Thank you for the article Alice Rogoff. We agree on the necessity of rejecting austerity through leveraging financial credit yet I believe your proposal requires refinement by changing the type and purpose of leveraging.
The problem is that we live in what I term the “derivatives phase” of the floating exchange rate system.
Financial derivatives, that were strictly illegal between 1946 and 1982, were deregulated and now dominate the world economy. Any attempt to create financial credit independent of this primary mechanism will be subjected to the destructiveness of this currently expanding and predatory bubble.
A major destabilization of this bubble in 2008 resulted in an economic calamity for the entire world economy. The human suffering caused by this devaluation continues to this day. This bubble has been temporarily stabilized through the quantitative easing policy of the United States Federal Reserve but this policy failed to restart financial credit for agriculture, industry and infrastructure.
The root of our nation’s fiscal problem is that credit is being expanded for financial speculation not physical production thus collapsing tax revenues for all levels of government. A properly regulated financial system would have created the productive credit necessary for a diversified Alaskan economy many years ago.
Alice Rogoff, your proposal to “leverage” borrowed money to invest in markets could work for our state if the international derivatives bubble never pops. The problem is that all financial bubbles eventually come to a dramatic end.
In the context of the much larger financial derivatives problem this type of leveraging will most likely end up saddling our state with a huge long-term unpayable debt.
What is missing from your proposal is that new financial leveraging must be tied directly to the inevitable change in Federal Reserve policy. When the international destabilization begins again the only alternative to depression will be the zero-interest rate purchase of infrastructure and productive capacity bonds using a new discount window at the Federal Reserve.
The question is whether Alaska will be ready to “leverage” interest bearing private and zero-interest public bonds to create a science and infrastructure led recovery based on federal bond sales.
The term “leverage” is very different in this context. This is not leveraging borrowed money to invest in markets but cooperation to utilize the transaction efficiencies of established financial institutions in order to invest in infrastructure and physical production.
Alice Rogoff, I think your proposal is worth considering yet requires the refinement of leveraging in a way that includes a solution for our entire nation.
We must think like citizens of a nation, not residents of a state, and demand that our federal government return to regulating our financial system in order to protect our economy from predatory financial bubbles and to create credit for physical production.
Contained in my Facebook timeline are what I consider to be workable solutions to our current economic calamity. Many of my articles are available to read on my Facebook timeline if you are interested in learning more about a proposal for Alaska’s participation in a national science and infrastructure led recovery.
