The Phaserl


Reserve Bank of India’s Governor Calls for Abandoning the Global Monetary “Non-System”

by Harley Schlanger, Spokeman for LaRouchePAC, SGT

March 21, 2016 — Governor Raghuram Rajan of the Reserve Bank of India (RBI), India’s central bank, a trained electrical engineer, in a commentary with the Project Syndicate today, has strongly criticized the central banks of developed countries, pointing out that “our world is facing an increasingly dangerous situation. Both advanced and emerging economies need to grow in order to ease domestic political tensions. And yet few are. If governments respond by enacting policies that divert growth from other countries, this ‘beggar my neighbor’ tactic will simply foster instability elsewhere. What we need, therefore, are new rules of the game.”

In his commentary, Rajan said what he has in mind “will eventually require a new international agreement along the lines of Bretton Woods, and some reinterpretation of the mandates of internationally influential central banks…. Setting the rules will take time. But the international community has a choice. We can pretend all is well with the global monetary non-system and hope that nothing goes spectacularly wrong. Or we can start building a system fit for the integrated world of the 21st century,” Rajan said.

Rajan, who in 2005 had warned about the growing risks in the financial system pursued by then-Federal Reserve chairman Ben Bernanke, at the time had proposed policies that would reduce such risks, at the Federal Reserve annual Jackson Hole conference. As a result, he was ridiculed by Larry Summers, who said the warnings were “misguided” and called Rajan a “Luddite.” At the time, Rajan was teaching at the University of Chicago.

Rajan’s remarks today come at a point when Central Bankers are resorting to desperate measures in the attempt to keep unsustainable financial bubbles liquid. Quantitative easing, and negative interest rates are two of these measures being employed by former Goldman Sachs Director Mario Draghi, now the chair of the European Central Bank.

But as Rajan and others, such as Lyndon LaRouche and former BIS chief economist William White have pointed out, the problem is not liquidity, BUT SOLVENCY. Chasing worthless funny money with more funny money just means that the implosion of the financial system, when it comes, will be a bigger, systemic crash.

Rajan’s statement is a reminder that, when it still worked, the Bretton Woods system had a gold reserve basis, and fixed exchange rates. A return to that today would force the write down of most of the hundreds of trillions of dollars in derivative debt, wiping out the claims the speculators have on the dwindling amount of real wealth being produced today.

That would be a good start!

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