218 U.S. losing Japan to China. Don't re-appoint Bernanke - Steve Keen

U.S. losing Japan to China. Don't re-appoint Bernanke - Steve Keen

(1) In Japan, U.S. Losing Diplomatic Ground to China
(2) Don't re-appoint Bernanke - Steve Keen
(3) East Asians lose faith in the Anglo-Saxon model - or is it Jewish?
(4) Tax bankers' bonuses, & don't allow banks to play off one country against another

(1) In Japan, U.S. Losing Diplomatic Ground to China

http://www.nytimes.com/2010/01/24/world/asia/24japan.html

By MARTIN FACKLER

Published: January 23, 2010

TOKYO — When Defense Secretary Robert M. Gates visited Japan’s new leaders in October, not long after their historic election, he pressed so hard and so publicly for a military base agreement that the Japanese news media labeled him a bully.

Japan responded with eager hospitality during a visit to Tokyo last month by Vice President Xi Jinping, China's heir apparent.

The difference between that visit and the friendly welcome that a high-level Japanese delegation received just two months later in China, Japan’s historic rival, could not have been more stark.

A grinning President Hu Jintao of China took individual photos with more than a hundred visiting Japanese lawmakers, patiently shaking hands with each of them in an impressive display of mass diplomacy.

The trip, organized by the powerful secretary general of Japan’s governing Democratic Party, Ichiro Ozawa, was just one sign of a noticeable warming of Japan’s once icy ties with China. It was also an indication that the United States, Japan’s closest ally, may be losing at least some ground in a diplomatic tug-of-war with Beijing.

Political experts say Prime Minister Yukio Hatoyama’s greater willingness to engage Beijing and the rest of Asia reflects a broad rethinking of Japan’s role in the region at a time when the United States is showing unmistakable signs of decline. It also reflects a growing awareness here that Japan’s economic future is increasingly tied to China, which has already surpassed the United States as its largest trading partner.

“Hatoyama wants to use Asia to offset what he sees as the declining influence of the United States,” said Yoshihide Soeya, director of the Institute of East Asia Studies at Keio University in Tokyo. “He thinks he can play China off the United States.”

Mr. Soeya and other analysts say warmer ties with China are not necessarily a bad thing for Washington, which has long worried about Japan’s isolation in the region. But some are concerned that the new openness toward China may also be driven by a simmering resentment within Mr. Hatoyama’s left-leaning government of what some here call the United States’ “occupation mentality.” Those feelings have been stoked by what many Japanese see as the Obama administration’s high-handed treatment in the dispute over the air base on Okinawa.

The White House is pressing Japan to follow through on a controversial deal to keep a base on the island that was agreed to by the more conservative Liberal Democrats who lost control to Mr. Hatoyama’s party last summer after decades of almost uninterrupted power.

“If we’re worrying that the Japanese are substituting the Chinese for the Americans, then the worse thing you could do is to behave the way that we’re behaving,” said Daniel Sneider, a researcher on Asian security issues at Stanford University.

The new emphasis on China comes as Mr. Hatoyama’s government begins a sweeping housecleaning of Japan’s postwar order after his party’s election victory, including challenging the entrenched bureaucracy’s control of diplomatic as well as economic policy.

On security matters, the Liberal Democrats clearly tilted toward Washington. Past governments not only embraced Japan’s half-century military alliance with the United States, but also warned of China’s burgeoning power and regularly angered Beijing by trying to whitewash the sordid episodes of Japan’s 1930s-1940s military expansion.

American experts say the Obama administration has been slow to realize the extent of the change in Japan’s thinking about its traditional protector and its traditional rival.

Indeed, political experts and former diplomats say China has appeared more adept at handling Japan’s new leaders than the Obama administration has been. And former diplomats here warn that Beijing’s leaders are seizing on the momentous political changes in Tokyo as a chance to improve ties with Japan — and possibly drive a wedge between the United States and Japan.

“This has been a golden opportunity for China,” said Kunihiko Miyake, a former high-ranking Japanese diplomat who was stationed in Beijing. “The Chinese are showing a friendlier face than Washington to counterbalance U.S. influence, if not separate Japan from the U.S.”

