Join me from 8:00 to 9:00 p.m. ET on NoQuarter Radio for Sense on Cents with Larry Doyle. These are truly historic times in the global economy. Let’s “navigate the economic landscape” without the pandering or nonsense found elsewhere!

Tonight I have a very special guest: Dr. Paulo Vieira da Cunha, renowned emerging market economist of Tandem Global Partners.

Former Deputy Governor of the Central Bank of Brazil and one of three Monetary Policy Committee Members, Dr. Vieira da Cunha was Brazil’s representative at the G-20 meeting of Central Bank Governors and Finance Ministers until January 2008. Dr. Vieira da Cunha is a visiting scholar at Columbia University and a consultant to the International Monetary Fund (IMF).

For nearly a decade, he produced and managed research on Latin America for the global securities industry, first at Lehman Brothers and later at HSBC where he managed research teams in Buenos Aires, Mexico City, New York, and Sao Paulo.

Dr. Vieira da Cunha had a distinguished career at the World Bank where he was Senior Adviser to the Chief Economist, Nobel Laureate Joe Stiglitz from 1993 to 1996. From 1996 to 1998 he was the Lead Economist for Mexico and also had operational assignments on Russia, Turkey, and Uganda.

Prior to joining the World Bank, he was the CFO of a large state enterprise in the state of Sao Paolo (Prodesp) as well as advisor to the Secretary of Budget and Finances on the issues of renegotiation of domestic and foreign debt. Earlier in his career he held senior positions in the government of the State of Sao Paolo.

With the emerging markets leading the world at this juncture, there is much to navigate in this sector of our economic landscape. Dr. Vieira is uniquely qualified to provide perspectives and insights not commonly found.

Call in to share your thoughts or ask questions at (377) 647-0792. I look forward to having you join me for NoQuarter Radio’s Sense on Cents with Larry Doyle.

LD

John Batchelor: From my blog. Don’t miss Larry Johnson on my show Sunday nights. Watch for NoQuarter’s promo on Sundays.

UPDATE: It’s remarkable that the following comes from the very liberal, Soros-funded Think Progress, in its “Under The Radar” section:

ECONOMY — TARP OVERSIGHT PANEL: TREASURY MAY NOT BE ACKNOWLEDGING THE DOWNTURN’S ‘DEPTH’:

According to new forecasts set to be released by the International Monetary Fund (IMF), “toxic debts racked up by banks and insurers could spiral to $4 trillion.” With that harrowing number hanging overhead, the Troubled Asset Relief Program’s Congressional Oversight Panel released its six-month report today. The panel, chaired by Harvard Law School professor Elizabeth Warren, questioned Treasury Secretary Timothy Geithner’s assumption that the toxic assets clogging the banks are merely economically depressed, noting that Treasury’s response “fails to acknowledge the depth of the current downturn.”

“If the economic crisis is deeper than anticipated, it is possible that Treasury will need to take very different actions in order to restore financial stability,” wrote the panel. The Warren panel also noted that
Treasury “has not explained its assumption that the proper values for these assets are their book values.” As estimates regarding the number of toxic assets climb higher and higher — with Nouriel Roubini claiming there are $3.6 trillion worth — it is becoming clearer just how much depends on Treasury finding a workable plan for cleaning up the banks. As IMF managing director Dominique Strauss-Kahn said, “[Y]ou never recover before the cleaning up of the banking sector has been done.” And right now, Geithner’s clean up is premised on an assumption with which more and more people are taking issue.

Let’s review the objectives and commitments, each followed by questions and/or comments that I have:

1. Address countries providing tax havens.
My question: who will police?

2. Develop a Financial Accounting Stability Board to regulate currently unregulated financial entities, primarily hedge funds.
My questions: how will it be staffed, operated, and judgments adjudicated? (I don’t like FASB as the acronym to be confused with Federal Accounting Standards Board)

3. Develop global policies and outline to address compensation
My questions: who and how will this be implemented? how will it be regulated? will there be punishments for those not participating?

