Juggling Dynamite

Actually the time for “big changes in banker pay” came years ago back in the 2008 collapse, but we will take the changes as soon as we can get them… After 6 years of token gestures and tinkering at the edges of needed reforms, this latest talk from the IMF has the smell of progress. See: IMF: time as come for big changes in banker pay.

It doesn’t take 2000 pages of legislation to change the incentives that have bankrupted the financial system, just 4 simple large strokes:

1. cut the line of credit between taxpayers (gov’t) and risk taking at financial firms by restoring Glass Steagall,
2. pay banker bonuses in bonds of the companies they manage, not in equity,
3. hold the executives personally accountable for the breaches of the corporations under their management,
4. claw back executive pay where they are found to have broken rules.

Financial system solved. Then its back to work on the global issues that are actually worthy of all our time and attention like energy, health, education, water, sustainable biosphere…

Gary Shilling’s monthly missive “The Robust Buck” (subscription only) takes a detailed look at the forces that have been strengthening the US dollar since 2008 and the negative effects this is having on commodity prices, exports and US corporate profits. Shilling also explains why the rising greenback is likely to continue for the foreseeable future based on its relative advantage in 6 key characteristics that have historically defined the dominant global currency:

1. Rapid growth in the economy and GDP per capita
2. A large economy
3. Deep and broad financial markets
4. Free and open financial markets and economy
5. Lack of substitutes (Bitcoin anyone? –70% in past 8 months, -20% in past 2 days.)
6. Credibility

No one is saying America does not have some large financial issues to address.  But in a world of captive capital and a global debt bubble, the contest is always “relative” to other options.

The chart below gives a 34-year long-term view on the Canadian dollar (purple) and the US dollar (red) since 1980.  The C$ continues to look expensive.

A reader recently reminded me of an interview I did with Alasdair MacLeod at the Hard Assets show in New York in May 2012. Here is a direct audio link.  Commercials have been inserted in the clip in a couple of spots, but one is able to click ‘Skip Ad’ to by-pass quickly and continue.

At the time of our discussion on May 16, 2012, metal prices had just begun to roll over from their 2011 all-time-highs. The show was teeming with precious metal promoters predicting that the US dollar was collapsing. I was a rare non-believer and received regular hate mail for my views. After the past 2.5 years of extend and pretend policies in the finance sector, I think that our conversation on sober next steps remains relevant.