Some conservative Japan experts in Washington have even warned of a more independent Tokyo becoming reluctant to support the United States in a future confrontation with China over such issues as Taiwan, or even to continue hosting the some 50,000 American military personnel now based in Japan.

Despite such hand-wringing among Japan experts in the United States, Mr. Hatoyama continues to emphasize that the alliance with Washington remains the cornerstone of Japanese security. And suspicions about China run deep here, as does resentment over Japan’s losing its supremacy in Asia, making a significant shift in loyalty or foreign policy unlikely anytime soon, analysts say.

But in the four months since Mr. Hatoyama took office, there has been an unusual flurry of visits back and forth by top-ranking Chinese and Japanese officials, including one last month to Tokyo by China’s heir apparent, Vice President Xi Jinping.

The new mood of reconciliation is also evident in the novel ideas that have been floated recently to overcome the differences over wartime history that have long isolated Japan from the region.

These include a recent report in the Yomiuri Shimbun, a Japanese newspaper, based on unidentified diplomatic sources, of a Chinese initiative for reconciliation that would include a visit by Mr. Hatoyama to Nanjing to apologize for the 1937 massacre of Chinese civilians there by invading Japanese soldiers. President Hu would then visit Hiroshima to proclaim China’s peaceful intentions.

While both countries dismissed the report as speculation, it spurred wide talk here that the report might be a trial balloon by one of the two countries that could signal a new willingness to make some sort of diplomatic breakthrough on the history issues.

And a week after the visit to Beijing by Mr. Ozawa and his parliamentary delegation, which Mr. Hu heralded as the start of a smoother era in Japan-China relations, Tokyo reciprocated with its own display of eager hospitality during a visit to Tokyo by Mr. Xi, the Chinese vice president. Mr. Hatoyama arranged a meeting between Mr. Xi and Emperor Akihito at the Imperial Palace in Tokyo on short notice, breaking protocol that such audiences be arranged more than a month in advance.

Mr. Ozawa, a shadowy kingmaker whose power rivals Mr. Hatoyama’s, is said to have warm feelings for China, where he has often visited, and he is widely seen as the force behind Japan’s latest overtures to Beijing.

Other members of Mr. Hatoyama’s cabinet remain less convinced that any drift away from the United States is a good idea.

One of the skeptics is Defense Minister Toshimi Kitazawa, who has stressed the need for the American military presence to offset China and a nuclear-armed North Korea. Last month, Mr. Kitazawa brought in Yukio Okamoto, a widely respected former diplomat and adviser to Liberal Democratic prime ministers, to advise Mr. Hatoyama on security issues.

“The Democrats have to realize the threat we have on the Korean Peninsula, and that China is not a friendly country in military matters,” Mr. Okamoto said.

Mr. Soeya, of Keio University, warned that the new Japanese government should at least think hard before sidling closer to China, saying, “Mr. Hatoyama does not have a clear sense of what relying on China would really mean, or whether it is even actually desirable.”

(2) Don't re-appoint Bernanke - Steve Keen

{visit the link to see the charts}

From: ERA <hermann@picknowl.com.au> Date: 28.01.2010 12:05 AM
Subject: [ERAInf] The economic case against Bernanke

The economic case against Bernanke
by Steve Keen

January 24th, 2010

http://www.debtdeflation.com/blogs/2010/01/24/debtwatch-no-42-the-economic-case-against-bernanke/

The US Senate should not reappoint Ben Bernanke. As Obama’s reaction to the loss of Ted Kennedy’s seat showed, real change in policy only occurs after political scalps have been taken. An economic scalp of this scale might finally shake America from the unsustainable path that reckless and feckless Federal Reserve behavior set it on over 20 years ago.

Some may think this would be an unfair outcome for Bernanke. It is not. There are solid economic reasons why Bernanke should pay the ultimate political price.

