The global economy has been shaped by the US dollar’s role as key currency. Other countries rely on export-led growth to earn the dollars they need for cross-border transactions. The resulting US trade deficits are financed by foreign investments in dollar assets that have raised US net debt to the rest of the world to historically high levels relative to GDP. Credit generated by foreign savings also created historically high levels of domestic debt that were an underlying cause of the financial crisis of 2008. The unregulated offshore market compounded the problem by forcing deregulation on national markets and eroding the ability of the US central bank to control the credit supply and prevent the debt bubble. Since the key currency system depends on confidence in US economic strength and growth, ongoing US dependence on foreign savings and debt-fed growth will weaken its economy and undermine confidence in the dollar.
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In its 2005 Annual Report, the Bank for International Settlements endorsed the reintroduction of macroprudential tools to implement monetary and regulatory policies. But their proposal falls short of what’s needed to reinstate effective countercyclical strategies because it would only apply to banks. In the market-based system that has emerged over the last four decades, what is required are monetary tools that can extend the central bank’s influence to all financial institutions. A form of asset-based reserve requirements that has been used by European countries for many years and proposed in the US suggests a model for a new system that would require all financial firms to hold reserve requirements, authorize the Fed to target assets when creating or extinguishing reserves and shift reserve holdings to the liability side of all financial institutions’ balance sheets.
This chapter is dedicated to India, which affords a similar but at the same time different story from China’s: similar ambitions to showcase the country as a scientific and innovative leader, but with a much less focused and decentred policy approach. The chapter traces the background to this in the colonial heritage, in the fragmentation of the Indian state apparatus and in India’s weak position in the global exchange of competence.
This chapter analyzes existing international law norms relevant to the issue of secession, and emphasizes the current failure of international law to appropriately address secession. It briefly analyzes existing treaties and customary rules related to secession, as well as recent case law by the International Court of Justice. The chapter concludes that international law currently does not contain a positive norm on secession, and that existing norms and principles on self-determination are inadequate to address all secessionist conflicts. It also concludes that the legal vacuum regarding secession has resulted in the fact that secessionist outcomes seem entirely dominated by the geopolitical interests of the most powerful states, and that this unfortunate situation could be ameliorated through the development of an international law framework on secession, which would constrain the behavior of all, including very powerful, states. Thus, the chapter concludes that it is necessary to develop a new normative framework on secession.
The adoption of capital requirements led regulators to focus on the individual institution in isolation, ignoring the ever tighter linkages between institutions and sectors and the systemic interactions they created. Moreover, they failed to see that capital requirements pushed institutions and the financial system as a whole in a pro-cyclical direction. In the aftermath of the crisis, it became clear that capital requirements are a tool that failed. Capital evaporated and governments, not markets, were required to provide the capital cushion needed to prevent total collapse. The downward spiral set in motion by falling prices and charges against capital in the fall of 2008 argues for a view of capital as a threat to solvency, not a cushion. The Fed’s struggle to provide liquidity systemically suggests that central banks must build a source of systemic funding that, like reserves, is renewable and immediately available to all financial sectors in a downturn.
There has been considerable debate in recent years as to whether the rise in intolerance associated with the growth of populist parties in Europe is a social phenomenon of the ‘losers of globalization’ or a psychological manifestation of individual authoritarianism. Both the social and the psychological determinants of intolerance can, however, be addressed within a perspective which identifies rising social insecurity on the one hand and an authoritarian predisposition on the other as at play, with the former catalysing the latter. The ‘ordo-liberal’ straitjacket of the eurozone and related austerity measures since the financial crisis have only served to increase unemployment and heighten insecurity, while migrants and refugees have provided convenient scapegoats for the projection of blame by the authoritarian Self on to the Other.
The proposed system restores the ability of financial institutions to borrow and lend reserves and reduces pressure on asset sales. Unlike other financial assets and liabilities, reserves held with the Fed retain their face value and their use in transactions among financial institutions would preserve confidence. More importantly, unlike capital, their ability to be created and extinguished by the Fed would restore its ability to be an effective systemic lender of last resort. In addition, the new system would allow the Fed to constrain or stimulate flows to specific asset types or financial sectors and thus deal more effectively with asset bubbles and credit crunches. It could also buy foreign securities in repo operations to moderate the effects of excessive capital inflows. Ensuring that the Fed has these and other monetary powers would restore its ability to meet its mandate to provide the stability needed to enhance the nation’s macroeconomic performance.
Under the current system, securitization reduces banks’ need to raise capital to support increased deposit liabilities to support securitized loans. But capital requirements reduce banks’ incentives to make loans that cannot be securitized. The tables in this chapter show how shifting reserves to the liability side of financial firms’ balance sheets increases the effectiveness of monetary initiatives. When the Fed acquires assets from a financial firm under repurchase agreements, it shrinks the asset side of the firms’ balance sheet while augmenting the liability side with reserves and creates an incentive to use the new interest-free reserves to buy new interest-earning assets. Similarly, when it returns assets to an institution and extinguishes reserves, the institution has insufficient liabilities to back its assets and must sell assets to adjust its balance sheet.
Locational policies aim to enhance the economic competitiveness of localities by developing place-specific assets that are considered to be most competitive. The proposed Locational Policies Framework captures the wide array of policy endeavors of cities to compete in interurban competition. The analytical framework of this book draws from the Varieties of Capitalism theory. This theoretical lens enables the theorizing of local governments as actors that formulate locational policies based on political and economic institutions. The economic institutions are examined using the Regional Innovation System concept, which stems from the economic geography literature. The political institutions are analysed by using the Multilevel Governance concept which has emerged from political science literature. The analytical framework assumes that these two explanatory factors constrain or enable the formulation of different types of locational policies. Furthermore, local decision-makers may draft locational policies which aim at the very structures that simultaneously enable or restrict them.