A lot of cool videos from INET’s Bretton Woods conference last week. Kind of like TED talks for econ supergeeks.

• George Soros – Crisis averted, Now what? The underlying imbalances are still there, but governments have stepped in. How will they ultimately get resolved?
• Larry Summers – the failure of regulation, as seen by former top policymaker and (de)regulator
• The only reason banks deem 30:1 leverage essential is their managers are paid on ROE, not risk-adjusted ROE – and when they have a state guarantee, the taxpayers are the ones taking the risk – Stanford’s Anat Admati (her related paper).
• Wall Street has captured the government– epic rant from a veteran Asian regulator Andrew Sheng (his slides)

Let me say at the outset that I am bullish on gold in the long run. US demographics, politics, debt levels, harder-to-extract energy, peaking of globalization’s labor supply shock: all these point to inflation in the long run. And central bankers have not exactly covered themselves in glory lately.

That being said, going back on the gold standard makes exactly as much sense as going back to horses and buggies.

Here’s why.

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A few technology megatrends:

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China’s remarkable growth continues – China has apparently now passed the US in industrial production, with the world GDP title in its sights (see previous post).

So how incredibly fortunate it is that the USA retains its commanding lead in the services sector! Clearly, future opportunities will abound in such sectors as retail and food services, debt collection, and of course government and related services. Based on recent government initiatives, the medical and military service fields seem particularly well positioned. We owe a huge debt of gratitude to all our heroes who serve overseas, in present and future military adventures, declared and otherwise. But those also serve who merely wait at home, for where would our GDP be without imputed rent on owner occupied housing? The fortitude of our world-beating service providers and consumers makes my eyes well up. I can’t help whistling a few bars of John Philip Sousa as I suppress the urge to chant “USA! USA!”

And yet there is one corner of the services sector, where we imagined we were invulnerable, but now find China surpassing the USA and emerging as world-beaters: bank shenanigans.

I just read the remarkable book Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise, by Carl E. Walter and Fraser J. T. Howie, and think it’s worth a quick summary.

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China’s surge from basket case to the world’s factory is simply breathtaking. But the powerful rise has outpaced institutions that Westerners see as prerequisites to capitalism.

Pudong photos over 20 years.

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A few years old, but new to me: an interesting perspective from Yegor Gaidar, reformist economist of the post-Gorbachev era.

• Collectivisation and urbanization left the Soviet Union with a grain shortfall. Rather than reform the agricultural sector, they paid for food with oil exports.

• In the 1985, the Saudis decided they would no longer act as swing producer and forgo exports while other members of OPEC cheated. The Saudis started a price war and broke up the cartel. Oil went briefly under $10 a barrel and Soviet oil revenue dried up.

• At first the Soviets paid for food with foreign reserves, then they borrowed. But then they began to reach the limits of their credit.

• Part of Gorbachev’s reforms were with the idea of becoming a country the West would lend to, even provide state guarantees in exchange for reform.

That didn’t work out too well. As Brzezinski later said, the Soviet Union could be an empire or a democracy, but not both. Once they showed weakness, everyone wanted out.

In the post-war period period (possibly throughout the dynasties), truth has been relative in China, while power has been absolute.

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Fellow travelers: Zhou, Mao and 2 revolutionaries I never heard of in Shaanxi, 1937

I spent most of March in Asia and trying to figure out China. To understand the present, you have to understand the past, so I turned to The Search For Modern China, by Jonathan Spence of Yale, which seems to be standard fare for undergrad history surveys. It was a great start, although I wished he had given his analysis of the whys as well as the who, what, when, where, despite the political sensitivities when talking about modern China.

Here is a quick summary mixed with a few conclusions and speculations.

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