floating exchange rates

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pages: 275 words: 77,955

Capitalism and Freedom by Milton Friedman

affirmative action, Berlin Wall, central bank independence, Corn Laws, Deng Xiaoping, floating exchange rates, Fractional reserve banking, full employment, invisible hand, Joseph Schumpeter, liquidity trap, market friction, minimum wage unemployment, price discrimination, rent control, road to serfdom, Ronald Reagan, secular stagnation, Simon Kuznets, the market place, The Wealth of Nations by Adam Smith, union organizing

In consequence, it is unquestionably true that floating exchange rates have frequently been associated with financial and economic instability—as, for example, in hyperinflations, or severe but not hyperinflations such as have occurred in many South American countries. It is easy to conclude, as many have, that floating exchange rates produce such instability. Being in favor of floating exchange rates does not mean being in favor of unstable exchange rates. When we support a free price system at home, this does not imply that we favor a system in which prices fluctuate wildly up and down. What we want is a system in which prices are free to fluctuate but in which the forces determining them are sufficiently stable so that in fact prices move within moderate ranges. This is equally true of a system of floating exchange rates. The ultimate objective is a world in which exchange rates, while free to vary, are, in fact, highly stable because basic economic policies and conditions are stable.

A tariff, like a market price, is impersonal and does not involve direct interference by government in business affairs; a quota is likely to involve allocation and other administrative interferences, besides giving administrators valuable plums to pass out to private interests. Perhaps worse than either tariffs or quotas are extra-legal arrangements, such as the “voluntary” agreement by Japan to restrict textile exports. FLOATING EXCHANGE RATES AS THE FREE MARKET SOLUTION There are only two mechanisms that are consistent with a free market and free trade. One is a fully automatic international gold standard. This, as we saw in, the preceding chapter, is neither feasible nor desirable. In any event, we cannot adopt it by ourselves. The other is a system of freely floating exchange rates determined in the market by private transactions without governmental intervention. This is the proper free-market counterpart to the monetary rule advocated in the preceding chapter. If we do not adopt it, we shall inevitably fail to expand the area of free trade and shall sooner or later be induced to impose widespread direct controls over trade.

If so, this will only mean that other countries will be faced with the necessity of imposing controls. When, in 1950, I wrote an article proposing a system of floating exchange rates, it was in the context of European payments difficulties accompanying the then alleged “dollar shortage.” Such a turnabout is always possible. Indeed, it is the very difficulty of predicting when and how such changes occur that is the basic argument for a free market. Our problem is not to “solve” a balance of payments problem. It is to solve the balance of payments problem by adopting a mechanism that will enable free market forces to provide a prompt, effective, and automatic response to changes in conditions affecting international trade. Though freely floating exchange rates seem so clearly to be the appropriate free-market mechanism, they are strongly supported only by a fairly small number of liberals, mostly professional economists, and are opposed by many liberals who reject governmental intervention and governmental price-fixing in almost every other area.


pages: 354 words: 105,322

The Road to Ruin: The Global Elites' Secret Plan for the Next Financial Crisis by James Rickards

"Robert Solow", Affordable Care Act / Obamacare, Albert Einstein, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, Bayesian statistics, Ben Bernanke: helicopter money, Benoit Mandelbrot, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Black Swan, blockchain, Bonfire of the Vanities, Bretton Woods, British Empire, business cycle, butterfly effect, buy and hold, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, cellular automata, cognitive bias, cognitive dissonance, complexity theory, Corn Laws, corporate governance, creative destruction, Credit Default Swap, cuban missile crisis, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, disintermediation, distributed ledger, diversification, diversified portfolio, Edward Lorenz: Chaos theory, Eugene Fama: efficient market hypothesis, failed state, Fall of the Berlin Wall, fiat currency, financial repression, fixed income, Flash crash, floating exchange rates, forward guidance, Fractional reserve banking, G4S, George Akerlof, global reserve currency, high net worth, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Isaac Newton, jitney, John Meriwether, John von Neumann, Joseph Schumpeter, Kenneth Rogoff, labor-force participation, large denomination, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, mutually assured destruction, Myron Scholes, Naomi Klein, nuclear winter, obamacare, offshore financial centre, Paul Samuelson, Peace of Westphalia, Pierre-Simon Laplace, plutocrats, Plutocrats, prediction markets, price anchoring, price stability, quantitative easing, RAND corporation, random walk, reserve currency, RFID, risk-adjusted returns, Ronald Reagan, Silicon Valley, sovereign wealth fund, special drawing rights, stocks for the long run, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transfer pricing, value at risk, Washington Consensus, Westphalian system

Do terms of trade reflect bona fide comparative advantage or manipulated advantage? If the latter, what is the case for free trade? One distortion embraced by elites is floating exchange rates, a flawed idea foisted on the world by Milton Friedman in the 1970s. If a builder hired you to construct a house using a one-foot ruler, then told you on day two that a foot was thirteen inches, and on day three that a foot was ten inches, and so on, the resulting house would be unsound and in danger of collapse. That’s how comparative advantage works under floating exchange rates. Currency hedges are generally unavailable more than one year forward; too short a time for capital commitments that have five- to ten-year horizons. Floating exchange rates enrich currency traders and speculators, but add costs to commerce and impede capital flows. Exchange rates are ripe for manipulation.

A dollar investor in a nondollar economy relies on the local central bank for dollars if she wants to withdraw her investment. A central bank can impose capital controls and refuse to allow the dollar investor to reconvert local currency and remit the proceeds. Capital controls were common in the 1960s even in developed economies. Later, these controls largely disappeared from developed economies, and were greatly reduced in emerging markets. The relaxation has been partly at IMF urging, and partly because floating exchange rates make local economies less vulnerable to a run on the bank. Yet, in an extraordinary speech on May 24, 2016, David Lipton, first deputy managing director of the IMF, laid the foundation for an international ice-nine solution: The time has come to re-examine our global architecture. … What elements of the architecture are worth revisiting? We ought to consider whether the short term and volatility of capital flows are problematic. … Those flows, because of their reversibility, can be a useful disciplining force for debtors, creating the market incentive for positive reforms.

The Money Riots The period from 1971 to 1980 in international finance is best described as chaotic, not only in a colloquial sense, but in a scientific sense. Equilibrium was perturbed. Values wobbled violently. IMF members tried, and failed, to reestablish fixed exchange rates at new parities along with a new dollar parity to gold. Monetarists such as Milton Friedman urged the world to abandon gold as a monetary standard. Floating exchange rates became the new normal. Countries could make their goods cheaper by letting their currencies devalue instead of making structural adjustments to improve productivity. Keynesians embraced the new system because inflation caused by devaluation lowered unit labor costs in real terms. Workers would no longer have to suffer pay cuts. Instead their wages were stolen through inflation in the expectation that they wouldn’t notice until it was too late.


pages: 275 words: 82,640

Money Mischief: Episodes in Monetary History by Milton Friedman

Bretton Woods, British Empire, business cycle, currency peg, double entry bookkeeping, fiat currency, financial innovation, fixed income, floating exchange rates, full employment, German hyperinflation, income per capita, law of one price, money market fund, oil shock, price anchoring, price stability, transaction costs

Marshall Plan agency, analyzing the plan for the Schuman Coal and Steel Community, the precursor to the Common Market. I concluded then that true economic unification in Europe, defined as a single relatively free market, was possible only in conjunction with a system of freely floating exchange rates. (I ruled out a unified currency on political grounds, if memory serves.) Experience since then has only strengthened my confidence in that conclusion, while also making me far more skeptical that a system of freely floating exchange rates is politically feasible. Central banks will meddle—always, of course, with the best of intentions. Nonetheless›, even dirty floating exchange rates seem to me preferable to pegged rates, though not necessarily to a unified currency. CHAPTER 10 Monetary Policy in a Fiat World We saw in chapter 2 that a world monetary system has emerged that has no historical precedent: a system in which every major currency in the world is, directly or indirectly, on an irredeemable paper money standard—directly, if the exchange rate of the currency is flexible though possibly manipulated; indirectly, if the currency is unified with another fiat-based currency (for example, since 1983, the Hong Kong dollar).

Gold continued to circulate, however, particularly on the west coast, but of course not on a one-to-one ratio with greenbacks. A free market arose in which the "greenback price of gold" rose above the official legal price—indeed, at the extreme, to more than double the official price. The government required customs duties and certain other obligations to be paid in gold; banks provided separate gold and greenback deposits for their clients. In short, gold and greenbacks circulated side by side at a floating exchange rate determined in the market, although greenbacks were clearly the dominant currency for most purposes and in most areas. Finally, we come to 1873. A movement was afoot to end the greenback episode and resume a specie standard. It was time for Congress to start tidying up the coinage legislation. The resulting Coinage Act of 1873 listed the coins to be minted. The list included gold coins and subsidiary silver coins, but it omitted the historical standard silver dollar of 371.25 troy grains of pure silver.

The silver standard was a blessing for China in the early years of the Great Depression. Thè countries it traded with were on a gold standard, and prices in those countries fell drastically after 1929, including the price of silver. With China on a silver standard, the fall in the price of silver was equivalent to a depreciation of the exchange rate of its currency with respect to gold-standard currencies; it gave China the equivalent of a floating exchange rate. For example, in 1929 the Chinese dollar was valued on the foreign exchange market at 36 U.S. cents; in the next two years the price of silver in terms of gold fell more than 40 percent, making the Chinese dollar worth only 21 cents. Since U.S. wholesale prices fell by only 26 percent, China could command higher prices in terms of its own currency for its exports, despite their lower price in terms of gold.


pages: 376 words: 109,092

Paper Promises by Philip Coggan

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, balance sheet recession, bank run, banking crisis, barriers to entry, Berlin Wall, Bernie Madoff, Black Swan, Bretton Woods, British Empire, business cycle, call centre, capital controls, Carmen Reinhart, carried interest, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, debt deflation, delayed gratification, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, falling living standards, fear of failure, financial innovation, financial repression, fixed income, floating exchange rates, full employment, German hyperinflation, global reserve currency, hiring and firing, Hyman Minsky, income inequality, inflation targeting, Isaac Newton, John Meriwether, joint-stock company, Kenneth Rogoff, Kickstarter, labour market flexibility, light touch regulation, Long Term Capital Management, manufacturing employment, market bubble, market clearing, Martin Wolf, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Myron Scholes, negative equity, Nick Leeson, Northern Rock, oil shale / tar sands, paradox of thrift, peak oil, pension reform, plutocrats, Plutocrats, Ponzi scheme, price stability, principal–agent problem, purchasing power parity, quantitative easing, QWERTY keyboard, railway mania, regulatory arbitrage, reserve currency, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, time value of money, too big to fail, trade route, tulip mania, value at risk, Washington Consensus, women in the workforce, zero-sum game

No longer can the home government or central bank create more money at will. If the country runs a trade deficit, it must borrow the money from abroad. If foreign creditors demand too high an interest rate, as has happened in Greece, Portugal and Ireland, then the country faces a severe crisis; cutbacks, if not rationing, will be required. There would be no need to choose between fixed and floating exchange rates if there were a global currency that was accepted everywhere. Trade and tourism would be much easier. But the idea, akin to the spread of global languages like Esperanto, while attractive in theory, is unlikely to be adopted in practice. Governments would lose a lot of independence in monetary policy, as Europeans have discovered; capital flows would be much harder to control if a single currency was accepted worldwide, something that would upset the Chinese, for example.

Once again, it was the Americans, still at that stage a creditor nation, who led the way to a new system in which central banks acted to bring down inflation and thereby protect the interest of creditors. But the debate has evolved over the years. Go back a century and the banking establishment would have been firmly in favour of fixed exchange rates and sound money. In practice, however, the banking sector has benefited hugely from floating exchange rates, which have created a highly liquid trading market and a desire for financial products that insure against exchange-rate risk. And the abandonment of fixed exchange rates has led to a huge expansion of cross-border capital flows, from which the finance sector has taken a very large bite. The seeds of the financial crisis of 2007 – 08 were sown in the exchange-rate revolution of the early 1970s.

Economist Frank Graham wrote: We should know that we must either forgo fixed exchange rates or national monetary sovereignty if we are to avoid the disruption of equilibrium in freely conducted international trade or the system of controls and inhibitions which is the only alternative when the internal values of independent currencies deviate – as they always tend to do.4 Graham added that the system contained ‘not even the slightest provision for the adoption, by the various participating countries, of the congruent monetary policies without which a system of fixed exchange rates simply does not make sense’. In other words, countries wanted to have their cake (a fixed exchange rate) and eat it (independent monetary policy). They did not want the markets to have the ability to point out when monetary policy was incompatible with the exchange-rate target. Establishing the Bretton Woods system evoked many of the arguments that still rage today. Graham favoured floating exchange rates, but that turned out to be a policy whose time had not yet come. His arguments (and those of laissez-faire economists like Friedrich Hayek and Ludwig von Mises) were to be taken up in the 1960s and 1970s by the Chicago economists Milton Friedman and Robert Lucas. The creation of the euro owes much to the feeling – prevalent at Bretton Woods – that exchange rates should be stable and speculation curbed.


pages: 25 words: 7,179

Why Government Is the Problem by Milton Friedman

affirmative action, Bretton Woods, floating exchange rates, invisible hand, rent control, urban renewal

It is interesting to note that every economic plank of the 1928 Socialist party platform has by now been either wholly or partly enacted. So ideas are important, but they take a long time and are not important in and of themselves. Something else has to come along that provides a fertile ground for those ideas. I mentioned the adoption of floating exchange rates in 1971; it was the same thing. Many economists during the previous twenty years had been talking about how much more desirable floating exchange rates would be, but they never got anywhere until gold started leaving the United States and Nixon closed the gold window because there was nothing else he could do. All of a sudden you had a crisis. What happened then was determined by the ideas that had already been explored and developed. I do believe that ideas have an influence, although I also believe that the accelerating inflation of the seventies was important in enabling Reagan to be elected.

If the initial reason for undertaking the activity disappears, they have a strong incentive to find another justification for its continued existence. A clear example in the international sphere is the International Monetary Fund (IMF), which was established to administer a system of fixed exchange rates. Whether that is a good system or a bad system is beside the point. In 1971, after President Nixon closed the gold window, the fixed exchange rate system collapsed and was replaced by a system of floating exchange rates. The IMF's function disappeared, yet, instead of being disbanded, it changed its function and expanded. It became a relief agency for backward countries and proceeded to dig deeper into the pockets of its sponsors to finance its new activities. At Bretton Woods, two agencies were established: one to administer a fixed exchange rate system and the other, the World Bank, to perform the function of promoting development.


pages: 253 words: 79,214

The Money Machine: How the City Works by Philip Coggan

activist fund / activist shareholder / activist investor, algorithmic trading, asset-backed security, Bernie Madoff, Big bang: deregulation of the City of London, bonus culture, Bretton Woods, call centre, capital controls, carried interest, central bank independence, collateralized debt obligation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, disintermediation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, endowment effect, financial deregulation, financial independence, floating exchange rates, Hyman Minsky, index fund, intangible asset, interest rate swap, Isaac Newton, joint-stock company, labour market flexibility, large denomination, London Interbank Offered Rate, Long Term Capital Management, merger arbitrage, money market fund, moral hazard, mortgage debt, negative equity, Nick Leeson, Northern Rock, pattern recognition, purchasing power parity, quantitative easing, reserve currency, Right to Buy, Ronald Reagan, shareholder value, South Sea Bubble, sovereign wealth fund, technology bubble, time value of money, too big to fail, tulip mania, Washington Consensus, yield curve, zero-coupon bond

For example, Mercedes’ costs were in Deutschmarks; when it sold a car in the US, it received dollars. If the dollar fell against the Deutschmark, that would be bad news. So companies looked for ways to protect themselves from these risks. Secondly, floating exchange rates created the potential for continuous speculation. The 1970s saw the creation of the financial futures market in Chicago, which allowed traders to bet on the likely movement of exchange rates. Both developments were opportunities for financial companies. They could make money speculating on the markets and they could make money helping companies protect themselves from foreign-exchange risk. Both opportunities were taken. Floating exchange rates also had significant implications for governments. Think of three key elements of monetary policy: exchange rates, interest rates and capital controls. Under the Bretton Woods system, countries controlled their exchange rates and capital flows.

After a while the money will run out. To avoid this problem, governments tried to cut the trade deficit. The easiest way of doing so was to raise interest rates; this had the effect of cutting consumer demand for foreign goods. But the result was a stop– go kind of economy, in which periods of rapid expansion were suddenly cut short as governments raised interest rates to protect sterling. In a world of floating exchange rates, there is no requirement for governments to ratchet up interest rates every time the currency falls. Voters naturally don’t like high interest rates. The problem was exacerbated by governments’ desire to keep unemployment low; at the slightest sign of economic weakness, they acted to boost the economy. So in the 1970s, governments let their currencies sag, and kept interest rates lower than they might have been.

Outside clients can deal with floor traders only through brokers and therefore have to pay their commissions. In the late 1990s, however, LIFFE abandoned trading in the face of competition from the German futures market. Trading moved to a screen-based system, which was designed to be cheaper for investors. However, Chicago, the world’s biggest futures market, retains the pits and coloured jackets. With the advent of floating exchange rates (see Chapter 14), it occurred to Chicago traders that there may well be a market for trading in currency futures, since exchange rates seemed to be exhibiting the same volatility as commodity prices. Currency futures quickly became a success; some experts now estimate that 10 per cent of all US foreign-exchange transactions take place on the Chicago futures floor. After the late 1970s and early 1980s had seen equally sharp moves in interest rates the Chicago traders developed interest-rate futures.


pages: 405 words: 109,114

Unfinished Business by Tamim Bayoumi

algorithmic trading, Asian financial crisis, bank run, banking crisis, Basel III, battle of ideas, Ben Bernanke: helicopter money, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, buy and hold, capital controls, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, currency peg, Doha Development Round, facts on the ground, Fall of the Berlin Wall, financial deregulation, floating exchange rates, full employment, hiring and firing, housing crisis, inflation targeting, Just-in-time delivery, Kenneth Rogoff, liberal capitalism, light touch regulation, London Interbank Offered Rate, Long Term Capital Management, market bubble, Martin Wolf, moral hazard, oil shale / tar sands, oil shock, price stability, prisoner's dilemma, profit maximization, quantitative easing, race to the bottom, random walk, reserve currency, Robert Shiller, Robert Shiller, Rubik’s Cube, savings glut, technology bubble, The Great Moderation, The Myth of the Rational Market, the payments system, The Wisdom of Crowds, too big to fail, trade liberalization, transaction costs, value at risk

In this approach, foreign debt can continue to flow into a country even after the threshold has been met as long as investors expect the exchange rate peg to be maintained. The crisis only happens once a sufficient number of investors switch to expecting a devaluation—the exact timing of a crisis depends on the mood of investors.7 If fixed exchange rate regimes create risks of a currency crisis, then why not simply adopt a floating exchange rate regime where the value of the currency is left to market forces? While a floating exchange rate solves the problem of investors rushing in on the assumption they will be able to leave before the inevitable devaluation of a fixed exchange rate, it has its own potential problems. Like other asset prices, exchange rates can experience excessive swings as a result of herding behavior by investors. For example, the appreciation of the US dollar in the early 1980s is a case where market psychology drove the dollar to excessive levels from which it corrected only after the Plaza Agreement changed investor sentiment.8 Fundamentally, large and unstable international capital flows as a result of the ebb and flow of investor sentiment can be destructive regardless of the exchange rate regime.

The future Delors Report was to take a much more decentralized approach to sovereignty, in large part because it was driven by French dissatisfaction with the growing dominance of the Deutsche mark in European monetary policy, a dynamic to which we now turn. The Hard D-Mark In the period from the early 1970s to the mid-1980s plans for monetary union were overshadowed by monetary instability coming from the collapse of the Bretton Woods system of fixed exchange rates. Globally, the main challenges were managing the switch from fixed to floating exchange rates and taming inflation, which rose in the wake of the 1973 oil price shock. On curbing inflation, Germany and Japan were notably more successful than other major economies including the United States and other members of the European Economic Community such as France, Italy, and the United Kingdom. Within Europe, interest in wider European integration faded as policymakers grappled with the task of achieving exchange rate stability across the expanded Community despite continuing pressure for Deutsche mark (or D-mark as the Germans called it) appreciation.13 As early as March 1972, the European Community Council of Ministers (ECOFIN) launched a plan to limit intra-European currency fluctuations via the “snake”—a system in which European Community currencies limited their fluctuations to within 2¼ percent of each other’s central parities, half the amount allowed under the Smithsonian Agreement that attempted to resuscitate the doomed dollar-based Bretton Woods fixed exchange rate system.

Just as the Latin American crisis came to a close in the late 1980s, the international debt pendulum was swinging back to the advanced countries. The Outskirts Cannot Hold: The European Exchange Rate Mechanism Crisis After the collapse of the Bretton Woods fixed exchange rate system, the European Economic Community (EEC, later the European Union) tried to maintain fixed exchange rates across its membership even as the United States and Japan switched to floating exchange rates. There were good reasons for Europe to choose a different approach. The United States and Japan were large economies that were relatively closed to international trade. As a consequence, while the value of the exchange rate mattered, it was not regarded as a central policy issue. By contrast, the members of the Community had deliberately fostered much closer trade ties through a customs union that made exchange rate fluctuations between them more important.


pages: 614 words: 174,226

The Economists' Hour: How the False Prophets of Free Markets Fractured Our Society by Binyamin Appelbaum

"Robert Solow", airline deregulation, Alvin Roth, Andrei Shleifer, anti-communist, battle of ideas, Benoit Mandelbrot, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, Celtic Tiger, central bank independence, clean water, collective bargaining, Corn Laws, correlation does not imply causation, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, desegregation, Diane Coyle, Donald Trump, ending welfare as we know it, financial deregulation, financial innovation, fixed income, floating exchange rates, full employment, George Akerlof, George Gilder, Gini coefficient, greed is good, Growth in a Time of Debt, income inequality, income per capita, index fund, inflation targeting, invisible hand, Isaac Newton, Jean Tirole, John Markoff, Kenneth Arrow, Kenneth Rogoff, land reform, Long Term Capital Management, low cost airline, manufacturing employment, means of production, Menlo Park, minimum wage unemployment, Mohammed Bouazizi, money market fund, Mont Pelerin Society, Network effects, new economy, oil shock, Paul Samuelson, Philip Mirowski, plutocrats, Plutocrats, price stability, profit motive, Ralph Nader, RAND corporation, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Bork, Robert Gordon, Ronald Coase, Ronald Reagan, Sam Peltzman, Silicon Valley, Simon Kuznets, starchitect, Steve Jobs, supply-chain management, The Chicago School, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, trickle-down economics, ultimatum game, Unsafe at Any Speed, urban renewal, War on Poverty, Washington Consensus

Friedman favored markets of all kinds, and he thought a futures market was a necessary complement to a system of floating exchange rates. It would provide a vehicle for investors to signal their views of the direction of currency prices. And just as farmers benefited from protection against fluctuations in crop prices, businesses would benefit from protection against fluctuations in exchange rates. When Melamed announced the creation of the International Money Market on December 20, 1971, the press release had Friedman’s name all over it. Melamed called the five-thousand-dollar endorsement deal “the best investment the Merc ever made.”63 Friedman had predicted that floating exchange rates would change slowly over time, because the relative strength of national economies also changed slowly over time.

Although nature tends toward entropy, they shared a confidence that economies tend toward equilibrium. They agreed the primary goal of economic policy was to increase the dollar value of the nation’s economic output. They had little patience for efforts to address inequality. A 1979 survey of the members of the American Economic Association found 98 percent opposed rent controls, 97 percent opposed tariffs, 95 percent favored floating exchange rates, and 90 percent opposed minimum wage laws.37 Their differences were matters of degree, and while those differences are consequential — and are described in these pages — the degree of consensus was consequential, too. Critiques of capitalism that remained a staple of mainstream debate in Europe were seldom heard in the United States. The difference is nicely summarized by the political scientist Jonathan Schlefer: “Cambridge, England, saw capitalism as inherently troubled; Cambridge, Massachusetts, came to see capitalism as merely in need of ‘fine-tuning.’ ”38 In time, the American consensus shifted the boundaries of debate in other countries, too.

Melamed called the five-thousand-dollar endorsement deal “the best investment the Merc ever made.”63 Friedman had predicted that floating exchange rates would change slowly over time, because the relative strength of national economies also changed slowly over time. Moreover, he said that speculators would contribute to stability, because they would make money by driving prices back toward the levels justified by those fundamentals. But instead of floating, exchange rates soared and sank. Economists offered a variety of tortured theories for the volatility, avoiding the actual and obvious explanation: there was gambling going on.64 By 1985, daily currency trading topped $150 billion; by 1995, $1.2 trillion; by 2007, $3.3 trillion.65 An industry popped into existence: currency managers for industrial firms, bankers to take their instructions, speculators to take advantage.* The losers did not take long to start washing up onshore. Franklin National Bank, a midsized New York lender, failed in 1974 after losing its investors’ money in the new world of currency trading.


pages: 665 words: 146,542

Money: 5,000 Years of Debt and Power by Michel Aglietta

bank run, banking crisis, Basel III, Berlin Wall, bitcoin, blockchain, Bretton Woods, British Empire, business cycle, capital asset pricing model, capital controls, cashless society, central bank independence, collapse of Lehman Brothers, collective bargaining, corporate governance, David Graeber, debt deflation, dematerialisation, Deng Xiaoping, double entry bookkeeping, energy transition, eurozone crisis, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, forward guidance, Francis Fukuyama: the end of history, full employment, German hyperinflation, income inequality, inflation targeting, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, joint-stock company, Kenneth Arrow, Kickstarter, liquidity trap, margin call, means of production, money market fund, moral hazard, Nash equilibrium, Network effects, Northern Rock, oil shock, planetary scale, plutocrats, Plutocrats, price stability, purchasing power parity, quantitative easing, race to the bottom, reserve currency, secular stagnation, seigniorage, shareholder value, special drawing rights, special economic zone, stochastic process, the payments system, the scientific method, too big to fail, trade route, transaction costs, transcontinental railway, Washington Consensus

This is especially the case when they hold synthetic products (Exchange Traded Funds, or ETF), built on indices that combine financial assets from an array of emerging countries. The result is a rise in the correlation of asset yields across several countries. The macroeconomic effect of exchange crises in countries with debts in dollars and incomes in national currencies plays out on the balance sheets of both banks and non-banking actors. The debt liabilities to asset values ratio is a function of the exchange rate. If the country is on a floating exchange rate, the anticipated depreciation of the currency’s exchange rate will be self-fulfilling. The rise in the foreign exchange rate swells indebtedness and weakens the balance-sheet structure. This increases risk premiums and thus increases the short-term cost of renewing the debt. The result is a fall in capital’s profitability, weakened investment and a sharp brake on growth, or even a recession if the balance sheets worsen significantly.