4. Develop a global systemic risk oversight body.
My Question: who and how?

5. Develop a common global approach to address toxic assets within the banks.
My Questions: will this approach be akin to the FASB relaxation of the mark-to-market? How will it be implemented? Will it employ free market principles or manipulate those principles?

6. Utlilize a global growth and recovery stimulus plan of $5 trillion via global central banks.
My Question: will every country and region go along with this?

7. Global central banks will maintain a fiscal expansionary posture.
My Question: what if inflation increases?

8. The IMF and other international agencies will receive $1 trillion. $750 billion directed to the IMF, $250 billion of which will be in the form of Special Drawing Rights. The G-20 will look for these international institutions to strengthen their independence. The G-20 looks for emerging economies and developing countries to get a greater voice in these international institutions.
My Comment: China just won BIG RIGHT HERE!!

9. The G-20 countries will look to kickstart international trade.
My Question/Comment: Congratulations!! How do they plan on doing this in the face of the global protectionist measures and financial protectionism being enacted everywhere?

10. The G-20 will meet in New York City again in September.
My Comment: is this really a very good idea? Can you imagine the rioting that may ensue there? I wonder if body piercing is optional to get involved in the fun?

In summary, the global equity markets are responding positively to these commitments along with the relaxation of the mark-to- market. I am concerned that free market principles have taken a back seat to potentially excessive political and accounting manipulation. That said, the global economy and global banking system will receive significant hard dollars along with significant accounting cover to help itself heal. My personal opinion is world leaders are trying to buy time but will risk real inflation to heal the global recession.

I will say, though, there will certainly not be a dearth of material for Sense on Cents to address as we navigate the economic landscape!!

LD

There’s been a lot of finger wagging at the unruly class recently. It seems we, the Main Street Taxpayers, have it all wrong. Our outrage over the AIG bonuses is class warfare. Our ignorance over the workings of government and finance is self evident. Our anger over our lost jobs, homes and 401k’s is understandable, but misplaced. Our bus tours are inappropriate. Our pitchforks and tea parties are political theater. Our whining over unfairness is unbecoming.

So, basically we’ve been told to sit down, shut up, and be patient. Because this was all our fault. We the underfunded, overspent, and irresponsible taxpayers are to blame for this financial crisis. Or so the story goes according to the Wall Street pork masters, politicians and pundits (a.k.a. the cowardly, corrupt and clueless.).

But strangely enough, some other voices are starting to be heard above the din. And equally strange they are telling a far different story. One that points the fingers of blame not so much at the Main Street Taxpayers (although none of us remain completely blameless), as at the Wall Street Oligarchs.

And in case you don’t remember from your long ago civics classes… An Oligarchy, according to Merriam-Webster, is a government in which a small group exercises control especially for corrupt and selfish purposes.

In The Nation, Christopher Hayes warns us of what happens when Experts of the World Unite and weigh down one side of the balance sheet.

The outrage over the AIG bonuses occasioned a great deal of commentary about a resurgent populism, often in cluck-clucking tones of disapproval. But the rage, frustration and visceral sense of injustice associated with the bailouts are only part of the story. There’s also the sense that an implicit social contract–by which we assign complicated technical matters to a class of talented experts and in return they figure things out–has been torn to bits.

Remarkably, the small class of (mostly) men running these failed financial institutions seem just as aggrieved. Instead of reacting to their failure with shame or apologies, many exude distrust of and contempt for the great unwashed who don’t understand their brilliance.

-snip-

… the financial elites are ideologically bankrupt, intellectually discredited and morally debased. They have no reputational capital and inspire no confidence. And yet, just as the deftly named “legacy assets” continue to pollute the balance sheets of the major financial institutions, so too do these legacy elites continue to lurk on one side of the balance sheet of democracy. In other words, even if they aren’t worth listening to, they still wield power. They can still bring the whole thing down.

Which begs the question – if the financial elites are bankrupt, discredited and debased, why do they still wield so much power?

Well, it seems the key to their power is in the very nature of an Oligarchy. Oligarchs need enablers. Particularly, government and media enablers. The enablers are built into the foundation of the Oligarchy and then become embedded in the building blocks of all that transpires. So in the end, the enablers’ own survival requires that they endless serve and protect the Oligarchs.

