Bill Mitchell — The EMU reform ruse – Part 2

This blog continues the discussion from yesterday’s blog – The EMU reform ruse – Part 1 – where I consider the reform proposals put forward by German academic Fritz Sharpf, which have been held out by Europhile Leftists as the progressive way out of the disaster that the Eurozone has become. Yesterday, I considered his first proposal – to continue with the enforced structural convergence to the Northern model – the current orthodoxy in Brussels. Like Sharpf I agree that the agenda outlined in the 2015 The Five President’s Report: Completing Europe’s Economic and Monetary Union would just continue the disaster and would intensify the political and social instability that will eventually force a breakup of the monetary union. Sharpf’s second proposal is that the EMU dichotomise into a Northern hard currency bloc while the Southern states (and others less inclined to follow the German export-led, domestic-demand suppression growth model) reestablish their own currencies and peg them to the euro with ECB support. While it is an interesting proposal and certainly more adventurous than the plethora of proposals that just tinker at the edges (for example, European unemployment insurance schemes, Blue Bond proposals and the like), it remains deeply flawed. While it is assumed that the Northern bloc would comprise core European nations such as Germany and France, it is not clear that either would prosper under the new arrangement. France and Germany were never been able to maintain stable currencies prior to the EMU. Further, the ‘exit’ proposal ties the poorer nations into a vexed fixed exchange rate arrangement, which would always compromise their domestic policy freedom, just as it did under the earlier versions of the Snake or the European Exchange Rate Mechanism (ERM). Far better to just break the whole show up and let the nations go free with floating exchange rates....

Bill Mitchell – billy blog
The EMU reform ruse – Part 2
Bill Mitchell | Professor in Economics, University of Newcastle, New South Wales, and Director of the Centre of Full Employment and Equity (CofFEE)

Jomo Kwame Sundaram — Why International Financial Crises?

Raises some good questions. 

The leading international monetary economist of the post-war period, Robert Triffin, described the post-1971 arrangements as amounting to a “non-system.” Now, with the international monetary system essentially the cumulative outcome of various, sometimes contradictory and ad hoc responses to new challenges, the need for coordination is all the more urgent.

Makes a case for more concerted action now that the world is operating under a "non-system." 

I would not call it a non-system but a highly flexible system that resist simple analysis. 

The gold standard for international settlement resulted in a system that was simpler to model, but it was much more brittle, which is a reason it broke down.

TripleCrisis
Why International Financial Crises?
Jomo Kwame Sundaram

Brian Romanchuk — Modelling A Gold Standard

A simple account of the Bretton Woods international monetary system, out of Godley & Lavoie, and with diagrams.

Bond Economics

Modelling A Gold Standard
Brian Romanchuk

Brian Romanchuk — Monetary Disorder: Some Views From France – Book Review

One of the entertaining part of economics is the divergence of views on a national basis. Within a country, partisan political views create a spectrum of opinion, but we can usually identify an "establishment view." But those establishment views can be quite distinct across countries. As an example, the French establishment has a fixation upon exchange rate regimes, and an interpretation of the current monetary system which bears little resemblance with mainstream American views on the topic. This was apparent from reading Désordre dans les monnaies [Monetary Disorder]: L'impossible stabilité du système monétaire international?.…

Bond Economics
Monetary Disorder: Some Views From France
Brian Romanchuk

Philip S. Golub — China rewrites the global rules

Recognising the challenge, the US intensively lobbied allied states in Asia and Europe to stay out of the AIIB, arguing that it would not meet IMF and World Bank standards of transparency, environmental and social responsibility, and democratic governance. The argument would have been more convincing had the IMF not been the arm of coercive Euro-Atlantic discipline for the South. With the exception of Japan, the US proved unable to sway its closest partners.… 

The decision to found the NDB and AIIB is the outcome of a movement building since the 1990s in East Asia and Latin America in reaction to IMF mismanagement of regional financial crises. The 1997-8 Asian crisis convinced many East Asian policy makers that it was time to take the future into their own hands and seek greater autonomy. The creation of the new system has huge implications: the ability to set policy frameworks and maintain international regimes through multilateral institutions is an essential dimension of power in world politics. Former Treasury Secretary Lawrence Summers wrote that October 2014 (when the AIIB was formed) “may be remembered as the moment the United States lost its role as the underwriter of the global economic system….

Multipolar geopolitical political systems based on national sovereignty are potentially much less stable than unipolar systems, but only if the unipolar system is run in the interest of all instead of a hegemon. The US blew this opportunity badly. Now the future is uncertain as power blocs and spheres of interest again form.

Le Monde Diplomatique — English
China rewrites the global rules
Philip S. Golub
ht Yves Smith at Naked Capitalism

Mikhail Khazin — Essay on the fate of the Bretton Woods system

Rethinking the global economy and financial system.