Haste is necessary, since Senator Reid’s proposal to hold a cloture vote could result in a decision as early as this Wednesday, and with only 51 votes being needed for his reappointment rather than 60 as at present. This document will therefore consider only the most fundamental reason not to reappoint him, and leave additional reasons for a later update.

Misunderstanding the Great Depression

Bernanke is popularly portrayed as an expert on the Great Depression—the person whose intimate knowledge of what went wrong in the 1930s saved us from a similar fate in 2009.

In fact, his ignorance of the factors that really caused the Great Depression is a major reason why the Global Financial Crisis occurred in the first place.

The best contemporary explanation of the Great Depression was given by the US economist Irving Fisher in his 1933 paper “The Debt-Deflation Theory of Great Depressions”. Fisher had previously been a cheerleader for the Stock Market bubble of the 1930s, and he is unfortunately famous for the prediction, right in the middle of the 1929 Crash, that it was merely a blip that would soon pass:

“ Stock prices have reached what looks like a permanently high plateau. I do not feel that there will soon, if ever, be a fifty or sixty point break below present levels, such as Mr. Babson has predicted. I expect to see the stock market a good deal higher than it is today within a few months.”  (Irving Fisher, New York Times, October 15 1929)

When events proved this prediction to be spectacularly wrong, Fisher to his credit tried to find an explanaton. The analysis he developed completely inverted the economic model on which he had previously relied.

His pre-Great Depression model treated  finance as just like any other market, with supply and demand setting an equilibrium price. In building his models, he made two assumptions to handle the fact that, unlike the market for, say, apples, transactions in finance markets involved receiving something now (a loan) in return for payments made in the future. Fisher assumed

“ (A) The market must be cleared—and cleared with respect to every interval of time.

(B) The debts must be paid.”  (Fisher 1930, The Theory of Interest, p. 495)[1]

I don’t need to point out how absurd those assumptions are, and how wrong they proved to be when the Great Depression hit—Fisher himself was one of the many whose fortunes were wiped out by margin calls they were unable to meet.  After this experience, he realized that his equilibrium assumption blinded him to the forces that led to the Great Depression. The real action in the economy occurs in disequilibrium:

We may tentatively assume that, ordinarily and within wide limits, all, or almost all, economic variables tend, in a general way, toward a stable equilibrium… But the exact equilibrium thus sought is seldom reached and never long maintained. New disturbances are, humanly speaking, sure to occur, so that, in actual fact, any variable is almost always above or below the ideal equilibrium…

It is as absurd to assume that, for any long period of time, the variables in the economic organization, or any part of them, will “stay put,” in perfect equilibrium, as to assume that the Atlantic Ocean can ever be without a wave. (Fisher 1933, p. 339)

A disequilibrium-based analysis was therefore needed, and that is what Fisher provided. He had to identify the key variables whose disequilibrium levels led to a Depression, and here he argued that the two key factors were “over-indebtedness to start with and deflation following soon after”. He ruled out other factors—such as mere overconfidence—in a very poignant passage, given what ultimately happened to his own highly leveraged  personal financial position:

I fancy that over-confidence seldom does any great harm except when, as, and if, it beguiles its victims into debt. (p. 341)

Fisher then argued that a starting position of over-indebtedness and low inflation in the 1920s led to a chain reaction that caused the Great Depression:

“(1) Debt liquidation leads to distress selling and to

(2) Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes

(3) A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be

(4) A still greater fall in the net worths of business, precipitating bankruptcies and

(5) A like fall in profits, which in a “capitalistic,” that is, a private-profit society, leads the concerns which are running at a loss to make

(6) A reduction in output, in trade and in employment of labor. These losses, bankruptcies, and unemployment, lead to

(7) Pessimism and loss of confidence, which in turn lead to

(8) Hoarding and slowing down still more the velocity of circulation. The above eight changes cause

(9) Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest.” (p. 342)

Fisher confidently and sensibly concluded that “Evidently debt and deflation go far toward explaining a great mass of phenomena in a very simple logical way”.

So what did Ben Bernanke, the alleged modern expert on the Great Depression, make of Fisher’s argument? In a nutshell, he barely even considered it.

