Even when Keynes and others finally formulated the answer to this core dilemma, its adoption was blocked � by the concern of growing deficits leading to a replay of the hyperinflation in Germany of 1923. What was lost from sight was that the German hyperinflation was the result of a lost war, the occupation of the Ruhr industrial heartland by the French and Belgian armies, a general strike throughout Germany that both the Left and the Right supported, and virtual civil war.

In the official telling any rise of the price level would lead to hyperinflation of the German sort. The nonsense of such fears could have been exposed by playing the scenario in reverse: if Germany in the early thirties had balanced its budget, it somehow would not have lost the war, the Ruhr would not have been occupied by the French, its Foreign minister would not have been assassinated, there would have been no virtual civil war. But it suited the interests and the prejudices of a powerful minority to stick to the official version: those who had money rather than debts never had it better than when prices dropped by 25% across the board.

The misread experience of the hyperinflation lives on to this day. It has been enshrined in the constitution of the European Union, where member countries had to reduce their budgetary deficit below 3% of their GDP before qualifying for membership of the European Union. By a bit of creative accountancy Italy did so by using off-balance-sheet derivatives to move some of the government liabilities into the following year�s accounts when it would already have achieved entry into the monetary union.

In our day the core issue, key to practically all our economic problems, is avoiding the use of central banks to finance necessary public investment within the limits of real economic capacity and the available foreign exchange.

Identifying that core issue served Japan brilliantly in 1931 when the yen went off gold. And again after WWII when a crushed Japan proceeded to plan the public infrastructure for future industries. Key to its policy was applying its limited supply of foreign credits to create the infrastructures that would make possible the development of export industries to net it the greatest net foreign exchange earnings � after paying for the imports that they would require. In that way Japan replaced its position as the world�s most aggressive textile exporter before WWII with a similar position in automobiles.

No country � First, Third or Emerging World � need forgo essential public investments � health education or physical infrastructures � within the above-mentioned constraints.

A Crisis of Globalization and�Deregulation

For �fiscal responsibility� to make sense, the double budget proposed by John May�nard Keynes and others must be introduced � an operational budget that should always be balanced, and a capital budget covering investments (physical and human) that will be amortized over the term of their usefulness. The capital budget must step up its investments when the private sector lapses into recession.

Countries receiving aid could be closely audited by appropriate international organizations on which debtor as well as creditor nations would be represented to ensure that the loans are directed to their intended goals. In the light of the accountancy and other scams being revealed as major factors in the late Wall St. boom, the private financial sector lacks credentials for sitting in judgment on the public sector of any country. What is needed is transparency and periodic assessment of policy results in both sectors � especially where bailouts of private corporations by governments have taken place. That includes every major country, since bank bailouts have been occurring regularly throughout the world once every 7�to 10 years.

In this perspective the Argentine crisis must be considered in its implications for an assessment of Deregulation and Globalization, rather than just an Argentinian problem.

The notion of a crucial core problem that must be addressed to resolve major crises is not unfamiliar to historians. In 1917, for example, the Bolsheviks were a small fraction of the Russian Democratic Socialist Party, and Lenin, in Swiss exile, had limited influence in Russia. But the Eastern front had become a vast slaughter house for troops ill-trained and ill-equipped by a regime that had already shown its hopeless incompetence in the Crimean and Japanese Wars. Foot soldiers went into battle sans rifles, with orders to pick up the gun of the soldier ahead when he fell. The Bolsheviks addressed the indispensable need before all other problems could be dealt with � to get Russia out of the senseless war. That, to their own surprise, hoisted them to power.

The Nazis picked up power in 1933, when during the Great Depression all other traditional parties � including the Socialists � refused to even consider the government incurring debt to provide jobs and survival to the growing army of jobless.

Today we have entered a similar stage where everything depends on restoring the functions of our central banks to their original purpose.

That will make possible the funding of all the derivative problems essential for society�s survival.

William Krehm �from Economic Reform, February 2002