Opinion

The Great Debate

Turning the tables: Can you help Davos leaders?

By Reuters Staff
January 27, 2009

Klaus SchwabDavos is a well-rehearsed event and everyone knows the part they should play. Business and political leaders gather each year to tackle the major challenges of a global economy while the rest of the world, or those of its citizens who are interested, look on from afar. But this year, for obvious reasons, things are different. The notion of leadership has been coupled in the public mind with that of responsibility. The tone here is a little more humble and the attitude more open-minded. There’s a recognition that new thinking is required.  A suitable time, perhaps, to turn the tables on convention and have Davos delegates ask the questions they can’t answer and for global citizens to offer solutions.

Gamefully opening the discourse is Professor Klaus Schwab, Founder and President of the World Economic Forum.

YouTube Preview Image

If you’ve got suggestions for Klaus then use the comments section below.

Comments
282 comments so far | RSS Comments RSS

I do not see current economic crisis as rooted in the financial system. I see it as more a basic systemic flaw in social organization. Essentially our stucture called Capitalism has no reverse gear. When a profitable yet unsustainable process is begun over time the unsustainability becomes apparent. However the process will be maintained by the structure as long as possible to postpone the destructive and painful crash. AKA job losses and company failures.
Currently there is no sustainable way to admit mistakes and reverse a process. In politics to admit a mistake is often a costly loss of face and often results in permanent career damage. Admitting mistakes in other fields often leads to legal action. The whole system is designed to make recognizing and admitting and fixing mistakes as painful as possible.
Real growth in economies is a result of invention and innovation. We have always been in a knowledge economy.
It would be wise for all involved to remember Karl Poppers view on learning. I can’t remember who said it but ” The path to wisdom is to err and err and err, but less and less and less.”
So in my view if we want to permanently get out of the Kondratieff wave cycle we need to implement a political/economic/legal structure friendly to the most successful way of advancing knowledge. That is to try lots of things make lots of mistakes and not penalize for doing so.

Cheers,

Posted by James Demidoff | Report as abusive
 

How about a REAL TRUE distribution of wealth??? Like taking the largest % of wealth from the 2% of the world that have that wealth and redistribute it in a fair way amongst all the people of the world!!!

I know that is idealism, but so many people starve while so few are millionaires and some of these millionaires have brought us to this present situation.

Posted by Eileen | Report as abusive
 

The “World Financial Forum Of Religious Scholars” (GFFORS) which is being sponsored by Kabbalistic Solutions For Contemporary Problems is what is needed now. There must be an input from the World’s Religions as to the direction of the Financial community. Ethics without a Religious underpinning is fruitless. Obviously, a new structure is needed. For info: kabbalisticsolutions@gmail.com

Posted by Steven Turner | Report as abusive
 

Isolationism is the only way we can save ourselves from reliving the Great Depression. Pull everyone out of all the countries we have them in and stop sending funds over seas to help people and reconstruct other countries. Its money we dont have.

Posted by Jessica | Report as abusive
 

The easy answer tot the question posed about the usage of new technologies is to use scrape webservices for information (also known as crowdsourcing) to understand the issues being investigated, because instead of “asking” people what they think – which is likely to yield a high degree of false-positives and flaming (as the above post does) – you actually look at what they are saying about what you are looking for and end up integrating a huge dataset into your research.

This approach is being practised in a number of ways with the semantic web, most notably by the Simile project and its offshoots over at MIT as well as the Open Calais project. Some examples I can think of is how scraping flickr tags has helped the library of congress to reclassify texts or how the WHO monitors online communications on public platforms for disease trending, and the most potent example: http://labs.aljazeera.net/warongaza/

Of course one major issue with any policy approach that seeks to use contemporary internet-based technology is that the vast majority of people on the planet are not “online”. This actually ramps up the general education and wealth vectors of those “whose opinions matter” in the demographic sense.

:Daniel

 

The crisis has to run its course. The best resolution to this problem is to let the market eliminate the problems through bankruptcy. Attempts to prop up failed institutions and businesses is fruitless, these entities need to fail, otherwise we’ll never have a solid foundation to build upon. Also, there has to be transparency and revision to central bank policy, we can’t have central banks manipulating the markets the way they have in the past. Controlling market behavior through artificially low interest rates and currency inflation does not work…the present situation is a clear testament to the failings of current economic thought.

The failings of central economic planning we’re supposed be have been killed off, yet here we are again trying to run a supposed free market economy through central economic planning.

Unless we cease this incessant meddling we’ll continue to get more of the same. Let the liquidation of debt occur and allow better business managers to acquire the assets and move forward. The idea that we reward failure through bailout policy is absurd. And the idea that we reward private sector failure with public sector money is even more disturbing.

Posted by steve | Report as abusive
 

My thoughts are that the government should give massive tax cuts or money to the general population (maybe stimulus check part II). The population with that extra money will either save it (which should help deposit banks or financial firms presuming that’s where they stash their savings), spend it (which will help the retail industry and general trade between the different nations of the world) or pay down debt (which will reduce the amount of write downs banks are doing to cover their behinds when loans and credit go into default).

