A Weak Economy and Disconnect Between People and Finance

WASHINGTON:  There they sat on October 9 interviewing each other, the famous writer who exposed Wall Street’s excesses, and the elegant French woman who leads the international agency set up to is assure financial stability. Big Short author Michael Lewis and International Monetary Fund chief Christine Lagarde agreed  that eight years after the financial crisis progress has been made but more work is required to avert future catastrophe.

Lewis, who worked at Solomon Brothers before an illustrious career in journalism and books, told the audience at IMF headquarters, “the toxic relationship between the financial sector and the public has not been addressed.”  Financial instruments, he said, remain too complex, salaries are still excessive.  The problem began, he continued, when banks became trading entities and downgraded the services they provide to customers.  Likewise, said Lewis, well-intentioned efforts to safeguard the public went astray—regulations became burdensome, complicated and poorly communicated.

The encounter between Lagarde and Lewis culminated six days of discussions by financial policy makers and a separate gathering of several hundred bankers.  The mood was somber.

David Stockton, a former Federal Reserve official who prepares economic forecasts at the Peterson Institute of International Economics, gloomily observed that the U.S. economy is mired at two percent growth in a three percent world economy. He said “we’re a driverless car stuck in the slow lane.” IMF economists also have repeatedly downgraded their forecasts.

What went wrong? Why is the recovery from the great recession of 2008 so slow?

One economist with an answer was Mohamed El-Erian who invented the term “new normal” at the Pimco investment firm in 2009.  El-Erian argued that the magnitude of the financial crisis was so severe that recovery would be slow and of long duration. “The advanced economies,” he said, “had bet the farm on the wrong growth model.”

Carmen Reinhart, now at Harvard’s Kennedy School of Government, argued that because the great recession was triggered by a financial crisis recovery would inevitably be very sluggish. Reinhart said that on average it takes about seven and a half years for the average advanced economy to regain its previous peak of output.  By that standard Reinhart believes the U.S. recovery is on track and further advanced than Japan or Europe.

The really pessimistic group is the bankers. European bankers were particularly gloomy saying it is impossible to make money when interest rates are at zero. There’s too much regulation, they complained, and they don’t like revealing detailed financial data to regulators, fearing it could fall into the hands of rivals.

Andreas Treichl of Erste Bank in Vienna worried about potential disrupters, financial versions of Uber or Airbnb. Uncertainty reigns concerning London’s role as a financial center in the wake of Britain’s vote to leave the European Union. Share prices of European banks languish near historic lows and the continent’s biggest bank, Deutsche, groans beneath the weight of a huge fine from the U.S. Department of Justice.

Banks are on their back foot, laying off thousands of workers as they seek a new business model. The best and brightest university grads no longer flock to New York and London. Finance, as chronicled by Michael Lewis, is no longer the elixir of quick riches.

Larry Summers, the former treasury secretary, observed the somber mood at the Washington meetings. “The specter of secular stagnation and inadequate economic growth,” he said, ”and ascendant populism and global disintegration…led to widespread apprehension.”

El-Erian was even equally pessimistic.  He said central banks have lost their edge in an era of low and negative interest rates and that a low growth economy can’t endure. “The new normal is coming to an end,” he said, “the reason is simple: it has lasted for so long that it is now breeding the causes of its own destruction.”

But to end on a bright note, officials from emerging market economies say they no longer worry about the impact of Federal Reserve moves to normalize interest rates. “The Fed has communicated its intentions very clearly,” said South African ReserveBank chief  Lesetja Kgangyago.  “Our reserves are bigger,” he said, and there is unlikely to be a repeat of the 2013 “temper tantrum” when equity markets temporarily tanked when the Fed indicated that quantitative easing would be scaled back.

 Barry D. Wood has been covering global financial meetings for over three decades.  