Bernanke is a leading member of the “neoclassical” school of economic thought that dominates the academic economics profession, and that school continued Fisher’s pre-Great Depression tradition of analysing the economy as if it is always in equilibrium.

With his neoclassical orientation, Bernanke completely ignored Fisher’s insistence that an equilibrium-oriented analysis was completely useless for analysing the economy. His summary of Fisher’s theory (in his

Essays on the Great Depression) is a barely recognisable parody of Fisher’s clear arguments above:

Fisher envisioned a dynamic process in which falling asset and commodity prices created pressure on nominal debtors, forcing them into distress sales of assets, which in turn led to further price declines and financial difficulties. His diagnosis led him to urge President Roosevelt to subordinate exchange-rate considerations to the need for reflation, advice that (ultimately) FDR followed. (Bernanke 2000, Essays on the Great Depression, p. 24)

This “summary” begins with falling prices, not with excessive debt, and though he uses the word “dynamic”, any idea of a disequilibrium process is lost. His very next paragraph explains why. The neoclassical school ignored Fisher’s disequilibrium foundations, and instead considered debt-deflation in an equilibrium framework in which Fisher’s analysis made no sense:

Fisher’ s idea was less influential in academic circles, though, because of the counterargument that debt-deflation represented no more than a redistribution from one group (debtors) to another (creditors). Absent implausibly large differences in marginal spending propensities among the groups, it was suggested, pure redistributions should have no significant macroeconomic effects. ” (p. 24)

If the world were in equilibrium, with debtors carrying the equilibrium level of debt, all markets clearing, and all debts being repaid, this neoclassical conclusion would be true. But in the real world, when debtors have taken on excessive debt, where the market doesn’t clear as it falls and where numerous debtors default, a debt-deflation isn’t merely “a redistribution from one group (debtors) to another (creditors)”, but a huge shock to aggregate demand.

Crucially, even though Bernanke notes at the beginning of his book that “the premise of this essay is that declines in aggregate demand were the dominant factor in the onset of the Depression” (p. ix), his equilibrium perspective made it impossible for him to see the obvious cause of the decline: the change from rising debt boosting aggregate demand to falling debt reducing it.

In equilibrium, aggregate demand equals aggregate supply (GDP), and deflation simply transfers some demand from debtors to creditors (since the real rate of interest is higher when prices are falling). But in disequilibrium, aggregate demand is the sum of GDP plus the change in debt. Rising debt thus augments demand during a boom; but falling debt substracts from it during a slump

In the 1920s, private debt reached unprecedented levels, and this rising debt was a large part of the apparent prosperity of the Roaring Twenties: debt was the fuel that made the Stock Market soar. But when the Stock Market Crash hit, debt reduction took the place of debt expansion, and reduction in debt was the source of the fall in aggregate demand that caused the Great Depression.

Figure 1 shows the scale of debt during the 1920s and 1930s, versus the level of nominal GDP.

Figure 1: Debt and GDP 1920-1940

Figure 2 shows the annual change in private debt and GDP, and aggregate demand (which is the sum of the two). Note how much higher aggregate demand was than GDP during the late 1920s, and how aggregate demand fell well below GDP during the worst years of the Great Depression.

Figure 2: Change in Debt and Aggregate Demand 1920-1940

Figure 3 shows how much the change in debt contributed to aggregate demand—which I define as GDP plus the change in debt (the formula behind this graph is “The Change in Debt, divided by the Sum of GDP plus the Change in Debt”).

Figure 3: Debt contribution to Aggregate Demand 1920-1940

So during the 1920s boom, the change in debt was responsible for up to 10 percent of aggregate demand in the 1920s. But when deleveraging began, the change in debt reduced aggregate demand by up to 25 percent. That was the real cause of the Great Depression.

That is not a chart that you will find anywhere in Bernanke’s Essays on the Great Depression. The real cause of the Great Depression lay outside his view, because with his neoclassical eyes, he couldn’t even see the role that debt plays in the real world.

Bernanke’s failure

If this were just about the interpretation of history, then it would be no big deal. But because they ignored the obvious role of debt in causing the Great Depression, neoclassical economists have stood by while debt has risen to far higher levels than even during the Roaring Twenties.