The process of meeting these two objectives led to sharp disputes, which lasted for almost two years. The major differences between the two plans concerned the nature of the initial quotas (whether these would be drawing rights on a bank, or subscription to a Fund’s capital); the role of the exchange market and the extent of capital controls; and, finally, the symmetry or asymmetry of compulsory adjustments. In Keynes’s view, capital controls had to be permanent, since floating exchange rates were not capable of leading to an economically satisfying equilibrium in the balances of payments. The Clearing Union would much more effectively take over this role, just as the banking principle had unified currencies within nations by eliminating the dualist system of the Middle Ages, as well as the confusion among different units of account that resulted from it. Nonetheless, Keynes was well aware that the points on which the US Congress remained intransigent were unavoidable conditions for an agreement.

The Failure of the Reform Attempt (1972–74) and the Jamaica Accords (1976) The SDR were at the heart of the negotiations seeking to rebuild the international monetary system between 1972 and 1974. These negotiations took place within the Committee of Twenty (C20) and subsequently the IMF Interim Committee.18 The SDR stood at the crossroads between two crucial questions: the demonetisation of gold and the future of the dollar. Firstly, with the establishment of floating exchange rates, in June 1974 the SDRs’ value passed from being attached to gold to being attached to a basket of currencies. This matched with the US’s desire to approve floating exchanges rather than return to a system of parities centred on SDR. But, this being the case, there was an inherent contradiction in purporting to make SDR the main reserve asset. For it is impossible to separate the choice of reserve from the nature of the adjustment.


pages: 710 words: 164,527

The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order by Benn Steil

activist fund / activist shareholder / activist investor, Albert Einstein, Asian financial crisis, banks create money, Bretton Woods, British Empire, business cycle, capital controls, Charles Lindbergh, currency manipulation / currency intervention, currency peg, deindustrialization, European colonialism, facts on the ground, fiat currency, financial independence, floating exchange rates, full employment, global reserve currency, imperial preference, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Rogoff, lateral thinking, margin call, means of production, money: store of value / unit of account / medium of exchange, Monroe Doctrine, New Journalism, open economy, Paul Samuelson, Potemkin village, price mechanism, price stability, psychological pricing, reserve currency, road to serfdom, seigniorage, South China Sea, special drawing rights, The Great Moderation, the market place, trade liberalization, Works Progress Administration

In particular, the gold standard—and with it, indelibly fixed exchange rates—seemed as natural to people then as it seems strange to them now. The issue of replacing the gold standard with something else was as difficult and fraught as the issue of replacing the dollar globally today. Even a thinker as radical and creative as Keynes never made a total break with it. The extreme of purely floating exchange rates, such as the world has known since 1971, was considered by few economists in the ’30s (Lionel Robbins being a notable exception) to be a “system” as such, helping to restore equilibrium. Today associated with laissez-faire economics, floating exchange rates were then frowned upon by economists of the right as well as the left as both symptom and cause of disorder in monetary affairs; disorder that triggered others to initiate mutually destructive competitive responses. Keynes thought of freely floating rates as a sort of blind groping necessitated by the collapse of the gold standard, and certainly not as a viable alternative model for underpinning trade relations among nations.

Yet when Chancellor of the Exchequer Winston Churchill made the fateful decision to return Britain to the gold standard at the prewar rate on April 28, 1925, Keynes shifted gears again and blasted the principle of committing to any parity. “I hold that in modern conditions,” he wrote in a letter to The Times of London on August 1, “wages in this country are, for various reasons, so rigid over short periods, that it is impracticable to adjust them to the ebb and flow of international gold-credit, and I would deliberately utilise fluctuations in the exchange as the shock-absorber.” Though this might appear a defense of floating exchange rates, he would far more often than not in his career defend the desirability of “stable” rates. This continuous finessing of so fundamental an issue in monetary management would flummox his supporters and enervate his detractors. Simultaneous with his Times letter Keynes published The Economic Consequences of Mr. Churchill, playing on the commercial success of his earlier attack on the Versailles Treaty.

A Bretton Woods agreement to stabilize exchange rates at that time “would definitely have made a considerable contribution to checking the war and possibly it might even have prevented it,” White said. The United States now had the most to gain from adoption of the proposals, not because it would need assistance from the fund or the bank but because it would “get assurance that other countries will be enabled to pursue monetary credit and trade policies that we regard as essential for a high level of world trade.” Floating exchange rates during White’s time at the Treasury were anathema to powerful U.S. commercial interests—large exporters and domestic producers—owing to upward pressure on the dollar. Foreign currencies falling against the dollar tended to depress U.S. exports and fuel imports competitive with American-made goods. But Britain, the world’s largest international debtor nation, was deeply concerned with being compelled by the United States to stabilize the pound at what might be an overvalued exchange rate.


pages: 444 words: 151,136

Endless Money: The Moral Hazards of Socialism by William Baker, Addison Wiggin

Andy Kessler, asset allocation, backtesting, bank run, banking crisis, Berlin Wall, Bernie Madoff, Black Swan, Branko Milanovic, break the buck, Bretton Woods, BRICs, business climate, business cycle, capital asset pricing model, commoditize, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, crony capitalism, cuban missile crisis, currency manipulation / currency intervention, debt deflation, Elliott wave, en.wikipedia.org, Fall of the Berlin Wall, feminist movement, fiat currency, fixed income, floating exchange rates, Fractional reserve banking, full employment, German hyperinflation, housing crisis, income inequality, index fund, inflation targeting, Joseph Schumpeter, Kickstarter, laissez-faire capitalism, land reform, liquidity trap, Long Term Capital Management, McMansion, mega-rich, money market fund, moral hazard, mortgage tax deduction, naked short selling, negative equity, offshore financial centre, Ponzi scheme, price stability, pushing on a string, quantitative easing, RAND corporation, rent control, reserve currency, riskless arbitrage, Ronald Reagan, school vouchers, seigniorage, short selling, Silicon Valley, six sigma, statistical arbitrage, statistical model, Steve Jobs, stocks for the long run, The Great Moderation, the scientific method, time value of money, too big to fail, upwardly mobile, War on Poverty, Yogi Berra, young professional

A brief review follows, but in advance two areas in particular might deserve increased attention going forward, forcing accepted explanations to be revised. One is the tendency of credit to grow excessively under a regulated centralized bank that targets inflation through interest rate setting. Another is why modern day floating exchange rates were unable to prevent the buildup of destabilizing trade and capital imbalances. Economists have gained notoriety in recent decades for linking gold to the Depression’s downturn and then crediting the revival of the late 1930s with the lessening of its use as a currency reserve, not necessarily by outright accusation but through its ability to transmit deflation globally. This being the case, the inability of today’s floating exchange rates to block the transmission of credit contraction and the deflation of asset prices (and prospectively wages and consumer prices) is a glaring counterpoint to singling out adherence to gold as a cause of poor economic performance of certain nations during that era.

Bordo is a monetarist who is of the view that a gold exchange standard is flawed because there is a “tendency for such a system to amplify and propagate the effects of unstable policies in the reservecurrency countries.”40 Schwartz partnered with Milton Friedman on his groundbreaking monetary explanation of the Depression. Although they seem to vigorously support freely floating exchange rates, they conclude in a 1988 paper looking at the economic volatility from the end of Bretton Woods (1971) that “floating rates may not provide the degree of insulation once believed,” debunking the thesis that “transmission that occurred under fixed exchange rates …was mostly prevented when exchange rates floated.”41 Their disparagement of the work of other economists studying the field of fixed and floating exchange rates and their degree of stability to the world economic system is illuminating, for it highlights the inadequacy of econometric capability: “The exercises in model building that have occupied specialists in international economics seem designed to impress readers with the ingenuity of the effort rather than the value of the analytical contribution.

The obstinance of those who did not feel the tremors of the tectonic shift away from gold is merely par for the course at such an important inflection point in the world’s cultural and monetary history, for there is a human tendency to think linearly and extrapolate. But Fisher then became a leading indicator of the intellectual mood of the 1930s. He quickly grasped reflation as a way out of the liquidity trap and, out of self-interest, his personal dilemma. Fisher helped construct a new orthodoxy that likewise has calcified academia around support for floating exchange rates, elastic currency, and the uselessness of commodity-backed currency. If the world, as Einstein proved, is circular and contains an unseen dimension, then why might not also the riddles of finance be? As we shall see in the following chapter, “Spitting into the Wind,” the Federal Reserve governors have clung to the prevailing attitudes of the Fisherian and Friedmanist school of thought. Cleansing debt through outright monetization began in 2009, but a question remains whether the Fed’s remediation will be in the correct proportion to the overindebtedness of the United States, much less the world’s.


The Future of Money by Bernard Lietaer

agricultural Revolution, banks create money, barriers to entry, Bretton Woods, business cycle, clean water, complexity theory, corporate raider, dematerialisation, discounted cash flows, diversification, fiat currency, financial deregulation, financial innovation, floating exchange rates, full employment, George Gilder, German hyperinflation, global reserve currency, Golden Gate Park, Howard Rheingold, informal economy, invention of the telephone, invention of writing, Lao Tzu, Mahatma Gandhi, means of production, microcredit, money: store of value / unit of account / medium of exchange, Norbert Wiener, North Sea oil, offshore financial centre, pattern recognition, post-industrial society, price stability, reserve currency, Ronald Reagan, seigniorage, Silicon Valley, South Sea Bubble, The Future of Employment, the market place, the payments system, Thomas Davenport, trade route, transaction costs, trickle-down economics, working poor

Today, all the combined reserves of all the central banks together (about US$1.3 trillion, including about $340 billion in central bank gold, valued at current market prices) would be gobbled up in less than one day of normal trading. Compare this with the situation as recently as 1983 (see Figure P.7), when the reserves still provided a pretty safe cushion. Even people who profit from explosive speculative activity are becoming seriously worried. For instance George Sores, widely considered one of the biggest players in this game, states: 'Freely floating exchange rates are inherently unstable; moreover, the instability is cumulative so that the eventual breakdown of a freely floating exchange rate system is virtually assured. Joel Kurtzman, business editor of The New York Times, is even more damning. He titles his latest book The Death of Money: How the Electronic Economy has destabilised the World’s Markets. A master of understatement like Paul Volcker, ex-governor of the Federal Reserve, goes on record to express his concern about the growth of 'a constituency in favour of instability', i.e. financial interests whose profits depend on increased volatility.

‘Fiat' currency: A currency created out of nothing by the power of an authority. Ah national currencies are fiat currencies. Fired Ercbnnge Rnte: Rate fixed by an authority at which one currency can be exchanged against another. This was the rule in the Bretton Woods Agreement from 1945 to 1971, and the IMF was the authority, which had to approve any, changes in exchange rates. The rule of fixed exchange rates was replaced by floating exchange rates after 1972 for most national currencies. Floating Exchange Rate: Rate at which one currency can be exchanged for another as determined by the free bidding and asking in the foreign exchange market. Has been the regime for most national currencies since 1972. Fractional Reserves: When a currency is issued with only a fraction backed by whatever supports it. The practice of fractional reserves initiated in mediaeval goldsmiths' practices when they issued paper currency, which was backed by the deposits in gold made by clients.

They have therefore created the Time Dollars necessary for their transaction by agreeing on the transaction itself. The main advantage of mutual credit systems is that they self-regulate to have always currency available in sufficiency. Negotiated exchange rate: In contrast with ‘fixed exchange rates', when the exchange rate is negotiated as part of the transaction itself. Currently under floating exchange rates, all national currencies have negotiated exchange rates among each other. Similarly with ROCS the value of one hourly service is negotiated at the moment of a transaction: a dentist may charge five ROCS for each hour of work for example. OECD: The Organisation of Economic Co-operation and Development, based in Paris, and grouping the 'developed' countries in the world. Website http://www.oecd.org Payment system: Procedure and infrastructure by which the transfer of a currency is executed from one person to another.


pages: 162 words: 51,473

The Accidental Theorist: And Other Dispatches From the Dismal Science by Paul Krugman

"Robert Solow", Bonfire of the Vanities, Bretton Woods, business cycle, clean water, collective bargaining, computerized trading, corporate raider, declining real wages, floating exchange rates, full employment, George Akerlof, George Gilder, Home mortgage interest deduction, income inequality, indoor plumbing, informal economy, invisible hand, Kenneth Arrow, knowledge economy, life extension, new economy, Nick Leeson, paradox of thrift, Paul Samuelson, plutocrats, Plutocrats, price stability, rent control, Ronald Reagan, Silicon Valley, trade route, very high income, working poor, zero-sum game

The result was right out of the textbook: an explosion of inflation, which was brought under control only by a return to double-digit unemployment rates. Moreover, how can you discuss globalization without noticing that the U.S. has a floating exchange rate? If the Fed were to pursue a radically more expansionary monetary policy, one sure consequence would be a lower value of the dollar. If you really think that U.S. prices are basically limited by foreign competition, then you have to believe that a fall in the dollar will translate almost directly into higher inflation. In fact, traditional analyses of inflation in trading economies conclude that expansionary monetary policy has more, not less, effect on inflation in a country with a large import share and a floating exchange rate than it does in a relatively self-sufficient economy. So neither productivity growth nor globalization make sense as arguments for looser monetary policy.

Or will the market be subject to alternating bouts of irrational exuberance (to borrow Alan Greenspan’s famous phrase) and unjustified pessimism? The answers one might give to these questions define four boxes, all of which have their adherents. Here is the matrix: Is exchange rate flexibility useful? No Yes Can the forex market be trusted? Yes Relaxed guy Serene floater No Determined fixer Nervous wreck Suppose that you believe that the policy freedom a country gains from a floating exchange rate is actually worth very little, but you also trust the foreign exchange market not to do anything silly. Then you will be a very relaxed guy: You will not much care what regime is chosen for the exchange rate. You may have a small preference for a fixed rate or better yet a common currency, on the grounds that stable exchange rates reduce the costs of doing business; but you will not lose sleep over the choice.


pages: 309 words: 95,495

Foolproof: Why Safety Can Be Dangerous and How Danger Makes Us Safe by Greg Ip

Affordable Care Act / Obamacare, Air France Flight 447, air freight, airport security, Asian financial crisis, asset-backed security, bank run, banking crisis, break the buck, Bretton Woods, business cycle, capital controls, central bank independence, cloud computing, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, Daniel Kahneman / Amos Tversky, diversified portfolio, double helix, endowment effect, Exxon Valdez, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, global supply chain, hindsight bias, Hyman Minsky, Joseph Schumpeter, Kenneth Rogoff, lateral thinking, London Whale, Long Term Capital Management, market bubble, money market fund, moral hazard, Myron Scholes, Network effects, new economy, offshore financial centre, paradox of thrift, pets.com, Ponzi scheme, quantitative easing, Ralph Nader, Richard Thaler, risk tolerance, Ronald Reagan, Sam Peltzman, savings glut, technology bubble, The Great Moderation, too big to fail, transaction costs, union organizing, Unsafe at Any Speed, value at risk, William Langewiesche, zero-sum game

The value of a currency depends heavily on how its purchasing power is sustained at home, which in turn has to do with productivity (the more efficient business is, the less costs rise), inflation (faster-rising prices eat away at a currency’s purchasing power), government deficits (a government may be tempted to finance them by printing money), and private saving (the less a country saves, the more it imports). Exchange rates work the way other prices do: they move up or down to restore balance. If one country’s inflation is too high or it consumes too much and produces too little, its currency will decline to bring its costs back in line or force it to import less and save more. As chaotic as floating exchange rates (currencies that fluctuate against one another) are, they thus serve a vital economic purpose: they allow separate economic cultures to coexist. Milton Friedman compared floating exchange rates to daylight saving time: Isn’t it absurd to change the clock in summer when exactly the same result could be achieved by having each individual change his habits? All that is required is that everyone decide to come to his office an hour earlier, have lunch an hour earlier, etc. But obviously it is much simpler to change the clock that guides all than to have each individual separately change his pattern of reaction to the clock, even though all want to do so.

In the early 1990s Mexico, as it had in the 1970s and 1980s, borrowed heavily from foreigners, this time in the form of short-term Treasury bills whose value was linked to the dollar rather than via bank loans. When the peso collapsed in 1994, the cost of servicing that debt soared, and the United States and International Monetary Fund bailed Mexico out. Mexico learned its lesson, and thereafter kept a floating exchange rate and stuck to borrowing in its own currency. When the rich world sank into crisis in 2008, Mexico’s central banker observed, with relief, “This time it wasn’t us.” Individual firms learned lessons, as well. While almost forgotten now, the collapse in 1990 of Drexel Burnham Lambert, home of the junk bond king Michael Milken, was the largest closure of an investment bank in the United States.

They can no more imagine themselves responsible for the harm this inflicts on others than a driver who hits his brakes too hard takes responsibility for the driver who follows too close behind. A similar problem afflicts the entire global economy. The crisis that befell America was in its own way the product of too much saving in other parts of the world. Indeed, this could be traced to the roots of a previous crisis, in East Asia, which was itself the result of a failed effort to eliminate the uncertainty of floating exchange rates. Thailand entered the 1980s suffering from double-digit inflation, excessive private borrowing, and a gaping budget deficit. It put in place several strict policies to restore health, among them fixing the exchange rate of its currency, the baht. That stable exchange rate made foreign investors less worried about lending to Thai companies in local currency, believing that when the Thai borrower repaid the money, it would not have lost value because of a devaluation.


EuroTragedy: A Drama in Nine Acts by Ashoka Mody

"Robert Solow", Andrei Shleifer, asset-backed security, availability heuristic, bank run, banking crisis, Basel III, Berlin Wall, book scanning, Bretton Woods, call centre, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, credit crunch, Daniel Kahneman / Amos Tversky, debt deflation, Donald Trump, eurozone crisis, Fall of the Berlin Wall, financial intermediation, floating exchange rates, forward guidance, George Akerlof, German hyperinflation, global supply chain, global value chain, hiring and firing, Home mortgage interest deduction, income inequality, inflation targeting, Irish property bubble, Isaac Newton, job automation, Johann Wolfgang von Goethe, Johannes Kepler, Kenneth Rogoff, Kickstarter, liberal capitalism, light touch regulation, liquidity trap, loadsamoney, London Interbank Offered Rate, Long Term Capital Management, low-wage service sector, Mikhail Gorbachev, mittelstand, money market fund, moral hazard, mortgage tax deduction, neoliberal agenda, offshore financial centre, oil shock, open borders, pension reform, premature optimization, price stability, purchasing power parity, quantitative easing, rent-seeking, Republic of Letters, Robert Gordon, Robert Shiller, Robert Shiller, short selling, Silicon Valley, The Great Moderation, The Rise and Fall of American Growth, too big to fail, total factor productivity, trade liberalization, transaction costs, urban renewal, working-age population, Yogi Berra

It reports the frequency with which the phrase “flexible exchange rate” is mentioned in the books scanned by Google. The term “flexible Wechselkurs” was used for German books, and “taux de change flexible” was used for French books. The English variation “floating exchange rate,” the German variation “schwankender Wechselkurs,” and the French variation “taux de change flottant” yielded similar trends. three leaps in the dark 41 Robert Hetzel, economist at the Federal Reserve Bank of Richmond, would later explain: “Germany’s commitment to a free market economy pushed it to reject fixed exchange rates and adopt floating exchange rates.”82 Thus, in proposing a monetary union, Pompidou was defying not only the global experience that was causing fixed-​exchange-​rate systems to break down, but he was also ignoring the clash between the French dirigiste temperament and the German market-​oriented economic ideology.

Countries were required to keep their exchange rates fixed unless exceptional circumstances required adjustment. The exceptional circumstances were becoming more common and more disruptive. A consensus toward more flexibility, even floating, of exchange rates was emerging. The values of currencies would change continuously as national and global conditions changed. introduction 5 German officials opposed a monetary union. Germans, traditionally more pro-​market, were inclined toward floating exchange rates. But the French initiative to create a single European currency was pulling them in the opposite direction. From the start, the political worry for Germans was that they would be sucked into paying for countries that had fallen into prolonged recessions and financial crises. Yet at The Hague, German Chancellor Willy Brandt did not disengage from the discussion. This moment of history is crucial.

Two days before the summit, on Saturday, November 29, the New York Times reported that Pompidou would “press for closer monetary links within the European Economic Community” at the summit.84 Pompidou’s finance minister, Valéry Giscard d’Estaing, added that the summit would chart a path toward a common European monetary policy. The Germans could have said no and walked away. Germany was an economically powerful nation. It preferred floating exchange rates. The idea of a European monetary union would have been shelved in the archives. The Shadow of the War Continues to Fall on Germany Germany’s politics and leadership were also changing. The Christian Democratic Union (CDU) had finally lost its postwar grip on power, and Willy Brandt of the Social Democratic Party (SPD) had just become chancellor. Brandt had left Germany in 1933 soon after Hitler came to power.85 When he returned to Germany in 1947, some Germans considered him a traitor for living abroad while they had endured unspeakable tyranny at home.


pages: 700 words: 201,953

The Social Life of Money by Nigel Dodd

accounting loophole / creative accounting, bank run, banking crisis, banks create money, Bernie Madoff, bitcoin, blockchain, borderless world, Bretton Woods, BRICs, business cycle, capital controls, cashless society, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computer age, conceptual framework, credit crunch, cross-subsidies, David Graeber, debt deflation, dematerialisation, disintermediation, eurozone crisis, fiat currency, financial exclusion, financial innovation, Financial Instability Hypothesis, financial repression, floating exchange rates, Fractional reserve banking, German hyperinflation, Goldman Sachs: Vampire Squid, Hyman Minsky, illegal immigration, informal economy, interest rate swap, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, Kickstarter, Kula ring, laissez-faire capitalism, land reform, late capitalism, liberal capitalism, liquidity trap, litecoin, London Interbank Offered Rate, M-Pesa, Marshall McLuhan, means of production, mental accounting, microcredit, mobile money, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, negative equity, new economy, Nixon shock, Occupy movement, offshore financial centre, paradox of thrift, payday loans, Peace of Westphalia, peer-to-peer, peer-to-peer lending, Ponzi scheme, post scarcity, postnationalism / post nation state, predatory finance, price mechanism, price stability, quantitative easing, quantitative trading / quantitative finance, remote working, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Satoshi Nakamoto, Scientific racism, seigniorage, Skype, Slavoj Žižek, South Sea Bubble, sovereign wealth fund, special drawing rights, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, Veblen good, Wave and Pay, Westphalian system, WikiLeaks, Wolfgang Streeck, yield curve, zero-coupon bond

Even here, a narrative is attached to the rating, which is unraveled whenever the rating shifts, or when various ratings agencies offer different grades for a particular financial product. 42 Bretton Woods refers to the international monetary system that was established in 1944, wherein countries agreed to adopt monetary policies aimed to ensure that their currencies maintained fixed rates of exchange against the U.S. dollar, which was in turn “pegged” to gold. After a series of difficulties during the 1960s, the system finally broke down in 1973, when a system of “floating” exchange rates was adopted. President Nixon’s decision to suspend the dollar’s convertibility into gold in 1971—known as the “Nixon shock”—was a major step toward this breakdown. 43 It was Bourdieu who accused Hans Tietmeyer, then President of the Bundesbank, of perpetuating a “monetarist religion” (see Tognato 2012: 135). 44 Issing was a key figure in the euro’s design and a founding member of the executive board of the European Central Bank. 2 CAPITAL This boundless drive for enrichment, this passionate chase after value, is common to the capitalist and the miser; but while the miser is merely a capitalist gone mad, the capitalist is a rational miser.

In other words, the burden of devaluation shifts from private capital onto money, as private problems (money’s particularism) are transposed into public ones (money’s universalism) (Harvey 2006: 310). It is at the top of the hierarchy of monetary institutions that the fundamental question of money’s value must always be defended. It is on this level, moreover, that capitalist crises take on an international dimension through money. After the collapse of Bretton Woods, states with floating exchange rates were competing to determine which of them bear the brunt of devaluation. Alternatively, in the aftermath of the 2007–8 banking crisis, periodic “currency wars” have ensued as states seek to boost export-led growth by devaluing their currencies. For Harvey, the increasing involvement of the state in the economy since Marx’s time is not a refutation of his basic law of value. Rather, it provides evidence that such a law is moving toward a kind of perfection.

As we have already discussed, when the underlying value of money is put in question, the ramifications extend from the top to the bottom of the monetary hierarchy: from the institutions responsible for the governance of world money, to the workers, consumers, and pensioners whose very livelihoods are put at stake by the dynamics of inflation and deflation. Harvey cites Roosevelt’s New Deal as one major example of these forces at work. Two more recent instances that I want to discuss here are the aftermath of the collapse of the Bretton Woods regime, which saw major struggles between capital and labor being waged against the background of a new international regime of floating exchange rates, and the ongoing crisis within the Eurozone, whose devastating effect across classes and generations is still being played out. One of the classic analyses of the Bretton Woods crisis from the perspective of Marx’s theory of money and credit was advanced by Christian Marazzi in his 1976 paper, “Money in the World Crisis” (Marazzi 1995). Marazzi, an economist, is one of several Marxist thinkers who explored the theoretical implications of post-Fordism (Marazzi 2008, 2010).


Manias, Panics and Crashes: A History of Financial Crises, Sixth Edition by Kindleberger, Charles P., Robert Z., Aliber

active measures, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Bernie Madoff, Black Swan, Bonfire of the Vanities, break the buck, Bretton Woods, British Empire, business cycle, buy and hold, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, Corn Laws, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency peg, death of newspapers, debt deflation, Deng Xiaoping, disintermediation, diversification, diversified portfolio, edge city, financial deregulation, financial innovation, Financial Instability Hypothesis, financial repression, fixed income, floating exchange rates, George Akerlof, German hyperinflation, Honoré de Balzac, Hyman Minsky, index fund, inflation targeting, information asymmetry, invisible hand, Isaac Newton, joint-stock company, large denomination, law of one price, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, new economy, Nick Leeson, Northern Rock, offshore financial centre, Ponzi scheme, price stability, railway mania, Richard Thaler, riskless arbitrage, Robert Shiller, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, special drawing rights, telemarketer, The Chicago School, the market place, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, very high income, Washington Consensus, Y2K, Yogi Berra, Yom Kippur War

In fact, he considered clinging to rigid beliefs in the face of disconcerting evidence to be one of the more dangerous forms of irrationality, especially when it is practiced by those in charge. The international economy would be a safer place if CPK’s tolerant skepticism were more common among the powers that be. I am thinking, in particular, about current discussions of the so-called ‘Washington consensus’, and the pros and cons of both freely floating exchange rates and unfettered capital markets. Any reader of this book will come away with the distinct notion that large quantities of liquid capital sloshing around the world should raise the possibility that they will overflow the container. One issue omitted in the book – because it is well outside its scope – is the other side of the ledger: What are the social benefits of free capital flow in its various forms, the analogue of gains from trade?

However, there were no significant failures of US financial firms when the US stock prices declined by 40 percent between 2001 and 2003, and the ensuing recession was brief and shallow. The range of movement in the values of national currencies since the early 1970s has been much larger than ever before. In 1971 the United States abandoned the US gold parity of $35 an ounce that had been established in 1934. The effort to retain a modified version of the Bretton Woods system of pegged currencies that was formalized in the Smithsonian Agreement of 1972 failed and a floating exchange rate arrangement was adopted by default early in 1973. At the beginning of the 1970s, the dominant market view was that the German mark and the Japanese yen might appreciate by 10 to 12 percent because their inflation rates had been below the US rate in the previous few years. The German mark and the Japanese yen appreciated more rapidly than anticipated through most of the 1970s, and then both currencies depreciated significantly in the first half of the 1980s, although not to the levels of the early 1970s.

