Post: #1

I haven't seen any serious discussion on the Bretton Woods monetary system on this forum, arguably one of the most important economic developments in the 20th century, as well as its demise in the 1970s.

Some economists argue that the repeal of Bretton Woods led to the financial deregulation and Wall St. feeding frenzy that we have today.

After the 2008 crisis, some world leaders such as Sarkozy stated that we need to think about re-instating a Woods-like system in order to prevent future financial catastrophes.

What are your guys thoughts on the subject?

Post: #2

What Bretton Woods is really about is gold. And in my respectful view, most people who point to gold as an efficient or desirable holder of value for that coming time when The Shit Hits The Fan ™, are really functioning off the idea that Bretton Woods is still in existence.

Bretton Woods was essentially an international monetary regulatory system -- a sort of currency UN declaration -- made in the latter stages of World War 2 to stop the Allies from attacking each other in currency devaluation wars (trade wars, that is), and to value everybody's different currencies against a fixed amount of gold.

This is pretty significant, since gold itself is a finite resource. When it is the measure of how much your currency is worth, it becomes essentially the most important currency and commodity on the planet. But the disadvantage of gold as the measure of a currency's worth is that the world's money supply as a whole cannot be expanded without finding more gold deposits; in all human history only 174,100 tonnes of gold have been mined. On the other hand, it made hyperinflation harder for governments to pull off, since if a government was inclined to just issue more currency to pay off its debts, people simply abandoned that currency and started trading in gold (or other currencies that did hold their value).

That said, Bretton Woods has basically been dead since 1971, when the US finally repudiated the gold standard. And to be fair it was roughly the last country in the world to leave the gold standard anyway. There is not one currency left on the planet that is currently tied to anything concrete or tangible. They are all dependent on the promises of those politicians in charge of their reserve banks not to inflate away their debts.

Sarkozy's demand for a "Woods-like" system is posturing and nothing more. Without a gold standard, any such system is basically meaningless since it has no real economic clout or standard to hold currencies against. And nobody is going back on a gold standard without a calamitous world war to put everyone's economy in the toilet sufficiently to even contemplate it. The world likes phantom dollars far too much to let them go without being forced into it by events beyond its control.

Post: #3

Interesting subject.

I see claims that the system is dead, but isn't it's legacy alive and well? The IMF and World Bank were both creations of the Bretton Woods system, if I'm correct, and still play a major role today in the world's financial system.

Post: #4

(09-10-2015 08:57 PM)Seth_Rose Wrote:  Interesting subject.

I see claims that the system is dead, but isn't it's legacy alive and well? The IMF and World Bank were both creations of the Bretton Woods system, if I'm correct, and still play a major role today in the world's financial system.

Depends how you define the legacy. I choose to see it in terms of large, macro results. Bretton Woods' legacy is the deregulation of fiat currencies in general, and not necessarily for the better. For example, the fact the US dollar is the world's "reserve currency" means the stability of the world's fiat currencies rests on how responsible the US's politicians are with their debt.

If anything the past fifteen years in the US have demonstrated it's anything but responsible. America has gone from literally being creditor to the world to debtor to the world. If the US were to declare bankruptcy and/or become hyperinflated tomorrow, neither the IMF or the World Bank would be able to do jack shit about it because nobody has the money to bail out the US. This is apparent from the fact that those organisations have been quietly reaching out to other (but still pretty shit and underprepared) economies to create "alternate" reserve currencies. Fact is, there is no reserve currency without the US dollar. The whole planet is basically tied to the US's economic fate.

At least with a gold standard your money is tied to something concrete. What we have now in the world of currency is basically the economic equivalent of moral relativism: no absolute values, everything resting on perception and people praying that someone like George Soros does not decide to make a lot of money breaking someone else's currency.

The World Bank and IMF's existence are worth interrogating in the same way as we would interrogate NATO and the UN: what rough good are any of these organisations without the US backing them? NATO couldn't hold off Russia and its allies without the US. The UN generally asks the US to engage in military action on its behalf in preference to pretty much every other nation on the planet. I don't see the IMF having done anything to ameliorate or stop the subprime crisis. I don't see that they're doing much of fuck all in Greece at the moment other than prolonging the inevitable.

Post: #5

It was just an intermediate step between the gold standard and fiat currency. Easier to destroy the gold standard if you centralize it in one country first.

The gold standard is, well... the gold standard of currencies. The only reason it's dead is because it limits government power. The only reason no economist ever supports it is because most are in the employ of governments. If they gave the gold standard a fair review it would be like Mcdonalds advertisers saying "This food is terrible for your health! Don't eat it!".

