"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved."
- Ludwig von Mises

Wednesday, October 20, 2010

The Franco-German-Russian summit in Deauville

I have been following this summit closely.  Obviously absent in this "security" meeting was the US.  And one would also think:  How can France and Germany discuss issues of "security" without other EU nations' involvement?  What is really going on here?  I have mentioned this unusual meeting since September 27th in my post: Pre - G20 Meeting between France, Germany, and Russia - What's Cooking?

Well, looks like Russia's Medvedev let the cat out of the bag, so to speak.  As I speculated, it had to do with more than just "security" issues.  It was really a sidebar of sorts to the upcoming G20 meeting in Seoul this November.  Looks like cliques of nations need to meet without US participation before the G20 meeting.  Is this an organized ganging-up of smaller economic powers against the US?

From IBN Live:

Time ripe for G20 to reform world currency structure- Medvedev

Deauville, Oct 20 (Itar-Tass) Russian President Dmitry Medvedev believes that for the G20 time is ripe to move forward in reforming the monetary and financial structure of the world. He made a statement to this effect at a press conference following the Franco-German-Russian summit in Deauville, France.

"When the G20 began its activities, I realized that we would be unable to avoid answering this question - what will our monetary system be like in the coming years," the Russian president said. "Yes, objectively there are states that believe the Bretton-Woods institutions have not exhausted themselves, that there is nothing else to offer, and that everything will be OK. But nobody is claiming that the Bretton Woods institutions should not be destroyed." "The question is what sort of financial and monetary system there will be for the next 20-30 years," said Medvedev."Is what we agreed on in the mid-20th century will be enough? No, it is not enough. We need to agree on this issue." "And in general, for the G20 twenty time is ripe to do something definite. I mean, unconditional basic agreements," said the Russian president. "And for the G20 it must be a question of the structure of the monetary and financial system." "Yes, we have begun to reform the IMF and the World Bank, we have moved forward," admitted Medvedev, adding that the G20 was a good format, which brought many useful things, especially in crisis times. "But now we need to achieve a final result," he says."During the French presidency of the G20 this could be one of the most significant themes, as well as the topics of more reserve currencies and, perhaps, creation of a global reserve currency," Medvedev said.

Federal Chancellor Angela Merkel pledged that "Germany will support France during its presidency of the G20 in terms of constructing a monetary architecture. "In the discussions we see that the issue of currencies and exchange rates is one of the main threats of protectionism, and we will do everything to achieve greater transparency at the international level," said Merkel.(Itar-Tass)

I want to mention that I could not find this article on Russia's Itar-Tass News Agency.  I also split the article into paragraphs for easier reading - here is the original article.

Obviously, these leaders are challenging the current US Dollar-based system.  There was a reason they did not invite the US.  The question is, can they really pull it off without US engagement?  What will the US response be?  And what of China?  I believe that the recent era of accelerated globalization was a process that may have peaked.  And we may be witnessing fractures develop that may, to an extent, reverse the process of globalization.  There are too many competing interests for any one nation to sacrifice for the benefit of the global system.  They will all fight hard for their self interest, in my opinion. 

I don't believe the US will give up on dollar hegemony that easily.  That's why I believe the system will change through crisis, and not coordination.  And that's why gold, which is free of sovereign creation, could be the defacto system in the event of a severe currency crisis.


Anonymous said...

This an excellent blog, that I check out daily. Keep up the good work, Misthos and fame will be your share in due time.

Misthos said...

Thank you for the kind words and encouragement! Unlike most financial blogs, as you can tell, I have a narrower focus. Many blogs out there have done a fantastic job analyzing the crisis on multiple levels and I don't want to be redundant. My focus is on the geopolitical economic arena, and as I finish up on my analysis of the recent G20 meeting of Finance Ministers, I will be posting again starting tomorrow.

This blog is about a month old, and is slowly growing an audience. What has surprised me is this blog's reach. It is truly global - with readers from thru-out the USA, Canada, Western Europe, Australia, and a smaller but growing readership in East Europe and Asia.

Thanks again!