China, Europe, Iowa and North Korea now face splendid opportunities
The answer to each crisis is not less liberty; the correct answer is more liberty. by John Kusumi
(centrist)
Wednesday, December 21, 2011
By some reckoning, China, Europe, Iowa, and North Korea are each in crisis. It is also said that the Chinese word for crisis entails two aspects: danger and opportunity.
The four places I've mentioned now have opportunities to fix their problems with solutions taken from the politics of practical idealism. That is the brand of politics that I write about, in which the 'leave behind' is a better world and a brighter future for its inhabitants.
The opportunity is to force the hand of leadership into steps of greater liberty. For each crisis, the answer is not less liberty; the correct answer is more liberty.
In China, 2012 is a year when leadership transition is supposed to begin from the fourth to the fifth Communist dictator -- a planned succession in which Chinese President Hu Jintao is supposed to be replaced by Vice President Xi Jinping.
In North Korea, leader Kim Jong-il has died, and the Communist system is planning to install his son, Kim Jong-un, as the new leader.
If the Communist Parties are left to their own devices, each is planning to install a new dictator to oppress the citizens. What if you are a citizen in these places and you don't like dictatorship?
--Now is the ideal time for the peoples of both China and North Korea to all have uprisings with the same message: "Read our lips: No new dictators!" The people of China and North Korea can throw sand in the gears to stop the progression of the Communist machine.
The State of Iowa has the opportunity to save America by voting to move Ron Paul to the top of the heap of Republican presidential candidates in the current election cycle. Iowa will hold its presidential nominating caucuses (a form of election) on January 3, 2012.
--Former U.S. President Abraham Lincoln is famous for "saving the Union," and now is the time for Iowans to do the same by choosing Ron Paul, thereby offering America a change of direction and (*gasp*) placing a meaningful choice into the presidential election of 2012.
All other candidates only offer "more of the same," which is to say they would lead America to ruin by remaining in continuity with the flawed, faulty, and false pre-programmed establishment narrative. Translation: They would keep up the story that Washington is in the right for its recent fearmongering on steroids, elective wars, elective financial depression, and diminishment of civil liberties.
On the other hand, if you like war, depression, and dictatorship, then vote for one of the other candidates who is not Ron Paul (and stay tuned to CNN and Fox News).
Europe has the opportunity to cleanly solve its sovereign debt crisis, but the process that is more likely to occur in real life may be messy and disorderly rather than clean.
British CEO Simon Wolfson, through the think tank Policy Exchange, has offered a 250,000 pound prize for whomever can devise the best plan for an orderly unwinding of the euro. This column by your author can double as a submission for that prize. In the interest of brevity, what follows is just ten paragraphs. Perhaps in a future column I will explore some nuances and implications of what is posted here.
An orderly exit from the euro would simultaneously be similar and differ from a mirror image of the entry process. First, let's recall the entry process, then consider its reversal, and then look at similarities and differences that I would recommend.
Prior to 1999, exchange rates generally floated, while in some cases they were pegged. Let's call that "the floating period." Then, from 1999 to 2001 inclusive, the individual euro currencies were firmly pegged into a relationship of fixed exchange rates. Let's call that "the fixed period." That was in preparation for the 2002 rollout of the euro itself. From 2002-onwards, we can call that "the unified period." From then to now, it is simply true that the euro is the euro, and to count euros does not involve exchange rates.
The chief worry about undoing the euro, especially if it is done precipitously, is the abrupt return of exchange rate risk.
It makes sense to reverse the entry process. In that scenario, the unified period would be followed by a new fixed period, and that in turn would be followed by a new floating period. Last time around, the fixed period was three years long. This time around, even if there is pressure to act precipitously, I urge the European leaders to allow at least one year of time in the new fixed period before "the float" begins.
There is one more urging that I would have for the European leaders. For the convenience of accounting, start the new ("encore") versions of local currencies at an exchange rate of 1:1 vis a vis euros. For example, one deutsch mark, drachma, lira, or punt should begin equal to 1 euro, and would remain so throughout the fixed period. This would allow us to say that the fixed period is also "the synonymous period." The local currencies would be synonyms for the euro which is being phased out.
Lenders and bondholders, whose contracts expect payment in euros, would have to accept payment in a synonymous currency. Unless contracts specify otherwise, creditors would have to accept payment in a synonymous currency and acknowledge that such payment is not an event of default. In the new floating period, creditors would have no choice but to accept a different currency, due to the non-existence of the euro.
The people and businesses -- the firms and families -- of Europe would have an interval of time that I've called the fixed period, during which accounting would remain comprehensible due to the fixed rate / synonymous nature of the individual currencies; and yet, they would be aware that in short order, exchange rate risk would return in the new floating period.
The fixed period would permit refinancing of individual loans into the most advantageous currency. Hence, for example, when the float begins Greek homeowners should have already refinanced with Greek banks -- and for those who didn't, then they must simply keep up their end of the bargain with any foreign banks with whom they've bargained.
Likewise for the directors of large companies that are charged with the stewardship of large balance sheets. Once it is known that the float is coming, then there is no longer very much excuse if one is later caught in a position with disadvantageous allocation of assets.
What is most necessary is advance warning: the foreknowledge that the float is coming. In the scenario that I advise above, the 1:1 "synonymous" fixed rate eases accounting to the point where it's a mild issue for I.T. departments; and the fixed period provides time in which to reallocate assets or refinance loans, etc. For the man on the street, the above process works understandably, as it seems to be a mirror image of the entry process.
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