Wilderness at the Doorstep: People and Bears Between Hancock and Paw Paw

In the early 1900s Theodore Roosevelt and his friend John Muir liked to say that wilderness saves the human spirit. That being the case, we in Washington, D.C. are lucky to have wilderness so close at hand.

I arrived in Hancock, MD where I-70 veers north into PA at 2:30 on a Friday afternoon. Leaving the car in the town lot adjacent to the C & O Canal ($5 per day, M-Sa), within 30 minutes I was on the

Western Maryland rail trail and immersed in a different world.

My destination was Bill’s Place in Little Orleans, 15-miles towards Cumberland. For three quarters of that distance the riding is easy as the Rails to Trails Conservancy put down a smooth black top surface where rail tracks once were.  The last few miles on the towpath were also easy as there hadn’t been rain for several days.

Towpath near Little Orleans

Bill’s Place is well known to aficionados of this remotest section of the towpath between Cumberland and Georgetown. That may be because it is the only place for food and drink for the 31-miles between Paw Paw tunnel and Hancock.  Bill passed away four years ago but his son Jack carries on.  Several times during my three-day ride I heard passing riders yell back that they were headed to Bill’s for burgers and beer.

Jack

A thru rider at Bill’s Place

Not intending to ride on in darkness, Jack had put me in touch with 80-year-old Steve Hubner, the crusty retired postmaster who runs the Little Orleans Lodge 200 yards from Bill’s.

Little Orleans Lodge

Like Jack, Steve is a piece of work, and in a positive way. The price was right ($50) and Steve is a generous host. In the morning he was up at 6 to prepare French toast, scrapple (pork scraps), sausage and bacon. Steve is a birdman and the morning visitors to his feeders were cardinals, titmice, chickadees, nuthatches and sparrows.

There is fog most mornings this time of year and Saturday was no exception, meaning there was no point in departing until it had burned off. Strolling down the hill the scene was pure country, a big change from the city I had left behind not even 24-hours earlier.

Farm between Bill’s and Little Orleans Lodge

I had learned much from Steve about the evolving misfortunes of this rural area. Decent railroad jobs in Hancock were gone, the once plentiful apple orchards were gone, leaving only recreation and bicycle touring as sources of revenue. Villages and towns along the Potomac in both Maryland and West Virginia are hollowed out, young people gone to the cities with those left behind largely dependent on public assistance.

Steve wanted me to see the Potomac from lookout peak and the stunning view made the short uphill drive worthwhile. When we arrived the valley was shrouded in fog but ten minutes later the gentle turns of the great river were on display.

      

The Potomac from lookout peak

The two and a half-hour ride to Paw Paw was idyllic, perfect weather and a warming sun that by noon made a jacket unnecessary. It was a serene world of singing birds and large and small turtles taking the sun atop the logs that litter the canal. Wary of intruders as I approached, one by one the turtles plopped into water that had been a green slime so smooth and thick it looked like a floor to be walked on.

Occasionally I encountered hikers and other riders. Some were headed to or from Pittsburgh and those traveling east reported they had left Cumberland in the morning.

The Paw Paw tunnel is the area’s main attraction. While an impressive engineering feat for the early 19^th century, it is also a monument to folly. It took 12 years to build and bankrupted its builder and the canal company and is why the canal stopped at Cumberland far short of its intended terminus.  When the nearly mile-long tunnel finally opened in 1850 canals had lost out to the competing railroads. Canal advocates pressed on saying that train engines were not powerful enough to haul large quantities of freight. And indeed there were a few years in which the canal company actually made a profit hauling coal, grain, apples and wood to Georgetown.

The western (Cumberland) end of Paw Paw tunnel

The tunnel is narrow, dark and long. No wonder there were fist fights as boats jostled to go first. Today cyclists have to walk their bikes and need a light to make their way through.

For me the figurative light at the end of the tunnel was the Wrenwood Inn just across the Potomac in West Virginia.  I don’t think its proprietor Carol would be offended if I call her a long-time refugee from Bethesda. She operates an elegant B&B, well worth the $85 for a room with breakfast. She also offers dinner and on Saturday night that featured an artist from the Bay Area and 63-year-old Jim telling his story of riding from Pittsburgh to DC and back.