Fort Russ
Mikhail Khazin: Essay on the fate of the Bretton Woods system
Mikhail Khazin (original)
Translated by Kristina Rus

Sebastian Valdecantos Halporn and Gennaro Zezza — Reforming the International Monetary System: a Stock-Flow Consistent Approach

FYI. Links, if you have access or are willing to pay.

Reforming the international monetary system: a stock-flow-consistent approachSebastian Valdecantos Halporn and Gennaro ZezzaJournal of Post Keynesian Economics, vol. 38, n.2, 2015, pp. 167-191

Abstract: The emergence and persistence of large trade imbalances as well as the volatility of financial flows among countries have been attributed, at least in part, to the inadequacy of the current international monetary system after the breakdown of Bretton Woods. From a different perspective, the current eurozone crisis is also the result, in our view, of a flawed institutional setting. These problems call for reforms to mitigate or avoid the recessionary bias that is the outcome of current systems, as Keynes predicted in the discussion preceding the Bretton Woods agreements. In this paper we briefly review the evidence on international imbalances, and survey the rapidly growing literature on the subject. We introduce a set of models based on the stock-flow-consistent approach pioneered by Godley (1999) and Lavoie and Godley (2003). We discuss how to use these models to explore potential reform of the international monetary system.

The first version of this paper dates back to 2011… but it has been written to provide a benchmark model so that other researchers could expand on it, so it should not become obsolete too quickly!

sfc-models.net
Reforming the International Monetary System: a Stock-Flow Consistent Approach

Sebastian Valdecantos Halporn and Gennaro Zezza

Mark Fleming-Williams — China: The Next United States?

Stratfor's economic assessment of US-China rivalry.

EconMatters
China: The Next United States?
Mark Fleming-Williams, Stratfor Global Intelligence

Joseph Joyce — The U.S.: Inept Diplomacy, Indispensable Currency

All this demonstrates the discrepancy between the diplomatic and financial power of the U.S. On the one hand, the U.S. must deal with countries that are eager to claim their places in global governance. The dominance of the U.S. and other G7 nations in international institutions is a relic of a world that came to an end with the global financial crisis. On the other hand, the dollar is still the predominant international currency, and will hold that place for many years to come. The use of the renminbi is slowly growing but it will be a long time before it can serve as an alternative to the dollar. Consequently, the actions of the Federal Reserve may have more international repercussions than those of U.S. policymakers unable to cope with the shifting landscape of financial diplomacy.

Angry Bear
The U.S.: Inept Diplomacy, Indispensable Currency
Joseph Joyce

Paul Volcker — A New Bretton Woods???

By now I think we can agree that the absence of an official, rules-based cooperatively managed, monetary system has not been a great success. In fact, international financial crises seem at least as frequent and more destructive in impeding economic stability and growth. [p. 3]

*******

That is all a long introduction to a plea – a plea for attention to the need for developing an international monetary and financial system worthy of our time. [p. 4] 

*******

Well, even if you agree with my concerns, you will reasonably ask where the analysis leads. What is the approach (or presumably combination of approaches) that can better reconcile reasonably free and open markets with independent national policies, maintaining in the process the stability in markets and economies that is in the common interest? That is a question I cannot answer today with a sense of conviction and practicality. What I do know is that governments do not have before them the necessary analysis and well- conceived approaches that could command attention and support. [p. 5]

*******

But what can be done now is to lay the intellectual ground work for approaches that can, for instance, identify and limit prolonged and ultimately unsustainable imbalances in national payments. We should be able, within a broad range, to manage exchange rates among major 5 currencies in a manner that discourages the extreme changes that are inconsistent with orderly adjustment. We can and should consider ways and means of encouraging – even insisting upon – needed balance of payments equilibrium. Nor would I reject some re-assessment of the use of a single national currency as the dominant international reserve and trading vehicle. For instance, do we want to encourage or discourage so important a development as regional trade and currency areas? A new Bretton Woods conference? We are long ways from that. But surely events have raised, whether we want to admit it or not, some fundamental questions that have been ignored for decades. [p. 5-6]

A New Bretton Woods??? (PDF)
Remarks By Paul A. Volcker
At The Annual Meeting Of The Bretton Woods Committee
Washington, Dc – May 21, 2014

Houses and Holes — Do we need one global currency?

Reviving the bancor as a global reserve currency for international trading purposes, proposed by Keynes but rejected by the US at Bretton Woods.

MacroBusiness — Global Macro: Houses and Holes
Do we need one global currency?
Houses and Holes

Goldman via Zero Hedge — Visualizing 193 Years Of Currency Regimes & Crises

Zero Hedge
Visualizing 193 Years Of Currency Regimes & Crises
Goldman Sachs

Neil Wilson — UK borrowed foreign currency from IMF in 1976

What is amusing is that using fixed exchange rate thinking with floating rate currency areas is still the problem today.

