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谢国忠

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麻省理工学院经济学博士

个性介绍: 1960年出生于上海,1983年毕业于上海同济大学路桥系,1987年获麻省理工学院土木工程学硕士,1990年获麻省理工学院经济学博士。同年加入世界银行,担任经济分析员。在世行的五年时间,谢国忠所参与的项目涉及拉美、南亚及东亚地区,并负责处理该银行于印尼的工商业发展项目,以及其他亚太地区国家的电讯及电力发展项目。1995年,加入新加坡的Macquarie Bank,担任企业财务部的联席董事。1997年加入摩根士丹利,任亚太区经济学家,2006年9月辞去该职务。

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谢国忠:谴责游戏  

2009-02-18 22:51:14|  分类: 言论 |  标签: |举报 |字号 订阅

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谴责游戏

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2009-02-16

Severalprominent newspapers have featured articles that blame the currentfinancial crisis on China's buying of the US treasuries. In thistheory, the deficit countries (e.g., Australia, Ireland, Spain, the US,the UK, etc.) are Peking ducks, the surplus countries (e.g., China,Japan, Russia, Saudi Arabia, etc.) are duck farmers, and the laterforce-feed the former into bloated debt junkies that eventually blowup. Of course, both willing lenders and borrowers must exist for a debtbubble to exist. But, who do you blame, the borrower, the lender, orthe middleman? I am sure that stories and theories on all three wouldbe plentiful. But, the accusation against China and other lendingnations would be politically convenient. The politicians in the crisiscountries could blame someone else and avoid making hard choices.However, the theory has the causality wrong.

Finger pointing inthe blame game so far is mostly at Wall Street, i.e., the middleman. Itis easy to do that. Just look at the CEOs of these institutions. Theyhave paid themselves hundreds of millions of dollars on supposedaccounting profits that have become today's write-offs. Theirinstitutions are either already bankrupt or close to. Bernie Madoff's$50 billion scam crystallized the problem on Wall Street. It is easyfor common people to see that this crisis has happened because thesegreedy people have taken advantage of the system and ruined it fortheir personal gains. I am sure Hollywood would have a feast with thestories that are coming out of Wall Street. They are so much betterthan made-up stories. Great movies could be made just by faithfullyrecording what happened.

I have been writing about Greenspan'sguilt for this crisis. For years, I have written his bubble makingdecisions: I wrote (1) in 1999 that his rate reductions in response tothe Asian Financial Crisis led to the IT bubble, (2) in 2000 that hisrate reductions in response to the tech burst would lead to a propertybubble or bond bubble or both, and (3) in 2003 that a new bubble wasemerging with Greenspan as the DJ. When he took over the Fed in 1987,the US's financial sector had $1.9 trillion in debt or 29% of GDP. Whenhe departed in 2005, it rose to $13 trillion or 104% of GDP.

Inhis appearance at a congressional hearing last year, he professed thathe was shocked that the financial institutions that borrowed so muchdidn't take good care of it. So his explanation was that he didn'tknow. But, in 1998, when Long Term Capital Management ('LTCM') blew up,it nearly brought down the financial system. The problem was excessiveleverage as reflected in the financial sector debt. If one fund couldbring the system down, imagine how much risk the massive growth of thehedge fund industry and the proliferation of proprietary activities atinvestment banks could pose to the system. Indeed, the consensus amongregulators and analysts after the LTCM debacle was that suchoff-balance sheet activities should be regulated. The opposition fromhim and top officials in the Clinton Administration kept such high riskactivities unregulated and laid the foundation for the current crisis.

Ina credit bubble, monetary policy plays a dominant role and must be heldresponsible for it. I had a debate last year with a friend on who wasguilty. He argued that the export-led strategy by emerging economieswas equally to blame. I argued against it. Some bubble happenssomewhere everyday. A bubble forms when everyone bids up the price ofan asset solely on the expectation that someone else will pay morelatter. Hello Kitty dolls, puer tea, or modern paintings all couldbecome bubbles. As long as supplies cannot increase quickly in responseto rising price and something captures the attention of enough people,a bubble can happen. But, such bubbles are small relative to totalmoney supply and can form without the support of monetary policy. Acredit bubble is large relative to total money supply. Without anaccommodating monetary authority, a credit bubble cannot possiblyoccur. For example, the increase of the financial sector leverage from29% to 104% of GDP couldn't have happened without the Fedaccommodating. If one person could and should have stopped the bubble,it was Greenspan.