Also, something should be done to stabilize the housing market. Either use the money to buy up the toxic mortgages and re-write the terms so that the borrower can afford to make those payments but with unemployment being so high, it may be too little, too late.

Posted by Won | Report as abusive
 

It seems the problem with the current USA market is that people are not spending which is causing the shrinking of the economy, so instead of spending 800billion in bailing out companies that should have gone bankrupt, why not give that to the general population so they can start spending and revive the economy? My 2 cents.

Posted by Lestat | Report as abusive
 

I like the previous comment “capitalism has no reverse gear” – though to keep the analogy going – coasting in neutral is fine: the weathly countries will load up on infrastructure projects, wages will be lowered, building costs are lowered… and when the economy gets back it gear, the pubcos in those countries will reap larger rewards.

A cool coast in neutral will be good – if infrastructure benefits.

 

Take a long look at accounting, accounting practices and rules and laws behind them. Accounting is supposed to reflect the state of a business. Compared to the danger inherent in the overvaluation of intangible assets, I think it would be sensible to remove them entirely from the balance sheet.

Some of the losses that are surfacing now, as a result of write downs on “goodwill” and other intangible or subjective valued assets, have been carried by the companies for quite some time.

Current practices allow investment banks and other corporations to bury their losses, and it’s only during downturns in the economy these losses are written down – at least on the scale we are currently seeing. This serves to further emphasize the downwards trend in the economy. These losses should be required to be written of immediately. If the buyer overpays when he acquires a company this should be reflected in the accounts with the regard to the balance sheet of the acquired company, and not according to either the stock valuation or the price the company was acquired for. Some would say that this would lead to improper valuation of the buying company, but I think most investors could learn to live with more transparent accounting practices and the danger resulting from undervaluation are not as severe as the danger that may result from overvaluation.

Obviously this is not a solution to the current economic problems, but it may reduce the damage next time the market takes a downturn.

Posted by emanon | Report as abusive
 

The financial meltdown was caused by the following:

1. The Fed Chairman and lame-duck “Republican” President (What kind of Republican creates a socialist economic system in the United States?) going on TV for an entire week with doom and gloom–thus severely negatively influencing the markets.

2. Lack of responsibility of leadership in large corporations–including banks. How can a bank lose money when it gives its investors less than 1% in savings and then charges 5 to 10 times more? I’m confused.

3. Capitalism has not been tried–excessive government regulations and interference in key markets has a ripple effect. Since when do U.S. citizens count on the Federal Government (Remember New Orleans?) to solve its problems. Let the market work things out. Government intrusion and Keynesian economics has always been a failure.

4. The selfishness of the largest group of Americans (the baby-boomers) that has ever existed on this planet. They will bankrupt our country and the world as long as they can live high on the hog through their retirements.

5. Abortion and contraception–Destroy life at its root and you destroy the resources necessary for economic development and intelligent solutions to problems.

6. Over-reliance on national and international structures to drive economic prosperity instead of increasing competition through innnovation, encouragement of entrepreneurship and local issues. Globalism will do nothing but destroy local ingenuity and problem solving. Attach economic crises at its local roots. De-regulation and encouragement of more entrepreneurs. Let failed businesses like CitiBank fail as they deserve to.

Posted by Brian | Report as abusive
 

A stable economic system can only be built when people fully own and possess things, and have real cash to spend. People must own stocks, houses, businesses, or other property and therefore their businesses will be able to weather most financial storms. I have owned several business and have operated these businesses without a bank line of credit. It takes longer to get a business started, but growth is real and there is money in the bank to operate the business rather than credit. I also have seen many businesses fail that operated on credit and they were fine until a downturn, and then they stood alone while their banker demanded money they did’nt have. I realize that this cuts down the banking industry profits from lending to the average consumer, but credit is what brought down the current system.

Posted by Fred Belz | Report as abusive
 

It is simple my friend. Allow the USA to swallow its bitter medicine. The belief that an economy can have continuous growth is absurd. Non-stop growth is called Cancer. This economy must be allow to experience a painful shrinkage and readjustment into a more clean and mean system. This is a basic law of nature and it does apply to economic systems too.

Posted by Alan O | Report as abusive
 

attention to the wold the times as come to stop to be greedy the economy it is not hard to fix and i can show you the way to fix strait ways and stop talking you all got no brain the times as change for every one you have a littlet cake from so if you understant there are only one plan that will work and the economy will start to grow again ok and i have the best plan in the all world put them together you are all blind the money will not fix the problem only the new sistem will work it is new way how the world will change fast the plan will take affect

Posted by frank bruno | Report as abusive
 

I believe some of the global problems can be solved by better globalization. The current global financial system is rooted in capitalistic philosophies. At the same time, the Western economies are based on consumer spending which in the US, for example, constitutes about 70% of the US economy. Most of us have more cars, computers, phones, electronics, shoes, coats, clothes, watches etc. than we can practically use, yet we are expected to purchase more in order to keep the US economy going. At the same time, there is a vast majority of the world’s population barely getting by on scraps of food and horrible living conditions.

As an entrepreneur visiting an emerging economy some years ago, someone asked me what I would request of the country’s leadership if given a chance. I said that I will ask them to provide me electricity, clean water, a good phone/communication system, reliable broadband bandwidth, roads, and security. This is plenty to build any business upon without relying much more on the government.

