commentary by Roger Erickson
St. Louis Fed @stlouisfed
In our archives, read about the Bretton Woods Agreement, which set up the IMF and World Bank
I've always wondered WHY on Earth the other allies all lobbied the US to return to an inter-gov gold std - while still in the midst of the biggest run-up in world aggregate demand ever witnessed, all fueled by the switch to fully fiat accounting methods. Why did all those countries who had themselves abandoned the gold std, well before the war, now want to try to repeat the very past they'd abandoned for a very good reason?
And WHY on earth would the USA, of all countries, at the same time allow colonial powers to re-occupy former colonies?
Talk about snatching current AND future defeats from the jaws of total victory!
WHAT on Earth were those people at Bretton Woods thinking? And what on Earth were citizens of "democracies" thinking sending their banking lobbies to try to dictate rules for reverting future world commerce back to what electorates had just fought to be free from? Is that like sending crooks to a democracy convention? 'Bout as dumb as taking a knife to a gunfight? Or Luddites to a conference on the future?
There's only one thing worse than losing a war? Not knowing what to do with victory! This is beginning to sound strangely familiar. Didn't we go through the SAME experience before, once just after 1776, and then again after the Civil War?
Biggest scam of all time? Or just total stupidity? Both? Always? By default?
Fool us 3 times? A foolish electorate and it's options are soon parted - and deserves whatever it gets after repeatedly throwing away total victories.
How many reincarnations does it take to figure out that the cruel joke is on US?
Has even the word "reinCarneyation" been stolen, and sent to the Bank of England? When do we attain currency-operations self-realization? Do only Chinese Communists now understand the Zen of Currency Operations?
ps: Wasn't there a book with a similar title? "Zen and the Art of Moronic Cycle Maintenance?" If it comes in serial installments, who are the authors? Can we just OpenSource the ongoing story, instead of leaving it to too few authors? The current authors write like a bunch of Luddites. Ludditezen and the art of Moronic Cycle Maintenance?
11 comments:
Here's Georg Knapp (1905):
For internal circulation notal (fiat) money
is almost everywhere dominant and might safely
become predominant.
For foreign trade, on the other hand, the valuta
money of the State might usefully have the specie
form.
It's not a moron argument to suggest the usefulness of an international gold standard, and not because of any "intrinsic value" of the stuff, but because it was something uniform that had a long history of use and tended to be considered trustworthy.
Here's Michael Hudson (2002):
Gold historically had acted as the abstract "objective" asset, the prize for which national
economies vied. But when gold was effectively demonetized in 1971, nothing of equally
symmetrical character was developed to put in its place. It was the absence of such an
alternative that gave the United States an opportunity to fill the vacuum, and only it
sought to fill it, not Europe, Asia or the third world. Even today, the euro remains little
more than a surrogate for dollars, not an international asset providing the services that
gold provided for many centuries.
America had come to rule not only by gold-credit, but by fiat credit.
Dollar hegemony has been problematic for the rest of the world since it came into being after 1945. As Hudson argues, the other nations, including its WWII allies, were brought into a system decidedly tilted in favor of the U.S. It seems that they failed to even try to use the leverage they might have had to secure more favorable arrangements for themselves. If we can call the Europeans of that time "morons" it's not because they wanted an international gold standard, but because they apparently trusted in American "good intentions."
Couple of thoughts on Bretton Woods:
1. Civilized world physically destroyed... nuclear weapons actually used...
2. No information technology available to humans to run a global banking system as near real time information system... carrier pigeons actually used in WW2...
3. Half of Europe still "behind the Iron Curtain"...
4. Previous Treaty of Versailles structured as a screw deal on the losers, where US had to intervene again to an even greater extent 2 decades later...
So without the info tech available, and the world in post nuclear war chaos, turning to gold looks like was perhaps the best option at the time...
Once space opened up and we put up satellite communication systems, now we had the first global near real time information system and it is not surprising that was right about the same time as we went off bretton woods in 1971... first Olympiad "live in color via satellite" was the '72 games from Munich...
We dont need gold anymore as some sort of "equalizer" or instant "bona fides". We have instant global access 24/7/365 to the banking system, which is nothing more than a big electronic "scoreboard" operated by the cooperating global governments...
rsp,
David,
What makes you think that there is some sort of "dollar hegemony"?
I know Hudson often writes about this type of thing but to me, that whole thing looks like some sort of Cold War type of view by Hudson that perhaps existed at one time (perhaps post WW2), but seems gone from the scene today...
