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Marvin Zonis on the global economic crisis

Thursday 11 December, 2008

I attended this event organized by the Chicago Council on Global Affairs Geopolitics of the Global Economic Crisis basically because UC professor Marvin Zonis was part of the panel discussion.  I think Zonis is 1 of the most well-informed economists around.

NU Pres. Henry Bienen opened by posing some big, deep questions.  Jessica Mathews of the Carnegie Endowment for Internationa Peace opined that the US needs a strong economic recovery to assure foreign policy strength-we led into the recession & will lead out of it as well.  Evidence is the $ has strengthened in this time of crisis.  The central banks have taken control while post WWII institutions have done little to help, which might spell their demise.  Sovereignty no longer applies-countries can no longer contain financial contagion.  New players will be a reconfigured G8 into G(add your # here).  China wants in on the G# steering committe, but refuses to lead.  Their party’s strength relies on growth, but there’s far less liquidity to support that growth.  Dropping oil prices are good news, but Iran can’t be solved without Russia’s involvement, & the price of oil is crucial to both.

Zonis chimed in:  the current economic climate is ruled by 3 phsychological issues:  1. humiliation 2. anxiety 3.  mistrust.  Governments haven’t trusted their people, & conversely people no longer trust their governments.  This leads to rage, which commits people to local affiliations rather than national or international ones. 58 countries depend on commodity (wheat, copper, cotton) prices, which have collapsed.  The world’s riskiest country, Pakistan is on the verge of collapse because of terrorism.  Iran has not abandoned militarized aims @ nuclear capability.  China is the most important & influential economy, but will suffer political trauma in 2009 from unemployment.  However, there will be no more Tianamen Squares-they will open up more instead.  Obama is going to Europe in April & will be a tougher sheriff on foreign policy than many believe.  The net present value of our government debt is skyrocketing, & therefore government must be transformed.

Q&A addressed the following issues:

-sanctions on Iran are OK, especially on refined oil.  Russia is key & China will follow.  Iran will not wipe out Israel

-despite no interbank lending, the fed will win out in easing up the freezing credit market cycle.  We don’t know how bad the assets are on balance sheets.  Interest rates are already low, so the problem must be solved where it started, housing.  Volatility is fueled by anxiety, fear, & rage.

-the Euro has performed well, with limits on national debt of 3% of GDP, because the European Central Bank’s only role is to limit inflation, not encourage growth as the Fed must do.

-Europe is the biggest wielder of soft power, but if the Doha round of the WTO talks fail, it might move towards more regional governance as the expense of national governments.

-the central banks call the shots now with coordinated actions because there are no new international institutions since the close of WWII.  We must reform banking without restricting entrepreneurship, as the credit crunch is now.  Markets overshoot on the way up & down, as do the corollary regulations to regulate them.

My take-pay attention to what Zonis says.  He knows what’s up.

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