 There’s almost nothing else in Paw Paw, which like Hancock has seen its economic fortunes slip away. Coal trains and Amtrak’s Capitol Limited roar past Paw Paw but don’t even slow down.  Evidence of decline is the boarded up fruit company warehouse that used to be the village’s principal business.  Carol, who relies to cyclists for her livelihood, tells me that until the Dollar General opened a decade ago residents drove 45-minutes for groceries.

Jim packing up for the ride to Cumberland and Pittsburgh

The surprise came during my 4½-hour ride Sunday back to Hancock.  A couple miles short of Bill’s Place in the middle of nowhere there was a rustle of brush from near the river. Just then 30 yards or so ahead a large black bear emerged onto the trail. It paused briefly while I slowed to a halt and then took off running at high speed along the towpath in the opposite direction. He is the black speck in the distance in the first photograph.

Startled but not shaken, I asked Jack at Bill’s Place how fast a bear can run. He said well over 30 mph for short distances.  Jack had just come from the river fishing for bass. He said his grandson thought he had spotted a bear on the shore.

Arriving at Hancock at 3 p.m. I found my car and did the Clark Kent change out of riding gear and headed for Weaver’s restaurant where the homemade apple pie is as good as always even though the acclaimed restaurant has new owners.

In short what a tonic for the soul was a 48-hour journey into wilderness that is so close to the nation’s capital. # 

How Sgt. Pepper Arrived in Yugoslavia

On June 1, 1967—49-years-ago—the Beatles released Sgt. Pepper’s Lonely Heart Band, their masterpiece and arguably the most important rock album ever.

Released simultaneously in Europe and America, it was an instant sensation. A pioneering concept album—with a beginning and end instead of random cuts—Sgt. Pepper flew off the shelves.

 It was the first album that contained printed lyrics and a gatefold.  Its stunning cover with likenesses of artists and historical figures triggered immense interest. Placing the record on the turntable…  we hear the orchestra tuning up, and then BOOM, ”it was 20 years ago today, Sgt. Pepper taught the band to play.”   …”Sit back and let the evening go.”

Critics loved it. Neil McCormick wrote in the London Telegraph, “it is impossible to overstate its impact.” Psychologist and LSD advocate Timothy Leary said Sgt. Pepper’s embrace of psychedelic culture, “gave voice to the feeling that the old ways were over.”

Rolling Stone called the week following Pepper’s release, “the closest Western Civilization has come to unity since the Congress of Vienna in 1815 ….In every city in Europe and America radio stations played it and everyone listened.”

Well, not quite.  They weren’t listening in eastern Europe, as I was soon to find out. Communist censorship kept Sgt. Pepper away from the ears of people behind the iron curtain. Gradually, of course, bootleg copies filtered in.

I was a graduate student in Michigan when Sgt. Pepper came out, and about to leave for a two month-long academic seminar in Yugoslavia.  Luckily I had ten days to absorb this amazing opus before departing on June 15^th

Curiously in that 1967 summer of love, Sgt. Pepper was not available in Yugoslavia, the non-aligned communist nation that straddled the Balkans. At that time Yugoslavia was riding high, presenting itself as a bridge between east and west, a multi-ethnic success story open to western influence, whose citizens could travel where they wanted.

In those years when travelers still dressed up for transatlantic flights, Pan American lined up our group of 20 for a photo at its futuristic terminal at JFK.

 Arriving in Yugoslavia was a bit of a shock. This was not the Europe we knew. Belgrade, the capital, was unfamiliar and mildly exotic as it used the Cyrillic alphabet. Zastava cars were tiny, cigarettes pungent, thick Turkish coffee was brewed in copper carafes, and there was slightly sour yogurt, a product not yet common in the U.S.

