Years of Poems and Spirits

Notes:

noblesse oblige: Benevolent, honorable behavior considered to be the responsibility of persons of high birth or rank
[no-Bless ob-LEE-dge]

Nothing in particular, just some thoughts today:
1. Finished Blustein’s “And the Money Kept Rolling in (And Out)”. His main theme? Too much liquidity is bad for a small developing economy.

Note liquidity is not just “hot money”, as the term is highly charged and predisposed against currency trading (as Jesus would do). Instead, liquidity means zero-friction convertibility.

His proposed solution? If market is addicted to a quick buck, then impose an sovereign bankrupcy protection scheme that is enforced by international laws and institutions (e.g. IMF). Call it the Chapter 11 procedures for nations. It incurrs a mandatory suspension and restructuring of a nation’s debt. According to the author, some creditors were begging the Argentinians to organize such a “hair cut” across the board during the crisis.

The chance of his idea becomes a reality? Very small I am afraid. The creditors can easily influence the U.S. decision makers while the developing nations can’t.

2. Movies:
The Lives of Others (Das Leben der Anderen). A good movie that I’d recommend to others. Worthy of the Best Foreign Movie recognition. Other than the Dreyman character, everyone performs well. However, I am not sure whether the movies is trying to tell a story or to leave an impression. Its linear progression leaves little room for any explosion. The closest is Christa’s suicide–a perfect moment to paint a torn body and soul. Yet the shots on the blood, the twisting body and her last words are short, tentative and restrained. What is more, Dreyman’s devastation and the exposure of Wiesler in front of his boss are compartmentized. Now instead of having to face an angry lover and a furious master, Wiesler is totally out of picture. How about that for a bang?

Then I watched the Madness of King George III again–always one of my favorites. Love the performance–everyone: the King, Pitt, Fox, etc. Unlike the Germans who like to use lighting and cinematographic composition to tell a story, the British are actors. They use body language, facial expression and catchy dialogue to “shake” you into feel something. The screen writer tried somewhat half-heartedly to circumscribe the significance of KGIII’s illness (e.g. American independence). They don’t have to, because the way the actors act makes an audience think the significance is already known to them and is irrelevant. Now that is art.

3. The Democratic Congress
Usually, I don’t care for what is going on in D.C. any more. But noticed that recently the Democrats are having trouble getting their agendas into law. It really came to no surprise to me. A short while ago, I commented on the difference between being politically liberal and ideologically liberal.

The problem with the Democrats is that they politik too much and govern too little. Either by nature or by design, they are more of agitators than administrators. That is very unfortunate. Since some of them are pretty brilliant and progressive.

The second failed attempt to pass SCHIP and the decision to roll everything into a defense bill are just a few examples (if Clinton ever did something, it is an exceptions (given eight years) that proves the rule). They fail to see the value of their causes can only be realized if the legislations are enacted (i.e. in the governance domain), not when they are held as political hostages (i.e. in the political domain).

I have been reading Paul Blustein’s “And the Money Kept Rolling in (And Out)”. The book tells the story of the 2001 Argentina default and subsequent IMF intervention.

From the journalistic point of view, the book is not quite as good as his first one on Asian crisis in 97 (The Chastening), which is full of anecdotal accounts of key players during the crisis (for example, Taiwan’s central banker decided to devalue TW dollar while playing golf with his Korean counterpart, who sensed something was about to happen but didn’t know what when the Taiwan guy whispering Chinese into his cell phone). It was as if Ken Burns shot a documentary on Watergate.

This book is somewhat duller but has more insight in international economics. It tells a much more coherent story on how domestic policies (i.e. fiscal policy) drives trade and currency valuation.

I had this discussion with Migdal (I admire the man but he needs a econ upgrade) and most recently in class with a fellow student: who is to blame for currency crisis? My arguemnt is: it is the fiscal policy that is at fault. In other words, currency devaluation is just the consequence of inflation. Currency speculation is a byproduct, NOT the culprit.

Blustein certainly started out hoping to make a case against the moneymen on the Street. But as he progresses, he finds the Argentinian government the most to blame. The whole country is addicted to deficit spending and the political system is configured to keep it that way.

For example, its federal system means the provinces can borrow money without federal consent. Its Peronist tradition (i.e. Latin American populism) gives labor unions a disproportionally large role in policy decisions. Also, a powerful government means temptation of corruption and personal ego: often a President does not want to leave office and finds ways to buy his votes/time through government spending.

Since 2001, the Argentinian economy is on a fast recovery. However, I just came across this article on WSJ, “Economic Reckoning Looms In Argentina’s Election“, which says that the recovery is riddled with high inflationary risk:
“(Its current President) has ramped up spending, helping to fuel inflation. The government’s fiscal surplus is rapidly shrinking due to subsidies for energy, as well as goodies for pensioners, some public-sector workers and other key constituencies. There are also inflationary pressures from the higher international prices for Argentine agricultural commodities, which are blowing back to cash registers at home.”

The article did not mention the capital account or currency reserve level. One of the problem in 2001 was that the governments borrowed too much foreign debt to finance its spending. The focus of the article is the government’s price control practice.

I am interested to see how such an anti-investment policy will work. It is not a contractionary policy but almost like selective punishment. It has been working in China (I think so until I am proven wrong), will it work for Argentina?