Further, the large flow of funds from New York to Germany and elsewhere made it impossible to sustain the pegged currency arrangement. The United States made no effort to defend the new parity for the US dollar that had been set in the Smithsonian Agreement. By February 1973 speculation that the mark would be revalued led to increasingly large money flow to Frankfurt; the Bundesbank stopped buying the US dollar, and the mark immediately appreciated. Most economists had thought that the adoption of floating exchange rates would severely dampen the movement of interest-sensitive money and that once currencies were floating central banks would be able to follow independent monetary policies without any untoward external effects. Economists differed about whether speculative money movements would be stabilizing or, occasionally, destabilizing in a serious way; the general view was that fear of currency losses would deter cross-border money flows.


pages: 464 words: 139,088

The End of Alchemy: Money, Banking and the Future of the Global Economy by Mervyn King

"Robert Solow", Andrei Shleifer, Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, collapse of Lehman Brothers, creative destruction, Credit Default Swap, crowdsourcing, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Doha Development Round, Edmond Halley, Fall of the Berlin Wall, falling living standards, fiat currency, financial innovation, financial intermediation, floating exchange rates, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, German hyperinflation, Hyman Minsky, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labour market flexibility, large denomination, lateral thinking, liquidity trap, Long Term Capital Management, manufacturing employment, market clearing, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Nick Leeson, North Sea oil, Northern Rock, oil shale / tar sands, oil shock, open economy, paradox of thrift, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, quantitative easing, rent-seeking, reserve currency, Richard Thaler, rising living standards, Robert Shiller, Robert Shiller, Satoshi Nakamoto, savings glut, secular stagnation, seigniorage, stem cell, Steve Jobs, The Great Moderation, the payments system, The Rise and Fall of American Growth, Thomas Malthus, too big to fail, transaction costs, Tyler Cowen: Great Stagnation, yield curve, Yom Kippur War, zero-sum game

Any loss of competitiveness in one country, as a result of higher inflation than in its trading partners, was assumed to be temporary and would be met by a deflationary policy to restore competitiveness while borrowing from the IMF to finance a short-term trade deficit. But in the late 1960s differences in inflation across countries, especially between the United States and Germany, appeared to be more than temporary, and led to the breakdown of the Bretton Woods system in 1970–1. By the early 1970s, the major economies had moved to a system of ‘floating’ exchange rates, in which currency values are determined by private sector supply and demand in the markets for foreign exchange. Inevitably, the early days of floating exchange rates reduced the discipline on countries to pursue low inflation. When the two oil shocks of the 1970s – in 1973, when an embargo by Arab countries led to a quadrupling of prices, and 1979, when prices doubled after disruption to supply following the Iranian Revolution – hit the western world, the result was the Great Inflation, with annual inflation reaching 13 per cent in the United States and 27 per cent in the United Kingdom.7 Economic experiments From the late 1970s onwards, the western world then embarked on what we can now see were three bold experiments to manage money, exchange rates and the banking system better.

So the euro area must pursue one, or some combination of, the following four ways forward: Continue with high unemployment in the periphery countries until wages and prices have fallen enough to restore the loss in competitiveness. Since the full-employment trade deficits of these countries are still significant, further reductions will be painful to achieve. Unemployment is already at very high levels in these countries. In small countries, for which a floating exchange rate may seem too risky, such a route may be the only option. Create a period of high inflation in Germany and other countries in surplus, while restraining wages and prices in the periphery, to eliminate the differences in competitiveness between north and south. That would require a marked fall in the euro for a long period, which would be unpopular in both Germany, whose savers would earn an even lower return on their assets than at present, and the rest of the world, which would interpret the fall as a hostile move.

Enlightened self-interest to find a way back to the path of strong growth is the only hope. The aim should be fourfold: to reinvigorate the IMF and reinforce its legitimacy by reforms to its voting system, including an end to a veto by any one country; to put in place a permanent system of swap agreements among central banks, under which they can quickly lend to each other in whichever currencies are needed to meet short-term shortages of liquidity; to accept floating exchange rates; and to agree on a timetable for rebalancing of major economies, and a return to normal real interest rates, with the IMF as the custodian of the process. The leadership of the IMF must raise its game. The two main threats to the world economy today are the continuing disequilibrium between spending and saving, both within and between major economies, and a return to a multipolar world with similarities to the unstable position before the First World War.


pages: 363 words: 98,024

Keeping at It: The Quest for Sound Money and Good Government by Paul Volcker, Christine Harper

anti-communist, Ayatollah Khomeini, banking crisis, Bretton Woods, business cycle, central bank independence, corporate governance, Credit Default Swap, Donald Trump, fiat currency, financial innovation, fixed income, floating exchange rates, forensic accounting, full employment, global reserve currency, income per capita, inflation targeting, liquidationism / Banker’s doctrine / the Treasury view, margin call, money market fund, Nixon shock, Paul Samuelson, price stability, quantitative easing, reserve currency, Right to Buy, risk-adjusted returns, Ronald Reagan, Rosa Parks, secular stagnation, Sharpe ratio, Silicon Valley, special drawing rights, too big to fail, traveling salesman, urban planning

Suggestions included wider trading margins and “crawling” or “sliding” pegs that would permit or encourage currencies to make some small depreciations or appreciations. Milton Friedman, openly and loudly, had been advocating much more radical action: a system of freely floating exchange rates which, in his view, would let the markets rapidly and efficiently correct international payment imbalances and better reconcile differences in national monetary policies. In effect, he was proposing to discard a major part of the Bretton Woods agreement and leave currencies to the whim of the (in his view, perfectly rational) market, without any concern for other countries’ wishes. His principal intellectual opponent was Bob Roosa, who argued that the 1930s experience amply demonstrated the instability that floating exchange rates could create, the very antithesis of the order embodied in the Bretton Woods agreement. In the United States and abroad there was still little support for simply abandoning fixed exchange rates.

By early March, speculative pressures against the dollar had grown strong enough to lead Japan and Western European countries to close their exchange markets once again. The major European nations invited the United States to an emergency meeting in Paris on Friday, March 9. It turned out to be momentous. The morning session was spent largely by ministers expressing their individual frustrations about the lack of practical options. Finally, temporary floating seemed the only reasonable avenue. Shultz, ideologically in favor of floating exchange rates and free markets in general, had been among the Nixon advisors who wanted to adopt that approach when the gold window was closed in 1971. At that point, he had been overruled by Connally and Burns and eventually the president. I wasn’t sure how he would react once he had the full responsibilities of Treasury secretary. Less well known to the rest of the group in Paris, Shultz had remained mute all morning.

See also specific events Financial Reporting Council (Britain’s Accounting Standards Board), 194 Financial Services Modernization Act/1999 (Gramm-Leach-Bliley law/1999), xv, 205 Financial Stability Oversight Council (FSOC), 214 Financial Times, 201 First Chicago, 98, 124 First Pennsylvania rescue/as model, xii, 125, 127, 146 Fiscal Policy Seminar, 24 fixed exchange rates Bretton Woods system and, ix, 24, 67 Federal Reserve and, 49, 49n foreign currency swaps, 49 freely floating exchange rates/problems and, 63–64 gold committee and, 51–52 gold reserves levels and, 51, 61–62, 64, 70 Kennedy and, 45 “market” vs. “official” price, 61–62 Operation Twist, 49 problems/possible solutions, 61–69, 70–71 Roosa/“Roosa bonds” and, 48–49 “Triffin dilemma,” 48, 54, 64, 65, 87 US/other countries and, 62, 64, 65, 66, 67, 68, 70–71, 72, 73–74 fixed exchange rates/end Camp David meeting (1971), 71–74 currency crises continuing and, 101 Nixon meetings/actions following, x–xi, 76, 78, 79 Nixon’s August 15 speech and, x, 75 problems/solutions and, xi, 76–86 reactions US/abroad, 75–79 Smithsonian agreement and, xi, 79–80, 82, 87 Volcker travels/meetings and, 75–82 Folsom, Suzanne Rich, 189 Ford, Gerald, xi, 173 “four nos” economic policy (Connally), 70 Fowler, Joe Federal Reserve discount rate and, 54 Goldman Sachs and, 93, 93n special drawing rights (SDRs) and, 57, 65–66 Treasury and, x, 53–54, 57, 61 Volcker and, 93, 149, 150 France, x–xi, 48, 62, 64, 76, 84.


pages: 371 words: 98,534

Red Flags: Why Xi's China Is in Jeopardy by George Magnus

3D printing, 9 dash line, Admiral Zheng, Asian financial crisis, autonomous vehicles, balance sheet recession, banking crisis, Bretton Woods, BRICs, British Empire, business process, capital controls, carbon footprint, Carmen Reinhart, cloud computing, colonial exploitation, corporate governance, crony capitalism, currency manipulation / currency intervention, currency peg, demographic dividend, demographic transition, Deng Xiaoping, Doha Development Round, Donald Trump, financial deregulation, financial innovation, financial repression, fixed income, floating exchange rates, full employment, Gini coefficient, global reserve currency, high net worth, hiring and firing, Hyman Minsky, income inequality, industrial robot, Internet of things, invention of movable type, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, labour market flexibility, labour mobility, land reform, Malacca Straits, means of production, megacity, money market fund, moral hazard, non-tariff barriers, Northern Rock, offshore financial centre, old age dependency ratio, open economy, peer-to-peer lending, pension reform, price mechanism, purchasing power parity, regulatory arbitrage, rent-seeking, reserve currency, rising living standards, risk tolerance, smart cities, South China Sea, sovereign wealth fund, special drawing rights, special economic zone, speech recognition, The Wealth of Nations by Adam Smith, total factor productivity, trade route, urban planning, Washington Consensus, women in the workforce, working-age population, zero-sum game

Liberalisation of the exchange rate over the years has proceeded in fits and starts, culminating in the adoption in 2014 of trading bands that were 2 percentage points either side of a daily central rate, the admission in 2015 of the Renminbi to the IMF’s Special Drawing Rights and, in the same year, the announcement that the Renminbi would be managed not only against the US dollar, but also against a new basket of currencies. China’s long-standing intention to have a fully convertible currency, and to have a flexible currency, however, does not necessarily mean that the authorities are getting any closer to having a floating exchange rate. Indeed, if anything, the activities of the People’s Bank suggest that a free float is not on the agenda anytime soon. Liberalisation of the capital account has a mixed scorecard. Inward and outward flows are controlled by the Qualified Foreign Institutional Investors, and Renminbi Qualified Institutional Investors quotas, and the Qualified Domestic Institutional Investors ceiling, respectively.

The factors, as we examined in the previous chapter, are likely to be how the economy performs and what happens to the underlying pace of credit creation. If China wants to manage its exchange rate within certain limits, there has to be a stable relationship between the growth of domestic Renminbi assets due to credit creation and the level of foreign exchange reserves needed to ‘back’ the asset base of the financial system and keep the currency stable. Countries with floating exchange rates don’t have this problem, because the currency can fall without there being any reserves constraint. Consider China’s situation in the light of the experience of many countries during the Asian crisis just over two decades ago. In the run-up to that crisis, many Asian economies pegged their exchange rates to the US dollar, wanted to run their own monetary policy, and opened their capital accounts to large inflows of financial and physical capital.

The eventual breakdown of the Bretton Woods system of fixed exchange rates and the subsequent liberalisation of capital flows around much of the world would then transform the US balance of payments position. Larger trade deficits became common from the 1980s onwards, and the trend was underpinned as emerging markets also took up their positions as export-led economies from the 1990s. The US function in the global system necessarily changed. In the immediate post-war years, it mainly supplied US dollar liquidity via capital outflows. Since the advent of floating exchange rates, it has done so mainly via trade deficits, the counterpart of which are net inflows of capital from other countries, including China. The bottom line, however, is that US imports played a key role in greasing the world’s demand for US dollars and sustaining global economic growth.12 There is no question that the US dollar has survived as the premier global currency – contrary to repeated warnings – with its reputation for stability, safety and liquidity largely intact, but not wholly.


pages: 278 words: 82,069

Meltdown: How Greed and Corruption Shattered Our Financial System and How We Can Recover by Katrina Vanden Heuvel, William Greider

Asian financial crisis, banking crisis, Bretton Woods, business cycle, buy and hold, capital controls, carried interest, central bank independence, centre right, collateralized debt obligation, conceptual framework, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, declining real wages, deindustrialization, Exxon Valdez, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, full employment, housing crisis, Howard Zinn, Hyman Minsky, income inequality, information asymmetry, John Meriwether, kremlinology, Long Term Capital Management, margin call, market bubble, market fundamentalism, McMansion, money market fund, mortgage debt, Naomi Klein, new economy, offshore financial centre, payday loans, pets.com, plutocrats, Plutocrats, Ponzi scheme, price stability, pushing on a string, race to the bottom, Ralph Nader, rent control, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, sovereign wealth fund, structural adjustment programs, The Great Moderation, too big to fail, trade liberalization, transcontinental railway, trickle-down economics, union organizing, wage slave, Washington Consensus, women in the workforce, working poor, Y2K

Addressing these issues should be an integral part of a new economic model, including requirements for more transparent reporting (including on hedge funds and other private investment vehicles), greater shareholder power and more restrictions on how executives are compensated. The system also favors debt. Closer oversight of credit standards is required. Similarly, the international flow of hot capital has upended theories about the system of floating exchange rates. The fact that America’s dollar stays high despite a huge trade deficit is not self-correcting. As Robert Wade of the London School of Economics argues, some intelligent combination of semi-pegged currencies and capital-flow restraint would go miles toward rebalancing the international economy. The mainstream Democratic model is at best outdated; at worst, it never worked. Wages can surely rise too rapidly and contribute to destabilizing inflation, as occurred in the 1970s.

When in 1971 the Nixon administration was faced with the choice of increasing taxes to finance the Vietnam War or abandoning the Bretton Woods fixed-exchange-rate system that delivered pre-dictability and less risk in international financial relationships, it had no hesitation. The markets would do the job instead—and if other governments did not like the new risks, tough. For a long time, it looked as though private markets could step into the breach—recycling first petrodollars in the 1970s and then Asian dollars back into the global system. Floating exchange rates were volatile, but instruments like markets in future exchange rates emerged to manage new risks. There might be serious ruptures, like the 1980s Latin American debt crisis or the 1990s Asian financial crisis when private markets took fright, but basically governments could step away from global economic management. The U.S. could have guns, butter and allow its great multinationals and banks to expand abroad willy-nilly—and the markets would manage the implications spontaneously, finding the capital the U.S. needed with no constraint on either its government or financial system.

I would like the U.S. to consider going back to Bretton Woods basics—unfashionable though it may seem. It was not just Lyndon B. Johnson who opened the way to the Republicans’ “Southern Strategy” and nearly 40 years of conservative dominance: It was also Nixon’s abandonment of government-led economic disciplines through his suspension of Bretton Woods fixed exchange rates. Obama should propose the end of floating exchange rates and argue for a system of managed rates between the euro, dollar and yen to bring back more pre-dictability into the system. The American, EU and Japanese governments would undertake, as in Bretton Woods I, whatever economic action is needed to maintain stability between their exchange rates. There would also be explicit rules on exchange rate rigging—a more effective way of tackling the China issue than threatening it with tariffs.


Crisis and Dollarization in Ecuador: Stability, Growth, and Social Equity by Paul Ely Beckerman, Andrés Solimano

banking crisis, banks create money, barriers to entry, business cycle, capital controls, Carmen Reinhart, carried interest, central bank independence, centre right, clean water, currency peg, declining real wages, disintermediation, financial intermediation, fixed income, floating exchange rates, Gini coefficient, income inequality, income per capita, labor-force participation, land reform, London Interbank Offered Rate, Mexican peso crisis / tequila crisis, microcredit, money: store of value / unit of account / medium of exchange, offshore financial centre, old-boy network, open economy, pension reform, price stability, rent-seeking, school vouchers, seigniorage, trade liberalization, women in the workforce

Although exchange-rate regime harmonization among its member countries is not practiced in the CAN, and monetary integration is still not on their agenda, the fact is that Ecuador’s new monetary system adds to the already large variety of exchange-regimes in the Andean region. At present (mid-2002) we have floating exchange-rate regimes in Peru, Colombia, and República Bolivariana de Venezuela, a crawling peg system in Bolivia, and a foreign-currency regime in Ecuador. The fact that two trade partners (and neighboring countries) of Ecuador—Peru and Colombia—are in a floating exchange-rate regime while Ecuador is dollarized creates the potential for Ecuador to lose regional competitiveness, should these countries depreciate their currencies, an option unavailable to Ecuador. In the context of MERCOSUR (Mercado Común del Sur) countries, this is what exactly happened to Argentina when Brazil sharply devalued its national currency, the real, in early 1999, causing Argentina to suffer an important loss of competitiveness.

Real growth, inflation, exchange-rate depreciation, and the public deficit remained highly unstable. Under León Febres Cordero’s liberalizing government, which took office in August 1984, real GDP rebounded, growing 4.2 and 4.3 percent in 1984 and 1985, respectively, while inflation moderated to around 20 percent. In 1986, however, at the same time it began liberalizing commercial-bank interest rates, the government began a floating exchange rate for privatesector imports. Oil-export prices fell by more than half that year, how- LONGER-TERM ORIGINS OF ECUADOR’S “PREDOLLARIZATION” CRISIS 29 Table 2.1 Ecuador: Governments, 1979–2001 Period President Aug 79–May 81 May 81–Aug 84 Jaime Roldós Osvaldo Hurtado Aug 84–Aug 88 Aug 88–Aug 92 Aug 92–Aug 96 Aug 96–Feb 97 León Febres Cordero Rodrigo Borja Sixto Durán Ballén Abdalá Bucaram Feb 97–Aug 98 Fabián Alarcón Aug 98–Jan 00 Jan 00– Jamil Mahuad Gustavo Noboa Acceded to office through Election Vice President, assumed office Election Election Election Designation by Congress Election Vice President, assumed office Departure from office Accidental death Term concluded Term concluded Term concluded Term concluded Removed by Congress Term concluded Resigned ever, and in January 1987 the government suspended debt service to commercial banks.


pages: 275 words: 84,980

Before Babylon, Beyond Bitcoin: From Money That We Understand to Money That Understands Us (Perspectives) by David Birch

agricultural Revolution, Airbnb, bank run, banks create money, bitcoin, blockchain, Bretton Woods, British Empire, Broken windows theory, Burning Man, business cycle, capital controls, cashless society, Clayton Christensen, clockwork universe, creative destruction, credit crunch, cross-subsidies, crowdsourcing, cryptocurrency, David Graeber, dematerialisation, Diane Coyle, disruptive innovation, distributed ledger, double entry bookkeeping, Ethereum, ethereum blockchain, facts on the ground, fault tolerance, fiat currency, financial exclusion, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, index card, informal economy, Internet of things, invention of the printing press, invention of the telegraph, invention of the telephone, invisible hand, Irish bank strikes, Isaac Newton, Jane Jacobs, Kenneth Rogoff, knowledge economy, Kuwabatake Sanjuro: assassination market, large denomination, M-Pesa, market clearing, market fundamentalism, Marshall McLuhan, Martin Wolf, mobile money, money: store of value / unit of account / medium of exchange, new economy, Northern Rock, Pingit, prediction markets, price stability, QR code, quantitative easing, railway mania, Ralph Waldo Emerson, Real Time Gross Settlement, reserve currency, Satoshi Nakamoto, seigniorage, Silicon Valley, smart contracts, social graph, special drawing rights, technoutopianism, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, wage slave, Washington Consensus, wikimedia commons

Henry hoped the people wouldn’t notice but, of course, they did, and this ‘bad money’ drove out the pure silver shillings then in circulation because people kept the good shillings as a store of value and used the bad shillings as a medium of exchange in the marketplace, thereby damaging commerce for many years until Good Queen Bess called in the debased coinage, melted it down, separated out the copper and reissued a pure silver coinage. This episode led Sir Thomas to derive his eponymous maxim: ‘bad money drives out good’ (although it should be noted that he was far from the first person to understand the principle). It might be more accurately rendered as ‘bad money drives out good money at fixed exchange rates’, since at floating exchange rates the market will simply adjust: thus, one Zimbabwean dollar used to be worth considerably less then one World of Warcraft gold piece. If an economically illiterate dictator (in Zimbabwe, for example) had set the exchange rate between Zimbabwean dollars and gold pieces at one-to-one, then sane citizens would offload all their dollars for worthless trinkets as soon as possible while hanging on to their gold pieces.

This market continued to grow long after the end of convertibility, incidentally, and by 1994 the ‘eurodollar contract’ that gave the purchaser the obligation to borrow $1 million in London in three months’ time was the most heavily traded financial instrument in the world (Mayer 1998b). The drain on the American reserves simply could not continue. In 1971, when Richard Nixon made the famous decision to end the convertibility of the US dollar into gold, we entered the world of fiat currency, floating exchange rates, computers, global telecommunications and global trading. In March 1973 the European countries that were still tied to the US dollar announced that they would sever the link, bringing the Bretton Woods system to an end. In 1973, then, one economic era ended and another began (Conway 2014b). We arrived at the point where the Bank of England backs its notes not with gold bars but with fixed-interest instruments bought from the British government (and remits the interest earned to the Treasury).

In a world in which people will only willingly hold a handful of fiat currencies (US dollars, sterling, euros, Swiss francs and so on) in lieu of gold, the mythology tying money to sovereignty is, as Steil says, ‘costly and sometimes dangerous’. He goes on to say: Monetary nationalism is simply incompatible with globalization. It has always been, even if this has only become apparent since the 1970s, when all the world’s governments rendered their currencies intrinsically worthless. I strongly agree with Steil’s view that the era of floating exchange rates between nation-state-based fiat currencies is a historical ‘blip’ that won’t be part of the future of money (Steil 2007a). I think a reactionary reset to digital gold is unlikely, though, because of the wider spectrum of alternatives that will be enabled through new technology. I hope to persuade you of this in Part III. * * * ******** Keynes’s aim was to devise a scheme that made this adjustment equal: where those countries that have built up large surpluses by exporting their goods around the world will be just as responsible for reducing the imbalance as the debtor countries that imported goods from them.


pages: 470 words: 130,269

The Marginal Revolutionaries: How Austrian Economists Fought the War of Ideas by Janek Wasserman

Albert Einstein, American Legislative Exchange Council, anti-communist, battle of ideas, Berlin Wall, Bretton Woods, business cycle, collective bargaining, Corn Laws, correlation does not imply causation, creative destruction, David Ricardo: comparative advantage, different worldview, Donald Trump, experimental economics, Fall of the Berlin Wall, floating exchange rates, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, Gunnar Myrdal, housing crisis, Internet Archive, invisible hand, John von Neumann, Joseph Schumpeter, laissez-faire capitalism, liberal capitalism, market fundamentalism, mass immigration, means of production, Menlo Park, Mont Pelerin Society, New Journalism, New Urbanism, old-boy network, Paul Samuelson, Philip Mirowski, price mechanism, price stability, RAND corporation, random walk, rent control, road to serfdom, Robert Bork, rolodex, Ronald Coase, Ronald Reagan, Silicon Valley, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, trade liberalization, union organizing, urban planning, Vilfredo Pareto, Washington Consensus, zero-sum game, éminence grise

Moving beyond the idea of limiting an already-existing state, neoliberals like the Austrians imagined how to create a state that protected economic freedom from government planners, international governing institutions, and democratic polities alike.20 The Austrians thus helped build postwar neoliberalism, which, in the name of freedom, prioritized the creation of a market-based society sustained by a strong state, the rule of law, and limited democratic involvement. They also contributed to the formation of a number of transnational epistemic communities that advocated trade liberalization, floating exchange rates, state deregulation, and privatization. Austrians played instrumental roles in these communities by persuading institutional actors, state and nonstate, to follow their prescriptions in times of uncertainty and crisis. Through GATT, the Bellagio Group, the RAND Corporation, and others, Haberler, Machlup, and Morgenstern proved adept at behind-the-scenes policy interventions that shaped economic liberalization and Cold War reasoning in the 1960s and 1970s.

I can assure you I miss the presence of you [at the Group of Thirty, or G-30].”71 The G-30, a powerful consulting group formed in 1978 to address problems in the global economy, evolved out of a series of conferences on the international monetary system that “the Quartet” had orchestrated in the early 1960s. Over twenty-seven meetings, Machlup and his colleagues reshaped the Bretton Woods landscape, providing the intellectual foundation for the shift from the postwar gold exchange standard to floating exchange rates and financial liberalization. In coordinating elite networks of academics, government officials, and financial leaders, the Machlup Group proved as significant to the neoliberal order as Hayek and the MPS or Haberler and GATT.72 By the time Machlup convened the first conference of scholars at the RF-owned Villa Serbelloni on Lake Como in Bellagio, Italy, in 1963, the Bretton Woods monetary system faced mounting problems.

After the final official Bellagio meeting in 1977, its leaders introduced the G-30, which exists to this day. Machlup served on the Group of Thirty as its intellectual lodestar until his retirement.76 Economic experts acknowledged the significance of the Bellagio Group at the time, yet they disagreed about its aims and underestimated its lasting effects. In 1965, Machlup’s friend Herbert Furth criticized it for its lack of clear prescriptions. Milton Friedman, an early advocate of floating exchange rates, also disapproved of the lack of policy direction. However, the Bellagio Group was the main site of international monetary discussions in the 1960s and 1970s, and its members transformed the terms of debate. They helped bring about the end of the Bretton Woods system by proposing viable alternative monetary regimes, including a floating currency system, which replaced the gold exchange standard after the United States went off gold in 1971.


pages: 298 words: 95,668

Milton Friedman: A Biography by Lanny Ebenstein

"Robert Solow", affirmative action, banking crisis, Berlin Wall, Bretton Woods, business cycle, Deng Xiaoping, Fall of the Berlin Wall, fiat currency, floating exchange rates, Francis Fukuyama: the end of history, full employment, Hernando de Soto, hiring and firing, inflation targeting, invisible hand, Joseph Schumpeter, Kenneth Arrow, Lao Tzu, liquidity trap, means of production, Mont Pelerin Society, Myron Scholes, Pareto efficiency, Paul Samuelson, Ponzi scheme, price stability, rent control, road to serfdom, Robert Bork, Ronald Coase, Ronald Reagan, Sam Peltzman, school choice, school vouchers, secular stagnation, Simon Kuznets, stem cell, The Chicago School, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Thorstein Veblen, zero-sum game

Yet few industries rely so heavily on special government favors.6 Changes in monetary growth affect the economy only slowly—it may be six or twelve or eighteen months or even more before their effects are manifest.7 Inflation is always and everywhere a monetary phenomenon.8 From the 1940s to 2006, Friedman put forward a bevy of public policy proposals, many of which have at least to some extent been implemented or considered—this can be said of very few individuals. Daniel Patrick Moynihan remarked in 1971: “If you were to ask me to name the most creative social-political thinker of our age I would not hesitate to say Milton Friedman.”9 Starting in the 1940s, Friedman put forward the idea of floating exchange rates, which were implemented in the United States in the early 1970s. In the 1950s, he developed his idea of a fixed expansion of the money supply each year. Although this policy proposal had only mixed success, his general emphasis that the way to limit inflation is to limit increases in the supply of money became the accepted opinion in the late 1970s to early 1980s. In Capitalism and Freedom, he identifies fourteen “activities currently undertaken by government” in the United States that cannot, in his mind, “validly be justified”: 1.

