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Written by Ralph T. Niemeyer - Istanbul
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Friday, 27 June 2008 15:11 |
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  Economists at the 15th World Congress of International Economic Association in Istanbul, a UNESCO founded body, are warning of major banks failure and even some states as a financial Tsunami was sweeping through markets today. In his conference contribution "the cost of Sovereign default" Eduardo Borensztein of the research department of the IMF cited the mathematical impossibilities of our present economic system as being responsible for the current financial turmoil.
According to other experts at this conference, who would speak only on condition that their anonymity should be protected, financial conglomerates have abused their dominant positions by generating artificial GDP growth of some 114% in recent years whereas the real economy grew by merely 2% at best.  This, in theory would not be a problem if this virtually created liquidity had not reached the real economy and affected the man in the street, as they are describing it. In this sense high ranking economic scientists at the conference conclude that we have either to disconnect the financial markets from actual production or limit the amount of cash (M3) available.  This, however, would mean control by governments but if they do not act commonly and synchronise attempts to control the multiplication of numbers and zeros financial markets could easily be undermined by institutional investors withdrawing their 'investment' from a country within a split of a second and by this put tremendous pressure on its government.  In these circumstances a government could only prevent a flight of capital by applying transfer controls that only a few countries such as Malaysia, worst hit by the Asian crisis in the 1990’s or South Africa still have.  Therefore, experts here say that unilateral approaches would not be prudent as democratically elected governments would be beholden to financial markets whose invesment decisions can ruin economies in an afternoon.  In the midst of the current financial crisis the top world economic sciences who spoke here to EU Reporter say it is far from being over and a rethinking of the global economic model would be the best answer. The troubled passage of the EU's Lisbon treaty, which prohibits any control of the flow of capital is seen by many scientists here as counterproductive if not dangerous.  A new Bretton Woods system, however unrealistic it may sound today, is seen as a possible cure although it may come too late.  How, experts here are asking, does one build a dyke against a financial Tsunami? Â
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