Protectionism in Asia?

Nouriel Roubini has a piece in Forbes discussing the future of large global imbalances. The basic question is whether the large balances in Asia (primarily China) and in the commodity producing Middle East nations is sustainable or whether they should focus on increasing domestic consumption. Therefore reducing their dependence on foreign nations (such as the U.S.) for economic growth. However, since these countries are largely invested in the U.S. one must wonder whether this approach may cause a significant unwinding in the global macroeconomic environment, one that may extend economic depression beyond what we've witnessed to date. Ultimately the IMF will play a key role in ensuring that any potential unwinding at the macro level will be orderly.

So while we consider protectionist policies in the U.S. perhaps we should pay more attention to protectionist policies developing with are largest trading partners, especially the ones that own significant amounts of our debt. This may be the ultimate house of cards.

Great regulation article

The Economist hits this one dead on! The article addresses the IMF's views on the financial collapse, which favors increased regulation as a response. The IMF proposes regulating based on the activities of the entity, not the entity itself (so include hedge funds that act as financial institutions the same as banks). From the accounting perspective this is classic rules-based versus principles-based.

At the end of the day, adding more regulations (like adding more rules in accounting) just means that institutions will find different ways to game the system. For instance, create a rule that causes a hedge-fund to be regulated like a bank if they receive over x% of their income from bank related activities and you'll be amazed how many hedge-funds suddenly receive x-1% of their income from bank like activities. It's always the same when you add regulation...you're still a step behind.

See the IMF's report here.