In the Slavia Hotel on Marshall Tito Boulevard, I momentarily froze when I realized I was sharing the elevator with two Russian generals. Visiting the Chinese embassy we were handed English translations of Chairman Mao’s little red book. Traveling by bus in impoverished Kosovo we experienced public toilets that were holes in the floor with raised treads indicating how things were to be done.

On days without lectures, I prowled downtown shops in search of Sgt. Pepper. The album wasn’t to be found and clerks hadn’t heard of it. I did get tickets for a concert by Graham Nash and The Hollies. That night the English rock group came on stage in floor length moo moos, a large banner above them declaring in English, “Hollies Love Peace.”

I had just about given up finding Sgt. Pepper until somewhere on the bus in Bosnia-Hercegovina a radio station played Help, that tame, earlier Beatles recording.

Aware that we would be spending the next week in Slovenia, the Yugoslav republic closest to Italy, I wondered if there might be some way I could reach Trieste and bring the album back to Ljubljana.

In red, the route between Ljubljana and Trieste, Italy

With the assistance of friends I devised a plan. I was told the train was too slow, making it impossible to get the 60 miles to Trieste and back in a day.  There were no buses. But someone said driving was relatively easy and that the border controls were not onerous. With that information, I resolved to hitch hike.

Early on the morning of July 20th, missing a lecture on the history of Slovene painting, I boarded a tram for the city’s outskirts. Reaching the main road south to Italy, I put out my thumb and held aloft the sign I had made the night before from a file folder.

 It worked. Two or three rides on a warm sunny day and I was at the border where my American passport worked wonders. Within minutes I was in Italy. One more ride and I was in downtown Trieste, a city once claimed by Yugoslavia in a territorial dispute resolved in the 1950s.

The first record store I came to had a stack of Sgt. Pepper near the cashier. Paying for the album and flush with success, within minutes I boarded a city bus and was headed back to the border and Slovenia.

I arrived at the University of Ljubljana philosophical faculty before dark.  Dinner was over but some of our group and a few Slovene students were still in the canteen, which had a record player. I put on the precious Beatles LP. The music played but the response in the room was muted.  I however was ecstatic.  When our group moved on to the University of Zagreb, Sgt. Pepper became my gift to the students in Ljubljana.

Ironically, less than a week later a telegram arrived informing me that my student deferment from the draft had been rescinded. I was ordered to report for a physical and induction into the army. On the advice of professors, I departed at once to plead for reconsideration.

I arrived in New York on July 27^th. That same evening I flew to Detroit, where a week of racial rioting had left parts of the city in flames. As the American Airlines 727 came in to land fires lit up the night sky. Metro airport was a beehive of activity as President Johnson had deployed airborne troops to restore order. Forty-three people died in the unrest and 1,100 others were injured.

Back home in Kalamazoo and armed with a letter granting me an assistant ship in the economics department at Western Michigan University, I won my appeal from the draft board.

Awaiting the start of the academic year, I savored again the mind-blowing effect of Sgt. Pepper on stereophonic speakers. Yapping dogs and synthetic sounds ricocheted through my head as the show concluded with the orchestral climax of John Lennon’s “Day in the Life.”

Thus ended my summer of love.

But what about Yugoslavia, a country that in less than 30-years collapsed amid barbarous civil war? In 1967 scholars utterly failed to see that future. In three-dozen lectures at universities in Serbia, Bosnia, Slovenia and Croatia, there was no mention of ethnic conflict or eventual breakup. The Slavic specialists among us likewise failed to see dangers ahead. Yes, there was talk of regional disparities and rival nationalisms but they were regarded as benign, not malignant.

With the advantage of hindsight, Yugoslavia was held together by force and the charismatic power of Tito, the partisan hero who fought the Germans in World War II.  He died in 1980 without a successor. In the years that followed the center weakened and long suppressed ethnic rivalries gained strength. In 1991 when totalitarian communism collapsed in Russia, Yugoslavia—like the Soviet Union—fell apart.