3spoken
UK borrowed foreign currency from IMF in 1976

Neil Wilson

Lord Keynes — US Inflation Rates (1946–1987), Keynesianism and Stagflation

Lord Keynes explains Seventies stagflation in terms of 1) wage pressure due to increased labor bargaining power, 2) dismantling of commodity buffer stock policies, 3) collapse of Bretton Woods, and 4) oil crisis. Bookmark it.

Social Democracy for the 21st Century

US Inflation Rates (1946–1987), Keynesianism and Stagflation

Lord Keynes

History of MMT and the euro, 1996 Bretton Woods Conference

From Warren Mosler: *History of MMT and the euro, 1996 Bretton Woods Conference

Worth reprinting far & wide.
This all got briefly forgotten in the rush to capitalize on .. er loot, after .. the shattering of Glass Steagall.

The truth can't set anyone free if it is deliberately archived, unused.

[Note: they even sent goods & news back in time on the 2nd day! :) ]

---------- Forwarded message ----------
From: Warren Mosler:

Found this on the net in the PK archives. Shows MMT was on it well before this date.

Feel free to distribute

To:  PKT Academics
Re:  Bretton Woods Conference

Confirmed attendance includes senior staff from Deutchebank,
Credit Suisse, J.P. Morgan, Banker's Trust, Salomon Bros,
Lehman Bros, Harvard Management, III, Petrus, Paine Webber,
Paribas, and BZW.  A keynote speaker will be Professor Charles
Goodhart from the LSE.  Bernard Connolly will be the historian.
Speakers for each topic are currently being arranged.

There is currently room for two academic representatives.
Please contact me at mosler@xxxxxxxx if you have interest.



             A FRAMEWORK FOR  ECONOMIC ANALYSIS 

                 An Invitational Conference

                Bretton Woods, New Hampshire

                    June 12-15, 1996


The purpose of this conference is to bring together a selected
        group of portfolio managers, analysts, researchers
        traders, and academics who have a common understanding
        of monetary operations.

The objective of this conference is to achieve agreement on the use
        of a common conceptual framework for undertaking
        contemporary macroeconomic analysis.

Portfolio managers in attendance are responsible for well over
        $50 billion in assets.  The economists and analysts from the
        international dealer community represent some of the world?s
        largest and most sophisticated fixed income trading and sales
   operations.

We believe that this group has the potential to establish an international
        standard for the presentation and analysis of economic data.

Several of the fundamentals are  Post Keynesian...

                Deposit money is endogenous
                Central Banks set short term rates exogenously
                Deposits exist solely as the result of loans

Extension of these fundamentals includes...                             
                                                
                Internal sovereign debt functions as interest
                    rate support
                Taxes create a demand for the goverment's
                    currency
                Fiat currency is defined exogenously


Conference Moderator........Warren B. Mosler

Wednesday, June 12, 1996

   11:30 AM     Welcome and Introduction        
   12:00 PM     Luncheon
   12:30 PM     History of the Awareness of Monetary Operations
               Charles Goodheart

                     MONETARY OPERATIONS

    1:00 PM     Review of the Fundamentals of Monetary Operations       
    1:30 PM     Monetary Policy Options
                                
                   MACROECONOMIC FUNDAMENTALS

    2:00 PM     The function of Government Securities
    2:30 PM     Currency Definition                             
    3:00 PM     Fiscal Policy Options and  Implications
                                                        
                      EXTERNAL DEBT

    3:30 PM     Review of Current Conditions            
    4:00 PM     Macro-economic Implications             
    4:30 PM     World Bank, IMF Policy Implications     
    6:00 PM     Hor?s d?ouvres
    7:00 PM     Dinner                                                  
                
                                                                        
THURSDAY,   JUNE 13

                     ESTABLISHING THE FRAMEWORK

    9:00 AM     Integrating Foreign Trade, Investment, Fiscal and Monetary
                      Policy
   10:00 AM     Full Employment, Zero Inflation Model                   
   11:30 AM     Lunch

                   RAMIFICATIONS OF MONETARY UNION

    1:00 PM     Current Political Situation                             
                      Bernard Connolly
    2:00 PM     Maastricht Fiscal Criteria Implications                 
    3:00 PM     Post 1999 Credit Implications                           
    3:30 PM     Functionality of the Euro                               
    4:30 PM     Drafting a Consensus
    6:00 PM     Hor?s d?Ouvres
    7:00 PM     Dinner

FRIDAY, JUNE 14, 1995

                Review and Discussion






Warren B. Mosler
Director of Economic Analysis
III Finance


See "Soft Currency Economics:"

http://inca.gate.net/~mosler/softecon.html

ps:  SCE now published at Soft Currency Economics