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The ensuing demotion of those who had been wealthy will bring about massive social problems. Everyone, rich and poor, will feel deprived, unable to enjoy the standard of living they were used to. In Bangkok, at the height of the crisis, millionaires had to sell toys on the streets. In Indonesia, workers thrown out of jobs rioted, looting shops, killing the unfortunate shopkeepers, and burning the premises. On the advice of the IMF, subsidies for food and fuel were withdrawn, resulting in starvation and even deaths.
The suffering of the newly impoverished rich will not be nearly so dire as was seen in Bangkok and Jakarta, but there will be much suffering nevertheless. The old lifestyle of the rich must be given up.
Once they accept the reality of the situation, they should, together with the poor countries, sit down and draw up a new global monetary system, a much more open banking system, and a new financial system.
The new monetary system should be based on gold, as represented by an international currency to be used for international trade only. Domestic currencies of all countries would be valued against gold.
The banks should be allowed to create a limited amount of money. They must be closely regulated and watched by governments. The smaller amount of money that banks can lend will no doubt lead to slower growth of the economies of countries. But it is better to have slower growth than repeated international financial crises and the accompanying social disasters.
Financial transactions must be transparent and regulated by governments. There should be no offshore financial houses. Money must be lent only for real business; that is, for the production of goods and services and for trade. Trading in currencies must be classified as a business crime. Short-selling should be disallowed. Leveraging should be severely limited.
The IMF and the World Bank should be reorganized and set to work in the interest of poor countries. They should be democratic in terms of the appointment of officers to run them.
If all these things are done, the current financial crisis is more likely to finally be stopped. Financial crises would be less likely to occur in the future. Economic growth would be real – creating jobs, spinning off new businesses, and enhancing world trade. Mergers and acquisitions must be by willing buyers and willing sellers. An internationally accepted antitrust law would prevent monopolies by the corporate giants of the rich countries.
Free trade should be regulated. Yes, made less free. Countries should be allowed to protect their infant industries against the world giants.
These are radical measures. But they would repeal the greed and lack of transparency that have infected the global economy.
To be sure, such measures will require far greater political will on the part of the G-20 than has so far been mobilized. But the roiling instability that remains in the international system ought to make it evident that half measures will not do. Sooner or later, it will be evident, even to the G-20 leaders, that, when it comes to the mother of all crises, only the mother of all solutions will bring the crisis to an end.