What the US needs to do under this scenario is to call for the help to the rest of the world to set up a gigantic credit line, on the order of $5 trillion, to provide the necessary liquidity, so that troubled financial institutions can come in and works their assets and liabilities without the fear of punishment and catastrophic failures. This is similar to what the Swedes set up in the early 90's during their financial crisis, called "Emergency Room", but should be far, far greater this time to eliminate any doubt that the liquidity will run out. For a global usage, it could go up to $10 trillion if we accommodate banks from Europe and other major countries.
In setting up this facility, two principles should be observed. One is that the amount upfront has to be large enough to relax the current anxieties and tension. The second is that we should not ask the US Government to print more money.
Uncle Sam has already printed too much, and one of the problems of Paulson's approach is that he is trying to solve all the problems with internal resources. The US solutions, even before the $700 billion bailout package, had issued a lot of promissory notes that will in effect dilute the value of the dollar; a fear the rest of the world painstakingly shares. During the Korean Crisis of 1997/98, The International Monetary Fund came in to replace the over-extended American banks This time, there is no trace of IMF on the horizon, other than their occasional forecast of what the bad debts would be ( currently at $1.3 trillion, but escalating over time). From the US perspective, IMF is too European, maybe, but if IMF does not work, this is a good time to call for an establishment of the global pumping station, a place where financial institutions could come to receive the unlimited supply of liquidity transfusion until they have worked out their assets to get back to their normal body. I said that this facility should have at least $5 trillion. It should be large enough so people do not think it is a shallow oasis. It would seem that $5 trillion is an enormous number, but we do know from the experience of Japan, it has to be big enough. A small reservoir escalates the anxiety and our government had to gradually enlarge it. In the end, it turned out that it has cost $3 trillion to the Japanese people, who paid in the shape of public funds or foregone interests. My personal calculation at the beginning of Japan's property bubble bursting in 1993 was on the order of $2 trillion. But at that time, the Japanese government was admitting only $130 billion in bad assets. Former Governor of Bank of Japan, Toshihiko Fukui, admitted 15 years later that the burden of the bail out on the Japanese people was actually $3 trillion. So, while I am not in a position to calculate the right size of the liquidity facility for the US, any number smaller than the Japanese experience would be a source of trouble later. It has to be " on the order of $5 to 10 trillion", latter if the non-US banks are also allowed to come to the pumping station.
The only way to get this kind of money assembled is for the US to ask for the mercy of donation, not only to its taxpayers, but also to those who have piled up dollar-denominated instruments around the world. The world suffers if the US does not stop the crisis and if the US prints more money. The US has printed enough in the past and has spread the green backs and securities to the rest of the world. It is essential for the US to use this money, and not the fresh mint. For example, China has piled up $1.5 trillion on the foreign reserve coming from their trade surplus, mostly in US dollars. Japan can contribute $1 trillion that we do not need in a hurry. Taiwan and Russia could come up with 0.5 each, and the Gulf oil rich countries certainly could come to support Uncle Sam easily with $2 trillion. We can ask the EU to contribute collectively something like $2 trillion, if we make the facility available also to their financial institutions. Right there is already $7.5 trillion, and if the US adds $2 trillion to the pool, which is close to the maximum I am talking about, i.e.10 trillion dollars. We are not going to lose this money all together. It is money we can even expect a 3% interest and after this facility is dissolved in 3 to 5 years time, when good banks walk way in healthy body, we can even expect its full amount being returned back to the donating countries. In order for this to happen, the Bush administration will have to rethink about its diplomatic relationships with quite a few countries. The US foreign policy has been built upon the fight against terrorism. Now, they have to repair their relationships with countries, which could join hands to fight against the financial terrorism of global scale, which Wall Street has triggered and spread around the world.
この連載のバックナンバー
- 「おまえもか！」と非難したくなる世界の経済対策 (2009/04/07)
- 買いたくてウズウズしている米国民 ―― 株は底か？ (2009/04/01)
- ダメな金融機関をつぶしてよい理由 (2009/03/25)
- 再編が進む百貨店とコンビニ業界 (2009/03/18)
- 日本の景気対策に欠けていること (2009/03/11)