I dont see US govt pursuing some sort of purposeful policy of "dollar hegemony"... I see the external sector as zealous for the premiere western financial assets (and the Euro is beginning to work for this purpose also, and the Pound, they will take both and the USD... as long as it is western)... no one is "making them take it", if that is what dollar "hegemony" is ... they willingly/voluntarily/zealously seek to acquire large amounts of the premiere western financial assets...
This has been going on for thousands of years wrt the west and the ROW...
An other thing is how can there be "hegemony" about a system that the alleged "hegemons" do not exhibit a true understanding of?
Geithner and the rest think we are borrowing from the Chinese for crying out loud... that is not "hegemony", that is "moronomy"...
rsp,
Good insights, Matt. Times have changed, and are still changing. For example, Sweden is going cashless.
In Sweden, cash is king no more
By MALIN RISING at Yahoo News
"Dollar hegemony" is an idea of Henry C. K. Liu based on the US requiring international oil trading to be settled in USD, creating an artificial need to obtain USD reserves.
See Wikipedia-Dollar Hegemony for an overview and a reference to Liu's work.
When I bought in up in comments at Warren's place, Warren dismissed its relevance.
Hegemony doesn't have to be purposeful. If I'm stuck in a room with an 800lb gorilla, I'm ruled by his actions to some non-trivial extent no matter how friendly he is.
Ignore the gorilla at your peril, as anyone who has ever been stepped on, had to clean up after, been required to feed or had the US climb on their back for a friendly hug can testify.
"When I bought in up in comments at Warren's place, Warren dismissed its relevance."
If I recall, Warren's words were that it doesn't matter what currency trade is denominated in, only what currency people prefer so save [financial liquidity] in.
Right, save in the preferred currency and then switch just prior to settlement. Makes pricing oil in USD irrelevant.
Tom,
I'll look at the Liu stuff but I suspect that the US as the post war periods biggest user of oil simply told the oil exporters that it would be ok for them to bring their oil in here, but we would not pay them for these imports in anything other than a USD...
Our consumption of course has grown over the post war years and so has the imports to meet the new demand... shutting out domestic producers, but you can see now how seeing as these oil exporters have formed an illegal cartel and now have pretty good control on prices at very high prices, new domestic (N America) production is coming on line pretty fast and substitutes (nat gas & electric) are even working their way in... of course not fast enough...
the thing that worries me is that these countries that have relied on oil exports to assist in the development of their countries will have major problems if some sort of substitute is found for petro...
Think about Saudi Arabia, I think they have like 30M people over there now... and the other gulf states, what would they do without the forex they gain thru oil exports? for food and meds and so forth... scary!
I think IIRC Libya and Algeria imploded at just below $4-5k annual per capita oil production-price.... And Egypt imploded also..
right now Saudi is producing about say 9M perday times 365 days times 90 per bbl divided by 30M citizens equals about 10k per capita production price... so if we use the Libya/Algeria numbers as a guide Saudi looks pretty secure for now... but if oil price were to go back down to like $50 or their production was displaced by a few M bpd it might start to get dicey over there...
I dont see any of this as "planned" by anyone... just seems (to me) as how the situation has sort of "naturally evolved" post WW2... and doesnt look like anyone is "looking ahead" wrt petroleum displacement or as I dont have to tell you the externalities...
rsp,
Matt,
I brought in those quotes to point out that the issue of international trade is different from the issue of fiat money for internal circulation within a sovereign nation. The first is much more complex, while the latter is simple and obvious as the Knapp quote indicated. I can agree with you that maybe Hudson goes a little overboard with his ideological opinions, but what he was talking about in his book (Superimperialism) was the set of institutions that were developed after WWII that determined the way debtor nations would be dealt with and which departed in important ways from how this was handled in the past.
After 1971 we had the situation where the US fiat money was accepted abroad by default (our trading partners could see no other choice but to take it). The situation developed that we became the greatest "debtor nation," but contrary to how this situation had affected countries in the past, it seemed to only make the US more powerful. As Mosler has pointed out, having China sell us real goods for dollar denominated assets, is a sort of "free lunch." I believe this is unprecedented in history as Hudson claims. It is indeed an absurdity when Chinese officials lecture us about our deficits when it is those very deficits that allow us to buy their exports and for them to keep their exchange rate low enough for it to be attractive for us to do so. And then there are our morons who accuse China of "cheating" on their exchange rate by purchasing too much USD, etc., etc.
"the issue of international trade is different from the issue of fiat money"
Ya think?
http://moslereconomics.com/2012/12/27/china-budget-deficit-said-set-to-expand-50-to-192-billion/
Face it. Our gov, and electorate, doesn't know WTF it is talking about most of the time.
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