Worse still, Bernanke and his predecessor Alan Greenspan operated as virtual cheerleaders for rising debt levels, justifying every new debt instrument that the finance sector invented, and every new target for lending that it identified, as improving the functioning of markets and democratizing access to credit.

The next three charts show what that dereliction of regulatory duty has led to. Firstly, the level of debt has once again risen to levels far above that of GDP (Figure 4).

Figure 4: Debt and GDP 1990-2010

Secondly the annual change in debt contributed far more to demand during the 1990s and early 2000s than it ever had during the Roaring Twenties. Demand was running well above GDP ever since the early 1990s (Figure 5). The annual increase in debt accounted for 20 percent or more of aggregate demand on various occasions in the last 15 years, twice as much as it had ever contributed during the Roaring Twenties.

Figure 5: Change in Debt and Aggregate Demand 1990-2010

Thirdly, now that the debt party is over, the attempt by the private sector to reduce its gearing has taken a huge slice out of aggregate demand. The reduction in aggregate demand to date hasn’t reached the levels we experienced in the Great Depression—a mere 10% reduction, versus the over 20 percent reduction during the dark days of 1931-33. But since debt today is so much larger (relative to GDP) than it was at the start of the Great Depression, the dangers are either that the fall in demand could be steeper, or that the decline could be much more drawn out than in the 1930s.

Figure 6: Debt contribution to Aggregate Demand 1990-2010

Conclusion

Bernanke, as the neoclassical economist most responsible for burying Fisher’s accurate explanation of why the Great Depression occurred, is therefore an eminently suitable target for the political sacrifice that America today desperately needs. His extreme actions once the crisis hit have helped reduce the immediate impact of the crisis, but without the ignorance he helped spread about the real cause of the Great Depression, there would not have been a crisis in the first place. As I will also document in an update in early February, some of his advice has made America’s recovery less effective than it could have been.

Obama came to office promising change you can believe in. If the Senate votes against Bernanke’s reappointment, that change might finally start to arrive.

Addendum

This is an advance version of my monthly Debtwatch Report for February 2010. Click here for the PDF version. Please feel free to distribute this to anyone you think may be interested–especially people who may be in a position to influence the Senate’s vote.

Professor Steve Keen
www.debtdeflation.com/blogs
[1] This book was an untimely relaunch of his 1907 PhD thesis.

(3) East Asians lose faith in the Anglo-Saxon model - or is it Jewish?

http://www.thebanker.com/news/fullstory.php/aid/7003/Kishore_Mahbubani__-_Comment.html

Kishore Mahbubani - Comment

Published: 23 December, 2009

Trust and confidence in the Anglo-Saxon model of regulation have evaporated so much as a result of the financial crisis that Asian policy-makers are now beginning to rethink key issues about regulation from first principles.

As the financial tsunami unleashed by the West has swept across the world over the past two years, it has washed away from many Asian minds the notion that Western financial management was their superior. This will probably be the single biggest effect of the financial crisis and will pave the way for the creation of a new and more stable financial order based on inputs from Asia and other regions.

It is amazing how much can change in a decade. After the Asian financial crisis of 1997/98, Time magazine produced a triumphant story titled ‘The Three Marketeers’ explaining how American policy-makers “prevented a global economic meltdown – so far”. It pictured Alan Greenspan, Robert Rubin and Larry Summers on the cover and labelled them “the committee to save the world”.

{all three are Jewish, but that can't be mentioned - Peter M.}

Over the past 10 years, though, the key ‘marketeer’ has been Mr Greenspan. For most of the decade, Mr Greenspan was treated as god in the American media, which prides itself on being the most open and critical in the world. Yet the US media refused to question the market fundamentalism of Mr Greenspan. And now we know that there were monumental failures of judgement by Mr Greenspan and other financial regulators in Washington. Why didn’t the US media point this out at the time?

