Pope Benedict's encyclical "Charity in Truth" proposed a sweeping reform of the world economic system from one based on the profit motive to one based on solidarity and concern for the common good. Like other such documents in the Roman Catholic Church's social teaching tradition, the encyclical delivers a strong critique of unbridled capitalism. This can be uncomfortable for Catholics who champion free enterprise and some conservative Catholic writers reacted quickly and critically. One of them, George Weigel, wrote the encyclical "resembles a duck-billed platypus."

(Image: Charity in Truth/Ignatius Press)

We wanted to hear the views of a Catholic executive, one who's involved in business rather than reacting from the sidelines. So I called Frank Keating, president and chief executive officer of the American Council of Life Insurers (ACLI). The former Republican governor of Oklahoma (1995-2003) is a former chairman of the National Catholic Review Board, which he said "sought to identify and correct the horror of sexual abuse on the part of the clergy." He is a Knight of Malta and a Knight of the Holy Sepulchre.

DB: What's your overall reaction to the encyclical?

FK:"I haven't read the 30,000 words but I think what the pope is proposing is not inconsistent with other papal messages. The common denominator to all of them is the worth of the individual, the dignity of every human person. So Benedict XVI focuses on the right to life, he speaks against euthanasia, he speaks against the evil of abortion, he speaks against cloning. But at the same time he talks about duties and responsibilities to the vulnerable because the vulnerable are dignified human beings as well as those who are rich and powerful.

(Photo: Frank Keating, 11 Feb 2002/Adrees Latif)

"So to exploit someone in a capitalist society is, according to Benedict, inapropriate and contrary to Catholic moral teaching. But for me as a free market capitalist, I see in this statement also the right for me to determine my destiny. In other words, if I wish to work for the state I should be able to do so. If I wish to found a small business, I should be able to do so. A dignified, independent mortal soul, a caring individual should be able to determine their own destiny.

"There is a little bit for the left, support for unions, support for protection of the globe against waste, but there is also something I think for the free market advocates in the Church, because if you are an independent creature with a unique personality based upon, obviously, the immortality of your soul, you should be able to work or not work as your decision. I think there is a little bit for everyone."

DB: What do you think about Benedict's call for a "world political authority" to manage the global economy?

FK: "I think it is impractical to suggest that sovereign nations will surrender on the one hand a free market economy or on the other hand a socialist economy or completely managed or disintigrating economy as you would have for example in a place like Zimbabwe, or places like that which are utterly dysfunctional. I don't think he would suggest that those economies that work surrender what works to those that don't work and be managed by some supernational group that would impoverish everybody. I think what he's talking about.

"As a result of the impoverishment of reckless lending, the impoverishment of a number of individuals throughout the globe, you are going to have far more coordination, and that is good. There is a difference between coordination and mandate. Look at Solvency II or (the Bank for International Settlements in) Basel. All that stuff, coordinating banks, coordinating insurance companies and the practices, lending standards and the like. I think you'll see more coordination and, to the extent that that can be done, it will be healthy for everyone. A reckless loan in the United States can and did impoverish people in Latvia. So obviously coordination is important as long as it is not mandated.

(Photo: Bank for International Settlements, 8 July 1997/stringer)

"I see 'world political authority' ... (and) 'manage the global economy' (in the Reuters report). If it said to coordinate decision making in the global economy, I think there would be less concern. But again it was probably written in Latin.

"Here's a quote: 'The conviction that the economy must be autonomous, that it must be shielded from 'influences' of a moral character, has led man to abuse the economic process in a thoroughly destructive way." Well, some men certainly have done that. I don't think there is any question about that. I think his comments are not inappropriate.

"I think this is also for any of us, whether we are Catholics or not, to have the pope say 'Once profit becomes the exclusive goal, if it is produced by improper means and without the risks destroying wealth and creating poverty.' Well, I don't disagree with that. I think to raise this crisis to an international debate and emphasise the moral issues involved, and the ethical issues involved, is totally appropriate."

DB: Will this encyclical change the way you run the ACLI?

FK: "Our products are protection products against calamity. Whether your house burns down and you have inadequate resources to rebuild it, property/casualty insurance saves you. Or your business partner dies or your spouse dies, life insurance provides the money to get back on your feet. I would argue there is a moral purpose there in pooling risk to help other people.

"But in the pope's case, to talk about moral responsibility, duties to others, I think Bernard Madoff is the poster boy for that. Because here is a man, as you know, who betrayed and destroyed his own faith community, those within his own faith community. So I think for men and women in business and finance and government for that matter, I think the Pope's message is one to listen to and to listen to carefully."

