Bretton Woods II

From “Madame La Farge”, a new guest poster from New Hampshire!! Welcome Madame La Farge!

photo12-11.jpgAn excellent article was buried in the Weekend Journal yesterday, A 21ST CENTURY BRETTON WOODS. The second upcoming United Nations Monetary and Finance Conference is to be held in here in New Hampshire on Nov 15th at the Mount Washington Hotel. The first Bretton Woods meeting in1944 saw the creation of the IMF and the World Bank which were intended to stabilize the world’s many different currencies and the attending fixed exchange rates. The United States adhered to the gold standard with the rest of the world’s currencies based on the USA dollar.

The [1944] conference rebuilt the economic order by creating a system of fixed exchange rates. The aim was to prevent a return to the competitive devaluations best illustrated by the “butter wars.” In 1930 New Zealand secured a cost advantage for its butter exports by devaluing its money; Denmark, its main butter rival, responded with its own devaluation in 1931; the two nations proceeded to chase each other down with progressively more drastic devaluations.

This beggar-thy-neighbor behavior added to the protectionism that brought the world to ruin, and the Bretton Woods answer was simple. In the postwar era, the dollar would be anchored to gold, and other currencies would be anchored to the dollar: No more fluctuating money, ergo no competitive devaluation.

The brilliant essay by devilstower of DAILYKOS, points out the clear objective of this year’s meeting being urged forward by France ’s Sarkozy and Britain’s Gordon Brown. The purpose is to persuade China, which currently has a $2T reserve in foreign currencies in the IMF, to take the reins from the United States in exchange for an expanded role in the IMF.

We knew the fall had to come. The US has carried the day since WWII. Unfortunately, it has led to incredible arrogance and isolation, culminating in the current administration. It has been a progression given huge directional impetus by Nixon. Today, it is regrettable, in the face of the tremendous downfall of the entire world markets, that we, the American people, allowed this to happen. I suppose it will take some time for all of us to realize that the baton has been passed. Just as the UK passed it to the USA in 1944.

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October 26, 2008 | Filed Under Great Recession, Historical Context 

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