms now.