Dear Curtis,

I can only hope and pray that you’re not right! And yet…

we are definitely at the edge of the cliff and some are already experiencing a Minsky moment. Yesterday, Mr. Tsipras, finally looked at the abyss ahead of his feet and realized the significance of the moment: Greece's "degradation" by the Eurozone, the decision to set up a fund into which the country has to place 50 billion euros worth of assets for privatization, the demand that Greece's parliament must, within three days, and legislate for implementing the draconian austerity measures. Thus, in total panic he capitulated to a free fall. Which country will be the next?!



Does anybody in his/her right mind believes that the Greek crisis, or to put it in a more accurate term, the banking crisis in Germany and France is now resolved? The bailout is just kicking the can for a few more blocks while desperately hoping for some magic growth that would create a bit of capital on the other side of the banks’ ledgers. But October in only three months would be upon us, and there’s a reasonable probability that some investors will start to run for cover as early as September. Meanwhile, wishing to extend the Minsky moment for few months more, the IMF in desperation is beseeching Ms. Yellen to postpone the tightening of monetary policy to the early next year and the global debt levels keep rising. But it can’t be compounded indefinitely.



Unfortunately, the financial bureaucrats are busily writing and suggesting new rules, regulations, and policy frameworks in their wishful beliefs that they can somehow “forbid” or “rule out” the inevitable arrival of the reckoning time which can turn into a perfect storm. Every day that passes in procrastination in tackling the fundamental global financial imbalance would add to the severity of the storm. The idea of a restructuring of the global financial system is not something radical.



The 1920 Brussels international conference and 1933 London conference have already provided us with remarkable blueprints for restructuring international relations. We should recall that the prominent Swedish economist Gustav Cassel had recommended that to prevent the risk of a serious deflation after the reestablishment of monetary discipline through gold standard countries had to adopt a new gold parity for currencies ‘considerably lower than it was before the war.’ The global finance today needs a “back to reality” adjustment. A Cassel type of parity adjustment does not necessarily require a gold-standard regime. A return to a Purchasing Price Parity may be grounded on a composite index of industrial materials. Cassel wrote in a memorandum for the Brussels conference that countries had a common interest in preventing gold from rising in value: “the stabilization of the value of gold will clearly require, in the coming years, a close cooperation of all countries.” In fact, the understanding of the imperative of working in a globally balanced financial system was considered of common sense among the politicians of yester years. So much so that in the Brussels conference the Belgium Prime Minister Léon Delacroix proposed the setting up of a World Bank based in Brussels to help countries to equilibrate their commercial balance.



On the eve of the London conference of 1933, the British Prime Minister Ramsay Macdonald, who understood the significance of a need for a global restructuring to establish a global financial balance, opined that the conference might possibly save democracy from the world’s economic challenges. So was the understanding of the US Secretary of State, Cordell Hall who attended the conference aiming for the restoration international trade and restructuring of the global finance, and who was supported by President Roosevelt who believed a recovery can be achieved by the establishment of “order in place of the present chaos, by the stabilization of currencies, freeing the flow of world trade, and by international action to raise price levels”. France, taking up the mantle of Europe’s gold-standard block submitted an elaborate strategy for international monetary discipline by adhering to the rule of the game to maintain the global balance. The world must rebalance its financial structure one way or the other, and the other way would be an automatic adjustment in a Minsky moment of free fall.

