Thread: Bretton Woods II

This thread is about the possibility of changes in the structuring of the world financial system. Or, perhaps, not changing too many things. The media has recently been using this term, "Bretton Woods II" After the recent financial summit in Europe. This thread is about me (and hopefully many others) getting more information about this concept called Bretton Woods II, or BWII. Some do claim, BWII doesn't really exist, or will not exist. Here is the beginning of some articles.

A generic intro on the topic from Wiki:

Bretton Woods II

From Wikipedia, the free encyclopedia

"Bretton Woods II" is a term used by media [1] to describe a proposed international summit tasked with overhauling the globe’s financial structure. The name refers to the Bretton Woods system of monetary management which was instituted after World War II.

The meeting could occur as early as November 2008 in New York City. [2]
Calls for a new Bretton Woods began surfacing as early as September 26, 2008, when French, and current European Union president, Nicolas Sarkozy, said, "we must rethink the financial system from scratch, as at Bretton Woods.” [3]

On October 13, 2008, British Prime Minister Gordon Brown said world leaders must meet to agree to a new economic system. "We must have a new Bretton Woods, building a new international financial architecture for the years ahead." [4]

Bretton Woods II - Wikipedia, the free encyclopedia


One perspective in the article below:

September 2007 Renegade Economics: The Bretton Woods II Fiction By Chris P. Dialynas and Marshall Auerback

Executive Summary

Read the full paper

The world economy is on the threshold of significant upheaval because of the substantial structural change in the global financial architecture, now popularly known as “Bretton Woods II.” Proponents of this so-called “Bretton Woods II” system argue that there is nothing inherently unsustainable about it. It simply represents the reemergence of a new Bretton Woods regime of global fixed exchange rates, based on structural current account deficits in the U.S. and structural current account surpluses in Asia, with the Asian current account surpluses recycled to provide cheap financing for the U.S. current account deficits. The U.S. gets to consume more than it produces and finance budget deficits cheaply, while strong export growth drives East Asian growth rates and rapid industrialization absorbs the labor surplus created by China’s underemployed rural population. In this view, this new BWII regime will allow the U.S. to finance its large current account deficit at a low cost for a long time; consequently, the United States’ growing external indebtedness poses few immediate concerns. In the paper below, we disagree.


In contrast to its forebear, BWII is not global in scope; nor does it retain any vestigial linkage to gold, nor any contractual obligations. It is less a monetary “system” and more monetary fiction, articulated to rationalize the dollar’s perverse resilience in the face of America’s increasingly parlous debt build-up and America’s seeming immunity to Third World style debt-trap dynamics. It artificially distorts risk premiums and encourages destabilizing financial practices such as the so-called “yen carry trade.” A misleading snapshot, it ignores the harmful impact of today’s exchange rate anomalies, rather than seeing them for what they are: the roots of a convoluted financial architecture, which have—and continue to create—great imbalances that ultimately threaten global stability and freedom.


All parties that have embraced the conventions of BWII have had good short-term reasons for doing so. The U.S. has acceded to this arrangement because it has served to boost U.S. asset prices and lower risk spreads, thereby helping to facilitate America’s “guns AND butter” foreign policy. In the absence of its Asian creditors acting as “dollar sub-underwriter of last resort,” it is hard to envisage a chronic debtor country like the U.S. mounting successive wars with little financial strain and an absence of tax increases.


Similarly, from the Asian perspective, BWII seems to make good short-term sense in that the consequent build-up of foreign exchange reserves has enabled them to avoid a repeat of the economic calamity that afflicted the region ten years ago. Virtually all of the governments in the region have sought to keep their currencies cheap, developing Asia’s total reserves have jumped from $250 billion in 1997 to $2.5 trillion this year. The desire to build up reserves is understandable in light of the Asian financial crisis of 1997 and is a direct result of the massive devaluations in the region at that time, but they are now excessive. Furthermore, they do not actually give the Asians the insurance they seek to avoid another disruptive financial crisis. On the contrary, they actually add to the potential for another one. By keeping their currencies artificially low, recycling the resultant current account surplus savings back into dollars, they are driving down risk premiums and subsidizing uneconomic lending. The creditor nations all face capital losses on their reserves as the dollar declines, while running the economy according to an exchange rate target means abandoning control of domestic policy. This is the price they are willing to pay to put otherwise idle resources to work to build investment internally from cash flow as long as current systems persist. But in contrast to 1997, the initiative rests with them, not the Americans.

Note the Adobe above for the entire:

Link & Entire: PIMCO - Renegade Economics: The Bretton Woods 2 Fiction - Executive Summary- by Chris Dialynas and Marshall Auerback

I am opposed to any form of a Bretton Woods II. And generally speaking I am opposed to additional regulation. I do think that (in the US) they went to far in removing regulation and some of what has been removed over the past 20 years should be brought back - but not all of it.

But then again I am opposed to the bail-out package. The banks took the risks and they should suffer for it.