And in the US, the Wall Street Oligarchs took over during The Quiet Coup explains Simon Johnson, former chief economist of the International Monetary Fund, in The Atlantic.

Of course, the U.S. is unique. And just as we have the world’s most advanced economy, military, and technology, we also have its most advanced oligarchy.

In a primitive political system, power is transmitted through violence, or the threat of violence: military coups, private militias, and so on. In a less primitive system more typical of emerging markets, power is transmitted via money: bribes, kickbacks, and offshore bank accounts. Although lobbying and campaign contributions certainly play major roles in the American political system, old-fashioned corruption—envelopes stuffed with $100 bills—is probably a sideshow today, Jack Abramoff notwithstanding.

Instead, the American financial industry gained political power by amassing a kind of cultural capital—a belief system. …Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world.

One channel of influence was, of course, the flow of individuals between Wall Street and Washington. Robert Rubin, … Henry Paulson, … John Snow, …Dan Quayle … Alan Greenspan.

These personal connections were multiplied many times over at the lower levels of the past three presidential administrations, strengthening the ties between Washington and Wall Street. …

…Throughout my time at the IMF, I was struck by the easy access of leading financiers to the highest U.S. government officials, and the interweaving of the two career tracks. …

A whole generation of policy makers has been mesmerized by Wall Street, always and utterly convinced that whatever the banks said was true. …

Of course, this was mostly an illusion. Regulators, legislators, and academics almost all assumed that the managers of these banks knew what they were doing. In retrospect, they didn’t. …To date, the U.S. government, in an effort to rescue the company, has committed about $180 billion in investments and loans to cover losses that AIG’s sophisticated risk modeling had said were virtually impossible.

Wall Street’s seductive power extended even (or especially) to finance and economics professors, historically confined to the cramped offices of universities and the pursuit of Nobel Prizes. As mathematical finance became more and more essential to practical finance, professors increasingly took positions as consultants or partners at financial institutions. … This migration gave the stamp of academic legitimacy (and the intimidating aura of intellectual rigor) to the burgeoning world of high finance.

And so the experts were all in place and the Wall Street Oligarchs took hold. Embedding themselves in the culture at large. Spinning a mystique of Wall Street that became celebrated and enshrined in books, movies and songs.

…In a society that celebrates the idea of making money, it was easy to infer that the interests of the financial sector were the same as the interests of the country—and that the winners in the financial sector knew better what was good for America than did the career civil servants in Washington. Faith in free financial markets grew into conventional wisdom—trumpeted on the editorial pages of The Wall Street Journal and on the floor of Congress.

From this confluence of campaign finance, personal connections, and ideology there flowed, in just the past decade, a river of deregulatory policies that is, in hindsight, astonishing:

• insistence on free movement of capital across borders;
• the repeal of Depression-era regulations separating commercial and investment banking;
• a congressional ban on the regulation of credit-default swaps;
• major increases in the amount of leverage allowed to investment banks;
• a light (dare I say invisible?) hand at the Securities and Exchange Commission in its regulatory enforcement;
• an international agreement to allow banks to measure their own riskiness;
• and an intentional failure to update regulations so as to keep up with the tremendous pace of financial innovation.

The mood that accompanied these measures in Washington seemed to swing between nonchalance and outright celebration: finance unleashed, it was thought, would continue to propel the economy to greater heights.

A party mood settled in and the congo line was formed, sweeping everyone along in its wake. Occasionally someone stubbed a toe or stumbled briefly, but the rest of the revelers hardly noticed. The congo line grew bigger and bolder. The music player faster. The step became quicker. And then the inevitable happened. The line of thrill-seeking revelers became too large to manage and too unweildly to maintain. It began to swing wildly in every direction. The revelers could not keep up and congo line bust open spewing revelers in every direction.

