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    They say they want a new Bretton Woods

    Posted by Ivo Cerckel on November 5th, 2008

    Even the European Union is not prepared to question the centrality of the USA dollar in the financial system.

    Although the European Masters have signalled a reversal of what they call the Anglo-American light-touch regulatory approach, i.e., the approach that the market forces discipline, they want the Anglo-American dollar-regime to play the role of world central bank.

    Before the First World War, the gold standard imposed discipline on the monetary authorities.
    The July 1944 Bretton Woods agreements repealed most of that discipline.
    On 15 August 1971, Richard Nixon even unilaterally repealed the Bretton Woods agreements, thereby eliminating what little discipline was left.
    Since that date, monetary authorities are unregulated. They are free to do whatever pleases them.

    The European Masters are blaming the near-collapse of the global financial system on the “deregulatory frenzy” of recent years and are arguing that there is a natural (sic) role for governments to counter a market failure, role which they may have forgotten over the last 20 year. And they want politicians like themselves, unregulated and unsupervised by material reality, to decree the way in which the post-war global financial architecture will be “re-designed” through a “new Bretton Woods”.

    The Bretton Woods system and the International Monetary Fund (IMF), which had to supervise the system, were established during the first three weeks of July 1944.

    The Bretton Woods system, and thus IMF, were repealed on 15 August 1971 by the undisciplined USA, represented by Richard Nixon.

    The system linked the USA dollar to gold at fixed parity and all other currencies to the dollar. (1)

    In the case of the old gold standard before the First World War, trade deficits automatically led to an outflow of gold from the country having/displaying a deficit, thereby contracting the money supply and setting off a recession, leading to price decreases, and thus increasing exports and decreasing exports. This process led automatically to the bringing down of the trade deficit, and thus to the bridging of temporary imbalances of payments, without any government interference. (2)

    In the case of Bretton Woods, when a country conducted an expansive monetary policy, this led to inflation in that country, rising prices, lower competitiveness and thus a decrease of export and an increase in imports. Trade partners were then confronted with an oversupply of the currency of the country having a trade deficit. This led then to pressure on the central bank to devalue. Only by the central bank devaluing the currency could temporary imbalances of payments be bridged. (3)

    Whereas under the old gold standard, trade deficits and imbalances of payments automatically disappeared, under Bretton Woods, government intervention through devaluation was necessary to achieve this effect.

    GROUP OF TWENTY

    A Group of 20 governments, calling itself “The” Group of 20 “nations” (G20), is holding a summit on 15 November 2008 in Washington to redesign the post-war global financial architecture through a “new Bretton Woods”. They thus want government, the IMF, having  even more power than since 1944 (repeal of the gold standard, institution of Bretton Woods and of the IMF) and 1971 (repeal of the IMF and of Bretton Woods).

    The European Union (EU) and some of its members are taking part in that summit.

    On Tuesday 04 November 2008, the EU, speaking through the Dutch finance minister Wouter Bos, said that the time is coming that we can no longer trust self-regulation on financial markets. Britain and France want to re-institute the IMF which since 15 August 1971 when Nixon broke the Bretton Woods agreements had no more reason to exist, and entrust it with the task of carrying out an early warning function for the global financial system.

    At their summit on Tuesday 04 November 2008, the EU finance ministers approved a set of proposals including the rapid creation of supervisory colleges for all significant cross-border financial companies, and stronger risk control mechanisms to be placed under the direct responsibility of senior management. They will submit these proposals to the G20 summit on 15 November 2008.

    They think that their challenge, the problem they have to resolve is, as USA Trade Representative Susan C. Schwab called it, the “unclogging” of he arteries of the credit system that have been “gummed up” in the wake of the financial crisis. (4)
    Hence, they are not prepared to look at the green dollar-blood which is supposed to be able to run through those arteries. They continue to think that international trade should be conducted in USA dollars. They are not prepared to question the centrality of the USA dollar in the financial system. The former must remain the anchor of the latter.

    Is it not strange that Europeans, 15 of which have a single currency which will soon celebrate its 10th birthday, are not prepared to see an alternative to international trade being conducted in USA dollar?

    Do they think that the dollar regime will ever voluntarily capitulate? Or are they waiting for its implosion?

    Europe’s politicians want gold and oil to remain outside the new Bretton Woods.

    Hence, they want to attack the independence of their own European Central Bank (ECB) which marks its gold reserves to market.

    This marking to market (MTM) of its gold reserves by the ECB makes that a rising price of gold (and of oil and gas) supports the value of the euro,
    whereas the fact that the USA Treasury (don’t ask me why not the Fed) marks its gold reserves to the model of $42 results in the dollar being devalued by a rising gold (and oil and gas) price.

    Why are the European Masters prepared to participate in this Anglo-American world terror whereby everybody is forced to act in accordance with the dollar rules? Thou shall act, bill and settle in dollar-debt. Yes, setlle in debt.

    The intention is thus to give Big Brother more and more power and move further and further away from the self- regulation of the gold standard.

    Yes, the old gold standard could not change human nature which dictates that no ruler can withstand the pressure to print more receipts that she has gold in reserve. (5)

    Its chief weakness was however that it could be repealed by the politicians. (6) The process of repealing it started at Bretton Woods and was finalised on 15 August 1971 by Richard Nixon.

    The gold standard was not perfect, but at least it disciplined the monetary authorities in some way.

    In order to return to some discipline the euro has a gold component and a paper component, but puts a “firewall” between the two so that gold’s valuation as a wealth-preserving asset cannot be pulled lower by the inevitable inflation of the paper component of circulating currencies. It is the MTM of the gold reserves of the ECB which provides that wall.

    But in his new book “The Birth of the Euro” (7), Dr Otmar Issing, former ECB chief economist, dares not make explicit that the ECB is marking its gold reserves to market. By the same token, Issing forgets that money is a good that needs an anchor in reality. Money is not digits.

    Is it then any wonder that the EU’s politicians are confused as to the way to act in the present crisis which they caused by repealing the pre-first World War gold standard?

    Ivo Cerckel
    Siquijor, 05 November 2008

    NOTES

    (1)
    Bretton Woods system
    From Wikipedia, the free encyclopedia
    http://en.wikipedia.org/wiki/Bretton_Woods_system
    SNIPS
    The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world’s major industrial states. The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent nation-states,.
    +
    The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value—plus or minus one percent—in terms of gold and the ability of the IMF to bridge temporary imbalances of payments. In the face of increasing strain, the system collapsed in 1971, following the United States’ suspension of convertibility from dollars to gold. This created the unique situation whereby the United States dollar became the “reserve currency” for the nation-states which had signed the agreement.

    (2)
    Roland Leuschel and Claus Vogt, “Das Greenspan Dossier, Wie die US-Notenbank das Weltwährungssystem gefährdet. Oder: Inflation um jeden Preis”, www.finanzbuchverlag.de, 2006, 3rd ed., p. 304

    (3)
    Leuschel and Vogt. op. cit, pp. 308-309

    (4)
    US eyes year-end goal for implementation of FTA with Oman
    Oman Daily Observer
    26 October 2008
    http://www.zawya.com/Story.cfm/sidZAWYA20081026034007/US%20eyes%20year-end%20goal%20for%20implementation%20of%20FTA%20with%20Oman

    (5)
    Leuschel and Vogt. op. cit, p. 300

    (6)
    Leuschel and Vogt. op. cit, p.  304

    (7)
    Otmar Issing, “The Birth of the Euro”, Cambridge University Press, 2008

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