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Politics : Foreign Affairs Discussion Group -- Ignore unavailable to you. Want to Upgrade?

To: maceng2 who wrote (49968)	10/7/2002 11:38:15 AM
From: Win Smith	Read Replies (2) \| Respond to of 281500

Yeah, well, to repeat, time to call K back into active service. We don't need no stinkin' democracy, if it threatens to interfere with the smooth operation of the big money guys. I think you're absolutely right about the loan thing. The whole IMF/ World Bank edifice seems entirely devoted to protecting big banks from their bad loans, when the world desperately needs real development aid.

To: maceng2 who wrote (49968)	10/7/2002 11:41:26 AM
From: Ilaine	Respond to of 281500

I agree that it's way too early to start talking about right wing coups in Brazil, but it is also true that this is a common scenario in the history of Latin America. Brazil's monetary problems are caused by trying to achieve the impossible. You can have any two of the following: free flow of capital, floating exchange rates, and an independent domestic monetary policy, but you cannot have all three. >>Seventy-five years ago, John Maynard Keynes pointed out that, "if the external price level is unstable, we cannot keep both our own price level and our exchanges stable. And we are compelled to choose." When Keynes wrote, he could take free capital movement for granted. The introduction of exchange controls by Hjalmar Schacht in the 1930s converted Keynes's dilemma into a trilemma. Of the three objectives--free capital movement, a fixed exchange rate, independent domestic monetary policy--any two, but not all three, are viable. We are compelled to choose.<< imfsite.org If a country tries to have all three at once, their monetary system collapses. The US decided that free capital movement and independent domestic monetary policy were best for us, so we have floating exchange rates. Europe decided that free capital movement and fixed exchange rates were best for them, so they established the EU, which forces countries to harmonize their domestic monetary policies. China decided that fixed exchange rates and independent domestic monetary policy were best for China, so it does not have free flow of capital. All three systems are remarkably stable internally. Even better, we are able to trade with each other in a remarkably stable manner. Countries can't have all three. They are compelled to choose. By the way, this was also true when the world was on the gold standard. It was the attempt to have all three that led to the Great Depression.