Friedman was one of the committee members. After the 1968 election but before Nixon was inaugurated, Friedman met with him in New York, giving the president-elect a memorandum recommending flexible exchange rates, which Friedman had long advocated. He wrote in Newsweek the year before: “We should set the dollar free and let its price in terms of other currencies be determined by private dealings. Such a system of floating exchange rates would eliminate the balance of payments problem... and informal exchange controls, and [would allow the ability] to move unilaterally toward freer trade.”2 A negative balance of payments, or trade deficit, was much more of a problem in a system of fixed exchange rates than in one of market-determined exchange rates, because under the latter system, there is no loss of national government financial reserves when there is a trade deficit in order to maintain a currency’s value.

It has benefited most from the euro by having been able to get the euro interest rate instead of what otherwise would have been its own. That would be much higher because Italy has been accumulating so much debt. In the past, Italy has inflated away its debt. The virtue of the euro is that Italy can’t do it alone. A tight ECB policy wouldn’t permit that to happen again. In this sense, the euro is good for Europe. But only if there is flexibility all around. The problem is that, in a world of floating exchange rates, as Italy was before the euro, if one country is subjected to a shock which requires it to cut wages, it cannot do so with a modern kind of control and regulation system. It is much easier to do it by letting the exchange rate change. Only one price has to change, instead of many. But now, in the euro, that option is taken away. The only alternative if a state has to adjust to a shock is to let internal prices vary.


pages: 381 words: 101,559

Currency Wars: The Making of the Next Gobal Crisis by James Rickards

Asian financial crisis, bank run, Benoit Mandelbrot, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, borderless world, Bretton Woods, BRICs, British Empire, business climate, buy and hold, capital controls, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, Deng Xiaoping, diversification, diversified portfolio, Fall of the Berlin Wall, family office, financial innovation, floating exchange rates, full employment, game design, German hyperinflation, Gini coefficient, global rebalancing, global reserve currency, high net worth, income inequality, interest rate derivative, John Meriwether, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, Myron Scholes, Network effects, New Journalism, Nixon shock, offshore financial centre, oil shock, one-China policy, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, private sector deleveraging, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, Ronald Reagan, sovereign wealth fund, special drawing rights, special economic zone, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, time value of money, too big to fail, value at risk, War on Poverty, Washington Consensus, zero-sum game

There was nothing left for it but to move all of the major currencies to a floating rate system. Finally, in 1973, the IMF declared the Bretton Woods system dead, officially ended the role of gold in international finance and left currency values to fluctuate against one another at whatever level governments or the markets desired. One currency era had ended and another had now begun, but the currency war was far from over. The age of floating exchange rates, beginning in 1973, combined with the demise of the dollar link to gold put a temporary end to the devaluation dramas that had occupied international monetary affairs since the 1920s. No longer would central bankers and finance ministries anguish over breaking a parity or abandoning gold. Now markets moved currencies up or down on a daily basis as they saw fit. Governments did intervene in markets from time to time to offset what they saw as excesses or disorderly conditions, but this was usually of limited and temporary effect.

In the 1950s and 1960s, it had provided bridge loans to countries suffering temporary balance of payments difficulties to allow them to maintain their currency peg to the dollar. In the 1980s and 1990s it had assisted developing economies suffering foreign exchange crises by providing finance conditioned upon austerity measures designed to protect foreign bankers and bondholders. Yet with the elimination of gold, the rise of floating exchange rates and the piling up of huge surpluses by developing countries, the IMF entered the twenty-first century with no discernable mission. Suddenly the G20 breathed new life into the IMF by positioning it as a kind of Bank of the G20 or proto–world central bank. Its ambitious leader at the time, Dominique Strauss-Kahn, could not have been more pleased, and he eagerly set about as the global referee for whatever guidelines the G20 might set.

bank regulation Board of Governors on classical gold standard in creating a new gold-backed system creation of current assets of Dodd-Frank reform legislation of 2010 and and dollar price stability gold and money supply during 1930s gold and money supply in 2011 handling of its own balance sheet and IMF IOUs to the Treasury as lender of last resort and management of unemployment mandates of mercantilism compared to and monetarism quantitative easing program Financial Crisis Inquiry Commission financial economics financial war game financial warfare strategy First National Bank of New York First National City Bank of New York fixed exchange rates floating exchange rates, 1970s Fort Knox, Kentucky Foundations of Economic Analysis (Samuelson) fractal dimension framing, in economics France currency collapse in 1920s and European sovereign debt crisis of 2010 gold reserves and gold standard invasion of Germany’s Ruhr Valley Paris Peace Conference of 1919 Treaty of Versailles and Tripartite Agreement of 1936 withdrawal from London Gold Pool free-floating currency free trade barriers Friedman, Milton Gallarotti, Giulio M.


Triumph of the Optimists: 101 Years of Global Investment Returns by Elroy Dimson, Paul Marsh, Mike Staunton

asset allocation, banking crisis, Berlin Wall, Bretton Woods, British Empire, buy and hold, capital asset pricing model, capital controls, central bank independence, colonial rule, corporate governance, correlation coefficient, cuban missile crisis, discounted cash flows, diversification, diversified portfolio, dividend-yielding stocks, equity premium, Eugene Fama: efficient market hypothesis, European colonialism, fixed income, floating exchange rates, German hyperinflation, index fund, information asymmetry, joint-stock company, negative equity, new economy, oil shock, passive investing, purchasing power parity, random walk, risk tolerance, risk/return, selection bias, shareholder value, Sharpe ratio, stocks for the long run, survivorship bias, technology bubble, transaction costs, yield curve

Though infrequent, devaluations 94 Triumph of the Optimists: 101 Years of Global Investment Returns and revaluations were often large. When the United States devalued the dollar in 1971, the Bretton Woods System collapsed. After some last-ditch attempts to set new fixed rates, the world turned in 1973 to the floating exchange rate system that persists to the present day. There were thus four exchange rate regimes over the twentieth century. During 1900–14 the gold standard was in effect. After that, apart from a brief return to the Gold Exchange Standard, the period 1914–45 contained the two world wars. The Bretton Woods fixed-rate system then operated from 1946–71. Finally, the period since has been one of floating exchange rates. Currencies went through an adjustment to the Bretton Woods system until 1949. It is therefore helpful to start by dividing our period into two: 1900–49 and 1950–2000. Figure 7-2 shows how exchange rates moved in each of the two halves of our 101-year period.

Some of the extreme changes reflect exchange rates or inflation indexes that are not representative, typically (as in Germany) because of wartime controls, and this may amplify the volatility of real exchange rate changes. Given the potential measurement error in inflation indexes, and the fact that real exchange rates involve a ratio of two different price index series, it is all the more striking that, with the exception of South Africa, all real exchange rates appreciate or depreciate annually by no more than a fraction of one percentage point. 7.5 Volatility of exchange rates At the time floating exchange rates were adopted in 1973, it was asserted that exchange rates would become free to adjust to international differences in inflation. Countries with price levels that were rising fast would see their currencies depreciate, and countries with relatively low price inflation would see their currencies appreciate. While nominal exchange rates would be free to fluctuate, real exchange rates were expected to become less volatile.

., 70, 141, 142, 143, 146, 147, 155, 158, 159, 160, 162, 192, 218 Fat tails, 56, 204 Financial distress, 87, 218, 219 Financial management, 211–9 Financial reporting, 218–9 Financial Times (FT), 23, 24, 36, 37, 223, 299 335 Financial Times-Stock Exchange (FTSE), xi, 28, 38, 115, 133, 134, 143, 299 Finland, 12, 20, 28, 29, 121 Finn, F.J., 229 Firer, C., xii, 42, 279 First World War, 37, 44, 47, 69, 75, 76, 93, 94, 116, 122, 123, 153 Fisher, I., 38, 69, 70 Fisher, L., 38 Fisher effect, 69–70 Floating exchange rates, 94, 98 Foreign bonds, 16–7 Foidl, N., 254 France, 249–53 see also cross-country comparisons Frankfurt, 19 Fraser, P., 188 Free float, 13, 39 French, K.R., xi, xii, 140, 141, 142, 143, 146, 155, 158, 159, 160, 162, 192, 218 Frennberg, P., xii, 289 FT Index, 36, 37 Fujino, S., 269 Function of bond markets, 18–9 Function of stock markets, 18–9 Fund managment, 9, 144, 205–9 Gallais-Hamonno, G., xii, 249 GDP, see gross domestic product Gemis, M., 234 General Electric Corp, 18, 23, 28, 32 Geometric mean, 38, 51, 59–61, 71, 82, 89, 92, 110, 152, 154, 163–75, 181–94, 197, 198, 202, 203, 214, 219, 223 Germany, 254–8 see also cross-country comparisons Giammarino, R., 239 Gielen, G., 254 Glassman, J.


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The Making of Global Capitalism by Leo Panitch, Sam Gindin

accounting loophole / creative accounting, active measures, airline deregulation, anti-communist, Asian financial crisis, asset-backed security, bank run, banking crisis, barriers to entry, Basel III, Big bang: deregulation of the City of London, bilateral investment treaty, Branko Milanovic, Bretton Woods, BRICs, British Empire, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collective bargaining, continuous integration, corporate governance, creative destruction, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency peg, dark matter, Deng Xiaoping, disintermediation, ending welfare as we know it, eurozone crisis, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, full employment, Gini coefficient, global value chain, guest worker program, Hyman Minsky, imperial preference, income inequality, inflation targeting, interchangeable parts, interest rate swap, Kenneth Rogoff, Kickstarter, land reform, late capitalism, liberal capitalism, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, manufacturing employment, market bubble, market fundamentalism, Martin Wolf, means of production, money market fund, money: store of value / unit of account / medium of exchange, Monroe Doctrine, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, new economy, non-tariff barriers, Northern Rock, oil shock, precariat, price stability, quantitative easing, Ralph Nader, RAND corporation, regulatory arbitrage, reserve currency, risk tolerance, Ronald Reagan, seigniorage, shareholder value, short selling, Silicon Valley, sovereign wealth fund, special drawing rights, special economic zone, structural adjustment programs, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transcontinental railway, trickle-down economics, union organizing, very high income, Washington Consensus, Works Progress Administration, zero-coupon bond, zero-sum game

While detaching the dollar from gold decreased one set of perceived restrictions on the US (the threat of some countries choosing gold over dollars), it at the same time expanded not only the international status but the responsibilities of the Federal Reserve and the US Treasury. What was essentially happening was a transition from the fixed exchange rates designed to foster capitalist reconstruction under the Marshall Plan and the European Payments Union, to the establishment of the legal, institutional and market infrastructure that would sustain capitalist globalization amid floating exchange rates anchored by a US dollar– Treasury bill standard. As President Ford’s Treasury secretary, William Simon, put it when the IMF finally ratified the new monetary order (five years after the fact): This is of major interest to the United States, not only because gold is an inherently unstable basis for the monetary system but because it is inevitably linked to a fixed exchange rate system.

As Paul Volcker noted, “traders and investors were reminded that the United States, after all, was still a relative bastion of strength and stability and a safe haven in troubled times.”46 The lead taken by the Treasury and Fed in preventing bank failures during this period from turning into an international financial conflagration also goes very far to explaining why, despite all the initial fears that the move to floating exchange rates would undermine the financing of world trade, an internal Treasury memorandum was able to note in 1976 that “businessmen have found that the difficulties of operating under floating rates were not as great as many of them had anticipated.”47 The pragmatic, tentative, and uncertain steps the US had taken in approaching the decision to go off gold were replicated in successive rounds of G10 and IMF meetings to attempt to revive a fixed exchange rate system.

When Volcker proposed during the IMF’s Interim Committee negotiations in 1972 that an “indicator system” be adopted, “whereby a country’s deviation from an established norm of international reserves would trigger application of ‘graduated pressures’ on the offending country to impel it to take the necessary steps towards adjustment, European participants objected to the automaticity implied in the plan . . . [They] were unwilling to accept automatic interference in their own policies.”48 Thus, when in early 1973 the US prevailed on the Japanese and European states to embrace a system of floating exchange rates, this decision, as Volcker put it, “was not taken out of any general conviction that it was a preferred system. It was simply a last resort when, by general assent, the effort to maintain par values or central rates seemed too difficult in the face of speculative movements of capital across the world’s exchanges.”49 Just as Volcker also explains the US imposition of an import surcharge in August 1971 as a bargaining counter to secure currency revaluation and agricultural tariff reductions from the Europeans (a tactic that would again and again be deployed as part and parcel of the US push for “free trade”),50 so were the Europeans’ calls for capital controls mainly tactical.


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The Bitcoin Standard: The Decentralized Alternative to Central Banking by Saifedean Ammous

Airbnb, altcoin, bank run, banks create money, bitcoin, Black Swan, blockchain, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, conceptual framework, creative destruction, cryptocurrency, currency manipulation / currency intervention, currency peg, delayed gratification, disintermediation, distributed ledger, Ethereum, ethereum blockchain, fiat currency, fixed income, floating exchange rates, Fractional reserve banking, full employment, George Gilder, global reserve currency, high net worth, invention of the telegraph, Isaac Newton, iterative process, jimmy wales, Joseph Schumpeter, market bubble, market clearing, means of production, money: store of value / unit of account / medium of exchange, moral hazard, Network effects, Paul Samuelson, peer-to-peer, Peter Thiel, price mechanism, price stability, profit motive, QR code, ransomware, reserve currency, Richard Feynman, risk tolerance, Satoshi Nakamoto, secular stagnation, smart contracts, special drawing rights, Stanford marshmallow experiment, The Nature of the Firm, the payments system, too big to fail, transaction costs, Walter Mischel, zero-sum game

But even that was not sustainable as the flow of goods became the way in which exchange rates would try to redress the imbalance, with some countries exporting too much and others importing too much, leading to political negotiations to recalibrate the exchange rate. There can be no rational ground for determining the outcome of these negotiations in international organizations, as each country's government attempts to pursue its own special groups' interest and will do whatever it takes to do just that. After 1971, the world predominantly moved to having an independent monetary policy and free capital flows, but floating exchange rates between currencies. This arrangement has the advantage of allowing Keynesian economists to play with their favorite tools for “managing” economies while also keeping international financial institutions and large capital owners happy. It is also a huge boon for large financial institutions which have generated a foreign exchange market worth trillions of dollars a day, where currencies and their futures are trading.

Firms that have spent decades working on a competitive advantage could see it wiped out in 15 minutes of unpredictable foreign exchange volatility. This usually gets blamed on free trade, and economists and politicians likewise will use it as an excuse for implementing popular but destructive protectionist trade policies. With free capital flows and free trade built on a shaky foundation of floating exchange rate quicksand, a much higher percentage of the country's businesses and professionals need to concern themselves with the movements of the currency. Every business needs to dedicate resources and manpower toward studying an issue of extreme importance over which they have no control. More and more people work in speculating on the actions of central banks, national governments, and currency movement.

Unfortunately, however, the people in charge of the current monetary system have a vested interest in it continuing, and have thus preferred to try to find ways to manage it, and to find ever‐more‐creative ways of vilifying and dismissing the gold standard. This is entirely understandable given their jobs depend on a government having access to a printing press to reward them. The combination of floating exchange rates and Keynesian ideology has given our world the entirely modern phenomenon of currency wars: because Keynesian analysis says that increasing exports leads to an increase in GDP, and GDP is the holy grail of economic well‐being, it thus follows, in the mind of Keynesians, that anything that boosts exports is good. Because a devalued currency makes exports cheaper, any country facing an economic slowdown can boost its GDP and employment by devaluing its currency and increasing its exports.


pages: 338 words: 104,684

The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy by Stephanie Kelton

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, American Society of Civil Engineers: Report Card, Asian financial crisis, bank run, Bernie Madoff, Bernie Sanders, blockchain, Bretton Woods, business cycle, capital controls, central bank independence, collective bargaining, COVID-19, Covid-19, currency manipulation / currency intervention, currency peg, David Graeber, David Ricardo: comparative advantage, decarbonisation, deindustrialization, discrete time, Donald Trump, eurozone crisis, fiat currency, floating exchange rates, Food sovereignty, full employment, Gini coefficient, global reserve currency, global supply chain, Hyman Minsky, income inequality, inflation targeting, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, Isaac Newton, Jeff Bezos, liquidity trap, Mahatma Gandhi, manufacturing employment, market bubble, Mason jar, mortgage debt, Naomi Klein, new economy, New Urbanism, Nixon shock, obamacare, open economy, Paul Samuelson, Ponzi scheme, price anchoring, price stability, pushing on a string, quantitative easing, race to the bottom, reserve currency, Richard Florida, Ronald Reagan, shareholder value, Silicon Valley, trade liberalization, urban planning, working-age population, Works Progress Administration, yield curve, zero-sum game

Just as the Greek government was incapable of preventing a spike in borrowing costs, countries that fix their exchange rates sacrifice control of their interest rates. From an MMT perspective, “this explains the very high interest rates paid by governments with perceived default risk in fixed exchange rate regimes, in contrast to the ease a nation such as Japan has in keeping rates at 0 in a floating exchange rate regime, despite deficits that would undermine a fixed exchange rate regime.”36 The lesson is simple. Currency regimes matter. The simple crowding-out story was built for a world that no longer exists. Yet conventional economic theory treats the sequence of falling dominoes as an inevitable consequence of deficit spending. The truth is the story has limited applicability. As Timothy Sharpe put it, “financial crowding-out theory was initially proposed and analysed in the context of a convertible currency system, that is, the gold standard and the Bretton Woods fixed exchange rate agreement (1946–1971).”

—Frank Newman, former deputy secretary of the Treasury Notes Introduction: Bumper Sticker Shock 1. It is best to imagine monetary sovereignty as a continuum with some nations having a very high degree of sovereignty and others having less, little, or practically none. Countries with the highest degree of maximum sovereignty are those that spend, tax, and borrow in their own nonconvertible (floating exchange rate) currencies. Nonconvertible means that the state does not promise to convert the domestic currency into gold or foreign currency at a fixed price. Under this definition, the US, the UK, Japan, Australia, Canada, and even China are monetary sovereigns. In contrast, countries like Ecuador and Panama lack monetary sovereignty because their monetary systems are designed exclusively around the US dollar, a currency their governments cannot issue.

Randall Wray, “Deficits, Inflation, and Monetary Policy,” Journal of Post Keynesian Economics 19, no. 4 (Summer 1997), 543. 31. The yield curve is a curve (or graph) that shows the interest rates on different debt instruments across a range of maturities. 32. Recall from the Introduction that we have defined monetary sovereignty to include countries that tax, borrow, and spend in a nontethered, that is, floating exchange rate currency that can only be issued by the government or its fiscal agents. 33. Today, it is standard operating procedure to coordinate deficit spending with bond sales. It doesn’t have to be that way. Congress could always rewrite its operating procedures to change this practice, especially now that the Federal Reserve no longer needs access to government bonds to hit its short-term interest rate target.


pages: 409 words: 118,448

An Extraordinary Time: The End of the Postwar Boom and the Return of the Ordinary Economy by Marc Levinson

affirmative action, airline deregulation, banking crisis, Big bang: deregulation of the City of London, Boycotts of Israel, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, car-free, Carmen Reinhart, central bank independence, centre right, clean water, deindustrialization, endogenous growth, falling living standards, financial deregulation, floating exchange rates, full employment, George Gilder, Gini coefficient, global supply chain, income inequality, income per capita, indoor plumbing, informal economy, intermodal, invisible hand, Kenneth Rogoff, knowledge economy, late capitalism, linear programming, manufacturing employment, new economy, Nixon shock, North Sea oil, oil shock, Paul Samuelson, pension reform, price stability, purchasing power parity, refrigerator car, Right to Buy, rising living standards, Robert Gordon, rolodex, Ronald Coase, Ronald Reagan, Simon Kuznets, statistical model, strikebreaker, structural adjustment programs, The Rise and Fall of American Growth, Thomas Malthus, total factor productivity, unorthodox policies, upwardly mobile, War on Poverty, Washington Consensus, Winter of Discontent, Wolfgang Streeck, women in the workforce, working-age population, yield curve, Yom Kippur War, zero-sum game

See OECD Council Working Party on Shipbuilding, “Peer Review of Japanese Government Support Measures to the Shipbuilding Sector,” C/WP6 (2012) 26, 7. 14. Yoshimitsu Imuta, “Transition to a Floating Exchange Rate,” in Mikiyo Sumiya, ed., A History of Japanese Trade and Industry Policy (Oxford: Oxford University Press, 2000), 528; Sueo Sekiguchi, “Japan: A Plethora of Programs,” in Hugh Patrick, ed., Pacific Basin Industries in Distress (New York: Columbia University Press, 1990), 437. 15. William Diebold Jr., Industrial Policy as an International Issue (New York: McGraw-Hill, 1980), 162; Japan Automobile Manufacturers Association, Motor Vehicle Statistics of Japan 2014, 16, 32. 16. Imuta, “Transition to a Floating Exchange Rate,” 527. Data on Japanese R&D spending are from Steven Englander and Axel Mittelstädt, “Total Factor Productivity: Macroeconomic and Structural Aspects of the Slowdown,” OECD Economic Survey 10 (1988): 36. 17.

If exchange rates moved the wrong way, the loan repayments could be worth less than the banks’ dollar obligations to their depositors. And should an oil sheikhdom suddenly demand its dollars back, a bank that had used them to make five-year loans in British pounds or Dutch guilders could find itself desperate for cash. This was a frightening prospect, for in the new world of global finance and floating exchange rates, banks were more intimately connected than ever before. They not only lent one another money and joined forces to make loans, but also traded currencies to meet their customers’ needs. In many cases, those trades involved betting on an exchange rate at some future date. For example, a Spanish textile company expecting to receive one million West German deutsche marks in six months could lock in the value of that sum in Spanish pesetas, with its bank assuming the risk if the exchange rate on that date turned out to be different from what it anticipated.


pages: 218 words: 63,471

How We Got Here: A Slightly Irreverent History of Technology and Markets by Andy Kessler

Albert Einstein, Andy Kessler, animal electricity, automated trading system, bank run, Big bang: deregulation of the City of London, Bob Noyce, Bretton Woods, British Empire, buttonwood tree, Claude Shannon: information theory, Corn Laws, Douglas Engelbart, Edward Lloyd's coffeehouse, fiat currency, fixed income, floating exchange rates, Fractional reserve banking, full employment, Grace Hopper, invention of the steam engine, invention of the telephone, invisible hand, Isaac Newton, Jacquard loom, James Hargreaves, James Watt: steam engine, John von Neumann, joint-stock company, joint-stock limited liability company, Joseph-Marie Jacquard, Kickstarter, Leonard Kleinrock, Marc Andreessen, Maui Hawaii, Menlo Park, Metcalfe's law, Metcalfe’s law, Mitch Kapor, packet switching, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, railway mania, RAND corporation, Robert Metcalfe, Silicon Valley, Small Order Execution System, South Sea Bubble, spice trade, spinning jenny, Steve Jobs, supply-chain management, supply-chain management software, trade route, transatlantic slave trade, tulip mania, Turing machine, Turing test, undersea cable, William Shockley: the traitorous eight

If wages had been held relatively constant and the exchange rate of money into gold allowed to float (like today), then workers would not have been as disaffected. In an uncompetitive country, instead of wages going down, the value of the currency would drop, import prices rise, and the blame laid on the foreigners for increasing prices. The flip side would have worked well for England. With a rising currency from a floating exchange rate, products like textiles would have gotten cheaper in both England and foreign markets, but not quite as cheap. So what? The market would still grow. National wealth would be created from a rising currency and money supply could grow at its natural Real Bills rate, rather than be affected by too much gold. Rather than lowering wages and disenfranchising their customers, the British should have been working on ways to increase the wealth of all these other countries, because they were the end markets for the goods.

It took another seven years to get back on the gold standard. A guy named Churchill put England back on the gold in 1925, at the pre-War exchange rate. Heck, it was still Isaac Newton’s rate. Big mistake. It overpriced the pound, which got dumped, and gold quickly flowed out of the country. Banks had 166 HOW WE GOT HERE restricted money supply and England went into a nasty recession, a loud advertisement for floating exchange rates. By 1928, the rest of the world went back on the gold standard, but not for long. Following the 1929 stock market crash, 1930 saw the introduction of the protectionist Corn Law-esque “Smoot-Hawley” tariffs (some say the market predicted the tariffs, which were debated in 1929.) Trade dried up as most other countries put up protective trade tariffs and increased taxes to make up for lost duties.


pages: 386 words: 122,595

Naked Economics: Undressing the Dismal Science (Fully Revised and Updated) by Charles Wheelan

"Robert Solow", affirmative action, Albert Einstein, Andrei Shleifer, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, business cycle, buy and hold, capital controls, Cass Sunstein, central bank independence, clean water, collapse of Lehman Brothers, congestion charging, creative destruction, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, Daniel Kahneman / Amos Tversky, David Brooks, demographic transition, diversified portfolio, Doha Development Round, Exxon Valdez, financial innovation, fixed income, floating exchange rates, George Akerlof, Gini coefficient, Gordon Gekko, greed is good, happiness index / gross national happiness, Hernando de Soto, income inequality, index fund, interest rate swap, invisible hand, job automation, John Markoff, Joseph Schumpeter, Kenneth Rogoff, libertarian paternalism, low skilled workers, Malacca Straits, market bubble, microcredit, money market fund, money: store of value / unit of account / medium of exchange, Network effects, new economy, open economy, presumed consent, price discrimination, price stability, principal–agent problem, profit maximization, profit motive, purchasing power parity, race to the bottom, RAND corporation, random walk, rent control, Richard Thaler, rising living standards, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Sam Peltzman, school vouchers, Silicon Valley, Silicon Valley startup, South China Sea, Steve Jobs, The Market for Lemons, the rule of 72, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, transaction costs, transcontinental railway, trickle-down economics, urban sprawl, Washington Consensus, Yogi Berra, young professional, zero-sum game

After a weekend of deliberation at Camp David, Nixon unilaterally “closed the gold window.” Foreign governments could redeem gold for dollars on Friday—but not on Monday. Since then, the United States (and all other industrialized nations) have operated with “fiat money,” which is a fancy way of saying that those dollars are just paper. Floating exchange rates. The gold standard fixes currencies against one another; floating rates allow them to fluctuate as economic conditions dictate, even minute by minute. Most developed economies have floating exchange rates; currencies are traded on foreign exchange markets, just like a stock exchange or eBay. At any given time, the exchange rate between the dollar and yen reflects the price at which parties are willing to voluntarily trade one for the other—just like the market price of anything else. When Toyota makes loads of dollars selling cars in the United States, they trade them for yen with some party that is looking to do the opposite.