And in the aftermath, we are facing signs that say Welcome to America, the World’s Scariest Emerging Market explains former deputy director of the International Monetary Fund’s Policy and Review Department, Desmond Lachman in The Washington Post. (The term Emerging Markets is used to describe a nation’s social or business activity in the process of rapid growth and industrialization. Political scientist Ian Bremmer defines an emerging market as “a country where politics matters at least as much as economics to the markets.”)

… despite their supreme arrogance, the country’s leaders never had a coherent economic strategy and that major decisions were always made on the run. I never thought that was how policy was made in the United States — until, that is, I saw how totally at sea Treasury Secretaries Henry Paulson and Timothy F. Geithner and Federal Reserve Chairman Ben S. Bernanke have appeared so many times during our country’s ongoing economic and financial storm.

The parallels between U.S. policymaking and what we see in emerging markets are clearest in how we’ve mishandled the banking crisis. We delude ourselves that our banks face liquidity problems, rather than deeper solvency problems, and we try to fix it all on the cheap just like any run-of-the-mill emerging market economy would try to do. And after years of lecturing Asian and Latin American leaders about the importance of consistency and transparency in sorting out financial crises, we fail on both counts…

…I thought then, that the United States was not similarly plagued by crony capitalism! However, watching Goldman Sachs’s seeming lock on high-level U.S. Treasury jobs as well as the way that Republicans and Democrats alike tiptoed around reforming Freddie Mac and Fannie Mae — among the largest campaign contributors to Congress — made me wonder if the differences between the United States and the Asian economies were only a matter of degree.

Yet how often do U.S. leaders respond to growing signs of economic dysfunctionality by spouting nationalistic rhetoric … instead of facing our problems we extol the resilience of the U.S. economy, praise the most productive workers in the world, and go on and on about America’s inherent ability to extricate itself from any crisis. And we ignore our proclivity as a nation to spend, year in year out, more than we produce, to put off dealing with long-term problems, and to engage in grandiose long-term programs that as a nation we can ill afford.

A singular characteristic of an emerging market heading for deep trouble is a seemingly suicidal tendency to become overly indebted to foreign creditors.

In part two, Facing Down the Wall Street Oligarchs, I’ll recap where the US now stands in this financial crisis and explore what needs to happen next with both the Main Street Taxpayers and the Wall Street Oligarchs.

Major H/T to LisaB and Mountainaires for bringing to my attention many of the articles used both directly and indirectly in part one & part two. All of these articles are well worth a full reading and I respectfully urge readers to find the time if at all possible.

1) At BriefingRoom.TheHill.com, Judd Gregg says the U.S. couldn’t even join the E.U. because of the U.S.’s debt levels.

“We won’t even be able to get into the E.U. if we wanted to,” Gregg said this morning on MSNBC, “because our government is so large and so huge.”

The European Union’s Stability and Growth Pact (SGP) adopted in 1997 requires a budget deficit to be less than three percent, and requires a national debt beneath 60 percent of Gross Domestic Product (GDP).

“We’ve been lectured by France on the fact that we’re not fiscally responsible right now,” Gregg, the would-be commerce secretary, noted with incredulity.

That hurts.

2) The Weeklystandard.com notes that Obama’s been indulging in “just words.”

Some of what Obama says is just pablum and isn’t supposed to be taken as serious economic thought. At least I hope not. Rather, it might be called economic morale-boosting. Nothing wrong with that, unless he actually believes what he’s saying.
———-
Nor is Obama up to speed on tax incentives. He dismissed the fear of charities that a proposed reduction in the tax deductibility of donations by upper middle class and wealthy Americans would curb giving. “If it’s really a charitable contribution, I’m assuming that that shouldn’t be a determining factor as to whether you’re giving that $100 to the homeless shelter down the street.”

That’s easy for him to say. Every charity from museums and arts groups to hospitals is terrified by the proposed tax change. And it’s a fair assumption that they know a tax disincentive when they see one. The question is whether Obama does. Perhaps not.

Perhaps charities better front load all they can get from donors now. Obama seems to think a tax deduction doesn’t matter AT ALL. Maybe not for him. Last I heard, his tax returns showed very little charitable giving.

