Re: on stiglitz

["Esteban Perez" <eperez@xxxxxxxxxxxx>]

You wrote:

Accordingly in my book, Financial Markets, Money and the Real World, I have
embedded Keyness essential suggestions in a proposal for a new international
financial architecture that is designed [1] to prevent a lack of global
effective demand due to any nation(s) either holding excessive idle reserves
or draining reserves from the system, [2] to provide an automatic mechanism
for placing a major burden of payments adjustments on the surplus nations, [3]
to prevent financial crises while providing each nation with the ability to
monitor and, if desired, to control movements of flight capital,  [4] to
expand the liquidity of the international financial system as global capacity
warrants, and [5] to induce the debtor nations to work their way out of debt
rather than await handouts.
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1. Keynes wrote:
'where there is a want of balance in trade dealings so that the imports of some countries are much greater than their exports of other countries and the exports of other countries are much greater than their imports, when that happens, and it may happen for perfectly good reasons, the presurre of adjustment should not fall, as it has in the past, almost wholly on the weaker country, the debtor. The creditor may be equally to blame, he may be less to blame, he may also be more to blame. We should like to have a set-up which made it as much the duty of the creditor country as of the debtor country to ensure a proper balance''. CW, XXV, p.208.

And earlier
'The actual proposal put forward below differs in one important respect from the existing state of affairs by putting some part of the responsability for adjustment on the creditor country, as well as on the debtor....The point is that the creditor should not be allowed to remain passive'. Ibid.p.78.

Keynes certainly pointed out the dangers of countries hoarding liquidity and that the creditor country should bear responsability for the adjustment. But he also stated that part of the adjustment burden should fall on the debtor country. How is the debtor country supposed to adjust?. I am assuming that Keynes is not referring to the case of a country running persistent international deficits which you address in your book (proviso 8).

2. In your book (FMM&RW, p.234) proviso no. 6 proposes that the system have a 'trigger mechanism to encourage any creditor nation to spend what is deemed...to be excessive credit balances accumulated by running current account surpluses' which can be spent on 'products of any other member of the clearing union', 'on FDI projects' or 'on foreign aid.' 'Proviso no.6 assures that the international payment system will not have a built-in depressionary bias'm (p.237). But are we to ensure that this 'reccycling of the funds' are oriented to the debtor countries that are most in need of funds.

3. If I recall correctly at the time that Keynes was working on his proposal for the Clearing Union, James Meade was working on a proposal for a commercial agreement. Shouldn't a proposal for a financial architecture that re-directs liquidity be complemented with a commercial agreement for trade in goods and services?.

Esteban Perez