South Africa's Pravin Gordhan: Grace Under Pressure

WASHINGTON: South Africa's finance minister Pravin Gordhan is at the center of a political storm. 

Four months ago he was brought back to head the finance ministry when his successor was abruptly fired by president Jacob Zuma and replaced with a little known lawmaker. That move shook investor confidence and sent the currency tumbling.  Four days later business leaders and senior ruling party leaders forced Zuma to reverse course and return Gordhan to the position he held from 2009 to 2014. 

In Washington for the spring meetings of the International Monetary Fund and World Bank, Gordhan was relaxed and gave no indication of being a man under immense pressure. A longtime member of the ruling African National Congress, Gordhan is popular in the business community but opposed by loyalists to the embattled president. Enmeshed in numerous corruption scandals, there are increasing calls for Zuma to resign. He has three years remaining in his second five-year term as president. 

In presentations to two think tanks, the Center for International and Strategic Studies and the Brookings Institution, Gordhan described South Africa’s political crisis as the normal workings of a young democracy.  He suggested that the financing scandal about Zuma's personal estate is being resolved. He said the country's public protector--who ordered Zuma to pay back state funds-- had done her job appropriately. He did not comment on the recent sudden departure from South Africa of two Indian born brothers, businessmen who have been close associates of Zuma.  

Gordhan said South Africa wants foreign investment and a strengthened private sector. He expressed concern about a possible downgrading of South Africa’s credit rating to junk status.

In an interview, Gordhan emphasized that South Africa has a good story to tell.  He emphasized the 16% increase in tourism last year.

Asked about the recent rebound in the rand exchange rate to pre-December crisis levels, Gordhan said there is still additional work to be done to restore confidence. The IMF projects that South Arica will grow by less than 1% this year.

Gordhan expressed frustration with global economic policy saying, “no one seems to know what to do to restore growth and investment.” He said South Africa like other emerging economies is a victim of the 2008 and 2009 financial crisis in Europe and America. “These problems,” he said, “came from your shores and were exported to us.”

Gordhan gave every indication that he is delighted to be back at his old post after two years of heading the provincial relations ministry.  

 

Getting a Superb Education in Kalamazoo

 When I arrived at Kalamazoo in 1964 I had no idea just how much seven years in that comfortable Midwestern city would shape my life.

An indifferent high school student, upon completing community college in Grand Rapids I went west and worked as a deck hand on a Swedish freighter bound for Australia. After five months of week after week, $100 per month physical toil, I realized the value of higher education and was ready to study.

Fortunately one of my first classes at Western Michigan University was economic development with Lou Junker. Lou was a maverick, a pioneer nutritionist, with a passion for learning and making the world a better place.

While working on the M.S. Parrakoola I became fascinated with international trade. Our cargo was a case study in comparative advantage.  Among much else we took Caterpillar earth moving equipment and Douglas Fir timber to Australia and brought frozen beef and Fosters Lager back to Los Angeles.

Lou Junker provided a theoretical foundation to practical economics.  He was an institutionalist, a follower of Thorstein Veblen and Clarence Ayres. Junker stood apart from the rival Keynesians and neo-classicists. He ruffled feathers and challenged conventional thinking. Rejecting my timid response to his question of how many books I read each week, Junker put me on a study program—economics, anthropology, history--and monitored my progress. In part because Milton Friedman, Kenneth Boulding and other luminaries spoke on campus, ideas sprang from the right and left, making my and many other heads spin.

Luckily, I learned early the importance of finding passionate professors who required hard work and thinking. By now I understood the value of general education and took advantage of outside events.

From political science, for example, particularly European Political Systems, I learned of various forms of parliamentary democracy. I have long enjoyed classical music because in music appreciation cellist Herbert Butler taught us how to listen. My interest in architecture began with historian Peter Schmidt’s lectures on Victorian homes in Kalamazoo. Bob Dye’s year long seminar on the films of Ingmar Bergman made a huge impression, so much so that I spent a summer in Stockholm absorbing what I could of that vibrant, brooding north European culture.

