Henry Liu Henry C.K. Liu is an independent commentator on culture, economics and politics. Born in Hong Kong and educated at Harvard University in architecture and urban design, Liu developed an interest in economics and international relations while pursuing interdisciplinary work on urban and regional development as a professor at UCLA, Harvard and Columbia universities. He was a planning/ development advisor to the late Winthrop Rockefeller, governor of Arkansas, and has received a national urban design award. Liu is currently the chairperson of a New York-based private investment group, a contributor to Asia Times Online and a visiting professor of global development at the University of Missouri at Kansas City. He is an occasional advisor on economic policy to several governments of emerging economies. Liu coined the term “dollar hegemony” to explain that the dollar, a fiat currency since 1971 and the major reserve currency internationally, distorts global trade and finance. Liu is a critic of central banking. He also calls for the use of sovereign credit in lieu of foreign capital for financing domestic development in developing countries. Liu has also been vocal in his critique of Chinese economic policy, which he argues includes imbalances that result in severe income disparity and environmental neglect. In a series of articles in Asia Times Online, Liu proposed the establishment of the Organization of Labor-Intensive Exporting Countries (OLEC), an international cartel, to restore the balance of market power between capital and labor in the globalized economy. He blogs at henryckliu.com.

Marriner S. Eccles: Keynesian Evangelist Before Keynes

Learning lessons from Eccles’ economic conversion.

Central bankers around the world nowadays may not know about Marriner S Eccles. The second phase of the Great Depression can be blamed on the early policies of the Federal Reserve under Eccles (November 15, 1934-January 31, 1948). Eccles, the president of tiny First National Bank of Ogden, Utah, became nationally famous through his successful effort to save his bank from collapse in the late summer of 1931.

Eccles defused depositors’ panic outside of his bank by announcing that his bank would stay open until all depositors were paid. He also instructed his tellers to count…

The End of the Business Cycle?

A look back at the dot-com years reveals how little we’ve learned from our mistakes.

On February 11, 2000, when the Dow was heading towards 12,000, I wrote a post that challenged the extravagant claim by the Clinton administration Council of Economic Advisors (CEA) Annual Economic Report for 2000 that the business cycle was over. A few days after that post, the equity markets started to fall. By December 2002, when I wrote a follow-up response to my earlier article, US markets had lost $8 trillion in market capitalization. In that response, I made policy recommendations that included government investment, rebalancing trade, regulation…

Despite Foreign Debts, U.S. Has the Upper Hand

U.S. public debt as of July 8, 2010 was $ 13.192 trillion against a projected 2010 GDP of $14.743 trillion. As of April 2010, China held $900.2 billion of US Treasuries, surpassing Japan’s holding of $795.5 billion. As of 2007, outstanding GSE (Government Sponsored Enterprises like Fanny Mae; Freddy Mac) debt securities (non-mortgage and those backed by mortgages) summed up to $7.37 trillion.

Does this mean disaster for the US? Conventional wisdom is misleading, as the case of China illustrates.

Paulson’s Worry

Former Treasury Secretary Hank Paulson revealed in his recently published memoir that in August 2008, while attending the Olympics in Beijing,…

FinReg Achilles’ Heel: Not Too-Big-To-Fail, But Too-Connected-To-Fail

Henry Liu demonstrates why FinReg, however well designed, cannot be counted upon to prevent future market failures.

A rule of finance: All trading models buy safety by externalizing risk to the trading system.

There is an invisible, but solidly anchored assumption in all structured finance and derivative trading models — namely, that a systemic collapse would trigger a government bailout. Since each and every derivative trading model derives protection by externalizing risk to the trading system, systemic risk expands automatically (making systemic meltdown inevitable). Institutions, then, have an incentive to be considered of “systemic significance” in order to secure a fail-safe advantage…

The Fighting Deficit Twins

How a controlled fiscal deficit can be a useful government tool to fight reliance on foreign trade.

In monetary economics, the trade deficit and the fiscal deficit are referred to as the “Twin Deficits,” as if they were genetically related twins merely because they both contribute to increases in the public debt. Yet these two deficits are genetically opposite and can act like fighting twins to neutralize each other in their adverse economic effects.

A fiscal deficit is created by government spending in excess of revenue in the domestic economy. The external penalty of a persistent fiscal deficit is the devaluation of…

Memo to Deficit Hawks: Let’s Get the Facts Right

Think the deficit hawks have it all right about ‘entitlements’, spending cuts and the debt crisis? Think again.

A Panic Wave of Demand for Fiscal Austerity

The sovereign debt crisis in Greece has sparked a panic wave of radical policy demands for fiscal discipline throughout the European Union from a perverse coalition of neoliberal public finance ideologues and anti-government conservatives. Proponents of fiscal discipline argue that the EMU and its common currency, the euro, would not be sustainable without the drastic restructuring of public finance in all eurozone member states through a combination of tax increases and deficit reduction through fiscal austerity.…

The Root Causes of Recurring Global Financial Crises

The causes of recurring  financial crises reach far back, even to neo-liberal ideas in the Medieval Ages.

Severe global financial crises have been recurring every decade: the 1987 crash, the 1997 Asian financial crisis and the 2007 Credit Crisis. This recurring pattern had been generated by wholesale financial deregulation around the world. But the root causes have been dollar hegemony and the Washington Consensus.

The Case of Greece

Following misguided neo-liberal market fundamentalist advice, Greece abandoned its national currency, the drachma, in favor of the euro in 2002. This critically consequential move enabled the Greek government to benefit from the strength of the…

Growth Needs to Come from Development, not Trade

The inequalities in global trade need to be leveled for both moral and economic reasons.

Not withstanding the fact that in 2010, despite the global financial crisis, the EU and the US still remain the world’s two largest economies by GDP (EU=$16.5 trillion, US=$14.8 trillion, about 50% of world total at $61.8 trillion), the days are numbered when theses two economies can continue to play the role of the world’s main consumption engines and act as markets of last resort for the export-dependent economies. For sustainable growth in the world economy, all national economies will have to concentrate on developing their…

Public Debt and Other Issues

Henry Liu explains why public debt is not the bogeyman we are led to believe.

Recently, much noise has been made by fiscal hawks about the danger of high fiscal deficits and national debts. Yet the purported danger comes not from the size of the deficits or debt, but on how the proceeds from them are used. In recent decades, the US economy has suffered from such proceeds being spent on programs that were not conducive to sustainable economic growth or constructive to economic health.

During the course of World War I, US national debt multiplied 27 times to finance the…

The Unlearned Lesson of the 1987 Crash

Henry Liu revisits the stock market crash of 1987 to dispel free market fundamentalism and the neo-conservative lust for deregulation.

In the 1980s, to counter stagflation in the US economy, the Fed under Paul Volcker, (August 6, 1979 - August 11, 1987), fearless slayer of the inflation dragon, kept the discount rate in the double digit range from July 20, 1979 to August 27 1982, peaking at 14% on May 4, 1981. From August 1982 to its peak in August 1987, the Dow Jones Industrial Average (DJIA) grew from 776 to 2,722. The rise in market indices for the 19 largest…