When Toyota makes loads of dollars selling cars in the United States, they trade them for yen with some party that is looking to do the opposite. (Or Toyota can use the dollars to pay American workers, make investments inside the United States, or buy American inputs.) With floating exchange rates, governments have no obligation to maintain a certain value of their currency, as they do under the gold standard. The primary drawback of this system is that currency fluctuations create an added layer of uncertainty for firms doing international business. Ford may make huge profits in Europe only to lose money in the foreign exchange markets when it tries to bring the euros back home. So far, exchange rate volatility has proven to be a drawback of floating rates, though not a fatal flaw. International companies can use the financial markets to hedge their currency risk.


pages: 183 words: 17,571

Broken Markets: A User's Guide to the Post-Finance Economy by Kevin Mellyn

banking crisis, banks create money, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, business cycle, buy and hold, call centre, Carmen Reinhart, central bank independence, centre right, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, credit crunch, crony capitalism, currency manipulation / currency intervention, disintermediation, eurozone crisis, fiat currency, financial innovation, financial repression, floating exchange rates, Fractional reserve banking, global reserve currency, global supply chain, Home mortgage interest deduction, index fund, information asymmetry, joint-stock company, Joseph Schumpeter, labor-force participation, light touch regulation, liquidity trap, London Interbank Offered Rate, market bubble, market clearing, Martin Wolf, means of production, mobile money, money market fund, moral hazard, mortgage debt, mortgage tax deduction, negative equity, Ponzi scheme, profit motive, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, rising living standards, Ronald Coase, seigniorage, shareholder value, Silicon Valley, statistical model, Steve Jobs, The Great Moderation, the payments system, Tobin tax, too big to fail, transaction costs, underbanked, Works Progress Administration, yield curve, Yogi Berra, zero-sum game

Other countries got stiffed as America paid its bills in dollars of diminishing value. The Bretton Woods deal included a gold window, where dollar claims could be converted, but the United States lacked the gold. So, over a weekend, with no consultations, the United States blew up the Bretton Woods system, closing the gold window. This kicked off the Great Inflation, and it ushered in an era of floating exchange rates that we are still living with today. OPEC, an attempt by oil producers to use cartel tactics to raise the price of their commodity (priced in dollars) in nominal terms to make up for the fall in the real value of the dollar, was a key side effect. The OPEC price hikes stuck, despite the fact that many countries could not afford them. To a large extent, this was made possible because the oil producers could do little with their dollars except deposit them in the American banks.

Once interest rates were deregulated, how banks funded themselves in the market and, especially, what degree of mismatch between loans and funding they were willing to risk, became an important way of making higher profits. Treasury became a “profit center,” not a utility function, in the largest banks. Trading income was also scarce before the collapse of Bretton Woods created a world of floating exchange rates. The value of any currency vs. any other currency became a second-to-second market determination. Interbank trading of foreign exchange became one of the largest markets in the world, and remains such, with trillions turning over every day. Again, a new profit center for the largest banks was born. Although the real commercial needs of customers were at the bottom of all this activity, most bank trading desks were mainly engaged in proprietary trading, betting the bank’s own capital.


Global Governance and Financial Crises by Meghnad Desai, Yahia Said

Asian financial crisis, bank run, banking crisis, Bretton Woods, business cycle, capital controls, central bank independence, corporate governance, creative destruction, credit crunch, crony capitalism, currency peg, deglobalization, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, floating exchange rates, frictionless, frictionless market, German hyperinflation, information asymmetry, knowledge economy, liberal capitalism, liberal world order, Long Term Capital Management, market bubble, Mexican peso crisis / tequila crisis, moral hazard, Nick Leeson, oil shock, open economy, price mechanism, price stability, Real Time Gross Settlement, rent-seeking, short selling, special drawing rights, structural adjustment programs, Tobin tax, transaction costs, Washington Consensus

The fierce competition between banks, in search of high volumes of international credit to make up for lost domestic credit with the growth slowdown in OECD countries, had made the supply of funds highly elastic to demand changes. Subsequently the recurrent problem of the scarcity of reserves, which had motivated the creation of the SDR, was no longer relevant. Moreover, as far as adjustment was concerned, floating exchange rates had resolved in principle the conflict between internal and external balance and jettisoned the need of policy cooperation. The monetarist counterrevolution was at high tide at the time. It offered an ideological background to the rebound of monetary nationalism according to which “each country should put its own house in order.” This view expected capital markets to take care of themselves and to drive exchange rates to their equilibrium values reflecting the conditions prevailing in domestic economies.

International capital markets fed the world with a fast-increasing amount of reserves, but they proved unable to regulate the distribution of borrowed reserves among countries. Sovereign indebtedness was not properly assessed, entailing abrupt disruptions between excessive tolerance to borrowing and acute credit crunches. Besides, equilibrium exchange rates were elusive. Huge gyrations of floating exchange rates and foreign exchange crises, which devastated pegged regimes, convinced most governments that exchange rates were too important to be left to the markets. But individual governments were powerless against speculative attacks while reduced to their own means. The malfunctioning of the market-led system in both exchange rate adjustment and solvency control gave content to the Fund’s missions restated in Jamaica.


pages: 466 words: 127,728

The Death of Money: The Coming Collapse of the International Monetary System by James Rickards

Affordable Care Act / Obamacare, Asian financial crisis, asset allocation, Ayatollah Khomeini, bank run, banking crisis, Ben Bernanke: helicopter money, bitcoin, Black Swan, Bretton Woods, BRICs, business climate, business cycle, buy and hold, capital controls, Carmen Reinhart, central bank independence, centre right, collateralized debt obligation, collective bargaining, complexity theory, computer age, credit crunch, currency peg, David Graeber, debt deflation, Deng Xiaoping, diversification, Edward Snowden, eurozone crisis, fiat currency, financial innovation, financial intermediation, financial repression, fixed income, Flash crash, floating exchange rates, forward guidance, G4S, George Akerlof, global reserve currency, global supply chain, Growth in a Time of Debt, income inequality, inflation targeting, information asymmetry, invisible hand, jitney, John Meriwether, Kenneth Rogoff, labor-force participation, Lao Tzu, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, market clearing, market design, money market fund, money: store of value / unit of account / medium of exchange, mutually assured destruction, obamacare, offshore financial centre, oil shale / tar sands, open economy, plutocrats, Plutocrats, Ponzi scheme, price stability, quantitative easing, RAND corporation, reserve currency, risk-adjusted returns, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Satoshi Nakamoto, Silicon Valley, Silicon Valley startup, Skype, sovereign wealth fund, special drawing rights, Stuxnet, The Market for Lemons, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, too big to fail, trade route, undersea cable, uranium enrichment, Washington Consensus, working-age population, yield curve

This combination of openness and opaqueness is disarming; the IMF is transparently nontransparent. The IMF’s mission has repeatedly morphed over the decades since Bretton Woods. In the 1950s and 1960s, it was the caretaker of the fixed-exchange-rate gold standard and a swing lender to countries experiencing balance-of-payments difficulties. In the 1970s, it was a forum for the transition from the gold standard to floating exchange rates, engaging in massive sales of gold at U.S. insistence to help suppress the price. In the 1980s and 1990s, the IMF was like a doctor who made house calls, dispensing bad medicine in the form of incompetent advice to emerging economies. This role ended abruptly with blood in the streets of Jakarta and Seoul and scores killed as a result of the IMF’s mishandling of the 1997–98 global financial crisis.

The dollar was devalued again on February 12, 1973, by an additional 10 percent so that gold’s new official price was $42.22 per ounce; this is still gold’s official price today for certain central banks, for the U.S. Treasury, and for IMF accounting purposes, although it bears no relationship to the much higher market price. During this period, 1971–73, the international monetary system moved haltingly toward a floating-exchange-rate regime, which still prevails today. In 1972 the IMF convened the Committee of Twenty, C-20, consisting of the twenty member countries represented on its executive board, to consider the reform of the international monetary system. The C-20 issued a report in June 1974, the “Outline of Reform, that provided guidelines for the new floating-rate system and recommended that the SDR be converted from a gold-backed reserve asset to one referencing a basket of paper currencies.

See also European Union (EU) Charlemagne’s Frankenreich, 112, 113–14 post–World War II steps to unification, 116–18 warfare and conquest in, history of, 115–16 European Atomic Energy Community (Euratom), 116–17 European Central Bank (ECB), 117, 172 European Coal and Steel Community (ECSC), 116, 117 European Communities (EC), 117 European Economic Community (EEC), 116–17 European Rate Mechanism (ERM), 153 European Union (EU), 113, 121–37 Berlin Consensus and, 121–27 Chinese investment in, 126–27 demographics of, 134–35 expanding membership of, 136 fiscal and banking reforms, since 2011, 135–36 future of, 132–37 IMF commitment of, 202 precursor organizations and founding of, 116–18 sovereign debt crisis of 2010 and, 128–30 U.S. investment in, 127 Eurozone, 117, 121–27, 129, 130, 135, 136 gold-to-GDP ratio of, 157, 280 exchange rates, 130 external adjustment of unit labor costs, 131 Fail-Safe (film), 63 Fannie Mae, 248 Federal Open Market Committee (FOMC), 249–52 Federal Reserve asset bubble creation by, 75–78 bank risk taking in low-interest-rate environment created by, 80–81 central bank, status as, 198–99 central planning by, 69, 71, 87 debt and deficits, monetary policy’s relation to, 176–77, 180–89 deflation and, 9–11, 76–83 easy-money policy of (See easy-money policy of Federal Reserve) financial repression engineered by, 183–84 financial war, views on, 60–62 FOMC member views on tapering versus money-printing, 249–52 forward guidance of, 83, 86, 185–88 gold held in vaults of, 230 Great Depression monetary policy of, 223 Greenspan’s battling of deflation and creation of housing bubble, 76 insolvency of, 286–88 irreversibility of money creation and, 290 money contract and, 167, 180–89 PDS inputs, and monetary policy, 180–83 quantitative easing (QE) programs, 184–85 real income declines resulting from policies of, 78–79 savers penalized by policies of, 79 SME lending damaged by policies of, 79–80 U.S Treasury debt purchases by, 172 wealth effect and, 72–75 zero-interest-rate policy of, 72, 73, 79–81, 185, 186, 260 Federal Reserve Bank of New York, 73–74, 230 Federal Reserve Notes, 167 Federation of American Scientists, 58 fiat money, 168–69 financial repression, 183–84 financial risk, 85, 268–70 financial transmission, 193–94 financial war, 6–7, 42–64 accidental, 63 Chinese cybercapabilities, 45–46, 51–53 CIC-Blackstone deal, 51–52 cyberattacks combined with, 59–60 defensive aspects of, 46 enemy hedge fund scenario, 47–51 equilibrium models and, 62 Federal Reserve’s view of, 60–62 MARKINT as means of detecting, 40–41 offensive aspects of, 46 panic dynamic and, 62 physical targets, 46 purpose of, 61 solutions to, 64 U.S. cybercapabilities, 53–54 U.S.-Iran, 54–58 U.S.-Syria, 57 U.S. Treasury’s view of, 60–62 virtual targets, 46 Wall Street’s cybercapabilities, 54 war games, 58–59 fine art, as investment, 299 fiscal dominance, 287–88 Fiscal Stability Treaty (EU), 135–36 Fisher, Irving, 168, 246–47 Fisker, 123 Fitzgerald, F. Scott, 252 flash crash, 63, 270, 296–97 floating-exchange-rate regime, 235 Fonda, Jane, 1 food price inflation, 3 food stamps, 246 Ford, Gerald, 271–72 forward guidance, 83, 86, 185–88 forwards, gold, 275, 285–86 France, 235, 236 Franco-Prussian War, 115 Frank, Barney, 204, 205 Frankenreich, 112, 113–14 Freakonomics (Levitt and Dubner), 32–33 Freddie Mac, 248 Friedman, Milton, 84, 168, 263 Friedman, Tom, 256 Froman, Michael, 195, 196, 202–3 futures, gold, 275, 284–86 G7, 139, 140, 147 G9, 139–40 G20, 140, 147, 202, 203 Galloni, Alessandra, 131–32 Gang of Ten, 138, 139 Geithner, Timothy, 195, 196, 203, 244 General Electric, 255 General Theory of Employment, Interest and Money, The (Keynes), 246–47 Genoa Conference, 1922, 221–22 Gensler, Gary, 195, 196 geopolitics, 12–13 Germany, 125, 127, 136–37, 281 gold repatriation by, 231–32 GIIPS (Greece, Ireland, Italy, Portugal, Spain), 140, 142–46 Glass-Steagall, repeal of, 196, 253, 296 gold, 215–42 BIS transactions, 276–78 central bank acquisition of, since 2010, 225–30 central bank manipulation of, 271–81 Charlemagne’s switch from gold to silver standard, 114 Chávez’s repatriation of, 40, 231 China’s accumulation of, 12, 61, 226–30, 282–84, 296 classical gold standard, 1870–1914, 176, 234–35 constructing new gold standard, 237–42 contract money system, role in, 169–71 contracts based on, risks associated with, 217–18 disorderly price movements, implications of, 295–96 dollar convertibility abandoned, in 1971, 1, 2, 5, 209, 220, 235, 285 dollar standard, 234–35 drop from 1980 highs, 2 forwards, 275, 285–86 futures, 275, 284–86 Germany’s repatriation of, 231–32 gold exchange standard, 221–22, 224, 234–35 gold-to-GDP ratios, 157, 279–82 Great Depression caused by gold myth, 221–24 IMF sales of, 235–36, 277 as investment portfolio recommendation, 298–99 Iranian trading of, in financial war with U.S., 55–56 lease arrangements, 275, 284 market panics caused by gold myth, 224 monetary policy, and classical gold standard, 176 monetary system, role in, 217, 220–25 as M-Subzero, 280, 283–84 nature of, 218–20 as numeraire, 219–20 price rise of, 1977 to 1980, 1 price rise of, 2006 to 2011, 3 private market demand for, 230 quantity insufficient to support world trade and finance myth, 220 repatriation of, 40, 231–34 reserves, rebalancing of, 279–84 return-to-gold-standard scenario, 293–94 as risk-free asset, 219 Russia’s accumulation of, 12, 229–30 shadow gold standard, 236 storage of, at Federal Reserve and Bank of England vaults, 230–31 swaps, 275 Switzerland’s repatriation of, 232–33 U.S. attitude to, shift in, 235, 236 Gold and Foreign Exchange Committee, 272–73 Goldberg, Jonah, 294 Gold Bloc devaluations, 222 Goldman Sachs, 32–33, 128, 139, 140, 205, 206, 262 gold-to-GDP ratios, 157, 279–82 Goodhardt, Charles, 71, 72, 87, 188 Goodhardt’s Law, 71, 87 Gotthard Base Tunnel, 123 government debt repayment, impact of deflation on, 9, 258 government program dependency, in U.S., 246 Graeber, David, 255 Grant, James, 177 Great Depression, 84, 85, 125–26, 155, 221–22, 223–24, 234, 244, 245 Greece, 128, 133–34, 142, 153, 200, 290 greed, 25 Greenspan, Alan, 76, 77, 122 gross domestic product (GDP) of China, 93, 96 components of, 84, 96 debt-to-GDP ratio, 9, 159–60, 173, 258–59, 261 of U.S., 96, 244 Gulf Cooperation Council (GCC), 12, 150, 152–57 monetary integration process and, 153–57 as quasi-currency union, 153 Hague Congress, 116 Hall, Robert, 86–87 Hamilton, Alexander, 120–21 Han Dynasty, 90 Hanke, Steve, 80 Haydn, Michael, 37 Hayek, Friedrich, 70–71, 72, 87 hedge fund covert operations, 47–51 Hemingway, Ernest, 256 Herzegovina, 136 Himes, James, 284 Holocaust, 115 Holy Roman Empire, 114, 115 Hong Ziuquan, 91 Hoover, Herbert, 85 housing market bubbles in, 75, 76–77, 248 collapse of, 2007, 248, 296 rise in, since 2009, 291 wealth effect and, 72, 73 HSBC, 227 Hu Jintao, 151–52, 202 Hunt, Lacy H., 74, 79 Hunt brothers, 217 Hyundai, 82 ImClone Systems, 25 income inequality, in China, 106 India, 12, 139, 151.


pages: 276 words: 82,603

Birth of the Euro by Otmar Issing

"Robert Solow", accounting loophole / creative accounting, Bretton Woods, business climate, business cycle, capital controls, central bank independence, currency peg, financial innovation, floating exchange rates, full employment, inflation targeting, information asymmetry, labour market flexibility, labour mobility, market fundamentalism, money market fund, moral hazard, oil shock, open economy, price anchoring, price stability, purchasing power parity, reserve currency, Y2K, yield curve

Initial empirical studies do indeed confirm that the ECB need not fear comparison with other, established central banks.30 Not a bad outcome for such a young institution, one which moreover has to formulate monetary policy under inordinately more difficult conditions. Monetary policy and the exchange rate Fundamental significance of the exchange rate regime One of the most important economic policy decisions at the macro level concerns the choice of exchange rate regime. This can best be illustrated by looking at the two extremes of a fixed and a floating exchange rate respectively. If a country fixes, or pegs, the exchange rate of its currency to that of another country, this has serious consequences for monetary policy in particular. Given full convertibility, such a fixed exchange rate system can only mean that the institution responsible, generally the central bank, must intervene in the foreign exchange market whenever the market rate threatens to diverge from the fixed rate, or parity.31 Essentially, this obligation to intervene implies that monetary policy must be geared to stabilising the exchange rate.

The same considerations apply if the currency is linked to a metal (such as under the gold standard) or the price of a basket of commodities (commodity-reserve currency). 170 • The ECB – monetary policy for a stable euro If, in contrast, the market is left to determine the exchange rate, and the central bank therefore has no obligation to intervene, it can in principle direct its policy measures towards fulfilling a domestic mandate. Only with a flexible (floating) exchange rate is the central bank able to achieve a domestic objective (generally speaking, the objective of price stability).32 The choice of exchange rate regime is of central importance for monetary policy and also for the place of the central bank in the macroeconomic policy framework. If a fixed exchange rate system is chosen, this ultimately means no less than that, even if it may continue to exist de jure, the independence of the central bank exists de facto only on paper, in that its obligation to intervene in the foreign exchange market fundamentally robs the central bank of its sovereignty over monetary policy-making.33 The same considerations as for an individual country also apply to the currency and the central bank of a monetary union.


pages: 273 words: 87,159

The Vanishing Middle Class: Prejudice and Power in a Dual Economy by Peter Temin

"Robert Solow", 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, affirmative action, Affordable Care Act / Obamacare, American Legislative Exchange Council, American Society of Civil Engineers: Report Card, anti-communist, Bernie Sanders, Branko Milanovic, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carried interest, clean water, corporate raider, Corrections Corporation of America, crack epidemic, deindustrialization, desegregation, Donald Trump, Edward Glaeser, Ferguson, Missouri, financial innovation, financial intermediation, floating exchange rates, full employment, income inequality, intangible asset, invisible hand, longitudinal study, low skilled workers, low-wage service sector, mandatory minimum, manufacturing employment, Mark Zuckerberg, mass immigration, mass incarceration, means of production, mortgage debt, Network effects, New Urbanism, Nixon shock, obamacare, offshore financial centre, oil shock, plutocrats, Plutocrats, Powell Memorandum, price stability, race to the bottom, road to serfdom, Ronald Reagan, secular stagnation, Silicon Valley, Simon Kuznets, the scientific method, War on Poverty, Washington Consensus, white flight, working poor

He won election to the presidency through a Southern Strategy that appealed to Southern racism and opposition to the Civil Rights Movement. He abandoned Johnson’s War on Poverty and declared a War on Drugs in 1971. He also abandoned the fixed exchange rate of the Bretton Woods system to deal with the strain on the dollar exerted by the expanding war in Vietnam.2 Nixon switched the United States to a floating exchange rate, transferring responsibility for the domestic economy from the federal government, which controls fiscal policy, to the Federal Reserve System, which controls monetary policy. The Fed had been securing the exchange rate for the previous quarter century, and it had to learn how to fulfill its new role. This process was complicated greatly when the Organization of Petroleum Exporting Countries (OPEC) quadrupled the price of oil in 1973.

Bradley, 116–117, 129, 142 Mincer, Jacob, 165 Minimum wage, 62, 72, 79 Minow, Martha, 111, 134 Mobility, 7, 32, 46, 133, 154, 159 Mortality, 33, 39–40, 58, 126, 154 Mortgages bubbles and, 154–155 discrimination and, 117 Fannie Mae and, 138 FIRE sector and, 80 forgiving, 156 Freddy Mac and, 138 Great Migration and, 34 HAMP and, 139–140 hedge funds and, 179n5 housing and, 34, 44–45, 69, 80, 117, 137–140, 154, 156, 179n5 Investment Theory of Politics and, 69 low-wage sector and, 34 race and, 117 reform for, 156 restricted access to, 117 security and, 138 transition and, 44–45 Mundell-Fleming model, 169n3 Murray, Charles, 132 Mutual funds, 31 NAACP, 116–117 National defense, 17–18, 93 National Federation of Independent Business, 97 National Review magazine, 51 National Rifle Association, 97 Native Americans, xi, 84 Neoliberalism, 17, 21–22 New Deal, 21, 52, 65, 80–81, 101, 141 New Federalism, 21–22, 35, 44, 83, 103, 110 New Jim Crow, 27, 49, 104, 154 New Jim Crow, The (Alexander), xvi Newman, Oscar, 131–132 New Yorker magazine, 83, 135 New York Times newspaper, 125 Nineteenth Amendment, 56, 58, 67 Nixon, Richard M. depletion allowance and, 81 floating exchange rate and, 15 Ford and, 168n2 Johnson and, 15, 27, 168n2 Kennedy and, 81 mass incarceration and, 104, 109 military draft and, 16 New Federalism and, 21–22, 35, 44, 83, 103, 110 Powell and, 17, 27, 117 Project Independence and, 16, 71, 143 public education and, 117 Rehnquist and, 95, 142 Roberts and, 142 segregation and, 27 Southern Strategy and, 15, 27, 35, 81, 117, 142 War on Drugs and, xv–xvi, 15, 37–38, 53, 55, 104, 106, 110, 132 Nixon Shock, 169n3 Nobel Prize, 7, 49, 124, 162, 164 North cities and, 132–134 concepts of government and, 88, 94 FTE (finance, technology, and electronics) sector and, 20 Great Migration and, 20, 27–28 (see also Great Migration) Investment Theory of Politics and, 62–66 low-wage sector and, 27–29, 32, 34 manufacturing jobs in, 20 mass incarceration and, 104 public education and, 119, 125 race and, 51–53, 55, 59 unions and, 20 North American Free Trade Agreement (NAFTA), 55 Northeast Corridor, 134 Norway, 149 Obama, Barack, 25, 38, 81–84, 91, 96, 127, 175n12 Occupational Safety and Health Administration (OSHA), 90 Offshoring, 28, 32 Oil, 80–81, 180n13 depletion allowance of, 81 Koch brothers and, 17–19, 83–85, 92, 97, 110–111, 158–159, 169n12, 175n17 OPEC and, 16, 143 Project Independence and, 16, 71, 143 shock of, 16 Oligarchy, 65, 72, 87–89, 93–97, 115, 159 One-percenters CEO salaries and, 24 Reagan and, 22–23 tax cuts for, 22–23 very rich and, 3, 9–12, 22–24, 77–85, 92, 96, 155, 170n28 Organization of Petroleum Exporting Countries (OPEC), 16, 143 Oxymorons, 15, 101, 110-111, 156.


pages: 272 words: 83,798

A Little History of Economics by Niall Kishtainy

"Robert Solow", Alvin Roth, British Empire, Capital in the Twenty-First Century by Thomas Piketty, car-free, central bank independence, clean water, Corn Laws, creative destruction, credit crunch, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Eugene Fama: efficient market hypothesis, first-price auction, floating exchange rates, follow your passion, full employment, George Akerlof, greed is good, Hyman Minsky, inflation targeting, invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, loss aversion, market clearing, market design, means of production, moral hazard, Nash equilibrium, new economy, Occupy movement, Pareto efficiency, Paul Samuelson, prisoner's dilemma, RAND corporation, rent-seeking, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, sealed-bid auction, second-price auction, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade route, Vickrey auction, Vilfredo Pareto, washing machines reduced drudgery, wealth creators, Winter of Discontent

When the supply and demand for currencies bounce around, so do exchange rates. When the value of pesos in dollars moves around a lot it’s hard for a Mexican shopkeeper to know what price to agree for an order of American jeans over the next six months because an affordable dollar price today could be unaffordable in six months if the peso loses value. Some countries live with this: they let their exchange rates move up and down, what’s called a ‘floating’ exchange rate. Others try to stop it moving and ‘peg’ their exchange rates – in other words, fix them at a certain value of a leading currency like the dollar. The hope is that this will bring more certainty to consumers and businesspeople. They know how much they’ll be able to get for their goods abroad and how much foreign goods will cost. A pegged currency creates an opportunity for speculators to make money – by ‘attacking’ the peg.