I became enamored of the arts. Nearby Nazareth College devoted a semester to the stunning Kenneth Clark Civilization series that had been popular on public television. I became a regular at the springtime Kalamazoo College Bach festival. Once when seated on a bench on the K College quad, composer and artist in residence Aaron Copland wandered past. We talked for ten minutes.

Twice I represented Western at collegiate conferences at the United Nations. There were the intellectually challenging graduate seminars at Oxford and in Yugoslavia. The latter was my first exposure to the then still remote, mildly exotic Slavic world. Visiting six Yugoslav republics and Kosovo over a five-week period, there wasn't one scholar who imagined that 30 years later their country would disintegrate into horrific ethnic conflict. 

Because I was interested in South Africa, when drama professor Zack York was casting his adaptation of Alan Paton’s Cry the Beloved Country, I auditioned and got a major part in the first play staged in Western’s Laura Shaw Theatre.

I was fortunate to be in Kalamazoo during what might be called the cultural revolution of the turbulent 1960s. So many things were new and exciting. Stereophonic sound was electrifying. Later Beatles music opened closed minds. Food coops and organic food were revelations, sensible and cheap. Rock and roll was pervasive and anti-war protests constant.  Jane Fonda, William Kunstler and Alan Ginsburg all spoke on campus. Yes, the country was divided but for the most part debate was constructive and healthy.

As a vibrant college town Kalamazoo rivals Ann Arbor and surpasses most Midwest locations. Because Upjohn pharmaceuticals was headquartered there, the city attracted educated, enlightened people from all over. Kalamazoo’s downtown mall was the nation’s first and on its fringes were funky book stores, bars and restaurants. Michigan News remains as it was and there's a fine common-folks restaurant next door where the CharSteak used to be, remnants of an earlier time.

213 Elm St.

I probably learned more from conversations and music evenings at Vern and Margaret Berrys Victorian home on Elm Street than in many classes. The Berrys raised five children there and took in foreign students as well. Margaret’s percolator was always ready with cup of coffee. There was Indian food and interesting people. Doors were always open. Artists worked in the carriage house in the back. The Red Clay Ramblers from Chapel Hill played in the living room.

Most of all Kalamazoo stood out for its wonderful people, many of whom from are still there. Times change but Kalamazoo remains a special place where one can get a superb education. #

Kent State, 1970, When the Country Was Even More Divided

KENT, OH: Visiting the campus where four students were killed by National Guardsmen during an anti-war protest, you can’t help but recall how divided America was 45 years ago. Strolling the grounds where America’s Asian war came tragically home, the rhetoric of Donald Trump and the gulf between political parties appear manageable when contrasted to 1970.

The issues then were civil rights and stopping a war that had gone on for more than five years, each month costing more lives including college age men drafted into the military.

A cultural divide pitted young against old, draft resisters against patriots, free thinkers against straights, militant blacks against entrenched power. Most protesters saw themselves as taking a public stand against injustice.

When President Nixon on April 30^th, 1970 ordered American troops into Cambodia protests erupted on scores of college campuses. At Kent State an ROTC building was set ablaze and burned to the ground. Shop windows downtown were broken. A panicked city mayor asked for troops to restore order and Ohio’s governor obliged, sending in 700 National Guardsmen who occupied the campus.  Governor James Rhodes called the demonstrators worse than Nazis.

commons and victory bell where protesters assembled

Despite the planned May 4^th rally being banned, at noon that day some 1,500 students assembled anyway on the university commons. Five hundred feet away stood 100 guardsmen wearing gasmasks and carrying loaded M1 rifles. When the crowd ignored the order to disperse tear gas was fired. Then the soldiers advanced as students fled ahead of them, up Blanket hill, past Taylor Hall towards a parking lot and practice field.