Post: #6

The gold standard is little more than a change in the target by which funds are added and removed to the system. Instead of targeting interest rates or whatever arbitrary target the feds favor from time to time it targets the dollar price of gold.

The bretton woods system had some extra stuff added that is fairly meaningless. Agreements between countries. A mechanism by which the government would give gold to other countries who wanted to turn in $s.

If you wish to understand it, start here:
http://newworldeconomics.com/GTMPpage.html

Many of the other thoughts in this thread really have nothing to do with it:

"repeal of Bretton Woods led to the financial deregulation and Wall St. feeding frenzy"
They had financial panics and all kinds of gimmickry before 1972. The only real change has been the areas of finance that make money off of changing exchange and interest rates. Those are more or less complete wastes of money

"the world's money supply as a whole cannot be expanded without finding more gold deposits"
This is nonsense. This was never the case under a gold standard.

"debtor vs creditor nations"
Nations borrowed and lent money long before 1972 - very little has changed in this regard since then.


I've only ever been able to trace an impact on the economy of the current system (vs the old one) when there are significant changes in the $ price of gold. For example the runup from 1997-2000 and the recession of 2001 were caused by the decrease in the $ price of gold as the economy grew. Black Monday in 1987 due to an interview Greenspan gave saying he might devalue. The current oil booms in the US are because gold went from a $350 norm up above $1500 - and as it falls the investment stops. Bracket creep in the 1970's and the stagnation.

The main difference between being on a gold standard vs our current one is that these items (and others) simply would not have happened. A huge amount of wealth lost. Something that will have to be undone with time.

Post: #7

(09-06-2015 08:30 PM)Paracelsus Wrote:  What Bretton Woods is really about is gold. And in my respectful view, most people who point to gold as an efficient or desirable holder of value for that coming time when The Shit Hits The Fan ™, are really functioning off the idea that Bretton Woods is still in existence.

Bretton Woods was essentially an international monetary regulatory system -- a sort of currency UN declaration -- made in the latter stages of World War 2 to stop the Allies from attacking each other in currency devaluation wars (trade wars, that is), and to value everybody's different currencies against a fixed amount of gold.

This is pretty significant, since gold itself is a finite resource. When it is the measure of how much your currency is worth, it becomes essentially the most important currency and commodity on the planet. But the disadvantage of gold as the measure of a currency's worth is that the world's money supply as a whole cannot be expanded without finding more gold deposits; in all human history only 174,100 tonnes of gold have been mined. On the other hand, it made hyperinflation harder for governments to pull off, since if a government was inclined to just issue more currency to pay off its debts, people simply abandoned that currency and started trading in gold (or other currencies that did hold their value).

That said, Bretton Woods has basically been dead since 1971, when the US finally repudiated the gold standard. And to be fair it was roughly the last country in the world to leave the gold standard anyway. There is not one currency left on the planet that is currently tied to anything concrete or tangible. They are all dependent on the promises of those politicians in charge of their reserve banks not to inflate away their debts.

Sarkozy's demand for a "Woods-like" system is posturing and nothing more. Without a gold standard, any such system is basically meaningless since it has no real economic clout or standard to hold currencies against. And nobody is going back on a gold standard without a calamitous world war to put everyone's economy in the toilet sufficiently to even contemplate it. The world likes phantom dollars far too much to let them go without being forced into it by events beyond its control.

it has nothing to do with gold today. breton woods is the regulatory framework that determines how much commercial loans a bank can make vs the fiat deposits on hand.

Post: #8

(09-11-2015 10:12 PM)offthereservation Wrote:  

(09-06-2015 08:30 PM)Paracelsus Wrote:  What Bretton Woods is really about is gold. And in my respectful view, most people who point to gold as an efficient or desirable holder of value for that coming time when The Shit Hits The Fan ™, are really functioning off the idea that Bretton Woods is still in existence.

Bretton Woods was essentially an international monetary regulatory system -- a sort of currency UN declaration -- made in the latter stages of World War 2 to stop the Allies from attacking each other in currency devaluation wars (trade wars, that is), and to value everybody's different currencies against a fixed amount of gold.

