|
Liquidate imf Original Source Link: (May no longer be active)
http://story.news.yahoo.com/news?tmpl=story2&u=/fo/20021028/bs_fo/2002_10_side_lines__liquidate_the_imf&e=3http://story.news.yahoo.com/news?tmpl=story2&u=/fo/20021028/bs_fo/2002_10_side_lines__liquidate_the_imf&e=3
Business - Forbes.com
Side Lines: Liquidate the IMF
Mon Oct 28, 3:39 PM ET
By William Baldwin
Much angst has arisen over the $480 billion trade deficit that the U.S. is running up. As Steve Hanke explains on page 180, the experts are urging that something be done. C. Fred Bergsten, a think-tanker and preeminent advocate of do-something economics, wants the government to force down the dollar on the currency exchanges. Supposedly this would make the world a better place by boosting exports from the U.S. and shrinking imports.
A better idea for the government: Ignore the deficit. Don't meddle in foreign exchange rates. Better still: Abolish the global agency that meddles in foreign exchange, the International Monetary Fund (news - web sites). (See also Fact & Comment, p. 28.)
The do-something philosophy of international economics, which has held sway for 58 years, says that free markets are too scary for international trade and must be countered with interventions, bailouts and capital controls. All that intervention hasn't spared the world periodic financial crises: Brazil now, Asia in 1997, Mexico in 1995 and others too numerous to mention. Such crises occur when the IOUs or banknotes of a nation lose credibility and other nations are called on to make these pieces of paper good. Or, to put it another way: Tax the middle class of the donor nations and hand the proceeds to various speculators. The price tag for Brazil will be $30 billion, to start.
But why validate Brazil's bad financial policies? Instead of rescuing the real, we could rescue the citizens upon whom this bad currency is inflicted. Hand out a hundred-dollar bill to each Brazilian (news - web sites), and let them use this alternative for transactions that are too important for the homemade currency. The global village is already getting dollarized--this is the way Russians pay for used cars, for instance, or the way Ecuadorians pay for everyday things--and we might as well encourage the practice. In time, the circulating dollars or yen or euros handed out in financial rescues would create some healthy competition for other currencies. You could have a reverse Gresham's Law at work, in which good money drives out bad. What sane Russian would take rubles for a nice car when he could take a more credible store of value?
That $480 billion deficit is not going away anytime soon, representing as it does a strong preference of foreign savers for dollar-based financial assets (and American hard assets, like real estate). We might as well make the most of the situation.
|
|