At 12:24 p.m. from atop the hill near the pagoda next to Taylor Hall, several guardsmen opened fire in the direction of the parking lot. In 13 seconds 67 shots were fired. Four students were killed, nine others injured.

photo montage at the memorial  

  

iconic photo following the shooting

where the shots were fired

the pagoda, today

This part of the campus is much as it was then. A May 4^th Visitors Center is situated in Taylor Hall. There is a memorial to the victims and walking tour. Beverly Warren, the president of Kent State, which today has 28,000 students, writes in the commemorative brochure that, “this learning facility transports you to one of the most turbulent times in American history.” It offers,” she writes, “compelling evidence of the never-ending need to appreciate and protect the democratic values of free expression, civil discourse and nonviolent social engagement.”

The memorial is well done, sticking to the facts as best they are known.

 A visit here is sobering, providing an opportunity—as the words engraved onthe memorial suggest—to inquire, learn, and reflect.

I departed believing that the tragedy at Kent State 45 years ago could  have occurred at any number of campuses across the country.

December 2015

Should you wish to visit, the small city of Kent is 30-miles southeast of Cleveland, near the Ohio Turnpike that crosses northern Ohio from east to west.

Congress Set to Finally Approve IMF Reforms

WASHINGTON: The massive $1.1 trillion omnibus spending bill presented to lawmakers Tuesday night contains provisions for new funding and governance reforms at the International Monetary Fund. The House could vote as early as Thursday on the package, which is expected to pass. Approval is also likely in the Senate and President Obama’s signature is assured. The president pushed hard for the IMF deal, calling it vital to US leadership and security.

The measure doubles to $670 billion the resources available to the IMF to lend to countries in distress like Ukraine or Greece.  The US contribution is put at $300 million.

The legislation gives key developing countries like China, India and Brazil a bigger share of the weighted votes in the IMF while preserving the sole veto power of the United States. The US has 16% of the votes in the 188-member Washington-based IMF. China’s share rises from 4% to 6%.

The governance reforms date from 2010 but because 85% of IMF votes are needed for implementation it has been blocked by US inaction. Former treasury secretary Larry Summers blamed US delay for creating space for China to create alternative institutions that challenge the IMF. Despite US opposition, China this year led in the formation of a China-based Asia Infrastructure and Investment Bank. Last year it joined other BRICS countries (Brazil, Russia, India, and South Africa) in forming a new development bank as well as an arrangement for mutual financial support should it be needed.

Despite being the dominant player in the IMF, which was founded in Bretton Woods, New Hampshire in 1944, congressional support for the powerful agency has always been lukewarm. In recent years some lawmakers have accused the IMF of bailing out big banks that made loans that couldn’t be repaid. Others argue that US sovereignty is diluted when US money is pooled into IMF lending.

Randall Henning, a professor at American University and specialist on the IMF, rejects that critique saying, “the IMF reflects US economic policy preferences more faithfully than perhaps any other international organization.” Henning says the IMF promotes free markets and requires borrowers to put in place appropriate, prudent economic policies. The IMF played a central role in resolving the Latin American debt crisis in the 1980s and the Asian crisis in the late 1990s.

Former IMF official and financial analyst Mohamed El Erian has argued that US approval was overdue. He says the recalibration of votes “better reflect the realities of today’s global economy and entail neither new US funding commitments nor any dilution of its power within the institution.” Economic historian Liaquat Ahamed says it is absurd that tiny Belgium has had as many IMF votes as Brazil, or that Belgium and Holland together had more votes than China.

Policy makers including Chinese vice central bank governor Yi Gang and British Chancellor of the Exchequer George Osborne lamented the long delay in US action. Yi called “failure to deliver this reform a threat to IMF legitimacy.” Osborne said recently in New York that “it is a tragedy that an agreement reached across all the members of the IMF was being blocked by the US congress.”#