Sadly, the assumptions of the US media were also accepted by most of the rest of the world, since so many global news channels are controlled by US media organisations. As years of continuous economic growth passed by, many accepted the media’s judgement that if left to regulate themselves the markets could do no wrong. Few people saw that Anglo-Saxon market fundamentalism was building up towards the biggest financial storm in 70 years.

This belief of Mr Greenspan’s – that markets would regulate themselves – was his biggest intellectual mistake. Given the American domination of key global institutions, Mr Greenspan’s ideological view filtered into organisations such as the International Monetary Fund (IMF). In April 2006, three years after Mr Greenspan’s comments on market self-regulation, the flagship publication of IMF, the Global Financial Stability Report, said the following: “There is growing recognition that the dispersion of credit risk by banks to a broader and more diverse group of investors… has helped make the banking and overall financial system more resilient... Consequently the commercial banks may be less vulnerable today to credit or economic shocks.”

How could the IMF have been so blind? The answer is so astonishingly simple. The IMF followed that market fundamentalist ideology.

Timid response

Many Asians assumed that after this enormous financial debacle, the US Congress and American regulatory agencies would have received a sharp wake-up call and focused all their attention on redesigning the regulation of the financial markets in the public interest and ensuring that they serve the needs of the economy as a whole and not the narrow sectoral interest of the financial industry. Similarly, they need to recognise – as the providers of the international reserve currency – that their decisions have consequences far beyond their shores. This would have been a natural result to expect.

Instead many Asians are shocked to see that the US Congress is struggling to write new laws regulating the financial industry. The lobbyists for the industry are out in full force on Capitol Hill, working to ensure that any new laws are watered down. Yet the failure to regulate the financial markets was one of the leading causes of the financial storm that the world has suffered. AIG, for example, ‘chose’ its own regulator for its riskiest business.

If the US financial industry succeeds once again in ‘capturing’ its regulators, the net effect will be to devalue the US financial regulatory structure and perhaps that of other Western countries.

In 2008, I met an Indian official involved in financial regulation. He told me that a Swiss banker had just come to see him to find out how to get an Indian banking licence. The banker was briefed on the requirements and told that the Indian authorities would also assess his regulator. The European banker smiled and said: “No problem. We have excellent regulation.” The Indian official replied: “After subprime, we are not sure of US regulation; after Northern Rock, British regulation; after Société Générale, French regulation and after UBS, Swiss regulation.” In short, the West is no longer the gold standard in the field of financial regulation.

More recently, in November 2009, I spoke with a senior representative of a major European bank. He oversees the bank’s operations in east and south-east Asia. He told me that until two years ago, whenever he met his Asian regulators, they would happily accept his explanation if he said that a certain bank practice was mandated by his main European regulators. After the financial tsunami, each of the Asian regulators would now say to him: “We saved your bacon in this crisis. Don’t tell us what your European regulator is asking you to do.” Given the loss of confidence in Anglo-Saxon regulation, Asian policy-makers have to rethink key issues from first principles.

There is no doubt that most Asian policy-makers feel vindicated by their prudence, pragmatism and caution in dealing with the sophisticated financial investments unleashed by American banks. After the massive errors of judgment in the US financial sector, both in the private and public sectors, the time has come for a new kind of dialogue between the US and its counterparts. American regulators and banks can no longer behave as ‘the committee to save the world’. They need to treat their Asian counterparts as equals and recognise that learning is a two-way street.

Tacit unease

Unfortunately, even though this is what most Asians are thinking, in Asian cultures, there is a reluctance to tell one’s interlocutor anything that might offend them. One of the few exceptions is a US-trained Chinese lawyer, Gao Xiqing. In a fascinating interview with James Fallows in The Atlantic in December 2008, Mr Gao expressed thoughts found in most Asian minds but rarely expressed to their Western interlocutors. Given Mr Greenspan’s reluctance to regulate derivatives, Mr Gao’s remarks on the same product are worth mentioning. He said: “If you look at every one of these derivative products, they make sense. But in aggregate, they are bullshit. They are crap. They serve to cheat people.”

