Andrew Sheng - Sustainability Requires Caging Godzillas

Financial business is creating credit without limit until a crisis occurs. That’s the fundamental flaw which caused the current crisis, says Andrew Sheng in this INET interview. He also worries that the destruction of the tropical forest and other threats to the biosphere have the same character of ungovernable excesses until a crisis occurs.

Sheng says that what he learned about free markets at university - and what he practiced until 2008 - he now views as an intellectual dead-end. He believes that the takeover of private debts and zero-interest rate policies by governments around the world are both attempts to postpone the business cycle. He calls large complex financial institutions that move financial capital around the globe ungovernable Godzillas. These are a few of the many firm judgements coming from the Chief Adviser to the China Banking Regulatory Commission.

The world economy would see the mother of all crises, Sheng warns, if governments fail at managing the leveraged capital that is flowing into emerging markets these days. He also talks about the Chinese-American policy dialogue, that China needs to accept that with greater economic strength comes greater responsibility; and the world needs to respect that China, because of its size, is sailing into unknown territory.

You can engage all these ideas by watching the interview on video, and give your comments below.



Our monetary system is based on credit or debt, and without constantly continuing issuance of debt, the whole thing falls apart. Our system of ‘fractional reserve banking’ gives commercial banks a licence to literally create money out of thin air – and then charge interest on the money they created. Fractional reserve banking is the cause of spiralling debt.

A public campaign has started to end fractional reserve banking, and I recommend readers to look at the website which explains further and support the campaign.


Caring and Daring to Learn:

(Knowledge Management Approaches)

Call for Papers
Special Issue, Transnational Corporations Review, December 2011

Edited by Val Samonis and Hugh Deng

With stagflation, gyrating financial imbalances, recurring asset price bubbles, primarily in the advanced economies but also in emerging markets, there is a rapidly growing need to learn from past crises in order to avert or minimize new crises using modern knowledge approaches, innovate in business models and critical areas of institutional/systemic solutions. This is of importance globally and specifically for Asia as it moves away from rather traditional external equilibrium systemic solutions (e.g. quasi Bretton Woods arrangement of China with the USA) and, internally, from its traditional comparative/competitive advantages in quickly building hard developmental infrastructure to softer aspects of more advanced development involving new institutions that probably will be a creative blend of Asian, German, and Anglo-Saxon models.

TNCR is a bilingual (Mandarin-English) peer-reviewed international scholarly journal dedicated to providing economic governance, policy, and business analyses of current issues related to transnational corporations, foreign direct investment, institutional/systemic innovation, and global development solutions. The Journal is regularly indexed in ALJC, AMICUS, CrossRef, EBSCO, EconLit, Scopus, and SSCI/SCI.

This Special Issue will reflect the TNCR's long-standing dedication to inspiring and provoking new economic thinking globally, which will include papers from academic, business, and government thought leaders from China/Asia and the rest of the world. It addresses the above challenges for the benefit of those leaders and any concerned citizens of the global village.
The submissions should be prepared according to the TNCR specific requirements:
and emailed to:

Val Samonis, PhD, CPC
Special Issues Editor & Knowledge Management Editor
Transnational Corporations Review (TNCR)


I keep wondering about the preliminary cause that started (originated... caused)) the «need» for deregulation of banking, the big bang in the City of London, the «explosion» in offshore Special Purpose Entities, the growth of debt (both public and private)... Are social scientists no better than the shaman of anthropologists and will then refuse to investigate why was it that the most developed societies, at certain points in time, feel the need to resort to credit expansion.


Mr. Sheng provides a welcome breath of fresh air. The floating fiat currency system has removed the constraints on central banks and credit creating commercial and shadow banks on one side and debt issuing governments on the other. Taxpayers are the ones getting squeezed in the middle. The main challenge is to impose some kind of restraint and discipline by addressing the misguided incentives that plague the international credit system.

On the theoretical side, I believe Mr. Sheng's disenchantment is a consequence of the limitations of equilibrium theory. Policymakers are guided by a model that seeks maximization and assumes sustainable distributions of resources through price mechanisms. We can only wish that it were so. New tools need to address distributional failures that plague not only the economy, but the environment. My hope is that agent-based computer simulation models will illuminate these puzzles.

Excellent interview. Perhaps Mr. Sheng would consider an appointment to the Federal Reserve? I'd make him Chairman.


Agreeing with Mira here -

Unfortunately, Dr. Sheng here seems to identify the Godzilla as a group of international financialists that are ungovernable, leaving us looking for a governing-regulatory solution.
Can you say failed regulate-deregulate cycle?

As I tried to explain to Dr. Sheng at the Minsky Conference following the BW Conference, the problem is more deeply systemic, and only changing the system of debt-money to one truly more economically and environmentally sustainable will truly solve the systemic problem.

I suggested he start back with Frederick Soddy's The Role of Money as the light that best guides the path to reform.
As Dr. Sheng joins the socio-economic to the ecological impacts of the money system, the Soddy to Daly to Georgescu-Roegen to Costanza to Senf route to re-design of the money system will solve the Godzilla problem.

The end of the debt-money system.
Who is working on it's exit strategy, Dr. Johnson?


Banks borrow money with interest to lend it with interest. It is the gambling on which capitalism is based. That works fine when the economy is expanding. Then, no one keeps money in their pockets because that does not collect interest. That is the reason the whole economy is based on debt money. But in a recession, there is not enough space for all. One bankruptcy in the debt economy may pool many others into it. The present financial crisis has nothing to do with production, which is now stronger than ever. The crisis is based on the lack of control over money and on the unjust distribution of wealth caused by the lack of equal rights in the capitalist system.

Solving the financial problem requires the socialization of wealth. I do not propose socialism but rather something like a voluntary merging of companies at a regional level. All people should receive an equal amount of shares based on public property and those who possess private ownership will receive additional shares for them. People will receive something like dividends from the regional company according to the shares they possess. In the case of a crisis there would be no bankruptcy because the centralized system could control money and recover most efficiently. The people would directly create the macroeconomic policy of region through the allocation of their taxes to the groups of expenses they prefer more. If they decide to increase taxes, that would develop a democratic planned economy, the most rational and stable economy. Yes, the centralized system of production was less productive then private companies so far, but that would change through opening the market of work at the regional public company. Each job should go to the most productive and cheapest worker available at any time. In the case of bad production, workers would lose their shares according to the damages they produced. That would form a very responsible environment for work. There is no better economy than the one where the best worker gets each job.

But the most important point lies in the fact that people will have a much higher chance to find jobs they like and then they may find greater benefits from work than from profit. The most important thing in the future will be finding natural values through increased freedom and establishing equal rights among people. Man will be the center of the world, not money. My New Economic Thinking offers a fresh start where everyone wins. The goal is not easy to accomplish but it will finally solve economic and social problems. Please find what it is about at my web site

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