German Chancellor Angela Merkel on Friday called for a U.N. Economic Council similar to the U.N. Security Council as a “compass” to help the world avoid crises like the one hammering the global economy. Merkel told the World Economic Forum that common economic principles need to be enshrined in a new charter for a global economic order, which could form the basis of any such international body. Full IHT article is here.

In a book published last year (Gordian knots of the 21st century) I argued that the world needs to establish the Global Strategic Council, that will be in charge of creating world vision 2020 or 2050. The vision should be based on three pillars of sustainable development: fast growth, environmental sustainability and social cohesion. I calculated simple weight for countries that would qualify for GSC members, based on GDP in PPP terms and on population (with 50% weights). The list with ranks is below:

China (15.4), USA (12.8), India (10.8), Japan (4.3), Brazil (2.8), Germany (2.8),  Russia (2.6), Indonesia (2.4), UK (2.1.), France (2.1). My recommemdation was to limit the GSC to ten members, but if you want to expand the group to 20 then another ten is below:

Mexico (1.9), Italy (1.8), Pakistan (1.6), Spain (1.3), Bangladesh (1.3), South Korea (1.3), Nigeria (1.2), Canada (1.2), Iran (1.1), Turkey (1.0).

I am glad that today politicians grew up enough to notice, that the current global governance setup does not reflect the needs of the 21st century global economy.  You can also read my article New World Order on opendemocracy that explain my view.

How to proceed? Barack Obama and Hu Jintao should jointly organize a meeting to be held in China and invite 10 leaders from the list above. The goal of the summit should be establishment of the world vision and the operational plan to achieve this vision. I would waste no time for G20 meetings, as the future ones are likely to be as important as the last one, i.e. useless and meaningless.

To nie moje pytanie, tylko pytanie które zadaje Willem Buiter, wybitny ekonomista, były członek Rady Polityki Pieniężnej Banku Anglii i były główny ekonomista EBORu. Jego komentarz jest tutaj , każdy powinien go koniecznie przeczytać, osobom słabo znającym angielski polecam skorzystanie z Google Translate, który tłumaczy strony internetowe na żywo. Ja zadaję to samo pytanie od pewnego czasu, przytoczę ostatnią zwrotkę mojego wiersza o kryzysie opublikowanego przez Forbes-a:

Na waszyngtońskiego konsensusu gruzach

Prywatne zyski i uspołecznione straty

Gdy śladu nie ma po władcach i tuzach

Nowe pojawią się wnet dylematy

Świata finanse pod państwową władzą

Pożyczą chętnie, tylko czy oddadzą?

Willem Buiter proponuje nacjonalizację wszystkich banków, stworzenie rządowego “złego banku”, który przejmie od innych banków toksyczne aktywa. W przeciwnym przypadku, Buiter ostrzega, Wielka Brytania może zbankrutować podobnie jak Islandia, bo ma podobne problemy, tylko na 200 razy większą skalę. Prof. Buiter sugeruje także, żeby rząd Wielkiej Brytanii był w stałym kontakcie z MFW i innymi krajami w Europie, gdyby trzeba było ratować Anglię.

Stany Zjednoczone też mają podobne problemy, na jeszcze większą skalę. To gdzie teraz jest “safe heaven”?

Brytyjski Telegraph opublikował ciekawy artykuł na temat rosnących deficytów budżetowych w krajach strefy euro, o tym że rynki coraz mniej chętnie chcą te deficyty finansować, co jest odzwierciedlone w oprocentowaniu jaki muszą zaoferować rządy takich krajów jak Włochy, Grecja, Hiszpania czy Irlandia, które przewyższa oprocentrowanie podobnych obligacji rządu Niemiec od 150 czy nawet 250 punktów bazowych (czyli 2.5 punkta procentowego).

Uaktualnienie:

Żarty się skończyły, Standard&Poors obniżył rating Hiszpanii do AA+, która tym samym straciła najwyższy  rating AAA. A recesja dopiero się zaczęła w strefie euro. 

Carmen Reinhart and Kenneth Rogoff wrote one more paper comparing the past crises with the current one. This time they focus on what happends to the real economy after the crisis. Here is what they found, it is consistent with IMF research presented in October issue of WEO.

“First, asset market collapses are deep and prolonged. Real housing price declines average 35 percent stretched out over six years, while equity price collapses average 55 percent over a downturn of about three and a half years. Second, the aftermath of banking crises is associated with profound declines in output and employment. The unemployment rate rises an average of 7 percentage points over the down phase of the cycle, which lasts on average over four years. Output falls (from peak to trough) an average of over 9 percent, although the duration of the downturn, averaging roughly two years, is considerably shorter than for employment. Third, the real value of government debt tends to explode, rising an average of 86 percent in the major post–World War II episodes, amid collapsing tax revenues.”

Depressed? Here is a link to some fun reading.

Just released ISM PMI index fell to 32.4%, lowest since 1980, values below 50 indicate that economy is contracting. There are also two even more worrisome bits of data: new orders index fell to 22.7% (13th consecutive month of decline) which is the lowest readig on record for this index going back to 1948! The ISM Pirces index fell to 18%, the lowest reading for the index since 1949, which indicates possibility of deflation.

In Poland just relased PMI published by RBS/Markit fell to 38.3%, employment, output and new orders posted sharp declines, largest in many years. Also prices dropped despite signifant weakening of the zloty, which indicates that price pressures are receding very fast. I suggested that MPC cut interest rate by 175bp in December to 4%, the did only 75 bp (more than markets expected anyway). Both foreign and domestic data suggest that they should cut by 100 bp in January, but MPC is a prisoner of the gradual approach and is likely to split into two 50s. As I wrote in December I see no value in delaying rate cuts when big credit crunch is coming to town, orders are falling off the cliff and price pressures are yesterday’s story.

What really scares economists about the present crisis? That despite spending more than 11 trillion dollars (including guarantees) by governments and central banks the crisis will spiral into global recession and deflation. One very effective way to trigger global recession is trade protectionism, when countries trying to protect their troubled industries impose import duty or non-tariff barriers on offshore producers. When one country does this then other countries follow with retaliation and trade collapses, more jobs are lost which  leads to recession. We have seen this happening in 1930s.

See chart below (thanks go to David Wheelock from Fed St.Louis), which shows monthly value of imports in 75 countries between 1929 and 1933. Trade implosions happen, you have been warned.