(Photo: Bernard Madoff, 17 Dec 2008/Shannon Stapleton)

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Pope Benedict issued an ambitious call to reform the way the world works on Tuesday shortly before its most powerful leaders meet at the G8 summit in Italy. His latest encyclical, entitled "Charity in Truth," presents a long list of steps he thinks are needed to overcome the financial crisis and shift economic activity from the profit motive to a goal of solidarity of all people.

Following are some of his proposals. The italics are from the original text. Do you think they are realistic food for thought or idealistic notions with no hope of being put into practice?

• "There is urgent need of a true world political authority. .. to manage the global economy; to revive economies hit by the crisis; to avoid any deterioration of the present crisis and the greater imbalances that would result; to bring about integral and timely disarmament, food security and peace; to guarantee the protection of the environment and to regulate migration... such an authority would need to be universally recognized and to be vested with the effective power to ensure security for all, regard for justice, and respect for rights."
• The economy needs ethics in order to function correctly - not any ethics whatsoever, but an ethics which is people-centred..."
• "Financiers must rediscover the genuinely ethical foundation of their activity, so as not to abuse the sophisticated instruments which can serve to betray the interests of savers. Right intention, transparency, and the search for positive results are mutually compatible and must never be detached from one another."
• "Without doubt, one of the greatest risks for businesses is that they are almost exclusively answerable to their investors, thereby limiting their social value... there is nevertheless a growing conviction that business management cannot concern itself only with the interests of the proprietors, but must also assume responsibility for all the other stakeholders who contribute to the life of the business: the workers, the clients, the suppliers of various elements of production, the community of reference... What should be avoided is a speculative use of financial resources that yields to the temptation of seeking only short-term profit, without regard for the long-term sustainability of the enterprise, its benefit to the real economy and attention to the advancement, in suitable and appropriate ways, of further economic initiatives in countries in need of development."
• "One possible approach to development aid would be to apply effectively what is known as fiscal subsidiarity, allowing citizens to decide how to allocate a portion of the taxes they pay to the State."

(Photo: Pope Bendict, 1 July 2009/Tony Gentile)

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China has long said that its biggest contribution to a world racked by financial turmoil would be to ensure that its own economy grows strongly, implying that a rising Chinese tide will lift all boats. The latest data show that Beijing has delivered on one part of the bargain; its economy, the toast of the world over the past five years, is once again ahead, far ahead, of the pack. 

Many investors and companies are confident that the second part of the bargain will follow – that China's recovery will be just the cure for markets still woozy from the financial battering. Such faith is not yet justified.

To be sure, China has already delivered a cortisone injection to some commodities, notably copper, the price of which has risen more than 40 percent this year. Strong stock markets, from Japan to Canada, since March are in part a play on positive sentiment spilling over from the Chinese rally that began in January. China also stands as the one growth market for global auto makers.

But there are plenty of reasons to rein in expectations. China's voracious appetite for commodities in the past few months looks more like strategic stockpiling than true industrial demand. Amid China's upbeat March data, its overall imports actually fell more steeply than in February.  And the foreign business community in China is complaining that it is not getting a fair chance at contracts linked to the government's 4 trillion yuan ($585 billion) stimulus package.  

There is also the risk that China's strength to date, topping the forecasts of even the most optimistic of analysts, has created an awkward situation where markets are now counting on the country to constantly outperform; merely growing in line with expectations would be a disappointment. 

It is notable that one of the most sober voices has been that of Chinese Premier Wen Jiabao, who urged caution after "better than expected" economic figures last week and reiterated the stance on Saturday during comments at the Boao Forum for Asia. Gone was his catchphrase of the past few months that "confidence is more important than gold". In its place was a warning against "blind optimism".

Photo Caption: Labourers work on scaffolding at a construction site in Changzhi, Shanxi province on April 16, 2009. REUTERS/Stringer

If you were wondering what two years of wealth destruction have done to the American psyche, the Employee Benefit Research Institute has your answer.

They have conducted surveys asking (among other things) when people expect to retire. Back in 1991, a full 19 percent thought they’d be in full-time relaxation mode before age 60. The latest survey? Only 9 percent think they’ll be that lucky.

Just 17 percent now say they expect to retire at age 60 to 64, down from 31 percent in the 1991 poll. Nearly a third think they’ll be older than 66 before they stop working, up from 11 percent in 1991.

And get this: 10 percent in the latest survey say they think they’ll never retire. That answer didn’t even register in the 1991 version.

Japan, slightly sidelined by the U.S.-UK “special” relationship and the Franco-German alliance at the G20 summit, is keen to stress the country can offer lessons to be learned from the country’s banking crisis in the 1990s.