absolute poverty (i) acid rain (i) adaptive expectations (i) adverse selection (i) advertising (i) agriculture (i), (ii), (iii) aid (i) Akerlof, George (i) alienation (i) Ambrose, St (i) animal spirits (i), (ii), (iii) antitrust policies (i) Apple (i) Aquinas, St Thomas (i), (ii) Aristotle (i) Arrow, Kenneth (i) ascending auction (i) Asian Tigers (i), (ii) Atkinson, Anthony (i), (ii) auction theory (i) auctions (i) Augustine of Hippo, St (i) austerity (i) balance of trade (i) banks and entrepreneurs (i) and interest rates (i) and loans (i) and monopoly capitalism (i), (ii) and speculation (i) see also Britain, Bank of England; central banks; independent central banks; World Bank battle of the methods (i) Becker, Gary (i) behavioural economics (i) benevolent patriarch (i) Beveridge, William (i) big push (i) Black Wednesday (i) bonds (i) bourgeoisie (i), (ii), (iii) brand image (i) Britain Bank of England (i) inflation (i) pegged currency (i) Second World War (i) war with China (i) war with South Africa (i) bubbles (i), (ii) Buchanan, James (i) budget deficit (i) Burke, Edmund (i) capabilities (i) capital (i) and growth (i) Marx on (i) Capital (Marx) (i) Capital in the Twenty-First Century (Piketty) (i) capitalism (i), (ii), (iii) and entrepreneurs (i) and governments (i) and the Great Depression (i) and the Great Recession (i) historical law of (i) Marx on (i) world (i) see also communism Capitalism and Freedom (Friedman) (i) Capitalism, Socialism and Democracy (Schumpeter) (i) capitalists (i), (ii), (iii), (iv) and imperialism (i), (ii), (iii) Marx on (i), (ii), (iii), (iv), (v) carbon tax (i) carbon trading permits (i) Carlyle, Thomas (i), (ii) Castro, Fidel (i), (ii) central banks (i), (ii), (iii), (iv), (v) central planning (i), (ii) chaebols (i) chain of being (i), (ii) Chamberlin, Edward (i) Chaplin, Charlie (i) Chicago Boys (i) Chicago school (i), (ii), (iii), (iv) China, war with Britain (i) Christianity, views on money (i) Churchill, Winston (i) classical dichotomy (i) classical economics (i), (ii), (iii), (iv), (v) coins (i), (ii) Colbert, Jean-Baptiste (i) colonies/colonialism (i), (ii), (iii), (iv) American (i) Ghana (i), (ii) commerce (i), (ii), (iii), (iv) communism (i) and the Soviet Union (i) Communist Manifesto, The (Engels and Marx) (i), (ii) comparative advantage (i), (ii) competition (i), (ii), (iii), (iv) Condorcet, Marquis de (i) Confessions of an Economic Heretic (Hobson) (i) conspicuous consumption (i) constitution (rules) (i) consumers (i), (ii), (iii), (iv) contagion, economic (i) core (i) Corn Laws (i), (ii) Cortés, Hernan (i) cost (i) creative destruction (i) Credit Crunch (i) crime, economic theory of (i) Cuba (i) currency (i), (ii) see also coins currency markets (i), (ii) currency reserves (i) Debreu, Gérard (i) demand law of (i) see also supply and demand demand curve (i) democracy (i), (ii) Democratic Republic of the Congo (i) dependency theory (i) Depression (Great) (i), (ii), (iii), (iv), (v), (vi), (vii) and economic growth (i) and the US central bank (i) descending auction (i) developing/underdeveloped countries (i), (ii) development economics (i) Development of Underdevelopment, The (Frank) (i) diminishing marginal utility (i), (ii) diminishing return to capital (i) discretion (i) discrimination coefficient (i) distribution of income (i), (ii) diversification (i), (ii) dividends (i) division of labour (i) doomsday machines (i) Drake, Sir Francis (i) Drew, Daniel (i) dual economy (i) economic value (i), (ii), (iii), (iv) economics defined (i) normative (i) Economics of Imperfect Competition (Robinson) (i) economies of scale (i) economists (i), (ii), (iii) efficient markets hypothesis (i), (ii), (iii), (iv) efficient/inefficient economic outcome (i) see also pareto efficiency; pareto improvement Elizabeth I (i) Elizabeth II (i) employment, full (i) Engels, Friedrich (i) England’s Treasure by Forraign Trade (Mun) (i) entitlement (i), (ii) entrepreneurs (i), (ii) equilibrium (i), (ii), (iii), (iv), (v) exchange of goods (i), (ii) exchange rates (i) expectations, adaptive/rational (i), (ii), (iii), (iv) exploitation (i), (ii), (iii), (iv), (v) exports (i) and poor countries (i), (ii), (iii) externalities (i), (ii), (iii), (iv) Extraordinary Popular Delusions and the Madness of Crowds (MacKay) (i) failure, market (i), (ii), (iii), (iv) Fama, Eugene (i) famine (i), (ii), (iii), (iv) feminist economics (i) feudalism (i), (ii), (iii), (iv) financial systems (i), (ii) Finer, Herman (i) first price auction (i), (ii) First Welfare Theorem (i), (ii) First World War (i) fiscal policy (i), (ii) floating exchange rate (i) Florence (i) Folbre, Nancy (i) Fourier, Charles (i) framing (i), (ii) France agriculture (i) economic models (i), (ii) revolution (i), (ii), (iii), (iv) and taxation (i) Frank, Andre Gunder (i) free choice (i), (ii) free-market economics (i), (ii), (iii), (iv) free trade (i), (ii), (iii) Friedman, Milton (i), (ii), (iii) full employment (i) game theory (i), (ii), (iii) general equilibrium (i), (ii), (iii), (iv) General Theory of Employment, Interest and Money, The (Keynes) (i) Germany, infant industries (i) Ghana (i), (ii) Gilded Age (i) Global Financial Crisis (i), (ii) global warming (i) Goethe, Johann Wolfgang (i) gold (i), (ii) Golden Age (i) goods and services (i) government, and economies (i), (ii), (iii), (iv), (v), (vi), (vii) Great Moderation (i), (ii) Great Recession (i) Greece (i), (ii), (iii) gross domestic product (i) growth (i) and dependency theory (i) of government (i) and the Great Moderation (i) and Pakistan (i) and population (i) theory (i) Guevara, Ernesto ‘Che’ (i), (ii) guilds (i) Hamilton, Alexander (i) Hansen, Alvin (i) harmony, system of (i) Hayek, Friedrich (i), (ii) hedge funds (i) herds (i) Hicks, John (i) historical law of capitalism (i) HIV/AIDS (i) Hobson, John (i) Homobonus, St (i) human capital (i) human development (i), (ii) Human Development Index (i) imperfect competition (i), (ii) imperialism (i) Imperialism: The Highest Stage of Capitalism (Lenin) (i) imports (i), (ii), (iii) income (i), (ii) and bank loans (i) and capitalism (i) and communism (i) distribution of (i), (ii) and growth (i), (ii) national (i), (ii), (iii), (iv), (v) income per person (i), (ii) independent central banks (i) Industrial Revolution (i), (ii), (iii), (iv), (v) inequality (i), (ii) infant industries (i) inflation (i), (ii), (iii), (iv), (v) information economics (i), (ii), (iii) injection of spending (i) innovations (i), (ii) insurance (i), (ii) interest rates (i) British (i) and monetary policy (i) and recession (i) and usury (i) International Monetary Fund (i) investment (i) and the big push (i) and recession (i), (ii) invisible hand (i), (ii), (iii), (iv), (v) iron law of wages (i) Irrational Exuberance (Shiller) (i) Jefferson, Thomas (i) Jevons, William (i) just price (i) Kahneman, Daniel (i), (ii) Kennedy, John F.


pages: 524 words: 143,993

The Shifts and the Shocks: What We've Learned--And Have Still to Learn--From the Financial Crisis by Martin Wolf

air freight, anti-communist, Asian financial crisis, asset allocation, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, Ben Bernanke: helicopter money, Berlin Wall, Black Swan, bonus culture, break the buck, Bretton Woods, business cycle, call centre, capital asset pricing model, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collateralized debt obligation, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, debt deflation, deglobalization, Deng Xiaoping, diversification, double entry bookkeeping, en.wikipedia.org, Erik Brynjolfsson, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, floating exchange rates, forward guidance, Fractional reserve banking, full employment, global rebalancing, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, inflation targeting, information asymmetry, invisible hand, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, mandatory minimum, margin call, market bubble, market clearing, market fragmentation, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mortgage debt, negative equity, new economy, North Sea oil, Northern Rock, open economy, paradox of thrift, Paul Samuelson, price stability, private sector deleveraging, purchasing power parity, pushing on a string, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, Richard Feynman, risk-adjusted returns, risk/return, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, shareholder value, short selling, sovereign wealth fund, special drawing rights, The Chicago School, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tyler Cowen: Great Stagnation, very high income, winner-take-all economy, zero-sum game

In fact, the outcome has probably been shaped by all these things. It is no doubt also because of the ageing of societies. But that is not a sufficient explanation. Note that many ageing societies do not run large current-account surpluses (consider Italy, for example) and that Germany ran sizeable current-account surpluses before ageing had really set in (prior to German unification). In the case of Japan, a floating exchange rate makes this policy more difficult to sustain than for Germany (as we will see later in this chapter), at least since the latter became part of the Eurozone. That is why Japan has periodically felt obliged to keep the yen down by accumulating foreign-currency reserves.27 The aggressive monetary policies of Abenomics, introduced under Prime Minister Shinzo Abe, may also be an attempt to restore lost growth by improving external competitiveness: between November 2012 (that is, just before he became prime minister for the second time) and July 2013, the JP Morgan broad trade-weighted real exchange rate of the yen fell by 17 per cent.

Other economists have argued for such a policy in the event of crises, among them Keynes with his celebrated suggestion that people be paid to dig up bottles full of pound notes, and Ben Bernanke, when considering policy options confronting Japan in the early 2000s.52 This seems a solution to any long-term problem of structural-demand deficiency. Instead of relying on private-sector credit booms to generate a temporary return to full employment or accept a semi-permanent depression, let the government use its capacity to create money, already accepted when countries moved to floating exchange rates. This is not only what many in the Chicago School would have accepted. It is also the recommendation of those who believe in Modern Monetary Theory (see Chapter Six above). Meanwhile, control over the quantity of money to be printed would be left with the central bank, which would create the amount of money it deemed non-inflationary. The government would be forced to borrow to cover deficits beyond those funded by the central bank.

The international gold standard is just a particularly rigid form of fixed exchange-rate arrangement. If one wants to understand the problems of such arrangements, in modern circumstances, one need merely look at what happened in the 1920s and 1930s and more recently in the Eurozone. Fixed exchange rates are a recipe for instability. For small open economies with flexible labour markets, such as Hong Kong or the Baltic states, this may be better than the instability generated by floating exchange rates. For larger economies the idea that the exchange rate should dictate monetary policy is less sensible. It is also inconceivable that the US would follow such a rule: it did not do so after creation of the Federal Reserve in 1913, even though the dollar was notionally tied to gold until 1971. In brief, the idea that the world will go back to gold-backed money or the international gold-exchange standard is a fantasy.


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War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt by Kwasi Kwarteng

accounting loophole / creative accounting, anti-communist, Asian financial crisis, asset-backed security, Atahualpa, balance sheet recession, bank run, banking crisis, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, California gold rush, capital controls, Carmen Reinhart, central bank independence, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, Deng Xiaoping, discovery of the americas, Etonian, eurozone crisis, fiat currency, financial innovation, fixed income, floating exchange rates, Francisco Pizarro, full employment, German hyperinflation, hiring and firing, income inequality, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, liberal capitalism, market bubble, money: store of value / unit of account / medium of exchange, moral hazard, new economy, oil shock, plutocrats, Plutocrats, Ponzi scheme, price mechanism, quantitative easing, rolodex, Ronald Reagan, South Sea Bubble, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, The Wealth of Nations by Adam Smith, too big to fail, War on Poverty, Yom Kippur War

The problem was the gold link, of which he observed that ‘the mere suggestion that our proposals can be regarded in the light of a return to gold, is enough to make 99 per cent of the people of this country see red’. By contrast, he had noticed that the ‘atmosphere in the House of Lords yesterday [when he made his speech in support of the Bretton Woods proposals] was quite free’ from the rather antagonistic mood of the House of Commons.19 To modern analysts, however, Bretton Woods was a lot more similar to the pre-1914 gold standard than it would be to the world of freely floating exchange rates of the late twentieth century. Like the gold standard, the Bretton Woods system proposed a regime of fixed exchange rates, though it did allow for some devaluation, if ‘fundamental disequilibrium’ occurred. In many ways, Bretton Woods was even more rigid than the old gold standard, as it required capital controls, whereas the old system had not. Even more restrictive was the prohibition on exchanging currencies directly for gold.

As Paul Volcker remembered, Jimmy Carter’s appointments to the ‘main economic posts in the Treasury, the Council of Economic Advisers, and the State Department were of a quite different breed from the monetarists predominant during the later Nixon–Ford years’. Carter’s people all had ‘professional training in economics and had seen substantial governmental service in the 1960s’. These advisers and officials supported ‘floating exchange rates’ and shared, by ‘instinct and experience’, the ‘Keynesian faith in the ability of governments to maximize the performance of the economy and indeed of the market itself’.41 The persistence of inflation in the second half of the 1970s well into the Carter presidency created yet more uncertainty and despondency. The years 1976–8 saw the return of higher inflation.42 Paul Volcker, who would be appointed Chairman of the Federal Reserve by Jimmy Carter in 1979, spoke in 1978 about the recession of 1974 and 1975 which had ‘sprung on an unsuspecting world with an intensity unmatched in the post-World War II period’.

The result of this pressure was that ‘the dollar today [2010] has fallen 75 percent against the yen, and we still have a trading deficit’. China’s successful export policy, its continuing trade surpluses with the United States, had more to do with the ‘trade policies and structure’ of the United States than with the exchange rate. Once again, Chinese officials emphasized the benefits of stability as opposed to the free-floating exchange rates which had been a feature of global currency markets since the collapse of Bretton Woods: ‘A stable yuan is of vital significance to the global economic development and the stability of the international monetary system.’43 The consequence of China’s exporting success was the accumulation of trillions of dollars of reserves. At the beginning of 2012, it was reported that Chinese reserves had slipped 0.6 per cent in the last quarter of 2011.


Globalists: The End of Empire and the Birth of Neoliberalism by Quinn Slobodian

Asian financial crisis, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, collective bargaining, David Ricardo: comparative advantage, Deng Xiaoping, desegregation, Dissolution of the Soviet Union, Doha Development Round, eurozone crisis, Fall of the Berlin Wall, floating exchange rates, full employment, Gunnar Myrdal, Hernando de Soto, invisible hand, liberal capitalism, liberal world order, market fundamentalism, Martin Wolf, Mercator projection, Mont Pelerin Society, Norbert Wiener, offshore financial centre, oil shock, open economy, pattern recognition, Paul Samuelson, Pearl River Delta, Philip Mirowski, price mechanism, quantitative easing, random walk, rent control, rent-seeking, road to serfdom, Ronald Reagan, special economic zone, statistical model, The Chicago School, the market place, The Wealth of Nations by Adam Smith, theory of mind, Thomas L Friedman, trade liberalization, urban renewal, Washington Consensus, Wolfgang Streeck, zero-sum game

Colloque Walter Lipp­mann, Compte-­Rendu des séances du Colloque Walter Lipp­ mann (August 26–30, 1938), vol. 1 of Travaux du centre international d’études pour la renovation du libéralisme (Paris: Libraire de Médicis, 1938). 35. Heilperin himself was an advocate of the return of the gold standard. See Anthony M. Endres, ­Great Architects of International Finance: The Bretton Woods Era (London: Routledge, 2005), 162–173. On the role of the Bellagio Group in advocating the shift to floating exchange rates, see Carol Connell, Reforming the World Monetary System: Fritz Machlup and the Bellagio Group (London: Pickering and Chatto, 2013); Matthias Schmelzer, Freiheit für Wechselkurse und Kapital: Die Ursprünge neoliberaler Währungspolitik und die Mont Pèlerin Society (Marburg: Metropolis, 2010). 36. Jim Cox, Sold on Radio: Advertisers in the Golden Age of Broadcasting (Jefferson, NC: McFarland, 2008), 96. 37.

“Socialist Realism Comes to Light at WTO ­a fter 30 Year Cover-­Up,” Economic Times, March 28, 2008. 122. Craig VanGrasstek, The History and ­Future of the World Trade Organ­ization (Geneva: World Trade Organ­ization, 2013), 539. 123. Olivier Long, “International Trade ­under Threat: A Constructive Response,” The World Economy 1, no. 3 (1978): 257. 124. On the campaigns of Haberler, Fritz Machlup, Milton Friedman, and other economists for floating exchange rates, see Carol Connell, Reforming the World Monetary System: Fritz Machlup and the Bellagio Group (London: Pickering and Chatto, 2013); Robert Leeson, The Eclipse of Keynesianism: The Po­liti­cal Economy of the Chicago Counter-­Revolution (New York: Palgrave, 2000); Matthias Schmelzer, Freiheit für Wechselkurse und Kapital: Die Ursprünge neoliberaler Währungspolitik und die Mont Pèlerin Society (Marburg: Metropolis, 2010). 125.

See also Federation; League of Nations; Multilevel governance; United Nations Gradu­ate Institute of International Studies: as center of neoliberal research, 74, 77, 78, 85, 88, 92, 94, 99, 109, 113, 127–128, 130, 187, 216; faculty at, 244, 245, 278; founding of, 75 Gray, John, 105, 235 ­Great Depression, 58, 64, 69, 71, 87, 107, 154; ­causes of, 46, 55, 57, 69; graphic depiction of, 59; reflection on, 6, 17, 54, 58, 187, 208, 215 371 ­Great Society, 57, 81 Greece, 97 Greenspan, Alan, 1 Gregory, Theodore, 172 Grünberg, Carl, 75 Guardians: of the cybernetic system, 251, 274; of the economic constitution, 214, 251, 275; of the world economy, 22, 194, 275 Guatemala, 139, 193 Gueye, Djeme Momar, 197 Haberler, Gottfried, 8, 99, 147, 164, 190, 207; and business cycle research, 17, 21, 31, 49, 71; on Eu­ro­pean integration, 183, 194, 216; on floating exchange rates, 241; Haberler Method, 72–73, 75, 77, 127; Haberler Report, 183, 191, 198, 200–202, 215, 222, 285; interwar international collaboration, 30, 57, 71–77, 78, 124, 128; and Mises Circle, 48–49; on the NIEO, 221, 253; on trade theory, 41–42, 49–50 Habsburg Empire, 13, 31, 32, 68, 111; dissolu­ tion of, 21, 27, 56, 67, 69, 93, 109–110, 128; as model, 12, 94, 105–106, 112, 144, 264; successor states, 123, 147 Hague Acad­emy of International Law, 11 Hallstein, Walter, 197 Hamilton College, 129 Hanover, 74 Hansen, Alvin, 73 Haq, Mahbub ul, 219 Hardin, Garrett, 239 Harvard Committee for Economic Research, 61 Harvard Economic Ser­v ice, 62–64, 67 Harvard University, 64, 75, 164, 199, 221 Haussmann, Baron George-­Eugène, 32, 47 Havana, 126, 130; ITO Charter, 128–130, 132–134, 318n64 Hayek, F.


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More: The 10,000-Year Rise of the World Economy by Philip Coggan

"Robert Solow", accounting loophole / creative accounting, Ada Lovelace, agricultural Revolution, Airbnb, airline deregulation, Andrei Shleifer, anti-communist, assortative mating, autonomous vehicles, bank run, banking crisis, banks create money, basic income, Berlin Wall, Bob Noyce, Branko Milanovic, Bretton Woods, British Empire, business cycle, call centre, capital controls, carbon footprint, Carmen Reinhart, Celtic Tiger, central bank independence, Charles Lindbergh, clean water, collective bargaining, Columbian Exchange, Columbine, Corn Laws, credit crunch, Credit Default Swap, crony capitalism, currency peg, debt deflation, Deng Xiaoping, discovery of the americas, Donald Trump, Erik Brynjolfsson, European colonialism, eurozone crisis, falling living standards, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, Frederick Winslow Taylor, full employment, germ theory of disease, German hyperinflation, gig economy, Gini coefficient, global supply chain, global value chain, Gordon Gekko, greed is good, Haber-Bosch Process, Hans Rosling, Hernando de Soto, hydraulic fracturing, Ignaz Semmelweis: hand washing, income inequality, income per capita, indoor plumbing, industrial robot, inflation targeting, Isaac Newton, James Watt: steam engine, job automation, John Snow's cholera map, joint-stock company, joint-stock limited liability company, Kenneth Arrow, Kula ring, labour market flexibility, land reform, land tenure, Lao Tzu, large denomination, liquidity trap, Long Term Capital Management, Louis Blériot, low cost airline, low skilled workers, lump of labour, M-Pesa, Malcom McLean invented shipping containers, manufacturing employment, Marc Andreessen, Mark Zuckerberg, Martin Wolf, McJob, means of production, Mikhail Gorbachev, mittelstand, moral hazard, Murano, Venice glass, Myron Scholes, Nelson Mandela, Network effects, Northern Rock, oil shale / tar sands, oil shock, Paul Samuelson, popular capitalism, popular electronics, price stability, principal–agent problem, profit maximization, purchasing power parity, quantitative easing, railway mania, Ralph Nader, regulatory arbitrage, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, Scramble for Africa, Second Machine Age, secular stagnation, Silicon Valley, Simon Kuznets, South China Sea, South Sea Bubble, special drawing rights, spice trade, spinning jenny, Steven Pinker, TaskRabbit, Thales and the olive presses, Thales of Miletus, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, transaction costs, transatlantic slave trade, transcontinental railway, Triangle Shirtwaist Factory, universal basic income, Unsafe at Any Speed, Upton Sinclair, V2 rocket, Veblen good, War on Poverty, Washington Consensus, Watson beat the top human players on Jeopardy!, women in the workforce, Yom Kippur War, zero-sum game

The gold standard revived The war had brought a lot of economic and financial, as well as physical, destruction. So policymakers had a hankering to return to pre-war conditions. In particular, after the surge in wartime inflation, they wished to see a return to the gold standard. The rapid rise and fall of prices in the immediate aftermath of the war was unsettling, and suggested that floating exchange rates were a cause of instability. Furthermore, a fixed exchange rate was perceived to be a good form of discipline, stopping governments from cheating creditors by repaying them in depreciated currency. In Britain, many believed that the decision to return to the gold standard after the Napoleonic Wars had been the key to the country’s 19th-century success. But a return to the gold standard was deeply problematic.

All this happened because the developed world avoided many of the mistakes that followed the First World War. After 1943, it became fairly clear that the Germans would be defeated and the Allies started to plan a post-war settlement. Among the first issues to be settled was the monetary system. A return to the full gold standard seemed out of the question, not least because the US economy was even more dominant than before. But politicians worried about adopting floating exchange rates, which seemed a recipe for chaos. A conference was duly organised at the Bretton Woods hotel in the mountains of New Hampshire. Harry Morgenthau, the US Treasury secretary, said at the opening ceremony that “We came here to work out methods which would do away with the economic evils – the competitive currency devaluations and destructive impediments to trade – which preceded the present war.”1 The British were represented by their top economist, John Maynard Keynes, and the Americans by Harry Dexter White, a Treasury official who was passing secrets to the Soviet Union, according to KGB archives.

The underlying problem with the snake was that the West German economy was stronger than many of the others in the group and there was a natural tendency for the mark to rise. Despite two revaluations of the mark, the French withdrew from the system in 1974 and again in 1976.74 The first attempt to align European exchange rates thus proved a failure. Milton Friedman, the US economist, argued that floating exchange rates could be an improvement on a fixed rate system, provided that flexible rates were accompanied by a policy regime that could control inflation. First of all, he was a great believer in free markets, which would be more likely to establish the most appropriate exchange rate than central bankers or politicians. Second, fixed rate systems required a lot of adjustment in wages and prices. “It is far simpler to allow one price to change, namely, the price of foreign exchange, than to rely upon changes in the multitude of prices that together constitute the internal price structure”, he wrote.75 By and large, since the 1970s, the big global currencies, the dollar, yen and mark (later euro) have floated against each other.


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Grave New World: The End of Globalization, the Return of History by Stephen D. King

9 dash line, Admiral Zheng, air freight, Albert Einstein, Asian financial crisis, bank run, banking crisis, barriers to entry, Berlin Wall, Bernie Sanders, bilateral investment treaty, bitcoin, blockchain, Bonfire of the Vanities, borderless world, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collateralized debt obligation, colonial rule, corporate governance, credit crunch, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, debt deflation, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, Edward Snowden, eurozone crisis, facts on the ground, failed state, Fall of the Berlin Wall, falling living standards, floating exchange rates, Francis Fukuyama: the end of history, full employment, George Akerlof, global supply chain, global value chain, hydraulic fracturing, Hyman Minsky, imperial preference, income inequality, income per capita, incomplete markets, inflation targeting, information asymmetry, Internet of things, invisible hand, joint-stock company, Kickstarter, Long Term Capital Management, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, moral hazard, Nixon shock, offshore financial centre, oil shock, old age dependency ratio, paradox of thrift, Peace of Westphalia, plutocrats, Plutocrats, price stability, profit maximization, quantitative easing, race to the bottom, rent-seeking, reserve currency, reshoring, rising living standards, Ronald Reagan, Scramble for Africa, Second Machine Age, Skype, South China Sea, special drawing rights, technology bubble, The Great Moderation, The Market for Lemons, the market place, The Rise and Fall of American Growth, trade liberalization, trade route, Washington Consensus, WikiLeaks, Yom Kippur War, zero-sum game

The Italian lira, meanwhile, fell almost 27 per cent against the US dollar and also ended up with an inflation rate close to 14 per cent. THE IMF RIDES TO THE RESCUE With all this monetary chaos, it would be reasonable to think that the IMF would be in trouble, perhaps heading in monetary terms towards oblivion, in much the same way as the League of Nations had done in diplomatic terms four decades earlier. Yet, as the 1970s progressed, it became increasingly apparent that, with a move to floating exchange rates, the IMF’s role was, if anything, strengthening. First, the dollar’s heightened volatility meant that reserve managers elsewhere in the world craved an alternative monetary store of value that would be neither dollars nor gold. The IMF’s Special Drawing Rights (SDRs) – known colloquially as ‘paper gold’ – proved to be just the ticket. Representing a basket of major currencies, they allowed reserve managers to escape the heightened dollar volatility associated with the vagaries of US monetary policy.

A country can commit to unrestrained cross-border capital flows and a stable exchange rate, but only if it relinquishes control of its inflation rate: if the currency is under upward pressure thanks to strong capital inflows, interest rates will have to come down to prevent the currency from rising. By cutting interest rates, however, inflation will in all likelihood end up higher. Finally, and for the sake of completeness, a country can choose its own inflation rate and welcome cross-border capital flows, but only if it is prepared to accept a floating exchange rate. In other words, a policymaker can commit to only two out of three key policy objectives, even if it might seem desirable to embrace them all. It is impossible to commit to free-flowing capital across borders and, at the same time, deliver both a stable exchange rate and a stable inflation rate. The three simply cannot be achieved simultaneously. THE 1980S POLICY COORDINATION EXPERIMENT In the 1980s, attempts were made to deal with this dilemma – or, more accurately, trilemma – through so-called international policy coordination.


pages: 322 words: 87,181

Straight Talk on Trade: Ideas for a Sane World Economy by Dani Rodrik

3D printing, airline deregulation, Asian financial crisis, bank run, barriers to entry, Berlin Wall, Bernie Sanders, blue-collar work, Bretton Woods, BRICs, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, central bank independence, centre right, collective bargaining, conceptual framework, continuous integration, corporate governance, corporate social responsibility, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Donald Trump, endogenous growth, Eugene Fama: efficient market hypothesis, eurozone crisis, failed state, financial deregulation, financial innovation, financial intermediation, financial repression, floating exchange rates, full employment, future of work, George Akerlof, global value chain, income inequality, inflation targeting, information asymmetry, investor state dispute settlement, invisible hand, Jean Tirole, Kenneth Rogoff, low skilled workers, manufacturing employment, market clearing, market fundamentalism, meta analysis, meta-analysis, moral hazard, Nelson Mandela, new economy, offshore financial centre, open borders, open economy, Pareto efficiency, postindustrial economy, price stability, pushing on a string, race to the bottom, randomized controlled trial, regulatory arbitrage, rent control, rent-seeking, Richard Thaler, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, Sam Peltzman, Silicon Valley, special economic zone, spectrum auction, Steven Pinker, The Rise and Fall of American Growth, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, total factor productivity, trade liberalization, transaction costs, unorthodox policies, Washington Consensus, World Values Survey, zero-sum game, éminence grise

The University of Michigan economist Justin Wolfers cheered the consensus in his New York Times blog.1 The virulent public debate about whether fiscal stimulus works, he complained, has become totally disconnected from what experts know and agree on. Economists agree on many things that are often politically controversial. The Harvard economist Greg Mankiw listed some of them in 2009.2 The following propositions garnered support from at least 90 percent of economists: import tariffs and quotas reduce general economic welfare; rent controls reduce the supply of housing; floating exchange rates provide an effective international monetary system; the United States should not restrict employers from outsourcing work to foreign countries; and fiscal policy stimulates the economy when there is less than full employment. This consensus about so many important issues contrasts rather starkly with the general perception that economists rarely agree on anything. “If all the economists were laid end to end,” George Bernard Shaw famously quipped, “they would not reach a conclusion.”

