Here is food for thought: while economic pundits are talking about recoveries induced by stimulation packages, there will be no recovery.
In my article 'Globilization is not the answer' ( http://www.onlineopinion.com.au/view.asp?article=8275 ) I saw the scraping of Bretton Woods as a way of removing control of the world economy away from America and getting rid of the IMF. I did not look deeply at what would replace it.
I would be interested in a more information of how you see a new Bretton Woods ageement operating. Would there be an overall world system apart from exchange rates, or would it be up to each country to manage it's own affairs in its own way?
'To look at finding a solution we need to correctly diagnose the disease."
Somewhere among Keynes' vast writings there is a comment that people will be trying to apply his Depression solutions when the problems are different.
I agree with your diagnosis but in 1972/3 Neil McInnes wrote a series published in the AFR, "What do we do with these worthless American dollars?"
Keynes at Bretton Woods wanted a trading currency based on a basket of the currencies of major trading nations but the strength of the USA in the aftermath of WW2 could not be restrained. That ended when the production of oil from USA fields peaked in the early seventies. The Basle Agreements mainly served to push out the day of reckonning and as always happens such action make the ultimate problem worse.
I made the following comments in a letter to the Bulletin in July 1999.
"The world really is upside down when many of the worlds leaders think it is reasonable for the largest and most prosperous economy to be seen as the consumer of last resort. We seem to have forgotten Keynes’ exhortation to look at the problems of the day and find solutions to them."
And "America is consuming, for example, Arabian oil (a real asset), paying for it by creating bank balances in American banks for Arab princes and claiming that these balances can be on lent as if they were real capital. At current oil prices Saudi reserves ($10 per bbl) have about the same value as all USA farms at about $US8000 per hectare. When their oil is gone will the oil exporters own and occupy all USA farming land or will they own pseudo capital which can be wiped out at the stroke of a pen backed by a few aircraft carriers?
Adam Smith was adamant that capital should not be allowed to move across borders (meaning between different currencies). Politicians need to institute a different exchange system for genuine international trade."
i.e. We need a new Bretton Woods but have we got a Keynes?
In my previous post for some reasom I gave the title of my article as 'Globilization is not the answer' when it should have been 'Globilization is not the real problem'. I agree we need another Keynes, and it may be worth while looking again at his 'Bancor' world currency suggestion. It seems to me that the root cause of the world economic problems is that our system is geared to the conditions that existed at the end of the World War when America was the only game in town. Whatever replaces Bretton Woods it must not be dominated by one country or currency.
If we start with the wrong theory, we’ll end with the wrong conclusion.
Google also Peter Schiff. These are the only school with a sound theory with real explaining power.
All the other schools of economics, the Keynesians, the neo-classical, the institutionalists, the monetarists, all the policy advisers, all the central banks, the Federal Reserve, were and are clueless. They do not make the connection between their policy prescriptions and the disaster that followed. What credibility do they have?
Underlying your argument is the establishment premise: if the market is left to its own devices, the economy will fall into a recession (polite word for depression). The price mechanism does not operate to clear the unhampered market. Government spending is necessary to stimulate the economy.
But the more this belief system causes massive disasters, the more its proponents externalize the blame and insist that the solution is more of the same. The belief system is unfalsifiable: superstition replaces science.
At root the idea is that, if we can just give government more control, replace voluntary action with compulsory action, we can make bread out of stones, we can create real wealth just by printing paper. How does this miracle work? By (forcibly) taking money from A and giving it to B (‘stimulus package’); by paying people to dig holes and fill them in again (‘public works’); by building pyramids to the glory of Pharaoh.
But that is exactly what the state destroys by taxation and inflation!
The problem is fiat money. Got that?
While ever governments are addicted to inflationary finance, we will continue to have these disasters and injustices.
Inflation is theft. It is governments stealing from the whole population, and calling it social justice.
*Government* causes both the booms and the busts. The other explanations ignore sound theory of money.
If the establishment economists were right, the problem would not have occurred in the first place, either that, or total government control of the economy would make us better off. Your premises are mistaken, and so is your conclusion. It is not just a matter of ideology. Reality kicks in. Sound theory, and sound money, are necessary, and you stand for neither.
If we give John Jones a monopoly power to print and spend money, you can see that that is inherently inflationary, can’t you? He will just print and spend, print and spend, even while the whole economy collapses (post-revolutionary France, continental USA, Weimar Germany, Zimbabwe 2009, USA 2009). Well that’s what governments are doing! Would you give someone else a power to go into your bank account and take what he likes without your knowledge or consent? Of course not! Well guess what? There is no more reason to trust government with this power than anyone else!
The history of government control of money and banking is one of nothing but abuse and fraud. The flaw in establishment economics is to ignore the clear conflict of interest between government and everyone else over control of the money supply.
The current ineffectuality of government bespeaks their cluelessness.
Government intervention can only make the problem worse.
The solution is to abolish governmental control of the money supply. You can’t repeal the law of gravity by throwing stuff up in the air. And governments can’t repeal the laws of economics, and make society better off, by printing paper. This is just voodoo and political fraud: a denial of economics.
Peter Hume - "The solution is to abolish governmental control of the money supply."
The Australian Government has had not created money for many years but it has stood idle while the private deposit takers, mainly he banks, have created money at the rate of about 13% average compound since 'the depression we had to have' and Westpac was saved from disaster. The Howard Government with Costello as treasurer had a 'let it rip' attitude.
Use of Capital Adequacy Ratios was a scheme that could only have been dreamed up by bankers. CAR's are responsible for the massive increase in charges to bank customers when bankers realised that any excess profit over and above that necessry for dividends flowed directly to a bank's capital adequacy base. They even devised ways to borrow foreign funds to add these to their CA base. With the Australian dollar now much lower it is no wonder banks are concerned at the prospect of having to refinance those borrowings. Banks have been caught by their own version of the Swiss Loans.
The CAR scheme, a part of the Basle Agreements, is the major culpable factor in all of the asset bubbles of the last ten years and could only have one outcome, the debacle we now have.