Here’s a re-cap of what happened. In 1992, then-PM Miyazawa warned of a financial crisis unless banks were recapitalised using public funds now. Yet no action was taken. Between 1995 and 1997, staggering 5 financial institutions failed, forcing the government to inject public funds into 21 banks in 1998. Then two major banks were nationalised, then the government injected additional capital into 32 banks.

U.S. Treasury Secretary Timothy Geithner experienced the crisis himself as a financial attache at the U.S. embassy in Tokyo in the 1990s.

But how relevant are Japanese lessons to the global markets today?

“In some ways, Japan was lucky. Its lost decade was spent at a time when the global economy was recovering from recession. As a result, there was an opportunity for exports to grow,” Ian Bright, ING economist, writes in a paper which won the Society of Business Economists’ Rybczynski Prize.

“Today, the situation is different. The problems in financial markets are global rather than local. As a result, the chances of any one country finding solace in exports are slim.”

(Reuters photo: Toru Hanai)

He loves the Queen and the British people. Truth be told, President Obama was always going to be a hit on his first overseas trip.

But Gordon Brown probably could not believe his luck. The prime minister just could not stop grinning as he stood next to the new president at a news conference in the Foreign Office ahead of the G20 summit.

He must have always been hoping for a bit of the Obama magic to rub off on him and revive his battered ratings but he can’t have expected the ringing endorsement he got.

Tony Blair and George W Bush. Ronald Reagan and Margaret Thatcher. Britain has always liked to make much of the special relationship between it and America and any doubts it was in danger under Obama could be put to rest this week.

Obama looked on intently as Brown made his opening statement, referring to him by title.

But the formality dropped as soon as it was Obama’s turn, as he thanked his hosts “Gordon and Sarah” and said he had been discussing dinosaurs with their two sons.

The United States and United Kingdom have always stuck together, he said. That’s why he was pleased that his first overseas trip was to visit Brown.

Brown’s face immediately lit up. Soon he was calling the president “Barack”, joking that he was keen to introduce him to
his friends in the British press.

Even a question about Brown’s regular remark that the crisis was made in America passed without a hitch, as Obama readily accepted the United States had to share some of the blame.

Asked what advice he would give to Brown on winning an election, Obama said: “The only advice I would give him Gordon is the same advice I gave myself — good policies are good politics.”

But the presidential hand on Brown’s back as the two men left the podium may be the biggest helping hand of all.

Peer Steinbrueck, the front man in Germany’s fight against the financial crisis, has a new challenge on his hands: Karl-Theodor zu Guttenberg. The young economy minister, in the job for only a month, is already proving to be a thorn in Finance Minister Steinbrueck’s side. The telegenic 37-year-old is coming up with policy initiatives that challenge Steinbrueck’s plans, and draw media attention away from him.

This is new territory for Steinbrueck. Until last month, he was able to capitalise on the low profile of former economy minister Michael Glos to make himself Germany’s primary spokesman on matters financial and economic — and the man Chancellor Angela Merkel turned to for leadership on these issues. Glos’s shock resignation last month opened the way for Guttenberg to make the step up from Bavarian politics to the national stage, and he hasn’t looked back.

This week he proposed amending a planned law on saving stricken banks, which was drafted by Steinbrueck’s ministry, to try to avoid nationalising them. The idea may not take off, but it grabbed media attention. And while Steinbrueck (wiping face in picture) joins other G20 finance ministers this weekend for a meeting in England, Guttenberg  (left in picture) will be preparing for a trip to the United States next week, where he will meet Treasury Secretary Timothy Geithner — Steinbrueck’s opposite number — as well top White House adviser Lawrence Summers, IMF Managing Director Dominique Strauss-Kahn and World Bank President Robert Zoellick.

“Peer Steinbrueck has to share the crisis management with high-flyer Karl-Theodor zu Guttenberg — much to his displeasure,” ran a headline in Friday’s edition of the Handelsblatt business newspaper.

With a federal election looming in September, Guttenberg is using every opportunity he can to boost his profile. As a member of the conservative Christian Social Union (CSU), Bavarian sister party to Merkel’s Christian Democrats, he is naturally more politically allied with the chancellor than Steinbrueck, a Social Democrat. His suave demeanour and aristocratic background are a contrast to Steinbrueck’s plain-speaking approach, and his media blitz could start to drown out Steinbrueck’s message.

“Like fire and water, these two”, Handelsblatt wrote.

(Reuters photo: Fabrizio Bensch)

"I think, Watson," Sherlock Holmes tells Watson in "The Five Orange Pips,"  "that of all our cases we have had none more fantastic than this."

The famous fictitious sleuth referred not to a world-wide financial crisis, but a multi-continental saga of murderous revenge, and it also centered on the British hamlet of Horsham, where the Group of 20 rich and emerging nations are meeting to solve their own baffling case, the Global Economic Collapse of 2008-?. 

