State of the International Financial System: House Committee on Financial Services Hearing

The U.S. House Committee on Financial Services announced a full committee hearing titled “The Annual Testimony of the Secretary of the Treasury on the State of the International Financial System.” The hearing is scheduled for March 17, 2015.

It will be informative to see how Secretary Lew assesses backdoor currency wars (see pages 2, 9, and 10 of the New York Society of Security Analysts presentation).

Does math support euro survival?

CFS asked the question “Does math support euro survival?” on December 5, 2011.

Based on a quantitative approach to evaluate the relative competitiveness of nations, our view was “yes” – the euro can and should survive.

However, Greece and Portugal remain serious outliers. Their implicit currencies require serious economic adjustment or issuance of a new drachma and escudo.

Euro Components: CFS Synthetic Currency Valuations

CFS synthetically developed real effective currencies for eleven major nations within the euro. Real exchange rate movements and currency valuations for individual euro nations help answer three fundamental questions.

– Did member nation exchange rates enter the euro at an appropriate level?
– Since entry into the euro, did the unified rate hinder or help international competitiveness and growth?
– To what extent are euro members threatened by relatively overvalued currencies – or near levels consistent with currency crises in emerging market economies?

For the full report: http://www.centerforfinancialstability.org/research/LG_Euro_120511.pdf

The Economist on “The 70-Year Itch”

In The Economist this week, there is a terrific article The Bretton Woods agreements: The 70-year itch.  Highlights include:

– America learned the benefits of economic co-operation the hard way. Its failure to create institutions to help steer the world economy after the first world war exacerbated the Great Depression and paved the way for the next conflagration.

– Yet today’s pre-eminent powers seem to have forgotten this lesson.

– If John Maynard Keynes were alive, he would sigh not just at the risks in all this economic nationalism but also the huge missed opportunity. Perhaps it is time to send another group of dignitaries to New Hampshire.

The full article is at http://www.economist.com/news/leaders/21606280-both-west-and-china-are-neglecting-institutions-help-keep-world-economy

The piece is similar to my Forbes column Lessons from the Summer of 1944.

The full column can be viewed at http://www.forbes.com/sites/greatspeculations/2014/06/06/lessons-from-the-summer-of-1944/