I am not advocating simple socialism where we take the money from the Western nations and throw it around the world, but suggesting a synergistic collaboration. Given the West’s history of leadership in innovation, why not focus on solving the world’s basic problems of energy, clean water, and hunger by investing our time and money into new technologies in these areas. Then, produce the goods in these areas that may then be provided as aid or in a subsidized manner to those desperately in need. So, say 10% of the US economy is converted into a development economy reducing the US consumer portion to about 60% over the next 2-3 years. Not only will this recover the 6-7% drop in US consumer spending over the past year, imagine the education and development opportunities this can spur in the emerging markets when they have energy for all kinds of basic needs and clean water to keep them healthy etc. Many technologies are already available beyond the labs. However, in some cases these technologies need focused or subsidized development and production for mass use. This would be a great investment from the Western nations in the future of our planet.

Posted by Imran Qidwai | Report as abusive
 

The present day competitive growth rates and unmoderated greed have to be stemmed to bring in a modicum of stability in the market processes. Secondly,complexity of financial instruments and trade should be reduced to levels within comprehension even if we have super computers to penetrate the maze.

Posted by sash | Report as abusive
 

The key is Access. Core to President Obama’s successful campaign was enrollment at grass roots level. Why would that be helpful to you? Identify the top five issues as you see them; define clear objectives; stimulate and steer an on-going debate toward those objectives. Use this virtual forum as a focus group; formalise hypothesis and challenge academic institutions worldwide. Review at the next Davos meeting. It is imminent to feel the pulse of the people at large, if you wish to solve the issues at large.

Janine Chung-Thompson, ex PwC

Posted by Janine Thompson | Report as abusive
 

It’s all about the lack of a GOLD Standard. We have created this Financial Crisis because we hane no means of measurement . . . . without that nothing is going to happen. With a GOLD Standard the problem is very simple to Fix but also very Painful. Everybody wants the “FIX” but nobody especially the Policitians and Bankers want the PAIN. So until things get really Bad and they will . . . . . nothing is going to change. That’s what History shows. To Bad for US.

Posted by John L Strauss | Report as abusive
 

The troubles all track from the fundamental tendancies of capitalist entities to concentrate ownership amongst ever smaller groups of principles until ultimately a kind of corporate socialism (fascism or classic Italian syndicatalism is achieved. The Depression modified the tendancies of this by first allowing wholesale bankruptcies to clean out failed monopolies that had failed due to their own penultimate and arrogant greed…the governments at the time had no power to really prevent those failures anyway any more than the unemployment insurances and welfare policies of Hoover’s time could have coped with the swamping they eventually got. Then the New Deal re-regulated the economy to stop the trading in worthless stock that had been overmarketed..(blue sky stock with no visible means of support, just like the ‘dot bombs’ of the early part of this decade. This time, as last, it is the banks that are the deep dyed villains of the whole mess. The re-enactment of the Glass-Steagel Act, outlawing interstate and international banking, outlawing large banks over a billion or two capitalization, demanding large reserves in bank funds before they can loan (prevents banks loaning the same money many times in a form of ‘blue sky capitalization’ that would have made a roaring twenties gangster capitalist proud and envious). Steep regulations on the appraisal industry to prevent an unholy alliance of banks, insurers, appraisers, lawyers, realtors and other leeches on the economy from ever defrauding the nation and holding its young people in permanent loan slavery ever again. A national forgiveness of every citizen of the nation, erasing in a stroke of a pen all debts of every citizen while allowing them to keep all their possessions. An immediate write down of all home values to their prices in 1966. Therefor a house in Compton, California or Whittier, California that sold in 1966 for fifteen thousand dollars and now brings over a million dollars for a one or two bedroom shotgun shack on a sixty foot lot…would go back to selling for fifteen thousand dollars. Make felony illegal for any foreign national to own real property in this country. Make illegal and a felony for any foreign corporation to own real property in this nation. Make illegal and a felony for any foreign entity to own a controlling interest in any American business, partnership, limited liability corporation, corporation or any entity that is American. Make it illegal for any goods to be imported into this country if it cannot be proved beyond a shadow of a doubt that it cannot be created by whatever means by American workers in America. Make it a law that the products of slavery and child labor cannot be sold in this country. Create a value added tax structure on an exponentially graduated scale, incorporating a requirement that manufactures selling anything in the American market must file reports to the American government detailing the bare cost of the item and all costs that went into the calculation of this bare cost. Then the VAT would be assessed on the gross profit calculated from the bare cost of the original manufacturer and the final selling price to the end consumer. Such scale would allow honest profits to go relatively untaxed, but profits from slave operations in China where a pair of sneakerss made in a sweatshop for less than fifty cents in labor, materials, SIOH, etc, and ultimately sold to an American kid ‘mall rat’ for over a hundred dollars would pay over ninety nine dollars in VAT, with a further proviso in the law that would prohibit passing on the cost of this VAT to the final consumer. The offending business would have to pay this or face felony punishment. Also the corporate veil would have to have a legal hole in it such that the stockholders and bondholders and debtholders of corporate predators would be exposed to the same charges and felonies that the corporate officers would face, up to and including the death penalty. The average young person making minimum wage in this country now cannot even pay to see HGTV on cable to see how impossible his/her dream of home ownership really is. This has got to change or this country will become increasingly unstable until and unless these changes to the present sytem of robber baron banker capitalism is destroyed. And if that result is a civil war, failed state ala Somalia region, then so be it.

