America exported its toxic loans around the world

The world is sinking in what could be one of the worst economic downturns since a quarter of a century, or even since the great depression. More than one title, this crisis is "made in America". America exported its toxic loans around the world. It exported its philosophy of deregulated markets. It has exported its culture of irresponsibility of the leaders of business and their stock who contributed to the debacle.

The Bush Administration finally should follow the recommendations of the economists: take equity stakes in banks. However, as always, the devil is in the details and Henry Paulson, the Treasury Secretary, managed to miss this good idea. It was recapitalised banks in a way such that it has not reopened the way to a resumption of bank credit. What is a bad sign for the economy. Worse still, Paulson did even not impose on American banks in conditions similar to those by Gordon Brown in Britain. What is worrying in this bad deal for the US State is threatening national debt accumulation. Before the financial crisis, it was expected that the amount exceeds 9,000 billion against 5.700 billion in 2001. In 2008, the deficit is close to 500 billion dollars and much more in 2009.

America today has need of very important economic stimulus measures. But, as during the great depression, the financiers of Wall Street, the same who created this crisis, will initiate calls to the reduction of budgetary expenditure.

As you might expect, the crisis reached emerging markets and less developed countries. Then America absorbs the global savings to address its problems, that risk premia are soaring, that the profits of business, international trade, commodity prices collapse, developing countries are, too, at times difficult. It is likely that all countries which, before the crisis, had large trade deficits, high national debt, or commercial ties with the United States will suffer more than others.

Countries that have not fully liberalised their financial markets and capital, such as China, can welcome did not follow the recommendations of Henry Paulson and the US Treasury.

Many are already those who turned to the international monetary fund. But it is feared that, for some of these countries, the Fund comes out its old potions, as the contraction of the money supply, reduction of budget expenses, which will not exacerbate inequalities in the world. While developed countries strive to conduct counter-cyclical stabilization policies, developing countries will be forced to destabilization policies, that will make flee the capital at the same time when they are most needed.

Ten years ago, when the Asian financial crisis, we were talking about many of the necessity of reforming the global financial architecture. Few things have been made since.

We are at a new turning point in the history as at Bretton Woods in 1944. The world financial institutions are well aware of the need for a new reform, but they argue that the speed of a snail. They have done nothing to prevent the current crisis and can worry about their ability to rebound after the fact.

It took fifteen years and a world war to gather our forces to address the weaknesses of the global financial system originally to the great depression. Hope that it will not be as long this time because, given the current level of interdependence of the economies in the world, the cost would be too large.

If the United States and Great Britain dominated the old Bretton Woods agreements, the situation today is very different. Moreover, the Bretton Woods institutions have been defined by a set of ineffective economic doctrines of our days, not only for developing countries but also for the capitalist fiefs. To work effectively for the establishment of a global financial system more stable and fairer, the G20 Washington Summit November 15 should take into account the new realities.