Instead of being alarmed of surging leveragefor proprietary investment such as warehousing derivatives in thefinancial system, Greenspan repeatedly claimed that the proliferationof derivative products was good for efficiency and failed toacknowledge that it was mostly for speculation. I don't know if he wasgenuinely naïve about what was happening. Mr. Greenspan is theindividual most responsible for the crisis.

In his inauguralspeech President Obama spoke about the collective failure to make hardchoices. It was a euphemism for reckless borrowing by the UShouseholds. Should the borrowers who are not paying their debts beblamed? Some prominent analysts think it was all the fault of craftybankers who cooked up complex products and fooled the masses intotaking on debts they wouldn't be able to repay. I don't think so. TheUS households who took on triple zero mortgages-zero down payment, zerointerest rate and principal repayment for two or three years knew theywere offered only upside and no downside. If property price rises, theycould benefit from the appreciation. If the price falls, they couldwalk away and go back to where they were from. They were offered a freeoption plus a nice house they could stay in for the time being forfree. It was rational for them to take the deal. But, was it right? Ithink it would be quite naïve to portray the borrowers as the ultimatePeking ducks.

Of course, if the surplus countries were notwilling to lend, what happened in the United States or other deficitcountries couldn't have occurred. Greenspan's loose monetary policywould have led to dollar weakness and inflation, which would haveforced him to raise interest rate. To what extent the surplus countriesshould be assigned some of the blame? Initially, the desire toaccumulate foreign exchange reserves in dollars was in response the1997-98 emerging market crises. The crises were triggered by dollarshortage. When Bernanke was at the Fed under Greenspan, he coined thefamous term 'savings glut' to explain the US's large and lastingcurrent account deficit. In his theory the US was doing the world afavor spending the money that other countries wouldn't spend.

Bernanke'sexplanation put the US at a passive position in receiving other'ssavings surplus. But, if Greenspan had refused to loosen up moneysupply, if the regulators had stopped the sales of dubious derivativeproducts, if American households had refused to borrow the money theycouldn't pay back, the surplus foreign savings couldn't have flowedinto the US economy, and the dollar would have risen to keep out themoney.

A more apt explanation is that the US's system evolved totake advantage of this source of cheap money. Self interest promptedthe Wall Street to embrace a new business model that centered onpumping the cheap foreign money into the US household sector. Eventhough they are suffering now, American households had a good time withthe money. A big party with cheap foreign money was just too temptingto resist. Indeed, regulations were lightened up to make the partypossible. The US took advantage of foreigners' desire to accumulatedollars in the aftermath of the 1997-98 emerging market crises.

By2004 it was obvious that the surplus countries couldn't get offaccumulating dollars without their economies crashing. Their economiesrestructured for selling to the deficit countries and financing thesales with their surpluses. Private demand for dollars in thesecountries collapsed. Their central banks had to buy all the surplusdollars. Even though they knew it would crash one day, they didn't havethe courage to let it go and bear the economic consequences. Theywaited for the US to implode.

'We were the Peking duck' is notan acceptable explanation for what happened in the deficit countries.It conjures up lack of free will among the most powerful and richestcountries. Indeed, regulatory and monetary policies were accommodatingin sustaining the bubble. The deficit countries spent other people'smoney for a good time. It doesn't make sense for them to blame thelending countries for their own behavior.

It is justunconscionable to blame cheap Chinese imports for the bubble. WhenAmericans go to Wal-Mart for shopping, they want to save money. Cheapimports cannot be the reason for Americans living beyond their means.The driver for the US's deficit is its healthcare cost that has doubledto 16% of GDP in two decades, five percentage points more than in otherdeveloped economies. When Americans buy cheap imports, they arepressured to do so by rising healthcare costs. The US's healthcaresystem is the driver for what happened. Foreigners' desire toaccumulate dollars made it possible for the US to defend its livingstandard despite the out-of-control healthcare cost.