Posted by chester drawers | Report as abusive
 

A crisis in the Health Care will follow unemployment in the U.S. My suggestion is de-regulating low impact laboratory testing for the general population. As it stands all test results must be reviewed by a Pathologist or desingated laboratory manager.This includes screening test, Cholesterol, Glucose, HCG and ect. The FDA has many CLIA waived test, which can only be run by Physician or an acredidited Laboratory.The State licensures deter any small enteriprises due to liabilty of results. It is just another form of keeping power in the hands of the physicians or large corporations in America. In several states, they have sought to let pharmacies run these test.
The general public should be allowed access to avoid costly visits to the Physicians office. These test are excellent for screening and monitoring patients.It is time to bring back small business in America. Small business do not have stock holders which adds presure to business to be greedier and greedier at whatever it cost.

 

it is not the bull market it is the people ho drive the market its is not the wall street bull is the people got no money the not buyng people no spending the car manifecture all the building indusry all they fail un less the sistem change right know not by put billions dollars in the hands of the banks or give more money to all this big industry it will never work becouse they they dont understand where the proble come from the money sistem not working there is only one sistem it will work and protect all the industry and protect the people by not lose they jobs they houses cars or go bankrupt there are only one plan and will take of fast but doit know not tomorrow

Posted by frank bruno | Report as abusive
 

Professor Schwab,

I have an idea, for part of the problem at least. It has to do with reducing what game theorists call “information asymmetries.” It’s a little too long for a comment though. Is there another way to communicate it to you?

Regards,
Ken

Posted by Ken | Report as abusive
 

john maynard keynes sounds familiar?
he didnt merely theorize but also proved his theories in practice as treasurer at his college…

Posted by roger | Report as abusive
 

How about using all the bailout $$ to open “NEW BANKS” I think these new banks having noting on there balance sheets “Except $ 825 B”
will loan out the money quickly so they can make more money, now the credit crunch should disappear.

Another plan just distribute the $825 B equally to all U S citizens, this should be about $2705 for each citizen this should avoid the need for a separate stimulus package and probably save billions of dollars in legal and accounting costs over the Obama plans.

Now for the corporate SO B’s & our elected officials that caused all these problems, don’t give them another cent just put them in jail for life! or 1000 years whichever one is the longest time.

Posted by Albert Pioli | Report as abusive
 

Well the question was how to use these communication channels to pull people in, I guess you’re doing that, Klaus, so I’ll just give a response to the problem, not the query.

It is difficult to give a blanket global approach, since the situations vary according to the nation. Mainly along the lines of debtor vs. saver nations, but you have further breakdowns of producer nations, raw material sourcing nations, and consumer nations. I hail from the U.S. so my approach will have the persepctive of coming from that culture.

A major need is to stabalize the evolving downward trend of asset prices. Stock prices for financial institutions will not stabalize until this is done, and financial institutions wont quit hording capital until this is done.

There is also the need to make sure that money spent by central banks or the public sector is spent wisely. Throwing trillions of dollars out there isn’t going to do much unless it is spent wisely.

What I would propose is a program to benefit both banks and private individuals, aimed mainly at the real estate market. If an entity can show a loss for a recent purchase of security showing lein on, or equity in, a real estate asset, then they should be able to have that loss subsidized toward the purchase of a similar asset.
This simple notion helps sop up existing inventories in the real estate market, and works to create a floor under prices, thereby stabalizing balance sheets, and consumer security.

Now another thing which must be done is a move from a debt driven economy. Even though most European or Asian economies are saver economies their economies have still been driven by debt via the U.S. economy. In order to avoid a complete unwind of the U.S. economy some healthy level of consumption must continue, this should be supplemented via the public sector while a move is made not to loosen credit for consumers, but to encourage savings by consumers. The traditional move to do this would involve raising interest rates. The needed level at this point would theoretically be modest given the low rate of inflation, and the generally depressed level of currency markets. Such a move also works to insure the currency reserves of other nations, since if saver nations can hold interest rates lower while the U.S. moves toward higher rates the dollar strengthens.

It is important to recognize that it isn’t a case that banks aren’t lending, they aren’t lending to risk, this isn’t something we should work to change. It is also important to differentiate between lending to indidviuals and businesses, capital for business operations should not be constrained.

 

When an economy has leveraged 50 + trillion dollars from 1 trillion dollars & it’s time to pay the 50 trillion dollars- which, by the way, never really existed, then words like sustainability lose meaning.

We are in the midst of a crisis created by man-made institutions–Must we return to the Greeks to figure out what happens in a tragedy? And knowing that, could we stop the tragedy from unfolding during the play?

The good news? this is a paradigm shift for many human beings–religion will not save us, war will not save us, the banks won’t save us, the government won’t save us, the financial institutions that got us here won’t save us, either. Frankly, I believe these institutions are only interested in saving themselves at any cost. When the ship is sinking.. well, desparate times bring, what else, desperation.