The proposition that trade restrictions reduce economic welfare is certainly not generally valid, and it is violated when certain conditions—such as externalities or increasing returns to scale—are present. Moreover, it requires that economists make value judgments on distributional effects, which are better left to the electorate itself. Likewise, the proposition that rent controls reduce the supply of housing is violated under conditions of imperfect competition. And the proposition that floating exchange rates are an effective system relies on assumptions about the workings of the monetary and financial system that have proved problematic; I suspect a poll today would find significantly less support for it. Consider other issues of the day. The widely held presumption that minimum wages are damaging to employment carries considerably less weight today because of mounting evidence showing mixed results; there are models under which minimum wages either do not reduce employment or increase it.


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The Euro and the Battle of Ideas by Markus K. Brunnermeier, Harold James, Jean-Pierre Landau

Affordable Care Act / Obamacare, asset-backed security, bank run, banking crisis, battle of ideas, Ben Bernanke: helicopter money, Berlin Wall, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, collective bargaining, credit crunch, Credit Default Swap, currency peg, debt deflation, Deng Xiaoping, different worldview, diversification, Donald Trump, Edward Snowden, en.wikipedia.org, Fall of the Berlin Wall, financial deregulation, financial repression, fixed income, Flash crash, floating exchange rates, full employment, German hyperinflation, global reserve currency, income inequality, inflation targeting, information asymmetry, Irish property bubble, Jean Tirole, Kenneth Rogoff, Martin Wolf, mittelstand, money market fund, Mont Pelerin Society, moral hazard, negative equity, Neil Kinnock, new economy, Northern Rock, obamacare, offshore financial centre, open economy, paradox of thrift, pension reform, price stability, principal–agent problem, quantitative easing, race to the bottom, random walk, regulatory arbitrage, rent-seeking, reserve currency, road to serfdom, secular stagnation, short selling, Silicon Valley, South China Sea, special drawing rights, the payments system, too big to fail, union organizing, unorthodox policies, Washington Consensus, WikiLeaks, yield curve

The discussion of the trilemma thus serves as a Weberian ideal type rather than an exposition of the world as it actually is.53 But France and Germany tugged to be in different parts of the triangle. Economists and policy makers alike have paid special attention to countries with debt issued in a foreign currency, and this was an issue that became a central component of the euro crisis. The fact that debt has to be serviced in a foreign currency puts a substantial constraint on monetary policy freedom, even in a world with floating exchange rates and freely flowing capital. Still, the trilemma is useful as a first-pass organizing device, and history provides us with numerous useful examples of how the underlying trade-offs were resolved in the past. Gold Standard The gold standard was the dominant international exchange rate system between the mid-nineteenth century and the early to mid-twentieth century, and many modern commentators make analogies between the gold standard and the European currency union, in that both suppressed the autonomy of monetary policy.

Interestingly, these patterns very much resemble the buildup of imbalances within the euro area prior to the eruption of the euro-area crisis (with the role of Italy being taken by many periphery economies). In the end, the Bretton Woods system collapsed; it simply did not incorporate a sustainable and credible way of dealing with the adjustment problem. Afterward, the global exchange rate system started to move very close to the German ideal: free capital flows and floating exchange rates. Later (in the 1980s), this became part of the Washington Consensus (which, interestingly, was also pushed by various French politicians, for example, Jacques Delors), as we discuss in chapter 14. European Exchange Rate Mechanism In Europe, however, matters continued to look different. European governments felt that volatile intra-European exchange rates would be detrimental to the European project, and so, in 1978, they launched the European Exchange Rate Mechanism (ERM for short), an attempt to recreate the Bretton Woods system in a European context.

The approach would also include a standardized administrative framework to ensure that similar standards are applied across European countries to the classifying of workers as unemployed. OPTIMAL CURRENCY AREA WITHOUT FISCAL UNION While Peter Kenen stressed the importance of a fiscal union, other academic contributors to the optimal currency area literature worked out conditions under which asymmetric shocks can be dealt with, even absent floating exchange rates and a fiscal redistribution scheme. Others questioned the usefulness of exchange rate movements altogether; for these economists, giving up exchange rate flexibility is no big sacrifice. What asymmetric shock absorbers are available—other than exchange rate flexibility and fiscal redistributions? Robert Mundell argued that the free movement of labor and capital renders an economic region an optimal currency area, as this mobility can mitigate asymmetric shocks and hence make exchange rate adjustments largely expendable.9 In 1999, he received the Nobel Prize in Economics for this insight and other contributions.


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Austerity: The History of a Dangerous Idea by Mark Blyth

"Robert Solow", accounting loophole / creative accounting, balance sheet recession, bank run, banking crisis, Black Swan, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, deindustrialization, disintermediation, diversification, en.wikipedia.org, ending welfare as we know it, Eugene Fama: efficient market hypothesis, eurozone crisis, financial repression, fixed income, floating exchange rates, Fractional reserve banking, full employment, German hyperinflation, Gini coefficient, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, information asymmetry, interest rate swap, invisible hand, Irish property bubble, Joseph Schumpeter, Kenneth Rogoff, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, Long Term Capital Management, market bubble, market clearing, Martin Wolf, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Occupy movement, offshore financial centre, paradox of thrift, Philip Mirowski, price stability, quantitative easing, rent-seeking, reserve currency, road to serfdom, savings glut, short selling, structural adjustment programs, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, unorthodox policies, value at risk, Washington Consensus, zero-sum game

Austerity as Policy in the USA: 1921–1937 Rather than a slump after World War I, the United States experienced a boom as pent-up demand and massively expanded money supplies erupted from within war-shocked economies around the world. The boom was, however, short-lived, and in the continental European economies it was accompanied by significant inflation and, in some cases, a hard landing. No slump followed in the United States, however, for an unexpected reason—floating exchange rates in Europe (most countries were off gold) allowed countries to deflate externally instead of through domestic prices—and so recovery followed rapid disinflation.17 The Roaring Twenties began with a bump in Europe but not the United States, precisely because the Americans were not on gold. The early warning lights for the United States were blinking, however, in the form of falling agricultural prices and an increasingly volatile banking sector.

These efforts to get us out of this mess may not be popular, but one, or both, is coming. The End of Banking The story of the crisis reconstructed in chapters 2 and 3 can, and perhaps should, be seen in a bigger context. At the end of the Bretton Woods era, when the United States finally went off gold in 1971, states around the world had to adjust to what Eric Helleiner has called “the reemergence of global finance.”3 Floating exchange rates, deregulation, disintermediation, and the rest, which made finance the most profitable sector of the American and British economies by the 2000s, was the new order of things. But what was it all really based upon? After all, finance is most properly thought of as a part of the information system of the economy: linking borrowers and lenders while sitting in the middle collecting a fee. It’s not an industry in the traditional sense, and it certainly should not have been producing 40 percent of corporate profits in the United States on the eve of the crisis—so why was it able to do just that?


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Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis by Anatole Kaletsky

"Robert Solow", bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Black Swan, bonus culture, Bretton Woods, BRICs, business cycle, buy and hold, Carmen Reinhart, cognitive dissonance, collapse of Lehman Brothers, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, Edward Glaeser, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, F. W. de Klerk, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, global rebalancing, Hyman Minsky, income inequality, information asymmetry, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kickstarter, laissez-faire capitalism, Long Term Capital Management, mandelbrot fractal, market design, market fundamentalism, Martin Wolf, money market fund, moral hazard, mortgage debt, Nelson Mandela, new economy, Northern Rock, offshore financial centre, oil shock, paradox of thrift, Pareto efficiency, Paul Samuelson, peak oil, pets.com, Ponzi scheme, post-industrial society, price stability, profit maximization, profit motive, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, statistical model, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, Vilfredo Pareto, Washington Consensus, zero-sum game

As long as the laissez-faire economics of Capitalism 3.3 was dominant, it was impossible for the G7, the IMF, the World Trade Organization, or any other international forum to engage in serious discussions about currencies and other issues of global management. Until the emergency meetings that followed the Lehman crisis, all that happened in such international gatherings was that the U.S., British, and German delegates felt obliged by their ideologies to preach the gospel of free-floating exchange rates and to repudiate all government intervention in currency markets at all times. By contrast, China and other emerging economies, quietly backed by Japan, France, and Italy, by contrast insisted that currencies and capital flows were government prerogatives too important to be left to turbulent and unpredictable markets. All discussions of international monetary issues were thus a dialogue of the deaf.

The theoretical benefits of free trade and comparative advantage will be counterbalanced explicitly by other economic objectives—initially the imperative of job creation after the recession and later the desirability of preserving a diversified industrial structure. Third, the pressure to coordinate macroeconomic and currency policies among the major trading economies—America, Europe, China, and Japan—will become irresistible. Such coordination will have major implications for the post-Bretton Woods system of floating exchange rates and for the governance of global political and economic institutions—two issues discussed at the end of this chapter. Limits to Growth and Physical Resources The market-knows-best philosophy of Capitalism 3.3 assumed that there could be no constraints on the growth of the world economy. If any physical or environmental limits to growth did appear, the market would soon send the right price signals to ensure that these obstacles were automatically avoided.


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The Making of an Atlantic Ruling Class by Kees Van der Pijl

anti-communist, banking crisis, Berlin Wall, Boycotts of Israel, Bretton Woods, British Empire, business cycle, capital controls, collective bargaining, colonial rule, cuban missile crisis, deindustrialization, deskilling, diversified portfolio, European colonialism, floating exchange rates, full employment, imperial preference, Joseph Schumpeter, liberal capitalism, mass immigration, means of production, North Sea oil, plutocrats, Plutocrats, profit maximization, RAND corporation, strikebreaker, trade liberalization, trade route, union organizing, uranium enrichment, urban renewal, War on Poverty

In May, Pompidou and Heath rejected the offer to meet with Nixon in the framework of a conference of Atlantic leaders as ‘premature’.43 The Nixon/Kissinger/Connally policy destroyed the Atlantic constraint and precipitated the crisis of the mode of accumulation which had developed under it. In the monetary field, the unilateral dollar policy provided the liquidity for a global restructuration of capital and at the same time put the United States at an advantage. As Parboni writes, ‘The system of floating exchange rates also eliminated any need for the United States to control its own balance of payments deficit, no matter what its source, because it was now possible to release unlimited quantities of non-convertible dollars into international circulation’.44 The October War in the Middle East provided the Americans with an opportunity to force compliance with the new American international concept on the part of all Western European countries except France.

As Parboni has argued, American supremacy henceforward rested on the fact that it could resort to such devaluations without seeing them eroded again by inflation due to more expensive imports. On the other hand, as private international dollar liquidity grew explosively after 1971, involuntary credit from the rest of the world not only financed the American deficit, but all countries turned to the booming capital markets to finance their deficits now that the regime of floating exchange rates suspended the central banks’ function of intervening in foreign money markets.52 The financing rather than balancing of deficits opened enormous markets for bank capital, and eventually, for all other forms of money-capital as well. The liberation of banks from the Keynesian controls imposed on them in the 1930s on both sides of the Atlantic still was part of the unifying trend of the mid 1960s, spurred on by the Kennedy offensive.


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Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined by Lasse Heje Pedersen

activist fund / activist shareholder / activist investor, algorithmic trading, Andrei Shleifer, asset allocation, backtesting, bank run, banking crisis, barriers to entry, Black-Scholes formula, Brownian motion, business cycle, buy and hold, buy low sell high, capital asset pricing model, commodity trading advisor, conceptual framework, corporate governance, credit crunch, Credit Default Swap, currency peg, David Ricardo: comparative advantage, declining real wages, discounted cash flows, diversification, diversified portfolio, Emanuel Derman, equity premium, Eugene Fama: efficient market hypothesis, fixed income, Flash crash, floating exchange rates, frictionless, frictionless market, Gordon Gekko, implied volatility, index arbitrage, index fund, interest rate swap, late capitalism, law of one price, Long Term Capital Management, margin call, market clearing, market design, market friction, merger arbitrage, money market fund, mortgage debt, Myron Scholes, New Journalism, paper trading, passive investing, price discovery process, price stability, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, Renaissance Technologies, Richard Thaler, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, selection bias, shareholder value, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stocks for the long run, stocks for the long term, survivorship bias, systematic trading, technology bubble, time value of money, total factor productivity, transaction costs, value at risk, Vanguard fund, yield curve, zero-coupon bond

Bubbles are not the only form in which reflexivity manifests itself. They are just the most dramatic and the most directly opposed to the efficient market hypothesis; so they do deserve special attention. But reflexivity can take many other forms. In currency markets, for instance, the upside and downside are symmetrical so that there is no sign of an asymmetry between boom and bust. But there is no sign of equilibrium either. Freely floating exchange rates tend to move in large, multi-year waves. The most important and most interesting reflexive interaction takes place between the financial authorities and financial markets. While bubbles only occur intermittently, the interplay between authorities and markets is an ongoing process. Misunderstandings by either side usually stay within reasonable bounds because market reactions provide useful feedback to the authorities, allowing them to correct their mistakes.

Consistent with this, Ahern and Sosyura (2014) find that “fixed exchange ratio bidders dramatically increase the number of press releases disseminated to financial media during the private negotiation of a stock merger, compared to floating exchange ratio bidders, who do not have an incentive to manage their media during the merger negotiation. This effect is associated with short-lived increases in both media coverage and bidder valuation.” Furthermore, they find that floating-exchange rate bidders disseminate more news around the pricing period, perhaps trying to talk up their stock price when it matters the most. Merger Arbitrage Portfolio Portfolio construction is an important part of merger arbitrage. The merger arbitrage manager must decide which merger targets to buy and how to size the positions. To do this, the merger arbitrage manager must first consider the available universe of mergers at any given time.


pages: 1,057 words: 239,915

The Deluge: The Great War, America and the Remaking of the Global Order, 1916-1931 by Adam Tooze

anti-communist, bank run, banking crisis, British Empire, centre right, collective bargaining, Corn Laws, credit crunch, failed state, fear of failure, first-past-the-post, floating exchange rates, German hyperinflation, imperial preference, labour mobility, liberal world order, mass immigration, Mikhail Gorbachev, Monroe Doctrine, mutually assured destruction, negative equity, price stability, reserve currency, Right to Buy, the payments system, trade route, transatlantic slave trade, union organizing, zero-sum game

As sterling plunged, Britain was followed by the empire and all of its smaller trading partners. The initial reaction to the suspension of the gold standard was one of shock. But, within a year as the pound stabilized at a new and far more competitive level, Britain’s National Government, still headed by MacDonald, would discover that for a country with some degree of international credibility, a free-floating exchange rate offered not disaster but the possibility of a creative reinvention of economic liberalism.38 With its banking system intact, low interest rates delivered an effective stimulus to the British recovery. When compared to either the US or continental Europe, the British experience of the 1930s was far from dismal. But Britain’s discovery of what Keynes was to dub ‘real liberalism’ had wider consequences.

E. 380 League of Nations 4, 221–2, 231, 395, 470, 515–16 and the armistice 220, 222–3, 228 and the Berne conference 243 and Britain 258, 259–61, 262–3, 264–5, 266, 267, 268–70, 271, 455, 470 and China 261, 328, 330 and the Corfu crisis 447 Covenant drafting 255–6, 259–67, 271, 392 and Danzig 282 and democracy 243, 258 and disarmament 264–5 enforcement mechanisms 264–7 and fears of an Anglo-American condominium 257–8 and France 257–8, 261, 262, 263, 264–5, 266–8, 271, 277, 287, 325–6, 470, 492–3 and freedom of the seas 268–70 Geneva Protocols 470–71 and Germany 313, 315–16; disarmament talks withdrawal by Hitler 506 and the Hague Peace Arbitration Treaties 267 and human equality 324–5 and Japan 324–6, 329, 499 proposal as vehicle of international financial settlement 268 and racial non-discrimination 392 Saint-Germain Treaty and the League Covenant 330 and Silesia 286 and the US see United States of America: and the League of Nations Versailles and the League Covenant 255–6, 259–70, 271, 324–6, 335 and Wilson 16, 53, 54, 222–3, 243, 255–6, 259–63, 264, 266, 269–70, 277, 325, 326, 337, 516 League to Enforce Peace 45 Lebanon 193 Leffingwell, Russell C. 301, 345 Left Socialist Revolutionaries, Russia 86, 110–11, 118, 138, 157, 167 Ambassador Mirbach and the uprising of 164–5 Legien, Carl 313 Lenin, Vladimir Ilyich 10, 50, 71–2, 79–80, 83, 413, 418 at All-Russian congress (1918) 138, 141 April theses 71–2 and Asia 414–15 assassination attempt (August 1918) 168 balancing of imperialist powers strategy 151, 152, 153, 157, 234, 418 and the Bolshevik surrender 132, 136 Brest-Litovsk peace agreement see Brest-Litovsk Treaty and the ‘class struggle’ 128–9 class terror 242 and the Comintern 413, 414–15 as critic of revolutionary defensists 71–2, 110 death 233 Declaration of Rights 114 drive for one-party dictatorship 137–8 economic cooperation proposal with, and shift towards, Germany 151–2, 156–7, 159, 164, 166, 170, 200 economic cooperation proposal with the US (May 1918) 153 Entente relations after the armistice: conciliation concerns 236; and the Princes’ Islands conference proposal 236 at Fourth All-Russian congress 138, 164 ‘Imperialism, the Highest Stage of Capitalism’ 50 and Japan 146 and Keynes 295 ‘Land, Bread and Peace’ slogan 86 martial law declaration (May 1918) 157 and mass terror 165 misreading of logic of war 142 New Economic Policy 423, 424, 435, 483 October Revolution 83–6 peace demands 24, 132, 133 ‘People from Another World’ 128 post-armistice challenges 234–5 and Sinn Fein 79 and Soviet gold reserves 427 speech of 29 July 1918 to party’s Central Committee 165–6 SR mocking by 128 and the suppression of Constituent Assembly 128 views: of capitalism 141; of history 141–2; of imperialist war 142 and Wilson 10, 17, 21, 109, 146; 14 Points manifesto 123 Li Yuanhong 91–2, 98, 100–101 Liberal Party, Britain see Britain and the United Kingdom: Liberal Party liberalism and the 1920s 9 and the corrupt ‘old world’ 17 economic liberalism with free-floating exchange rate 501 embedded market-based 488 free trade 13, 14, 75, 501 as guard against resurgence of imperialism 488 imperial liberalism 15–16, 375, 383–93 interwar derailment of 17–21; and the 1918 summer politics of intervention 156–70; and the ‘Dark Continent’ model 17–18, 20, 26; and the destructive >force of imperialism 19–23; and the hegemonic crisis model 18–20, 26 and Japan 259 Keynesian ‘real liberalism’ 501 laissez-faire 300 New World support for European 312 and the Open Door 15–16, 44, 103, 205, 397, 405 and race 392–3 sentimental 272 and ‘Western values’ 10 Wilson on 232–3 and Wilsonian propaganda 17 and Wilson’s 14 Points manifesto 119–23, 198, 233 World War I and the coalition of liberal powers 511 see also democracy Liberty Bonds/Loans 206–7, 208, 215, 216, 342, 343, 344 Libya 233 Liebknecht, Karl 131, 238–9 Liga Patriotica 353 Lincheng 406 Lincoln, Abraham 41 Lindsay, Sir Ronald 507 Lithuania 114, 116, 139, 411 declaration as a republic 232 Livonia 167 Lloyd George, David, Ist Earl 3, 21, 42, 178–9, 432, 436 and 1917 joint conference of US and British War Cabinet 196–8 1918 election 245 American appeal, over Wilson’s head 203 as an exponent of liberal Empire 179 and Armenia 378 and Bohemia 281 and the Bolsheviks 235–6, 411 and Brest-Litovsk 109 on the British Empire 392 and British wages 246 Cannes Conference 429–30 charisma 173–4 Coalition government 40, 48–9, 245–9 and Danzig 282 and deflation 359 Democratic Programme of Reconstruction 248 end of premiership 438 Fontainebleau memorandum 285 and France 59; Franco-American clashes 298 Genoa Conference see Genoa Conference and German reparations 249–50, 293, 314 and Germany’s appeal for credit 427–8 and Hitler 306 and the ideological leadership of the war 197–8 and India 181, 387, 388, 389 and the Inter-Allied Conference (November 1917) 116, 197 and Ireland: conscription 192; Home Rule 191, 192; threat of massive repression 376 and the Middle East 195, 378, 381, 382 and the Monroe doctrine 269 and Mussolini 306 as pioneer of democracy 62 and Poincaré 431, 454 and the Poles 285 reflections on the war and its aftermath 5 and the risk of British dependence on the US 207 and the Romanovs 74 and the Russian famine 424 scheme to restore eastern European economies 428–9 and self-determination 120 and the Siberian intervention 159–60, 170 and the tax system 248 and trade unions 244 ‘trench vote’ encouragement 246 and Turkey 381, 382 and Versailles 249–50, 282, 307, 314, 328 war aims declaration 197, 244 war strategy 181 and Wilson 62, 158–9, 203, 224, 243, 244, 269–70, 335 and working class militancy 246–8, 359 and Zionism 195 Locarno Treaty 4, 23, 462 Lockhart, Bruce 145, 157, 160, 168 Lodge, Henry Cabot 231, 334, 335, 336 London 1916 economic conference 290 disorder, winter of 1918–1919 356 gold supplies 209 World Economic Conference 504, 506 London Conference (1924) 461 London Empire Conference 394–6 London Naval Conference (1930) 474, 486, 490–93, 499, 512 London Reparations Ultimatum 368, 371–2 London Treaty 116, 176, 177, 178, 306–7, 308, 310, 438 Lossow, Otto von 148 Louis XIV 273 Lowther, James 183, 185 Lucknow agreement 181, 188, 384, 391–2 Ludendorff, Erich 22, 24, 43, 47–8, 57, 82, 111, 129, 135, 140, 148, 153, 155, 219 aims for a dependent Russian state 161 attack on British front line 140 and the Bad Homburg conference 133 and Brest-Litovsk 118, 131 and the British in Murmansk 166 defence of Kaiser 225 desire to crush Soviet regime 161, 170 and Finland 150–51 and the Jews 135 and Petrograd 167 and Poland 135 and the SA 451 and the Supplementary Treaty 167 Lusitania 34, 43 Luther, Hans 460 Lüttwitz, Walther von 318–19 Luxemburg, Rosa 166, 167, 237, 238–9 Lwow, siege of 417 McAdoo, William Gibbs 52, 105, 207, 208, 291, 347 Macaulay, Thomas Babington, 1st Baron 391 MacDonald, Ramsay 26, 241, 244, 245, 455–6, 457, 470, 489 and Britain’s leaving the gold standard 500–501 and Brüning 495 on cessation of US debt payments 507 and French non-cooperation with Hoover proposals 496 and Hoover 474, 504 and the London Naval Conference 491–2 machine guns 156, 202, 204 McKenna, Reginald 48, 465 MacMurray, John V.

