Ritchie of the day

And this time we will need to reconvene Bretton Woods. The challenge we face is as big as that in 1944: we have a broken system and a need to build afresh. We have to ensure we get it right. The re-emergence of neoliberalism so soon after 2008 has plunged us into the current crisis. Surely it’s time to move on collectively and start without the encumbrance of that failed thinking?

So, a crisis caused by a fixed exchange rate regime is going to be solved by imposing a fixed exchange rate scheme is it?

Mind, boggle, etc.

6 thoughts on “Ritchie of the day”

  1. Wasn’t the problem with Bretton Woods that the US broke it, because the US inflated to pay for the Vietnam War, rather than raising taxes, thus shifting the costs of said war onto the Europeans? And the Europeans weren’t too keen to pay for the Vietnam War, let alone everything else the Yankees would have probably foisted on to them if they’d continue to stick to Bretton Woods.
    (I might be totally wrong about this, monetary economics was never my thing).

  2. Tracy, within BW there were at least occasional adjustments of exchange rates (e.g the pound devalued at least twice), which you can see as either belated adjustment to market realities or a cynical attempt by the devaluing governements to default on their debt without being seen to default. There are indeed parallels with the situation Greece finds itself in today.

    The real problem was that BW was based on a commodity standard – gold. Actually the world has had a common currency of sorts for most of its history – in that most currencies anyone cared for were tied to the gold price. It’s only really since 1971 we started the floating rate regime.

    The problem with commodity standards is holding any currency to it, let alone a dozen currencies. Because the price of commodities varies and the price people are prepared to pay for an ounce of gold at any one time may differ considerably from the value at which the central bank offers convertibility. The lesson of history is that you cannot fix prices, at least not without creating either undersupply or oversupply of the thing being fixed (or the currency that’s fixed to it). A good thought experiment is to imagine abolishing the pound, euro and so on, and paying everyone in “Brent Crudes”, then imagine the fallout from having either a fixed oil price, or the wildly see-sawing value of your currency.

  3. Exactly. Does Murphy really want the volatility that a commodity-backed currency would bring? One suspects that the not-very-clever retired accountant is so far out of his depth that the prudent course would be to to call inshore rescue on his behalf so he can be picked up by a lifeboat, wrapped in a blanket, and lectured on why he shouldn’t venture so far to sea on a plastic inflatable hippopotamus.

  4. What Richard wants is not Bretton-Woods per se, but the establishment of a team of unelected bureaucrats controlling international finance. The thesis is that if philosopher kings (like him) are given enough power then the world will enter a new Eden.

    Can’t fail

  5. Its very simple – everything people like RM propose has one simple concept in mind. They are all attempts to stop the fundamental economic truth that if you spend more money than your income, and run up huge debts, then at some point the whole edifice comes crashing down. Its true for people, for companies and for nations, always has been, always will be.

    But there always idiots who tell you ‘No, if you just did this and this, then all would be OK and we can go on spending with no consequences’.

    RM and his ilk are the modern equivalents of King Canute, only they really think they can command the tides.

  6. Every central bank has some kind of target for its currency, monetary policy shouldn’t be random.

    Sterling currently has a target of depreciating 2% a year compared with a basket of goods in the UK. Admittedly the BoE isn’t very good at doing this.

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