3) The Atlantic has a stunning piece about the financial mess. Here’s the summary:

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

I’ve often wondered if oligarchy isn’t the right term for what and/or who is driving U.S. policy.

4) Realclearpolitics has an interesting piece about the current economy and the lessons learned from the 30s.

Anybody who wants to pontificate about the economy, or the budget, or the deficit right now should think about three questions:

1. What changed the Depression from an ordinary recession into a worldwide catastrophe? (And how bad was it, anyway?)

2. Is this crisis the same or different?

3. If there’s risk of another depression, how do we stop it?

Interesting stuff.

I truly relish the honest perspectives offered by a number of our Thought Leaders. A recent piece posted by Professor Ken Rogoff, a former chief economist for the International Monetary Fund, and currently a professor of Economics and Public Policy at Harvard, lays out a logical road map for global interest rates, economic growth, sovereign defaults, and inflation. Let me preface Rogoff’s piece by stating the road will be long and steep!

What does Rogoff think about the prospects here in the United States under the Obama administration? He writes, “US long-term growth could be particularly dismal, as the Obama administration steers the country toward more European levels of welfare assistance and income redistribution.”

I strongly recommend Rogoff’s What is the Deficit Endgame? Please access a wealth of other global perspectives at the Thought Leaders link (in the left sidebar of Sense on Cents), which provides access to leading global economists and over 400 periodicals from around the world.

LD

On January 31st, I wrote a lighthearted piece, Know Your Customer, about my personal experience with an Asian counterparty. The lesson I learned from that experience back in the late 1980’s was that business dealings in Asia are ultimately “a question of honor.” Are you honorable in your manner? Are you honorable in your engagement? Are you honorable on a going forward basis? Are you honorable in both word and deed? Obviously in a meaningful relationship, this code of honor must run both ways.

Our relationship with the People’s Republic of China hinges on American consumers’ purchase of Chinese exports and ongoing Chinese purchase of U.S. government debt. As I just highlighted in my most recent piece, Chinese exports fell 26% in February 2009. Numbers like that will make any government uneasy. During challenging economic periods, the tenuous nature of any economic relationship is captured in understanding the nuances of the Prisoner’s Dilemma.

Well, the Chinese occupant of the cell next door appears to be getting increasingly nervous. He just slipped us a note inquiring whether we will “honor” our promises in protecting his investments. The full note reads, China’s Premier Wen Worried on Safety of Treasuries.

Is this a mere sign of a nervous investor? Hardly. There is no doubt that the Chinese Premier is launching a shot across our bow prior to the highly anticipated G-20 Meeting in the U.K early next month. Please recall that the surplus nations in our global economy, primarily China, have very limited voting power in our global financial intermediaries, such as the IMF. This Chinese statement is an attempt to create increased leverage over the negotiations which will transform the global economic landscape.

How honorable!!

LD

Former Australian Prime Minister and Treasurer Paul Keating

Well, Mr. Keating has spoken again and I am listening to him very closely as I strongly believe I am more educated and informed as a result. Our domestic officials and media outlets should take heed.

In an article published in this past Saturday’s Sydney Morning Herald, Obama’s Economic Saviour Savaged as Keating Let’s Rip. Keating offers a piercing review of then Treasury Officer Geithner’s structuring of an IMF led rescue plan of the Southeast Asian crisis in 1997-98.

For those unaware, many countries in SE Asia had massive infusions of foreign capital in the form of debt to facilitate infrastructure development. Geithner and then IMF Chief Michael Camdessus structured a plan that injected $200 billion dollars in the form of IMF loans to refloat the economy. Keating maintains that Geithner and Camdessus totally misdiagnosed the problem and in turn the solution.

Keating further maintains that the manner in which that package was handled dramatically impacted the way Asian countries have managed their finances since. The massive surpluses emanating from that region have been a major factor in the massive capital inflows into the U.S. over the last ten years. We do not need to replay that disaster.

I sincerely appreciate the integrity displayed by Paul Keating in connecting the dots.

Those who do not learn from history are doomed to repeat it!!

LD

**Cross-posted from my blog, Sense on Cents. Come by and visit!