News, Rumors and Opinions Saturday PM 12-11-2021
KTFA:
Samson: Time to reform the global financial system
7th December, 2021 by Jeffrey D. Sachs
At last month's COP26 climate summit, hundreds of financial institutions announced that they would commit trillions of dollars to work on financing climate change solutions. However, the road is not without a major hurdle. In fact, the global financial system impedes the flow of finance to developing countries, and this creates a deadly financial trap for many.
Economic development depends on investing in three main types of capital: human capital (health and education), infrastructure (energy, digital transformation, transportation, and urban infrastructure), and business. Poorer countries have lower per capita levels of each of these types of capital, and thus have the potential to achieve rapid growth by investing in a balanced manner in each. Nowadays, this growth must be green and digital, avoiding the high pollution growth of the past.
Global bond markets and banking systems should provide enough money to "catch up" the high-growth phase of sustainable development, but this is not happening. The flow of money from global bond markets and banks to developing countries remains small, expensive for borrowers, and unstable. Borrowers from developing countries pay annual interest rates that are often 5% to 10% higher than the borrowing costs of rich countries.
Borrowers from developing countries are considered a high-risk group. Bond rating agencies automatically give some countries lower ratings simply because they are poor. However, these perceived high risks are overestimated, and often turn out to be a self-fulfilling prophecy.
When a government resorts to floating bonds to fund public investments, it generally depends on the ability to refinance some or all of the bonds as they mature, provided that the long-term path of its debt relative to government revenue is acceptable. And if the government suddenly finds itself unable to refinance maturing debt, it will likely be pushed into default – not out of bad faith or a long-term default, but because of a lack of cash on hand.
This is what happens to many governments of developing countries. International lenders (or rating agencies), for often arbitrary reason, imagine Country X to be uncreditworthy. This perception results in a "sudden stop" of new loans to governments. In the absence of access to financing, the government is forced to default, thus “justifying” previous concerns. Then the government usually turns to the International Monetary Fund for emergency financing. It usually takes years or even decades for a government to restore its global financial reputation.
Governments of rich countries that borrow on international markets in their currencies do not face the risk of a sudden stop, because their central banks act as lenders of last resort. Lending to the US government is largely safe because the US Federal Reserve can buy Treasuries in the open market, in effect ensuring that the government is able to carry over the outstanding debt.
The same applies to eurozone countries, assuming that the European Central Bank acts as a lender of last resort. When the European Central Bank failed briefly in this role in the immediate aftermath of the 2008 global financial crisis, many eurozone countries (including Greece, Ireland, and Portugal) temporarily lost access to international capital markets. After that disaster – the experience that nearly brought about the eurozone’s demise – the European Central Bank cemented its function as lender of last resort, engaging in quantitative easing through massive purchases of eurozone bonds, thereby relaxing the borrowing terms for affected countries.
Thus, rich countries generally borrow in their own currencies, at low cost and with minimal risk of illiquidity, except for moments of unusual policy mismanagement (as did the US government in 2008, and the European Central Bank shortly thereafter). By contrast, low- and lower-middle-income countries borrow in foreign currencies (mainly dollars and euros), pay extraordinarily high interest rates, and experience sudden stops.
For example, Ghana's debt-to-GDP ratio (83.5%) is much lower than that of Greece (206.7%) or Portugal (130.8%), yet Moody's rates the creditworthiness of Ghanaian government bonds at B3, and this Several degrees lower than the ratings of Greece (Ba3) and Portugal (Baa2). Ghana pays about 9% on the ten-year borrowing, while Greece pays 1.3% and Portugal only 0.4%.
Major credit rating agencies (Fitch, Moody's, and Standard & Poor's Global) allocate investment grade ratings for most rich and upper middle income countries, but assign subinvestment grade ratings to nearly all lower middle income countries and all lower income countries. For example, Moody's currently assigns investment grade to only two lower middle income countries (Indonesia and the Philippines).
Trillions of dollars in pension, insurance, bank, and other investment funds are being channeled by law, regulation, or internal practice away from less investment grade securities. Once an investment grade sovereign rating is lost, it is very difficult to recover it unless the government has the backing of a major central bank. During the 2000s, 20 governments—including Barbados, Brazil, Greece, Tunisia, and Turkey—were downgraded to investment grade, and of the five countries that have regained their investment grade rating since then, four have been in the European Union. (Hungary, Ireland, Portugal, and Slovenia), none of which were in Latin America, Africa, or Asia (the fifth was Russia).
For all this, reforming the global financial system is a long-standing imperative. Developing countries with good growth prospects and vital development needs should be able to borrow reliably and at decent market terms. To this end, the G-20 and the International Monetary Fund should devise a new and improved credit-rating system that captures the growth prospects and sustainability of long-term debt in individual countries.
Banking regulations, such as those of the Bank for International Settlements, must then be reviewed and revised in accordance with an improved credit rating system to facilitate more bank lending to developing countries.
To help end sudden stops, the G-20 and the International Monetary Fund should use their financial power to support a liquid secondary market in sovereign bonds of developing countries. The US Federal Reserve, the European Central Bank, and other major central banks should establish currency-swap lines with central banks in low- and lower-middle-income countries.
The World Bank and other development finance institutions should also significantly increase their grants and concessional loans to developing countries, especially the poorest. Last but not least, if rich countries and regions, including many US states, stop sponsoring money laundering and providing tax havens, developing countries will have more revenue to fund investments in sustainable development.
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Courtesy of Dinar Guru
Frank26 [Iraq boots-on-the-ground TV update] FIREFLY: Kazemi advisor being interviewed right now and they're saying that it's time for Iraq to move to the global platform. They're saying Iraq has shown stability...saying Iraq will be a main power in the region and the dinar needs to be on level playing field globally so Iraq can reach maximum effectiveness of our currency and reforms. He keeps talking about how the CBI will review the exchange rate in early 2022 and that will support the white papers... FRANK: The Iraqi dinar supports the budget. It supports the monetary reform. It supports the economic reform and it supports the new small category notes that are going to be coming out. [Post 1 of 2....stay tuned]
Frank26 FRANK: Notice every day almost every second of every day is being used to drill into your understanding that you are about to receive a new exchange rate and a new currency denomination for that new exchange rate. This is all part of the education that is coming to you rather quickly now...it will continue long after the RI in a completely different form of education which will mainly be about the international trade and your currency's float at 1 to 1 playing fair with the American dollar...your currency is soon to surpass the American dollar... [Post 2 of 2]
End of the Road - How Money Became Worthless | Financial Crisis | Wall Street
Dec 6, 2021
Documentary about an Imminent Economic Crisis: End Of The Road: How Money Became Worthless - Wall Street is being occupied. Europe is collapsing in on itself.
Around the world, people are consumed by fear and anger, and one question is on everyone's lips: Is the financial crisis over, or are we headed towards economic disaster?
End of the Road is a documentary that chronicles the global financial collapse.
Weekend Update with MarkZ
12/11/2021
Mostly a nothing burger but lots of questions.