Looks like we will have to save ourselves, after all. Seems like we’ve tried everything else, why not commit to some love & compassion for a desperate & frightened lot. If we can right & repair the ship, cooler more mindful minds will need to get us there. Good luck everybody, I will be doing my part.

Posted by Paul W. Isbell | Report as abusive
 

there is allways problem when the people run out money the all country go down if they got no money to spend if they are at the risk of losing they jobs they will not spend money becouse they got no money to spend so the people run the country by make them sure that they jobs is save and they in come is save so they will spend buying house buyng new cars buy anything thing they need from food up to all they needs so and the only way to do just that they system have to change right know but all this so call smart people they are not smart they brain are only daily bread they dont understand how to change the sistem all the monye in the world they can nerver stop to go down un less is new world system and less the year all this penic all gone

Posted by frank bruno | Report as abusive
 

I have been in the ivestment business for about 15 years and have reached a few conclusions about how we arrived at this mess and how we may be able to get out of it. First, there seems to be something fundamentally wrong with trade flows. Capital should be flowing into developing nations rather than out of them, or equivalently, they should be incuring trade deficits rather than surpluses. In the US our trade deficit in real terms grew substantially faster than our economy for many years, creating, at least temporarily, a ponzi-like scheme. Second, monetary policy makers in the US and other nations failed to act in a countercylical manner when they should have in general have put the world economy on an unsustainable path of substandard interest rates while creating price instability.

To correct the international trade imbalances, emerging countries absolutely must import more from the developed world and allow there trade deficits to shrink in the process. Currencies must be allowed to adjust for this to happen and restrictions on imports and consumption spending must be relaxed. The idea of the developed world running government budget deficits and setting interest rates to substandard levels in an effort to offset global trade imbalances is a temporary fix, at best, to what is a serious structural problem.

I sincerly hope that the real issues are addressed soon.

Posted by F. Cihlar | Report as abusive
 

Francis Bacon wrote that “If Usury be allowed, it is a sure bet that at the end of the game, the banker will hold all the marks.” He apparently forgot to point out that this will result in all the marks being nearly worthless, which is the state our dollar will achieve without some hard social choices about what we, as a society really value and respect. Currently, we spend more money on professional sports than on educating our children. Clearly, we value the athletic prowess of a few overpaid, arrogant spoiled brats more than we value the future of our children. There is a bright side – as the economy gets worse (and we’re nowhere close to bottoming out) – being visibly affluent will begin to lose it’s appeal. Right now, unemployed fathers are beginning to despair. Some will take the lives of their families and their own lives. Soon, despair will begin to fuel rage, and they’ll begin taking lives farther up the food chain. It’s just a matter of time. For decades, the poor have hated and feared the rich and the police who act as their protective lap dogs. At some point, there will be a mass realization that the incredible greed of a very few has led to the economic downfall of millions.

This is the hush before the storm.

Posted by Mark Rhoads | Report as abusive
 

Tell Mr. Obama to listen to George Soros.

Do not creat a “bad bank”. It will only reward the bank flunkies and it will not solve the liquidty problem.

Tell Mr. Obama to do what Geoge says: “Buy preferred shares in the banks instead.”

It will work and punish the bank flunkies for their excesses.

Michael Hogan, Ph.D., P. Eng.
Toronto, Canada.

Posted by Michael Hogan | Report as abusive
 

Mr Klaus, will tell you and others that the only way will sop all thes doun turn is to change system fast special in usa they dont understand what going on they think they do but they dont the cars manifecture they gone broke and those not metter if the governament give them billions dollars they still go broke becouse the system not working they only way to fix the system not only cars manifacture but the all industry is only my system and that will see they country will turn up and up this is becouse we cant compite with china so the only way we can stop all this china and asia is only my system i will tell you that china will not sell no more to the us to take all the ameicans dollars in china belive me at the moment they have the vacoom to suck the money so let the new system work the people will buy the local produce not chines only the system have to change know

Posted by frank bruno | Report as abusive
 

James Demidoff’s comments are very close to the real issue, along with emanon’s too. When a person can fess up to a mistake BEFORE it gets out of control, without fearing inquisitional types of actions and outcomes with a strongly mandated provision to support their moral and ethical duty to do so, AND corporations write off the fictional values for the so-called goodwill value in the transaction immediately after acquiring an asset, as well as using property valuations, which are determined in the public domain, viz. those which governments of all levels use for calculating their rates and taxes, these simple actions may overcome: the flurry of fancy, (fraudulent, most likely) financial engineering, the downright misleading (and mostly untruthful) spin-doctoring of our times, and a few other less than creditable actions from those in charge that knew better or, at least, based on the size of their pay-packets, ought to have known better; then, perhaps, future instability may be less catastrophic, human frailty for doing the unexpected notwithstanding.

