Are BRICS Agreements Signal of the Future Downfall of US Hegemony?

As I was looking through various news web sites this morning, I saw a couple of articles about agreements among BRICS (Brazil, Russia. India, China, and South Africa.) Specifically, these were economics related articles that may presage some quite different times for the US in dealing with the rest of the worldwide economic environment.

The first article was a short report from Reuters India that I found through twitter with a headline "China, Brazil sign trade, currency deal ahead of BRICS summit" and the lede:

BRICS members China and Brazil agreed on Tuesday to trade in their own currencies the equivalent of up to $30 billion per year, moving to take almost half of their trade exchanges out of the U.S. dollar zone.

The second article was from Bloomberg with the headline "BRICS Nations Plan New Bank to Bypass World Bank, IMF" and the lede:

The biggest emerging markets are uniting to tackle under-development and currency volatility with plans to set up institutions that encroach on the roles of the World Bank and International Monetary Fund.

The leaders of the so-called BRICS nations -- Brazil, Russia, India, China and South Africa -- are set to approve the establishment of a new development bank during an annual summit that began today in the eastern South African city of Durban, officials from all five nations say. They will also discuss pooling foreign-currency reserves to ward off balance of payments or currency crises.

Now, I am not an economist (quite thankfully,) I don't play one on TV, and I did not stay at a Holiday Inn Express last night. But I think that both of these actions will have far-reaching ramifications for the US and Europe. Taken individually, I think each of these articles are very big deals for international trade and US and European economies. Together, I think they represent a warning shot across the bows of Western Economic Hegemony. I think these nations are going to be competing with the World Bank and IMF very shortly and may well offer an alternative to the forced austerity. I think the situation on Cyprus could play out much differently if the Cypriots had an alternative to the Euro Finance Ministers requirements for a bailout.

We should all stay tuned to further developments as we continue to live the ancient (maybe not) Chinese curse, "May you live in interesting times."

And because I can:

Corruption or Incompetence; the Economic Effects Seem the Same

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One of the on-going arguments across the blogosphere and even the entire world is whether the economic problems of the last ten years are more related to incompetence or basic corruption. I must say, just the last week has offered plenty of evidence for both views. For example, we had this article from Bloomberg yesterday (Tuesday, November 29) about how then Treasury Secretary Hank Paulson met with his hedge fund buddies and gave them the first class insider information on his plans to place Fannie Mae and Freddie Mac into "conservatorship."

Paulson explained that under this scenario, the common stock of the two government-sponsored enterprises, or GSEs, would be effectively wiped out. So too would the various classes of preferred stock, he said.

The fund manager says he was shocked that Paulson would furnish such specific information -- to his mind, leaving little doubt that the Treasury Department would carry out the plan. The managers attending the meeting were thus given a choice opportunity to trade on that information.

...snip...

And law professors say that Paulson himself broke no law by disclosing what amounted to inside information.

...snip...

At the time Paulson privately addressed the fund managers at Eton Park, he had given the market some positive signals -- and the GSEs’ shares were rallying, with Fannie Mae’s nearly doubling in four days.

William Black, associate professor of economics and law at the University of Missouri-Kansas City, can’t understand why Paulson felt impelled to share the Treasury Department’s plan with the fund managers.

“You just never ever do that as a government regulator -- transmit nonpublic market information to market participants,” says Black, who’s a former general counsel at the Federal Home Loan Bank of San Francisco. “There were no legitimate reasons for those disclosures.”

So, apparently what Paulson did was not illegal, yet there were and are no controls on Paulson or anyone else receiving this information. But it does smell of corruption. Or maybe Paulson was so incompetent as to believe that he was just sharing gossip with his friends that would harm no one.