This is pretty significant, since gold itself is a finite resource. When it is the measure of how much your currency is worth, it becomes essentially the most important currency and commodity on the planet. But the disadvantage of gold as the measure of a currency's worth is that the world's money supply as a whole cannot be expanded without finding more gold deposits; in all human history only 174,100 tonnes of gold have been mined. On the other hand, it made hyperinflation harder for governments to pull off, since if a government was inclined to just issue more currency to pay off its debts, people simply abandoned that currency and started trading in gold (or other currencies that did hold their value).

That said, Bretton Woods has basically been dead since 1971, when the US finally repudiated the gold standard. And to be fair it was roughly the last country in the world to leave the gold standard anyway. There is not one currency left on the planet that is currently tied to anything concrete or tangible. They are all dependent on the promises of those politicians in charge of their reserve banks not to inflate away their debts.

Sarkozy's demand for a "Woods-like" system is posturing and nothing more. Without a gold standard, any such system is basically meaningless since it has no real economic clout or standard to hold currencies against. And nobody is going back on a gold standard without a calamitous world war to put everyone's economy in the toilet sufficiently to even contemplate it. The world likes phantom dollars far too much to let them go without being forced into it by events beyond its control.

it has nothing to do with gold today. breton woods is the regulatory framework that determines how much commercial loans a bank can make vs the fiat deposits on hand.

Guess we can thank Bretton Woods for sparing us from having to bail out government-backed banks that make loans en masse to people who'll never pay them back, right? Oh wait...

Post: #9

(09-11-2015 10:00 PM)Spindis Wrote:  The gold standard is little more than a change in the target by which funds are added and removed to the system. Instead of targeting interest rates or whatever arbitrary target the feds favor from time to time it targets the dollar price of gold.

No actually the gold standard simply means 'the final form of settlement is gold'. Under a gold standard, a 'dollar' is a specific weight of gold.

Post: #10

I don't know what you mean by that Phoenix. There are so many wonky ideas that have popped up over the years that just confuse the issue. The way you tell if you are on a gold standard is if the currency is managed at a specific ratio with gold. The way you do this is by controlling supply in order to set that value. Anything else you might do is unnecessary, you don't even need to own an ounce of gold.

Post: #11

(09-12-2015 09:30 AM)Spindis Wrote:  I don't know what you mean by that Phoenix. There are so many wonky ideas that have popped up over the years that just confuse the issue. The way you tell if you are on a gold standard is if the currency is managed at a specific ratio with gold. The way you do this is by controlling supply in order to set that value. Anything else you might do is unnecessary, you don't even need to own an ounce of gold.

I think you have a government-centered idea of a gold standard. It doesn't have to have anything to do with a government, or 'someone controlling something'. Your idea of value appears upside down.

A gold standard simply means 'our money is gold', or 'our currency is gold'. Gold is a soft yellowish metal that is dug out of the ground. People melt it and cast it into little discs called 'coins'. Those coins are the currency.

Because a larger coin has more gold. It is worth more. More of a valuable thing is better than less. For this reason, people want to know exactly how much gold they are getting in a transaction. So they standardize coins into specific weights.

https://en.wikipedia.org/wiki/Guinea_%28British_coin%29

Quote:In 1717, Great Britain adopted the gold standard, at a rate of one guinea to 129.438 grains (8.38 g) of crown gold, which was 22 carat gold.

In that example, the term 'guinea' simply allows the trader to know how much gold he is getting. It is effectively a unit of weight, like 'ounce' or 'gram' is.

After these coins, people found it more convenient just to lend them to a bank and receive a promissory note in exchange. These were called banknotes. A customer could then get his gold coin paid back to him if he redeemed the banknote. Usually he never had a need for an actual gold coin, so he just used banknotes. Exchanging gold for payment then became mostly the domain of the banks themselves, settling debts with each other.

A return to a free-banking gold standard would work as follows:
- A right-wing libertarian regime gains power by magic
- It calculates the size of the country's monetary base
- It starts stockpiling gold at the market rate to match that, selling forex reserves in the process
- It announces "our dollar is hereby defined as: X grams of gold"
- It opens a gold window at its central bank, where people can redeem dollar notes for the equivalent weight in gold
- It re-legalizes banks printing their own banknotes
- Banks then start redeeming their dollar accounts at the central bank for gold
- It stops the printing of central bank banknotes
- After a while, it announces its intention to dispose of the central bank. People are given a deadline by which they can redeem their central bank notes for gold.
- After that deadline passes, the central bank is disposed of, and former banknotes cease to be usable.

Post: #12

You can do all that, it is just way more complicated than it needs to be. Best to replace the FOMC with a simple computer program and be done with it. No magic required. No special understanding required. Everything else stays the same an no one gets confused.