Posted by Allan Cox | Report as abusive
 

We need to decide if we have to move away from the current system of US as a global consumer and China, India & Japan as global producers and financiers. There are the biggest imbalances lie. Ironically, to the proponents of Free Trade, this system has backfired recently as it has been practiced to its zenith in the last decades or so. The next decade consumer growth should arise in the developing countries. US should starts a renaissance of creative discoveries in technology. There is not yet any significant innovation in this decade other than internet. If American history is to repeat itself, there should be an arising innovation of historical scale to revive the nation’s economy. Hopefully, this particular innovation will be exported to the benefit of humanity as a whole, plus US can reduce its trade deficit consequently to the benefit of global financial stability.

Posted by Jeff Tan | Report as abusive
 

The media say we’ve lost 2.6 million jobs in the past year.

The numbers:
$800,000,000,000 in bank bailouts
2,600,000 unemployed.
At $40,000 per year, we could give every one of those people a job for 7 years, and STILL not spend $800 billion.

What do YOU think will stimulate more economic growth and stability, 2.6 million $20/hr jobs, or a giant loan to a few banks?

Posted by Mark Rhoads | Report as abusive
 

None of this is difficult. Information technology has shrunk the world from isolated autonomous geopolitical economic units to that of an interdependent and complex common village. Some time ago decisions were made, accepted and implemented by both world leaders, business and academia to move towards “Globalism”. What we are experiencing now is simply the affects of geo-economic mutation along this globalism pathway that eventually will force us to a true one world geo-economy. The “depth and recovery” is simply a function of acceptance for political capitulation of the old models and derivation and acceptane of the new.

Translation: Economic Depression, Social/Political re-alignment, New World Order. Think Dinosaurs!

Posted by Michael | Report as abusive
 

World-wide commerce has worked well for thousands of years in spite of government. In our world of instant communication governments have come to think that they know more about commerce than the rug salesman in Bagdad. The problem is every time a committee of elected officials or bureaucrats get together to fix commerce they put into motion unintended consequences that the rug salesman in Bagdad could have predicted.
Then when the unintended consequences are in motion government once again feel that they need to repair the damage. It is time for governments to realize that they created the economic mess and it is time to go to wiser heads to fix it.
When I say wiser heads I suggest putting together a committee of small businesspeople or even house wives that have shown that they can survive all of the changes imposed by government and still make a living. Have them come up with a plan to recover from the world wide economic crisis. This plan will probably include a plan for the governments to allow business to fail regardless of size and stay out of the way of legal successful business.

Posted by Marvin Crowther | Report as abusive
 

quit screwing the little man.

 

The economist Louis Kelso, deceased, along with philosopher Mortimer Adler, produced the theory of binary economics. Kelso’s work as an investment banker, making ownership more widespread amoung workers and management using tools such as Employee Stock Ownership Plans, is a beacon in the present world of skewed ownership distribution. Unless this problem is addressed, problems such as global warming and overpopulation cannot be adequately solved, for the people say it is up to the rich to do something. If we move towards ownership by the many, rather than the few, we can substantively begin to address the financial crisis at hand.

Posted by Charles Setlow | Report as abusive
 

The first and foremost, the leaders of the developed world should develop and adopt the systematic approach to the most important technological phenomenon of our days – transition to Alternative Energy on a massive scale, which requires forward thinking and coordinated efforts of many industries, Governmental bodies and the engineering communities around the world. Refer to the “Green Electricity (GEL) Initiative” (www.alexanderbell.us/Initiative/GEL.htm  ), which is outlining the Energy agenda for the US and for the rest of the developed world, topping the Google search list for many years.

 

***Alan O wrote:
It is simple my friend. Allow the USA to swallow its bitter medicine. The belief that an economy can have continuous growth is absurd. Non-stop growth is called Cancer.
***************

Ha ha … You think the USA is in trouble? We are doing fine here when compared with folks in Europe, Asia and Africa. When the USA sneezes, the rest of the world catches cold (no, make that flu) still holds true.

Posted by Hopper | Report as abusive
 

To begin, the root problem of all of this is in the lathargic US Congress in failing to force the SEC, Justice, and all the other bodies of government that regulate and observe violations of ethics regarding the financial system. The cause of this problem is moot at this point, as it is in our future that we must live. A strong rattling of the cages in each market is inevitible and these stimuluses are mere bandaids to help get through the troubling times ahead. The Asians and Indians and Australians jumped into a lot of markets and are eating up a lot of profit. So, the old market shares are fewer and harder to come by resulting in too many suppliers for limited consumers and thus a contraction is going to occur and as the old saying goes, only the strong shall survive. The worst thing the American congress did was to allow the auto bailout, this caused every other major corporation to lay off thousands of workers to strong arm money out of the government like the Big Three Automakers did. Corruption and apathy in the most important positions on this earth, the US congress are the problem.. and it all seems to have started around the time Nancy Pelosi became the majority leader. Hopefully the strong financial sector that is HQ’ed in SF knows this and will vote in a better Senator to represent them in the future. But, till then.. I see only wasted efforts and no real motivational plans coming from Obama.. He stated in his campaign that he would eliminate Wall Street and Corporate lobbyists from having influence in Washington, but to me it looks just the opposite. I don’t see a legitimate plan or a course of action, and I believe the whole world will be saved by the efforts of China and Japan before America leads anyone anywhere… America used it’s wealth to become fat, lazy, and stupid and acted like the huge success from undercutting other nations would last forever.. America has invested very little in itself over the past 100 years, the school system is still based on the school system of 100 years ago, and time and changes have caught up and past a lathargic corrupt system of business. The Chinese and Asian run more efficiently and are hungrier for a buck.. That is just the way it is.. And America doesn’t want to accept this reality and better educate it’s own citizens.. So, I myself will do it for my children and feel sorry for everyone else’s..

