how not to find peace - how to travel the world - the real roots of the crisis

Some people have difficulty understanding why the Palestinians are pissed off. Consider the following quote, relating to a piece of legislation that is on the table in Israel at the moment:

"Palestinian Israelis who mark Israel's independence day as their people's nakba (catastrophe) "exploit the democratic and enlightened character of the State of Israel in order to destroy it from within" - and would be punishable under the bill by up to three years in prison."

My question is simple: does this bill reduce or increase the probability that some individual Palestinians will be interested in joining violent militias.

Targeting civilians is always wrong, whether the perpetrator is a suicide bomber or state. I am also quite sympathetic to arguments of Israel's right to self defence. But sorry, when sand is thrown in the eyes of the prospective terrorist, don't be surprised at the results. Palestinians must learn to live with Israeli's as neighbours in their community, at the household and regional level. The converse is clearly the case as well. The bill outlined by the above quote is in no way illustrative of a people who wish to live in peace with their neighbours.

The historical suffering of the Jews is a reality. Let its memory not be abused to justify the suffering of another group of dispossessed people.
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Some people have sometimes wondered how it is that someone who has never earned more than 20k in any year (typically much less than that) has managed to travel substantial parts of the world before their 30th birthday. Well, it didn't hurt that money from my grandmother almost entirely paid of my student loan after my first year of university, but aside from that ...

The answer is very simple: I don't own a car and am almost completely indifferent to luxury.

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Digging deeper into history for factors leading to the present economic crisis ...


Here is the argument - the move to flexible exchange rate regimes in Asia in the 80s and 90s is an important factor to consider when looking to the roots of the current financial crisis. I should explicitly say that this is not an argument against flexible exchange rate systems. I think the benefits outweigh the costs, but the costs may have been overlooked to some extent, due to the effects that they may have when countries look to reduce capital flight exchange rate risks associated with a flexible rate system.

The argument is actually fairly simply. Asian countries move to a flexible exchange rate system. This makes the Asian financial crisis possible because it allows credit market problems to multiply risks under capital flight, because Asian central banks had too little foreign currency on hand to ride through the crisis. After 1998, their strategy to minimize risks of capital flight and speculation under a flexible exchange rate regime was to pile on foreign reserves (especially US dollars). Had Asian central banks not, as a group, bought trillions of dollars worth of US treasury bills and bonds, the low interest rate policy following the 2001-2002 recession would never have worked, since there would not have been enough demand for these bonds at such low rates. Quite importantly, people who are looking for the historical roots of the crisis often look to that extended period of low interest rates as the cause of the subprime crisis because it underpriced risk in US mortgage markets.

Don't see the connection? Let's try it in reverse chronological order this time. The current crisis was largely triggered by the subprime crisis (although it was multiplied by the amount of leverage that financial institutions took out through various forms of derivatives). The subprime crisis was only possible with an extended regime of very low interest rates (although securitization very much exacerbated the problem). The extended regime of low interest rates was only possible due to the enormous appetite that Asian central banks had for foreign currency reserves, especially for US dollars. This appetite for foreign reserves was a byproduct of the Asian financial crisis. Especially, the desire to use foreign currency reserves to hold out against the risk of a speculative attack on a currency. Such risks are only possible in a flexible exchange rate regime. Hence, the introduction of flexible exchange rate regimes in Asia as a necessary (although clearly not sufficient) cause for the present global crisis.

Again, this is not an argument against flexible exchange rate regimes. They are a key ingredient for markets to find "efficient" prices. However, the argument does point to the fact that the indirect effects that shifts between exchange rate regimes have on global macroeconomic disequilibria have received rather insufficient attention.

Why is this important? Well, one of the largest issues on the table concerning global macroeconomic disequilibria is China's lack of interest in adopting a flexible exchange rate regime. What would China's optimal holdings of various international currencies be under a flexible exchange rate regime, and how would this affect risk evaluations among other market actors? What are possible long term effects of these decisions?

I don't think that history can precisely repeat itself, but that's not to say that we can't learn a whole lot from it. Let's not rush into a flexible exchange rate regime for the Yuan until central bankers in the world's largest currency areas (US, China, Japan, EU) have had a chance to carry out cooperative analysis of possible long term effects of a fully convertible Yuan.