He also spoke for many Asians when he gave the following advice to American policy-makers: “This generation of Americans is so used to your supremacy. You’re being treated nicely by everyone. It hurts to think: ‘OK, now we have to be on equal footing to other people’. ‘On equal footing’ would necessarily mean that sometimes you have to stoop to appear to be humble to other people. Americans are not sensitive in that regard. I mean, as a whole. The simple truth today is that your economy is built on the global economy. And it’s built on the support, the gratuitous support, of a lot of countries. So why don’t you come over and… I won’t say kowtow, but at least, be nice to the countries that lend you money. Talk to the Chinese! Talk to the Middle Easterners!”

Mr Gao’s remarks are very strong and can be easily misunderstood and misquoted. He was not gloating over the American condition. On the contrary, he wants the US to once again become the strong player it once used to be. As he says: “I have great admiration of American people… But you have to have someone to tell you the truth. And then, start realising it… then you’ll be great again.”

Mr Gao’s wish is also the wish of many Asians. None relish the downfall of the US or the disappearance of US leadership. Most Asians recognise that the benign international rules-based order created by the US after World War Two is a key reason for the progress that Asians have grown to enjoy over the past few decades. They would all prefer to see the continuation of this rules-based order.

If the US can learn to treat the Asians on the basis of equality and mutual respect, a lot can be accomplished with renewed and strengthened US-Asian co-operation. The centre of world history hovered over the Atlantic over the past two centuries. This is why trans-Atlantic co-operation was vital then. In the 21st century, the centre of world history has shifted to the Pacific Ocean. Hence the US must strive to achieve the same degree of co-operation across the Pacific as it has worked out across the Atlantic, and it must learn to listen.

Kishore Mahbubani is the dean of the Lee Kuan Yew School of Public Policy, National University of Singapore, and the author of The New Asian Hemisphere: the Irresistible Shift of Global Power to the East

(4) Tax bankers' bonuses, & don't allow banks to play off one country against another
http://www.thebanker.com/news/fullstory.php/aid/7002/Christine_Lagarde_-_Interview.html

Christine Lagarde - Interview

Published: 23 December, 2009

The no-nonsense style of France’s finance minister has won her many admirers. She tells The Banker of how she intends to tackle the hardest task of her tenure, that of regulating France and Europe’s post-crisis banking landscape. Writer Silvia Pavoni

French finance minister Christine Lagarde has emerged as one of the rare winners from the financial crisis. Named European Finance Minister of the Year by the Financial Times, she has a forceful political presence and promising economic measures on her side. ...

Beside the academic considerations on the link between pay and systemic risk, bankers’ remuneration also has an immediate, practical effect on competition.

Many across the industry believe that fiddling around with compensation will become a real issue and could make institutions from countries with a more relaxed approach, such as the US, far more appealing, penalising countries such as France and the UK, which have recently announced a one-off 50% bonus tax. France, which waited for the UK to take the initiative, is now inviting other European countries to follow this example.

How much could this push New York and the US ahead of European financial centres? Ms Lagarde says we should not allow banks to play off one country against another in this way and suggests that there would be a wider consensus on bankers’ compensation across governments in the future. “I see with great interest that people such as Alistair Darling or Tim Geithner, in the past few weeks, have raised their voices concerning the payment of bonuses and I can tell you that we talk among ourselves. There are lots of decisions being made in relation to bonuses, based on lack of information and understanding on what’s going on. We’ve seen it in the crisis and we see it again. I have banks coming to me and saying, ‘oh, I can’t do that [about bonuses] because Royal Bank of Scotland, or Barclays, or UBS are paying this much’ and then UBS goes to so and so and says, ‘we need a level playing field and we have to offer the same’. We’re not dumb – we might not be able to very strongly influence the process, but we’re not dumb.”

On their side, French banks have responded to government pressure and have agreed on limiting their bonus packages. However, industry insiders suggest that there are ways around this and that the word ‘guaranteed’ has been used again when negotiating bonuses packages. In the UK, for example, Barclays Capital has implemented back-dated pay rises and doubled the maximum basic pay for its top managers from £120,000 (E133,500) to £300,000 as a way of making up for lower bonuses.