Posted by American Investor | Report as abusive
 

In this day and age, with the advent of the internet, advancement in technologies and the amount of knowledge it provides to us, as the human race, it should be used to it’s best ability to further implement and address issues that the entire world needs to really take a long hard look at and solve, if possible. There are a lot of very smart people, worldwide, that care about globalization and world issues as well as their own county’s issues and there are some that throw out ideas that don’t really make sense. You just need to weed through the bad ideas, look for creative ones that might work and discuss them. As everyone can see, the global economy is heavily reliant upon each other, not just financial institutions but trade as well. The U.S. has propped up a lot of smaller countries, and larger(China)economies for a long time and now the effects of a lack of consumer spending from the U.S. is trickling to other countries and you can see the effect on their GDP and trade surplus. It’s slowly going down.

The people of the U.S. need to become more educated financially or need to rethink their basic financial skills, actually the entire world does(including Governments) and spend more responsibly or at least stop living beyond our means. From a Government’s point of view, there are things that have to be done, no matter the cost, but as we are now seeing with the failure of the banking system, stemming mostly from toxic loan portfolios by major banks, the failure of Wall Street and the lack of regulation and oversight that should have forewarned us partially about the seriousness of the crisis that has now started to effect economies around the globe, there needs to be a serious cooperation effort between all the major countries on our planet and some sort of global commitment to work together or else this recession will turn into a global depression.

Posted by Damian Palmares | Report as abusive
 

I think what is necessary is for the industrialized nations to take over their banking systems in a coordinated, temporary action with a temporary holiday for financial markets. This would be temporary and would not involve the wipe-out of existing shareholders or even necessarily the replacement of management, and would occur under the auspices of each nation’s central bank. The banks would continue to function in day to day operations and, backed and administered by central banks, would presumably be able to open up credit to businesses to run their operations. The markets would need to be closed during this period, including currency markets.

During the holiday individual nations as well as a conference of nations would evaluate the true state of banks and markets. Governments would need to have the authority to write down or eliminate some debt in a reasonable manner. Since much of the problem has been created by over-leveraging, de-leveraging is obviously necessary and is going to occur no matter what. The question is if it occurs quickly and in an orderly manner or if it takes a long, disorderly time. As with credit default swaps, much of the debt is likely off-setting. For the rest of it, many institutions will need to take haircuts.

During the debt destruction, each nation individually but even more importantly in concert with other nations, would evaluate financial regulation. The shadow banking system (dark market exchanges, derivatives, commodities) needs to come out of the shadows and into the sunlight. Agreements need to be reached about tax havens.

This holiday period with its debt destruction should take care of the immediate crisis. After the holiday period (3 months, 6 months, 9 months), the banks would go back to their shareholders and markets would reopen under the new rules and regulations with public exchanges established for the shadow banking system (and stiff criminal penalties for any attempt to sidestep the public exchanges).

Then the nations should continue to meet to work on Basel and international accounting standards, currency trading, the role of private auditors and credit rating agencies, and other issues of international systemic importance.

In addition to this financial work, the nations could also work on ideas to increase global economic growth which have more lasting benefits than mere consumerism and dicey financial innovations. Global energy, investment in developing economies, and improvement in global healthcare are promising areas that could provide both economic growth as well as long-lasting benefit.

Posted by JMV | Report as abusive
 

What’s the point? Big business and its government lackeys are bankrupting us all and ruining the planet – a trail of wreckage – economically and environmentally. We’re only short of World War 3 and we’re about finished.
Thank you.

 

Don’t spend more than you earn. Pay in cash. Create a budget that allows for savings. Help your neighbor. Works for my family. Will work for the world. Yes, it really is that simple. Growth would be slower, but realistic. This will always be the best system. Ocham rules.

Posted by Capthappy | Report as abusive
 

When oil prices spiked last year, apparently indicating a shortage, people and companies around the world did exactly what they were supposed to do: they started to cut usage.

This is like being becalmed in pre-steam sailing vessel; it is logical for the passengers and crew to cut down their food and water rations so they will last longer.

Just as cutting rations would have been good for the becalmed ship and its mission, so cutting down petroleum usage is good for the planet. Reducing fuel usage tends to reduce global warming, and also helps stretch out our finite supply of petroleum.

One who is concerned about the health of the planet and thus ultimately the health of the human species would logically be glad to see petroleum usage dropping.

Unfortunately this reduction in fuel use was bad for business. It triggered, in effect, a run on the banks, and those with a lot of bad assets began to fail. In a cascading, self-reinforcing reaction, money became tight, businesses could not roll over their debts, and the whole banking and investment system seemed (and still seems) to be in danger of collapse.

Thus we see once again that the planet’s needs are in very direct conflict with people’s everyday requirements for having a job and consuming food, electricity, fuel and so forth.