A bubblecan be an honest mistake. The herd mentality is a human weakness thatunderpins bubble phenomenon. However, in some bubbles, there are peoplewho try to incite and take advantage of the herd mentality for theirpersonal gains. These are the people who deserve to be prosecuted. Wedon't have to look far to see such people. Who have pocketed millionson false profits? Who gave worthless derivatives triple-A ratings? Whohave changed the rules for dubious financial products to be sold?

Theblame game is not just a rhetorical game. It could have seriousconsequences on actions. If the deficit countries blame the surpluscountries for the crisis, they may just wait for the later to fix theproblem. Apart from fiscal and monetary stimulus and bailing out theirbanks, they may not undertake structural reforms to balance theireconomies. The inaction could prolong the downturn and lay thefoundation for another crisis.

For example, if the US replaceshousehold borrowing with government borrowing to prop up the economy.Instead of Wall Street-issued derivatives, it is trillions oftreasuries issued to foreign buyers. On the other side, the surpluscountries keep buying the treasuries. The world is sort of back to itsold form-unbalanced growth. But, one day, we will face a bigger crisiswhen foreigners stop buying the treasuries.

It is better to fixthe problem now. The US shouldn't rely on stimulus alone to prop up theeconomy. It should develop a comprehensive plan to rein in healthcarecost to 12% of GDP or lower. On its current path, it would reach 20% ofGDP by 2015. It is hard to see how the US could avoid greater financialcrisis without serious structural reforms.

President Obamaspoke eloquently about responsibility. He hit the hammer on the nail.This is what solving the problem all is about. Instead of blamingsomeone else and asking for assistance, everyone must cut back to helpthe economy to live within its means. Spending too much got the US intotrouble. Spending more won't get it out of its problem.

Manyanalysts think that the US could grow out of its problem. The proposedstimulus would focus on investment. Overtime, it could boost the US'sincome sufficiently high to balance its book. In this strategy, the USwill continue to rely on foreign money but for investment, notconsumption. This strategy is high risk. How could governmentinvestment have the efficiency to boost substantially productioncapacity? Would foreigners be willing to go along with the program?And, if it works, could the income growth keep pace with escalatinghealthcare cost?

Unless we see serious reforms in the US'sentitlement programs, the dollar would eventually vanish in value, andthe US would experience hyperinflation.

The surplus countriesare comprised mainly of East Asian manufacturing and oil exporteconomies. Money concentration in the government or a few privateentities is the main impediment to expanding their domestic demand. Thedollar shortage in emerging markets now, for example, is a distributionissue. There is no absolute dollar shortage among emerging economies.They still have massive foreign exchange reserves. They need to swapthe government's dollar assets for domestic currency assets of theirdollar debtors. The crisis exposes the money distribution problem inthese countries. While their governments were accumulating foreignexchange reserves buying dollars to offset their current accountsurpluses, their businesses were borrowing dollars from foreigners forinvestment. Shouldn't their governments have deployed the money betterto support investment?

I think that concentration of assetownership in the government or a few individuals is the key impedimentto domestic demand in these countries. Look at China, Russia, SaudiArabia, etc. They all have unusual ownership concentration. Unlesswealth is widely held, it is difficult to have consumption-led economy.

Japan, Germany, and other OECD economies that depend onmanufacturing exports have a different problem. Aging is pushing theseeconomies to use exports to support their wealth level for maintaininghigh living standard in future. But, the other side can no longersupport this desire. They may have to consume more now and less infuture, i.e., they can't smooth their living standard. It is easy toachieve the later path. Their central banks should monetize theirgovernments' debts. And these governments can decrease taxes to inflatethe purchasing power of their household sector.

Most bigeconomies have big but different domestic problems. As they becameintegrated through globalization, their problems led to the unusualgrowth path in the past ten years. They can use stimulus to cover upthe problems for a few more years. But, it would bring even a biggercrisis. It is better to move towards a balanced growth model throughstructural reforms now.

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