The U.S. as an Emerging Market?

Simon Johnson, a prolific academic writer and former Chief Economist of the IMF, has come out with a relatively negative view on the U.S. financial system, both current and past. According to Simon, the personal interlinkages between the political and financial systems in the U.S. are very similar to those in many, if not most, emerging markets. And the policy approach towards solving the financial crisis has been dominated by attempts to minimize the pain for bankers, rather than for the overall economy. The bank-by-bank approach with generous bail-outs, while avoiding more drastic actions that might risk shareholders’ equity stakes and senior manager bonuses, has not really helped so far. In order to really get out of the slump, Simon recommends more decisive action in the banking sector, including temporary nationalization and clean up of banks, but also the breaking-up of the financial oligarchy with its links to the political system.

But here is the difference between the U.S. and emerging markets: while in the latter, international markets and the IMF can help in the reform of both the financial and political systems, the U.S. is too strong and has the luxury of paying its foreign debt in its own currency. So, a rather bleak outlook for the U.S. (Simon sees a Japanese decade ahead for the U.S. ), paradoxically because of and not in spite of having the most powerful economy and government in the world. However, I still have to see a country where the IMF has really recommended (or even managed) to break the political oligarchy.