Sunday, June 20, 2004

Holding his Footnotes to the Fire

The Age of Consent

Update 1: Added direct quote from TAOC in paragraph 8, history of the Eurodollar market and added more to the last sentence of the article

Whatever about the contents of the main body of the book, I just loved the footnotes of George Monbiot's The Age of Consent; by now, I've read more of them than of the text itself, much of which seems to be a reprint of his previous Guardian columns.

Zoologist he may be, but one animal he doesn't understand is homo economicus. I've written before on his enthusiastic endorsement of the mud-pie economics offered by Bernard Lietaer in his work on interest rates and discounting. Even as an amateur journalist, I'm wondering why, in footnotes 82 and 83 of the paperback, he is quoting some particularly eccentric sources, namely Frank Liu of the Asian Times online "newspaper" (on whom more later) and the London-based New Economics Foundation, which seems to think of itself as the razor-sharp intellectual spear-point of the Indymedia crowd.

The NEF published a twenty page analysis called The United States as a HIPC - how the poor are financing the rich, reporting that
the US pays only $20bn per annum to service this debt, while poor countries are crippled by more than $300bn in debt service payments
highlighting what appears to be a clear case of those American bastards screwing the third world, yet again.

However, their statistics don't seem as firm as they should be. While the NEF reports that America pays debt service of USD 20 billion a year (page 13, footnote 29). For some reason, the source cited for this figure isn't the Fed or other estimates, but a transcript of testimony by C. Fred Bergsten of the Institute for International Economics before the Senate Committee on Banking, Housing and Urban Affairs in May 2002. The problem is that these figures are not gross, i.e. the interest paid, but NET of foreign income: It isn't clear from the speech, but this is probably the net factor income from abroad component of the national income accounts.
Over the longer run, they mean that we will pay rising annual amounts of debt service to the rest of the world with a consequent decline in our national income. These payouts are surprisingly small so far, amounting to only about $14 billion in 2001, because foreign investment by Americans yields a substantially higher return than foreigners' investments here. However, the numbers are clearly negative and will become substantially larger over time.
However, the Fed's Z1 report "Flow of Funds of the United States", published l0th June, shows (page 21, Table F.106, row 14) shows the annualised interest payments on debts of the Federal government as accruing at an annual rate of USD 215.8 billion, showing a trifling eleven-fold underestimation by the NEF of the payment amount, implying an average annual interest rate of 5.27% on the reported USD 4,100 billion of debt held by the public (page two).

So, the NEF is giving the wrong debt service figures, chosen from an unusually indirect source rather than the published statistics, either through ignorance or willful falsification.

Monbiot compounds this by an apparent error in quoting the reports when he says: "...dollar reserves must be invested in assets in the United States". Since when did dollars have to be invested onshore in the US? Some detailed research i.e. opening any textbook and most newspapers would acquaint him with the Eurodollar market where dollars are held offshore, predominantly to avoid restrictions including financial sanctions. This market took its name from the telex address of the Paris branch of Moscow Narodny Bank, which began depositing its dollars with European banks during the Korean War, and took off after the Kennedy administration tried to cap deposit rates, leading to leakage of funds into to the stateless Euromarket.

The NEF is NOT telling of any official IMF policy or rule forcing developing countries to hold dollars - as opposed to any currency, be it Euros, Swissies, Sterling, gold or whatever. While the comment on page three would support this - "forced holdings of high levels of dollar reserves" - they elaborate later on (page 12) - "All countries hold reserves, usually short term liabilities of one of the major reserve currencies, most often the US Dollar".

Country by country data is often a closely-guarded secret, at least in the short-term to protect trading positions, or otherwise is only published at the national level, so I am still looking for aggregated data. The closest I've come seems to be in the Bank for International Settlements Annual Report 2003, Table V.1, page 86,, showing the following figures:

Total reserves USD 2,395.2 billion
Dollar reserves USD 1,751.4 billion
Non-dollar reserves USD 643.8 billion

so globally roughly 27% of reserves are held outside the US dollar. I'll report more data as and when I get it for a clearer picture.

That doesn't alter the fact that Monbiot has written something directly contradicting his sources. At least Jayson Blair could blame booze and coke and Philip Glass had a vivid imagination, but why should this bullshit be published? I suppose that a profession willing to give Andrew Gilligan a second chance doesn't hold itself to very high ethical standards. Or maybe it's just another British craft industry like coal-mining or ship-building where the workers won't take any responsibility for their output.

Peter 笔德