Bretton Woods III: With Announcement of Unending QE, a New Bretton Woods Is Upon Us

The Bretton Woods System established the new, post Second World War rules for commercial and financial relations between the world’s major industrial states and periphery nations in the middle of the twentieth century. The First Bretton Woods system represented the first totally planned monetary order made to govern the global money supply. It resulted in a centralization of world power, supremely seated in Washington D.C. It’s incipience starts before the end of the Second World War, as 730 delegates from all 44 Allied nations met in Bretton Woods, New Hampshire for what was called the United Nations Monetary and Financial Conference.

The system of rules, institutions, and procedures which came out of this meeting aimed at regulating the international monetary system, with the US leading the international organization. The central planners of Bretton Woods setup the International Monetary Fund, the International Bank for Reconstruction and Development, both of which are today part of the World Bank Group. The institutions began to be used in 1945, and have been associated with the “shock therapy,” “economic medicine” and “structural readjustments” of peripheral economies in lesser-developed nations. These economic policies often times led to currency devaluations of those nations currencies in terms of the USD, as well as a slashing of programs and an international privatization of facets of the economy.

Among the main attributes of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate by tying its currency to the US dollar and the capacity for the IMF to bridge temporary imbalances of payments. This “Nixon shock” made the US dollar a reserve currency used by many states, and, in my opinion, kicked off the Second Bretton Woods system. While Nixon claimed the US Dollar would now be backed by the US economy, so as to protect the nation from the evil speculators, the US began deindustrialization in the years following the switch from the gold backing to a fiat system.

The central planners foresaw an age of government intervention. This trend started in the aftermath of the Great Depression, as public management of the economy became one of the primary activity of governments in the developed states. Employment, stability, and growth were now focal points of public policy.

It is via this evolution that the welfare state came into being as governments assumed the responsibility of assuring its citizenry’s economic well-being. The welfare state came out of the Great Depression and then expanded considerably in the Post War years. The theoretical contributions of Keynesian school of economics made the case for government intervention to counter market imperfections.

The US led vision of post-war international economic management was similar to a return to the gold standard, only using US dollars at the world’s reserve currency instead of the world’s gold supply. At first, the Bretton Woods system was devoid of government tampering with their currency supply as they had during the years of Great Depression leading to WWII. Indeed, at first Bretton Woods was a time without increased government intervention in economies and currency systems. But, over time, this changed as economic stagnation in the US led to growth in government’s role of ensuring well-being.

With the US Dollar no longer convertible to gold, a new fiat standard became the status quo and governments were free to manipulate their own currency, exchange rates and so therefore asset prices. And this they did. For three decades contrived bull-market after bull-market ensured a continuing consolidation of wealth and a stagnation of wages among the people until finally in 2008 a major crisis precipitated the perceived need to create more money to abet money velocity. This is precisely not what happened. Instead, the so-called managers of the global economy were handed trillions of dollars to ensure not that they started again to lend, but instead they used it to increase their own capital and pursue their own political agendas.

Today, with Bernanke as close to Wall Street as he is, Bretton Woods III has reinvented the Bretton Woods system and today direct government intervention in the economy, not to ensure stability, but to avoid collapse, represents a new paradigm whereby the US dollar will be consistently devalued from here on out in the pursuit of “liquidity.” In other words, we are now dictated as indentured servants. Our work is a mixture of wages and indulgences to the state-enterprise apparatus. Bretton Woods 3 is characterized by two economies: the bankrupt economy of Main Street and the empowered and entrenched economy of the .00001. Bretton Woods 3 is a system of quantitative easing and quantitative easing only. We are beyond Keynesiasm. Production, consumption are all old school concepts. Today, the only production for the economy is the production of money.