Larry Summers: The Past Month May Go Down as a Turning Point for U.S. Economic Power

[Purveyor]

In a new column, former Treasury Secretary Larry Summers delivers a scathing message (emphasis ours):

"This past month may be remembered as the moment the United States lost its role as the underwriter of the global economic system. True, there have been any number of periods of frustration for the US before, and times when American behaviour was hardly multilateralist, such as the 1971 Nixon shock, ending the convertibility of the dollar into gold. But I can think of no event since Bretton Woods comparable to the combination of China’s effort to establish a major new institution and the failure of the US to persuade dozens of its traditional allies, starting with Britain, to stay out of it."

Summers is referencing the new Asian Infrastructure Investment Bank, China’s 18-month-old plan to start the first new multilateral development lender in decades. More than 40 countries applied to be founding members including China, Australia, Egypt, Ukraine, the U.K., France, Switzerland, India, and South Korea.

Mohamed El-Erian voiced similar concerns in a Bloomberg View column late last month.

Through the combination of the proposed AIIB, a new development bank and mushrooming bilateral arrangements, China is slowly building small pathways to bypassing the longstanding institutional arrangement. No wonder the U.S. is again worried about the erosion of the existing Western-dominated multilateral system (in this particular case, the World Bank) where its influence is still considerable, if not determinant.

There are still some unknowns in how the bank will operate, but we should learn more when after the final round of talks among founding members, which is scheduled for May. The AIIB is expected to be fully established by the end of the year.

Summers puts much of the blame on the current U.S. political environment:

This failure of strategy and tactics was a long time coming, and it should lead to a comprehensive review of the US approach to global economics...Political pressures from all sides in the US have rendered it increasingly dysfunctional. Largely because of resistance from the right, the US stands alone in the world in failing to approve the International Monetary Fund governance reforms that Washington itself pushed for in 2009...Meanwhile, pressures from the left have led to pervasive restrictions on infrastructure projects financed through existing development banks, which consequently have receded as funders, even as many developing countries now see infrastructure finance as their principle external funding need.

Read the full column here.

http://www.bloomberg.com/news/articles/2015-04-06/larry-summers-the-past-month-may-go-down-as-a-turning-point-for-u-s-economic-power

[FreakinDJ]

1. If Larry's Wall St rules were not a Sham

Then they would not need it

[djean111]

2. In other words, pressure from the Left kept the banks from inflicting full austerity and

privatization. That's what I am getting out of that. If so, well done, us!

[KoKo]

3. He talks out of both sides of his mouth...and considering his past interferences

in crashing Harvard's Endowment fund and bringing Wall Street to Russia in the '90's after the collapse of the Soviet Union--plus his other misguided policies ....why should anyone take him seriously? He sounds like he's supporting the Middle Class in this piece but he gives with one hand and takes back with the other.

Like this contradictory gibberish:

First, American leadership must have a bipartisan foundation at home, be free from gross hypocrisy and be restrained in the pursuit of self-interest. As long as one of our major parties is opposed to essentially all trade agreements, and the other is resistant to funding international organisations, the US will not be in a position to shape the global economic system.

Other countries are legitimately frustrated when US officials ask them to adjust their policies — then insist that American state regulators, independent agencies and far-reaching judicial actions are beyond their control. This is especially true when many foreign businesses assert that US actions raise real rule of law problems.

The legitimacy of US leadership depends on our resisting the temptation to abuse it in pursuit of parochial interest, even when that interest appears compelling. We cannot expect to maintain the dollar’s primary role in the international system if we are too aggressive about limiting its use in pursuit of particular security objectives.