Friday, August 21, 2009

Stiglitz Calls for New Global Reserve System

I don't think Joseph Stiglitz has much direct influence these days with global financial leaders. Exhibit 1: He's not in Jackson Hole, Wyoming this week.

Nevertheless, his comments must be monitored since he is likely to have followers among some financial insiders.

Right now Stiglitz is calling for a new global reserve system.

The "dollar now is yielding almost zero return," Stiglitz said in a speech at the United Nations regional headquarters in Bangkok. "The current global reserve system is fraying. It's falling apart. The issue isn't whether we go to a new system.

"The question is do we do so in an orderly or disorderly way." The build up of the U.S. deficit, debt and "the boiling up of the balance sheet" is cause for anxiety, he said.

Stigliz is correct that the global dollar reserve system is on the edge, but it has little to do with the fact that the dollar is yielding almost zero. Gold doesn't yield any regular income and it is doing just fine. The problem with the dollar is that the Fed is generally in a printing dollar mode (although they are not right now). Thus, they are almost always filling the global system with an ever increasing amount of dollars.

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