The above leads me to conclude that we have to modify our economic system in such a way that it will not punish people and societies for doing the right thing for the planet. When a company’s revenue decreases, usually some of the employees lose their entire job rather than taking, say, a 50% pay cut so that everyone can keep their jobs. One might think the pay cut would be the best way to proceed, but that would require a lot of cooperation from both management and labor and is not going to happen very often (though it has happened in the auto industry recently).

Instead we have to count on a lot of job losses, which are already happening. But the people losing their jobs still have to eat and heat their houses and so forth. Without jobs they will have to be given either money or some form of scrip. Giving away money is inflationary, so taxes would have to be raised to get that money back out of circulation. Alternatively, the scrip could be good only for one use.

I think it should be clear at this point that either significant industries such as food producers will have to be nationalized and operated so as to accept scrip and then destroy it, or else the government will have to create significant new entitlements and also raise taxes.

I suggest that nationalization will ultimately arouse fewer passions, and therefore should be chosen over the detested “tax and spend,” which has become a caricature of supposedly bad government.

Forget the bailouts and go straight to nationalization.

 

Solution for the US:
Bring the power of money creation back to The People.
1.In addition to Legislative, Executive and Judiciary branches of government create fourth Monetary branch. Nationalize the FED and make it part of the Monetary branch. In order to insulate the Monetary branch from the temporary shortsighted goals of the Executive branch it should be organized in a fashion similar to the Supreme Court. Monetary Board should decide on a monthly basis on the supply of INTEREST FREE money with a primary goal of maintaining price stability. Issued currency should be part of income side of the federal budget.
2. Abolish Fractional Reserve System. In order to prevent banks from violating this law banking institutions should be divided into two groups (at least):
a) Depository Institutions – would be allowed only to collect deposits and prohibited from lending. Would collect fees for maintenance of the checking accounts. Individuals with excess cash deposits could purchase Money Market Bonds from the Lending Institutions if they wanted to invest their money. It would eliminate the risk of run on the bank.
b) Lending Institutions – would issue Money Market Bonds in order to obtain money for lending purposes. They would make money on the spreads between the interest they pay on the Bonds and the interest they receive on the money they lend. Money Market Bonds would also be traded on the secondary market.

In a long term this would create very stable financial system, it would also reduce national debt, reduce taxes, increase savings ratio, maintain price stability and allow people to securely save for their retirement without being exposed either to the risk of inflation or market collapse.

Posted by PwlM | Report as abusive
 

Float the YUAN! No large economy gets to manage its currency.

Posted by Ken Marangue | Report as abusive
 

@PwlM
Ownership restrictions should also be put in place.
Lending institutions should be prohibited from purchasing shares of Depository institutions and vice versa. One entity could not have more than 30% or majority stake in Lending Institusion and Depository Institusion at the same time (lower % applies)

Posted by PwlM | Report as abusive
 

The first question I have that no one has asked is “If trillions have been lost, where did the money go?”. Somebody has surely made a gigantic profit somewhere or alternatively the loss is a perceived one rather than actual.

Since no one has apparently profited in these last few months, something is wrong with the numbers.

There is 2 main issues to take into consideration

1) Assets v Debt;
Institutions near to redefine debt that is presently marked as assets on the books. Accounting Standards should be revised!
2) Valuation of same;
An asset is not valued according to it’s “face value” but rather to its demand and thus “fair market value”. “Fair Market Value” has to be redefined for all assets and it can be done by effectively wiping out the “perceived” value of the assets to leave behind the actual “Fair Market Value”. A 30 year Zero corporate coupon is nothing more than a bet and as such has only value when redeemed at term. It should NOT be on the books as it’s future full face value.

Banks should no longer be “Financial Houses”. “Deposit banking” and it’s associated services should be clearly separated from ‘Investment Banking” operations.

Bailing out Banks is not a bad idea as long as the bailout is to protect depositors. Shoring up a bank’s failed “Investment Banking” division should not be tolerated.

A Global stimulus package should be agreed by the G7. This package should be for “food production”, “Energy production”, “Water purification and Water Management”, “Transport and Communications”. All of these could easily be for third world economies. Food production would include paying “Premium” for food produced (rather than cheap pittances because of perceive poverty). This would encourage peace, production of food v drugs, cooperation and a return to the land for many. Energy Production would be in any form that suits the environment (eg: Solar for deserts and the equatorial belt) and together with new delivery infrastructure would provide wealth for developing countries and power for the users. “Water Purification and Management”, desalination and water filtration plants to recycle water and provide for ythe growth of food and sustenance of population. “Transport & Communication” infrastructure of communication would allow for quicker response to armed conflicts and improved transport infrastructure (eg: roads and rail in Africa) allow the quicker and free movement of goods and resources. For Developed countries newer transportation alternatives (such as better rail in the USA), trams, subways etc, as well as electrical outlets for distribution of refueling power to electric vehicles of the future.

In The US, a complete revamping of laws pertaining to Lobbying should be looked at. This would remove many of the obstacles that would allow growth against the present system which effectively is no different than monopoly in a different coat.

Posted by John Prince | Report as abusive
 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
  •