Readers who not like the endings of stories given away should read no futher. Readers hoping for a hopeful analogy to a story about brains and pluck overcoming adversity should also click away from this post immediately.

Holmes solves the case, but not in time to prevent his client, who has inherited an estate in Horsham, from being murdered. Nor does he succeed in bringing the culprits to account, although they are dealt rough justice on the high seas.

Ministers of the G20 might take a precaution from Holmes' overconfidence at the beginning of the case:

"The observer who has thoroughly understood one link in a series of incidents should be able to accurately state all the other ones, both before and after," he tells Watson.

(REUTERS/Wolfgang Rattay. German politician Guido Westerwelle plays Sherlock Holmes during a performance in 2005)

Finance ministers and central bankers from the G20 meet this weekend in the English countryside to discuss the world’s financial and economic crisis. With this in mind, MacroScope asked a number of economists what they want to see from the meeting and the G20 summit to follow later and what they expect to see.

The answer, in short, appears to be that much is needed but not much expected.

Paul Mortimer-Lee, head of market economics, BNP Paribas:

“There will be progress on agreeing that regulation needs to be more effective and more effectively co-ordinated on a global scale but I am unconvinced we are going to go a long way further.  Some populist posturing on bank bonuses etc should be expected. The less is achieved in other areas the more this will get played up. On bank recapitalisation, they will all agree strong capital is a good thing, but in no way do I expect a concerted plan — it’s driven by events and the exigencies of the local banking system.

“I would like to see progress on the international financial architecture/the IMF and its resources. Maybe we’ll get some new facility and some agreement on more new cash … but a radical overhaul requires the power structure to be rejigged — more power to the (emerging economies) and less to Europe. This is not something European politicians will want to be high profile when it comes out.”

Sarah Hewin, senior economist, Standard Chartered:

“The economic data continue to worsen and markets remain in a state of fear. So the best outcome from the meeting would be a co-ordinated response to frozen credit markets and collapsing global economic activity.

“A wish-list would include announcements on: fixing banking systems, including cleaning up banks’ balance sheets by dealing with toxic assets; more and co-ordinated fiscal stimulus and wider adoption of quantitative easing; expanding the size of the IMF to enable it to support vulnerable countries; and commitments against protectionism.

“But the experience of previous summits is not encouraging - apart from increasing IMF resources and making the right noises on protectionism, we are likely to see few real progressive steps taken.”

Gabriel Stein, director, Lombard Street Research:

“The G20 meeting, like almost all summits, is a waste of time. Most of the work will have been done beforehand and the actual meeting could just as well be delegated to functionaries. Its main purpose is political.

“It will issue a bland communiqué telling us that they agree on the need for further reforms and oversight of the world financial system, but that while co-ordination is useful, the actual details are better left to each country/region with its specific issues and problems. It will also warn against protectionism.”

Alessandro Bee, economist, Bank Sarasin:

“I would like them to come up with a plan to solve the credit crisis, a coordinated plan. Also apowerful plan with some clear-cut strategies. What we see now is more like a series of individual plans that sometmes materialse and sometimes not.

“I would expect some annoucements rather than real decisions.*

So that’s them. What about you? What do you want to see and what do you expect to see?

(Reuters photo: Peter MacDiarmid)

Former Fed Chairman Alan Greenspan isn't getting the respect he used to.

Greenspan's op-ed in the Wall Street Journal drew withering criticism from High Frequency Economics' Ian Shepherdson, who was unimpressed with the Maestro's denial of any Fed contribution to the country' worst financial crisis since the Great Depression.

Greenspan: "Given the decoupling of monetary policy from long-term mortgage rates, accelerating the path of monetary tightening that the Fed pursued in 2004-2005 could not have 'prevented' the housing bubble."

Shepherdson: "We were appalled and outraged by Alan Greenspan's self-serving it-wasn't-my-fault op-ed... If Mr. Greenspan can say with a straight face that this was not a consequence of the Fed's excessively easy stance then either he is delusional or a very talented poker player."

Greenspan said his preferred appraisal of the Fed's track record during his tenure as chief of the U.S. monetary policy temple is Milton Friedman's: "'There is no other period of comparable length in which the Federal Reserve system has performed so well. It is more than a difference of degree; it approaches a difference of kind.'"

Shepherdson, a Briton who was chief economist for HSBC Securities in New York before joining High Frequency Economics, had a different assessment:

"Greenspan ought to have used the pages of the Journal to apologize to the nation. Instead, his piece will stand as a testament to his hubris, or perhaps his delusions. History will not be kind to him."

 REUTERS/Kevin Lamarque  (Greenspan testifies before the House Oversight committee in October)