N. 414, 415, 416 Islamic army 416, 418 Royal Air Force 446 Royal Navy 1931 battleship construction 490 battle of Jutland 35 British Admiralty 34, 194, 365, 394 and China 481–2 cut in spending (1919) 364–5 and the defence of France 491 ‘navalism’ challenge to US 45 post-war dominance 374, 398 and the proposition of an imperial navy 394–5 and Soviet vessels in eastern Mediterranean 438 and US claim to naval dominance 269 and the Washington Conference 398, 401 Ruhr 1919 uprising 319 1923 crisis 24 French 1922 invasion and occupation 440–46, 447–9, 452–7, 459, 473 and Hitler 450, 452 Red Army 319, 337 starvation 443, 447 Russia 1917 Revolution 68–72, 73, 79–80; October Revolution 83–6; spring democratic revolution 189 abandonment of War 133 Bolshevism see Bolshevism/Bolsheviks Brest-Litovsk see Brest-Litovsk Treaty and Britain see Britain and the United Kingdom: and Russia/USSR Brusilov offensive 46–7, 70 Central Powers’ victory over 11 and China see China: and Russia/USSR civil war 142, 165, 173, 422 coal 108 Constituent Assembly 69, 83–5, 85, 86, 125; Bolshevik violent suppression of 127–8 currency 422 death penalty 69, 83 Declaration of the Rights of the People of Russia 114 democracy: 1917 spring democratic revolution 189; Allied intervention in Siberia on behalf of 156–70; Constituent Assembly elections (1917) 84–5, 85; democratic renewal (1917) 68–70; and the Entente as a democratic coalition 69–73; war grave of 76–87; and Wilson 145 Duma revival 42 Entente relations and membership see Entente: and Russia/ USSR famine 12, 423, 424, 425 and France see France/the French: and Russia/USSR and Germany see Germany: and Russia/USSR gold reserves 51 hyperinflation 212 and independence movements throughout the old Tsarist Empire 234–5 and Japan see Japan: and Russia/USSR Jews 69 Kronstadt rebellion 422–3 Left Socialist Revolutionaries see Left Socialist Revolutionaries, Russia Manchurian railway system rights 420 Menshevism see Menshevism/Mensheviks military spending 514 nationalism 150, 411 and the Ottoman Empire 193, 194 Petrograd formula for peace 71, 74, 76–8, 79, 115, 124, 138, 183 Provisional Government 68, 70, 71, 75–6, 79, 80, 81, 110, 125 Red Guards see Red Guards (Russia) repudiation of foreign debts 129, 425 requisitioning 422, 423 revolutionary defensism 71–2, 76, 82, 87, 110, 118, 122 Russian Army 69, 71, 81–3; Imperial 46; rebellion of peasant soldiers 82–3 self-determination 79, 108, 110, 114, 116, 125–6, 130–31 Siberia see Siberia Socialist Revolutionaries see Socialist Revolutionaries (SRs, Russia) and the Soviet regime see Soviet Union Soviets see Soviets (assemblies) strikes 247 Sykes-Picot agreement 193 treaty of the USSR (28 December 1922) 417–18 Tsarist autocracy 24, 59, 69, 73, 93–4, 276 Tsar’s abdication 68 and the Ukraine 124–6 and the US see United States of America: and Russia/USSR weakening between 1918 and 1920 21 Russian empire 5, 21 Ruthenia 132 Saar 277, 278, 279, 288, 289, 366, 447, 473 Saint-Germain Treaty 330 St Quentin, battle of 140 Saionji Kinmochi, Prince 144, 258–9, 321, 327, 478, 491 Salisbury, James Gascoyne-Cecil, 4th Marquess of 184 Salter, Arthur 205, 290 Salvemini, Gaetano 310 Saxony 232, 274, 418, 449–50 Scapa Flow 271, 317, 395 Schacht, Hjalmar 460, 506 Scheidemann, Philipp 114, 221, 312, 313, 315, 317, 426 Schurman, Jacob Gould 405, 406 seas, freedom of the 16, 45, 53, 75, 120, 226, 228, 257, 268–70 Seattle general strike (February 1919) 340 Second Moroccan Crisis, Agadir 59 Second Socialist International, Berne 240, 241–3, 409 Second World War see World War II Seeckt, Hans von 66, 147, 450 Seiyukai 96, 105, 144, 355, 363, 399, 467, 485, 491, 511 Selborne, William Palmer, 2nd Earl of 191 Semana Tragica 353 Senegal 227 Serbia/Serbs Entente demands for evacuation of 52 German complicity in Austria’s ultimatum to Serbia 313 and the League of Nations 261 threat of national extinction during war 5, 48 and Versailles 255 Serrati, Giacinto Menotti 414 Severing, Carl 432 Sèvres, Treaty of 381–2, 385 Shandong, Japanese occupation and claims 33, 89, 92–3, 99, 485 and Versailles 321, 323, 326–9, 336, 397 and the Washington Conference 403 Shanghai 321, 328, 478, 481–2 Shidehara Kijuro 23, 403, 478, 484 shipping 202–4, 205, 207, 292 Emergency Fleet Corporation 35, 203 see also Atlantic blockade Siberia 130, 235 Allied intervention 156–70 clashes between Red Guards and Czechs 158 and Japan 143, 146, 170, 321, 355, 363 White forces in 410 Sierra Leone 212, 374 Silesia 5, 281–3, 286, 314, 426 silver 209, 210–11, 355, 358 Singapore 394–5 Sinha, Satyendra Prassano 181 Sinn Fein 79, 180, 190, 192, 193, 227 Irish civil war 377 Easter uprising 79, 180, 376 Lenin, the Marxists and 79 Sisson, Edgar 119 Skoropadskyi, Pyotr 150, 154 slave trade 27 Slavs 158, 283–4, 307, 308 and the London Treaty 307 see also Yugoslavia Smith, Al 347 Smoot Hawley tariff 501, 504 Smuts, Jan 181, 197, 285–6, 375 Smyrna 381, 437 Snowden, Philip 456 Social Democratic International 409 Social Democratic Party of Germany (SPD) 24, 25, 34, 42, 73, 75, 112, 113, 162, 163, 319, 371, 448 and the armistice 219–21 and the Berne conference 241–2 and Brest-Litovsk 139 coalition with Centre Party and Liberals 163, 239, 243, 313, 320 Constituent Assembly election success 239 counter-revolutionary barbarity licensed by 238–9 and the DNVP 459 and the establishment of democracy 237–8 MSPD 73, 75, 130 and the Second Socialist International 240, 241–2 and the Soviet regime 237 USPD see USPD (Independent Social Democratic Party, Germany) and Versailles 317–18 Vorwaerts (newspaper) 162–3 socialism 1919 defeat of radical socialism 233 in Austria 243 in Britain: labour movement see Britain and the United Kingdom: labour movement; Labour Party see Britain and the United Kingdom: Labour Party European socialism and post-war reconstruction 240–44 in France see France/the French: Socialists in Germany see Germany: socialists in Italy 176, 177, 241, 311, 409 labour movement see labour movement in Russia 141, 151–2; SRs see Socialist Revolutionaries (SRs, Russia) see also Bolshevism/Bolsheviks; Russia Socialist International 416 Second 240, 241–3, 409 Socialist Revolutionaries (SRs, Russia) 84, 85, 85, 118, 128, 136, 138, 157 expulsion from Central Executive Committee of All-Russian Congress 157 Left SRs see Left Socialist Revolutionaries, Russia Sokolnikov, Grigori 136 Somme, battle of the 33, 37, 46, 47 Sonnino, Sidney 177, 178, 306, 307, 310, 311 South Africa Gandhi in 392 gold 209, 212; Rand gold miners 374–5 Hoover moratorium 498 Indian rights in 392–3 and Turkey and the British Empire 437 wartime wholesale price dislocation 213 White solidarity 392, 393 South-Eastern Front 147 sovereignty 5, 287, 289 German see Germany: self-determination/sovereignty and Versailles 272–6, 287, 289, 436, 448–9 Soviet Union and Afghanistan 416, 418 Asian thrust 414–16 Bolshevism see Bolshevism/Bolsheviks and Britain see Britain and the United Kingdom: and Russia/USSR and the Brussels Conference 425 and China see China: and Russia/USSR and Churchill 235, 236 collectivization 484, 511–12 Comintern see Comintern Communism see Communism Congress of Peoples of the East 415–16, 420 Congress of the Toilers of the Far East 420 and counter-revolutionary armies 234–5 creation of USSR by treaty (28 December 1922) 417–18 debt repudiation 129, 425 defensive struggle between Poland and China arenas 475 economy 408, 422, 423, 483; Five Year Plan 483–4, 511–12; GDP of total former USSR 13; gold reserves 427; New Economic Policy 423, 424, 435, 483 and the Entente 235–7, 434 famine 12, 423, 424, 425 and the Genoa Conference 433–5 Genoa Conference see Genoa Conference and Germany see Germany: and Russia/USSR and independence movements throughout the old Tsarist Empire 234–5 industrialization 483–4, 502, 511–12 and Iran 419 and the Kellogg-Briand Pact 472, 484 Kronstadt rebellion 422–3 Left Communists 137, 151 Polish-Soviet War 284, 411–13, 417; Treaty of Riga 417 Politburo 483 and the Princes’ Islands conference proposal 236 Red Army see Red Army revolutionary export failure between 1917 and 1923 408 revolutionary military council 168 Soviet bill for damage by Allies in civil war 434 and the strategic uncertainty of the late 1920s 475–84 terror: apparatus 165; Red Terror 168–9, 237 and Turkey see Turkey: and the Soviet Union and the US see United States of America: and Russia/USSR Whites 235, 236 Soviets (assemblies) 68–9 All-Russian congress see All-Russian congress of Soviets German Congress of Soviets 237 Petrograd Soviet see Petrograd Soviet Spa 161, 219, 228 Spain 282, 354 strikes 247 wartime wholesale price dislocation 213 Spanish-American War 15, 41, 44 SPD see Social Democratic Party of Germany SRs see Socialist Revolutionaries (SRs, Russia) Stalin, Joseph and Asia 415 and Brest-Litovsk 116 Declaration of Rights 114 Five Year Plan 483–4, 511–12 and the Red Army’s defeat at Zamosc 417 and the US 7 Stalinism 515 starvation 39–40, 156, 423, 443, 447 steel 125, 152 American steel strike 341 US Steel 341, 342 sterling 37, 51, 207–9, 210–11, 355, 358, 374, 457, 506 departure from gold standard 500–501, 504 devaluation 210–11, 501 free-floating exchange rate 501 Stimson, Henry 492, 496 Stinnes, Hugo 426, 427, 452 Stockholm peace conference 244 process 122 Stresemann, Gustav 24, 113, 155, 240, 320, 447–8, 450–51, 459–60, 461, 475, 495 and Briand 473, 492, 493 on debt 465 and Locarno 23, 462 Nobel Peace Prize 23, 462 Strong, Benjamin, Jr 344, 345, 373 Sturmabteilung (SA) 451 Suedekum, Albert 220–21 Suez canal 193, 377–9 suffrage see franchise suffragette militants 340 Sukhanov, Nikolai 71 Sun Yat-sen 90, 100, 101, 322, 330–31, 421, 478, 479 death 480 Sun-Joffe Declaration 478 Supplementary Treaty to Brest 167–9 Supreme War Council 205 Sweden strikes 247 wartime wholesale price dislocation 213 Sykes-Picot agreement 193, 438 Syria 193, 377, 380, 381 Taft, William Howard 230 Takahashi Korekijo 363, 399, 403, 502 Talleyrand-Périgord, Charles-Maurice de 273 Tanaka Giichi 95, 321, 485 tanks 200, 201, 202, 204 Tardieu, André 59–60, 277 taxation 250–51 British 248, 250 capital levy 250 French 251 US: inflation tax 216; tax on exports 46 Terauchi Masatake 95–6 terror 165 class terror 242 Red Terror 168–9, 237 White Terror, China 483 Thiers, Adolphe 274 Third International see Comintern Thoiry initiative 473 Thomas, Albert 76, 175 Thrace 381, 390 Thuringia 418 Tianjin 331 Tilak, Bal Gangadhar 180–81, 189, 382 Times, The 52, 56, 184, 195–6, 224 Tojo Hideki 329 Tory Party, Britain see Britain and the United Kingdom: Tory Party Trade Union Council (TUC) 466 trade unions American 46, 340, 341–2 British 42, 184, 244, 246, 247–8, 359, 466 and deflation 362 French 175 German 43, 237–8, 313, 503 and inflation 356 Japanese 356 Transcaucasian Republic 109, 147, 417–18 Trans-Siberian railway 80, 158, 331–2 Transylvania 47 Triple Entente see Entente Tripolitanian Republic 233 Trotsky, Leon on Bolshevik violence 126–7 and Brest-Litovsk 109, 116, 117, 118, 119, 126–7, 129, 130–31, 132–3, 137 calls for release of 83 and the Chinese Communists 480 class terror 242 and the Czechs 158 deportations 5 exile 483 as exponent of international relations 108 on German reparations and the Entente 489 as head of Red Army 136, 234, 422 as head of revolutionary military council 168 and Keynes 295 and the new order 8, 11–12, 18, 23, 26, 29–30 and the October Revolution 84 opposition to 1919 talks with Entente 236 and the peasantry 421 publishing text of London Treaty 116 rapprochement attempts with Western Powers 145 reflections on the war and its aftermath 4, 18 and the US 6, 8–9, 11, 12 and Wilson 109, 122 Truman, Harry S. 277, 291 Tsereteli, Irakli 71, 81, 83, 121, 127, 128 TUC (Trade Union Council) 466 Tukhachevski, Mikhail 412, 417, 422–3 Tumulty, Joseph 257 Turati, Filippo 176 Turin 74 Turkey 5, 113, 147, 193, 194 and Armenia 147, 148, 381 and Britain 436, 437–8 deployment of Imperial Forces, February 1920 375 and France 437–8 Grand National Assembly 382 and Greece 381, 382, 390, 437 and India 391 London Treaty’s effect on Turks 307 London’s aggression 381–2 nationalism 381–2, 437–8 and the Raj 384–5, 390 and the Soviet Union 419; and Britain 438; Soviet treaty 382 Treaty of Sèvres 381–2, 385 Turkish Army 437 Wilson and the British policy in 337 see also Ottoman Empire U-boats 24, 34, 43, 45, 48, 57–8, 64, 66, 74–5, 89 Uchida Yasuya, Viscount 326 UDC (Union of Democratic Control) 244, 455 Ugaki Kazushige 329, 330 Uhlans 417 Ukraine 114, 117, 124–5, 417 and Austria 132 and the Bolsheviks 124–6, 234 and Brest-Litovsk 109, 124–6, 130–32, 148–9 coal 125 Constituent Assembly elections 149 Donets industrial region 149 and Germany see Germany: and the Ukraine grain 111, 125, 132, 149–50 landgrab by peasants (1917) 149 National Assembly 150 National Bank 149–50 nationalism 122, 125 peace treaty with Central Powers 132 peasants 149, 150, 154, 164 Polish assault on 284 and the Polish-Soviet War 411–12, 417 Polish-Ukrainian army 412 Rada 125, 126, 130–31, 149, 154 Social Revolutionaries 149 USSR treaty (28 December 1922) 417–18 Ulster 180, 191 Unionist election triumph after Easter Uprising 376 see also Ireland: Unionists UMW (United Mine Workers) 341–2 unemployment Britain 359, 360, 370, 465, 500 dole 500 Germany 503 and the labour movement 362 US 345–6, 348 Union of Democratic Control (UDC) 244, 455 United Kingdom see Britain and the United Kingdom United Mine Workers (UMW) 341–2 United States of America and the 1916 balance of the war 34–40 1920 general election 338 abundance fable 201 African Americans 63, 339 agrarian movement 43 agriculture 346, 347; Farm Bloc 347, 373; Joint Congressional commission of agricultural inquiry 347 aircraft 202 American Army 35, 173, 201–2, 203, 204, 205, 218 American Federation of Labour 340 as arbiter of world affairs 16, 54–5, 67, 220–21, 222 armaments: production 202; share crash 52 and the armistice 220–31 autocracy resisted by 8, 67, 103, 190 banking system 38–9, 500, 504–5 beginning and development of American Republic 14–16 and Britain: Anglo-American ambitions in 1923 British politics 455; anti-war faction 56; balance of payments 12; and the bilateral dollar-sterling rate 207–9; British embassy in Washington 34; British Foreign Office 1928 memo on the US phenomenon 463–4, 474; and British ‘navalism’ 45; Churchill’s Atlantic unity appeal 206; collaboration with British Empire 259; and the Dawes Plan 454–5; and deflation 358–9; economic risk of British dependence on the US 40, 48–9, 78, 207–9; and emergent US power 6, 26; and European fears of an Anglo-American condominium 257–8; and freedom of the seas 226, 228, 257, 268–70; and French delegation at London Conference 491–2, 493; and French delegation at Washington Conference 400–401; French goal of trilateral transatlantic pact 268, 290; French trilateral security guarantee 277–80; and German reparations 293–5, 297–303, 454–5, 488–9; Hoover moratorium 498, 506, 507; and the Irish question 190–93, 377; and Japan 322, 395–6; joint conference November 1917 with British War Cabinet 196–8; and the Kellogg-Briand Pact 472–3; and Keynes 296–303; and the League of Nations 258, 259–61, 266, 268–70, 271, 455; Lloyd George’s appeal to American public 203; loans saving Britain from insolvency 78; and the London Naval Conference see London Naval Conference (1930); and the Middle East 193–6, 378, 379; and the Monroe doctrine 269; and the naval blockade 35, 56, 473; opposition to increasing US dependence 40, 48, 296; political scientists influenced by Westminster model 41; and shared naval supremacy 365; and US naval expansion 35–6, 56, 268–9; US private long-term investment (December 1930) 476; and war debts 302, 349, 366–7, 373, 439, 465, 468, 498, 506–7; and the Washington Conference see Washington Naval Conference; Wilson and British policy in Turkey 337; Wilson and Lloyd George 62, 158–9, 203, 224, 243, 244, 269–70; Wilson and the Labour Party 241; Wilson’s Buckingham Palace speech 240 see also British Empire: and the US capitalism see capitalism: American and the Caribbean 44 and China see China: and the US Churchill’s view of 6 Civil War 14, 29, 41, 44, 61, >63, 65 coal 341–2 Cold War see Cold War Congress and the Treaty Fight 335–8 conservatism 27–8, 29 Coolidge administration 467 cost of living rise 45–6, 216, 343 credit see credit: American declaration and entry of war 66–7, 68, 78, 87, 100, 106 democracy 62, 196; democratic capitalism 200–201; and the New Deal 505 Democratic Party 230–31, 340, 346, 347; 1916 Presidential campaign 46; Copperheads 65; and labour 340–42; Massachusetts 343; Southern Democrats 64; and the Treaty Fight 335 drive towards ‘world hegemony’ 8–9, 16 economy: ‘bombshell telegram’ of FDR 506; and British risk of dependence on the US 40, 48–9, 78, 207–9; capitalist 7, 8, 200–201; deflation 345–7, 346, 349, 354, 358–9, 367, 397, 504; destabilization through wartime mobilization 216; the dollar 207–9, 344, 355, 358, 370, 427, 436, 443, 456, 469, 505, 506; and the dollar-sterling rate 207–9; economics as medium of power 12, 200–201, 206–8; Federal government debt 349; and the Fed’s 50 per cent interest rate increase 345, 349; GDP 13, 216; global economic dominance 12–16, 36, 206–9, 211, 349–50, 362; GNP 217; and gold see United States of America: gold; and the Great Depression 345, 488–9, 495–7, 504–6 see also Great Depressiongrowth between 1865 and 1914 14; inflation tax 216; inflation–deflation succession (1919–1920) 342–7; low-growth war economy 215–16, 217; national wealth 12; recession (1919–1921) 345–7, 346; and the Reconstruction Finance Corporation 505; and war finance 36–40, 45–6, 48–9, 50, 51, 52–3, 78, 173, 206–8, 215–16, 217; wartime wholesale price dislocation 214; Wilsonian fiasco 342–7, 346, 349–50 Entente relations: appearing as new level of international cooperation 515; and the armistice 224–5, 226, 227–8, 229, 231; and the Atlantic blockade 34–5, 56, 473; dangers of clashes at Versailles 277–8, 307; Dawes Plan 453–61, 470, 497; and dependence on the US 38, 40, 48–9, 78, 207–9, 211; and the dollar exchange rate 207–9; and the end of Franco-Russian alliance 276; and Fiume 308, 337; and German reparations 293–5, 297–304, 441, 453–61, 488–9, 496–7; German U-boat campaign and the tipping of 58–9; hardening by US in December 1918 257; Harding strategy of distance from Europe 372; and the inter-Allied economic cooperation 205; and the Inter-Allied Supply Council 207; and naval power 35–6, 56, 268–9; political 40–46; and rejection of American global leadership 231; Roosevelt’s admiration for Entente efforts 43; and the Russian Revolution and democratization 69–73; and the US declaration/entry of war 66–7, 68, 78; US refusal of overt association 16, 44–5, 46, 52, 53–7, 60, 65; and US resource funnelling 201–5; and war finance and debts 36–40, 45–6, 48–9, 50, 51, 52–3, 78, 173, 206–8, 298–304, 302, 349, 366, 372–3, 439, 440, 466–70, 468, 473, 496–7, 498, 506–7; and the Washington Conference see Washington Naval Conference European exports tax 46 European power states’ overshadowing by 463–4 exceptionalism 27, 28–9, 54–5 export scheme, publicly funded 207 failures to aid global democratic campaigns 86–7, 102–6 Farm Bloc 347, 373 FBI 339–40 FDR administration 505–6 Federal government debt 349 Federal Reserve see Federal Reserve Fifteenth Amendment 63 Fordney-McCumber tariff 349 Fourteen Points see Wilson, Woodrow: 14 Points manifesto and France: American banker families leaving Paris 469; balance of payments 12; and Britain 268, 277–80, 290, 400–401; changing position between 1919 and 1945 291; and the end of Franco-Russian alliance 276; French appeal for solidarity 59–60; French goal of trilateral transatlantic pact with Britain 268, 290; and German reparations 441, 453–61, 488–9, 496–7; and Germany after the Ruhr crisis 453; Hoover moratorium 498, 506, 507; Kellogg-Briand Pact 472–3; and the League of Nations 257–8, 263; and the London Naval Conference 491–2, 493; Mellon-Berenger accord 469, 473, 497; and the occupation of the Ruhr 443–6, 448, 459; Thoiry initiative 473; trilateral security guarantee with Britain 277–80; US private long-term investment (December 1930) 476; and war compensations and reconstruction 251; and war debts 298, 299, 302, 304, 349, 366, 367, 440, 467–70, 468, 473, 496–7, 498, 506–7; and the Washington Conference 400–401; and the Washington Naval Conference 11; Wilson and the Socialists 240; Wilson on French freedom 276–7 German-Americans 43 and Germany: and American business interest 320; anti-American Mexican alliance proposal 65–6; and the armistice 220–31; breaking of diplomatic relations (February 1917) 89; Dawes Plan 453–61, 464, 497; derailment of Wilson’s ‘peace without victory’ 52, 56–8; and the French invasion of the Ruhr 443–6, 448, 459; German embassy in Washington 56; Germany’s Atlanticist internationalism 221–2; and the Great Depression 495–6; Hitler’s concerns over the US 6, 7; Hoover moratorium 498, 502–3, 507; and reparations 293–5, 297–304, 441, 453–61, 495–6, 498, 506; severing of diplomatic relations 59; stabilization of Weimar Republic after 1924 by US credit 461, 464–5; Stresemann’s policy of accommodation 448; Thoiry initiative 473; U-boat campaign 24, 45, 48, 57–8, 64, 66; US debts 498, 502–3, 506–7; US private long-term investment (December 1930) 476, 495–6; and Wilson’s 14 Points manifesto 122–3, 134, 143, 144, 145, 198, 224, 226, 227, 228, 230, 233, 327; Wilson’s demand for Kaiser’s abdication 224, 225; Wilson’s unilateral negotiations with Berlin 222–5, 229, 231 gold 344, 345, 349, 359, 505; standard 38, 345, 346, 355, 363, 505 growth in power through the war 6–7, 11 and the Hague Convention 267 Harding administration 348–9, 372, 432, 439, 441, 443; and the Washington Conference 396–7, 401 hegemonic crisis model 18–20, 26 Hoover administration 488 image 41 immigration law 348 and India 210 industry 41; industrial action (1919) 247, 341–2, 343, 409; Industrial Conference 341 interest rates 344–5, 349 invisible influence on post-war international order 3–4, 515–16 isolationism 348, 505, 517 and Italy see Italy: and the US and Japan see Japan: and the US Jewish-Americans 43 and the Ku Klux Klan 339, 347 labour movement 43, 340–42 and the League of Nations 267, 336–7; and the absent presence of US power 515–16; and Article X of Covenant 335, 336–7; and Britain 258, 259–61, 266, 268–70, 271, 455; and Geneva Protocols 470–71; and the need for the US to dissociate from former allies 303; Republican support 335; and Wilson 16, 53, 54, 222–3, 243, 255–6, 259–63, 264, 266, 269–70, 277, 325, 326, 337, 516 Liberty Bonds/Loans 206–7, 208, 215, 216, 342, 343, 344 and the London Naval Conference 491–2, 493 and the Middle East 193–6, 378 militarized great power destiny 517 military spending 514 and the Monroe doctrine 15, 310 National Equal Rights League 339 nationalism: and exceptionalism 27; and US role in international economy 349; Wilson presidency as triumphant nationalism 348 navy 15, 268–9, 362, 490; 1916 expansion 35–6, 56; and the Pacific 401 see also Washington Naval Conference New Deal 505, 517 New Freedom 340, 346, 461 Open Door policy 15–16, 44, 103, 205; and the Washington Conference 397, 405 and the Panama Canal 44 Pax Americana 7 ‘peace without victory’ goal 16, 50–67, 72, 75–8, 86–7, 211, 222, 257, 461 Penrose Bill 372–3 perception of Europe as the ‘Dark Continent’ 17–18, 26 Philippine conquest 41 Pittman Act 210 populist movement 43 post-war problems: economic 342–7, 346, 349–50; industrial 341–2, 343; racial 338–40; ‘Red movement’ 340, 342, 354, 409, 517; reluctance to face challenges 26–7 private long-term foreign investment 495–6; December 1930 476–7 privileged detachment of 67, 516 problematic entry into modernity 27–9 productivism 201 protectionism 15, 349, 492, 493, 501 and the quest for pacification and appeasement strategies 26 race riots (1919) 339–40 recognition of Provisional Government of Russia 68 Reconstruction 44, 63–4 Red movement/Red Scare 340, 342, 354, 409, 517 refusal to take sides in War 16, 44–5, 46, 52, 53–7, 60, 65 Republican Party 37, 231, 347, 348, 396; 1916 Presidential campaign 46; 1918 mid-term election campaign 340; abolitionists 63; Entente supporters 59; and the League of Nations 335; reaction to Wilson’s ‘peace without victory’ 55; and the Treaty Fight 335–6 resource funnelling into Europe 201–5 and Russia/USSR: aid (1917) 80; American anti-Bolshevik agitation 340; Bullitt’s mission to Russia 236; Cold War see Cold War; debts to US 302; economic cooperation proposal (May 1918) 152–3; famine relief 12, 425, 435; and the grave of Russian democracy 86–7; and House 86–7; and Japan 141, 144–5, 408; and the Kellogg-Briand Pact 472; Lansing’s view of Bolshevism 144; in October Revolution aftermath 86–7; and the Petrograd formula 76–8; Portsmouth Treaty arbitration 408; and refusal to attend Genoa Conference 430; and the reinvention of Communism 409; and the Siberian intervention 156, 158–9; and Soviet sponsorship of Northern Expedition 511; and the Trans-Siberian railway 80, 158; US recognition of Provisional Government 68; and the Washington Naval Conference 11; and Wilson’s 14 Points manifesto 121–3, 134, 143, 144, 145 Seattle general strike (February 1919) 340 shipping 202–4, 205; Emergency Fleet Corporation 35, 203 silver 210 Smoot Hawley tariff 501, 504 Spanish-American War 15, 41, 44 strikes: 1914–1921 247; 1919 341–2, 343; and the Communist vision 409; Seattle general strike (February 1919) 340 and the suppression of imperialism 15–16 trade policy reversal after Wilson 348–9 trade unions 46, 340, 341–2 Treasury 80, 216, 303, 304, 343–5; Certificates 345 Trotsky’s concerns and views 6, 8–9, 11, 12 and Turkey 194 unemployment 345–6, 348 and Versailles see Wilson, Woodrow: and Versailles wages 46, 216, 339, 343 War Industries Board 207 Washington Conference see Washington Naval Conference Wilson presidency see Wilson, Woodrow Wilsonianism see Wilsonianism working class militancy 246, 247 see also United States of America: strikes working hours 246 and the world economy 26, 476–7 US Steel 341, 342 USPD (Independent Social Democratic Party, Germany) 73, 75, 111, 130, 237, 238, 239, 242, 319, 320 ‘All Power to the Soviets’ slogan 409 and the Berne conference 242 and Brest-Litovsk 139 inquiry into German war guilt 313 and the Second Socialist International 240, 242 split with Comintern’s 21 Points 418 USSR see Soviet Union Varela, Hector 353 Vaterlandspartei (Homeland Party, Germany) 82, 111, 112, 130 Vatican peace initiative 87 Venezuala, US private long-term investment (December 1930) 477 Venice 82 Venizelos, Eleftherios 382, 438 Verdun, battle of 3, 11, 33, 37, 46, 47, 57, 176 Versailles/Paris peace conferences and Treaty 223, 226, 229, 251, 255–70 and the abolition of conscription 265, 277, 313 anticipated failure of 17 assigning of war guilt 9 and China 255, 282, 321–3; and Shandong 321, 323, 326–9, 336, 397 compliance in Asia 321–32 compliance in Europe 305–20 Council of Ten 291 criminalizing of the Kaiser 9 cruelty and kindness of 271–2, 280, 287 danger of clash between Europeans and Wilson 277–8, 307 and the Dawes Plan 458–9, 460–61, 470 and the DNVP 460–61 and Egypt 379 final phase (from May 1919) 312–18 and France 5, 255, 256, 257–8, 271–5, 277–80, 281, 286–7, 291; and the Middle East 378 see also Clemenceau, Georges: and Versailles German consideration of 312–18 and the German National Assembly 313, 317, 318–19 and German reparations 288, 292, 295, 297–8, 313–14, 489 and German revisionism 489, 490 and German sovereignty 272–6, 287, 289, 436, 448–9 and Italy 255, 308–11 and Japan 255, 256, 258–9, 321–8, 329, 363; and Shandong 321, 323, 326–9, 336, 397 and Keynes 271, 295–301 and the League of Nations Covenant 255–6, 259–70, 271, 324–6, 335 and Lloyd George 249–50, 282, 307, 314, 328 National Assembly vote 318 and a patchwork world order 255–70 and Prussia 283, 314, 316 Quai d’Orsay conference 235, 255 Saint-Germain Treaty 330 and self-determination/sovereignty 272–6, 287, 289, 436, 448–9 and Shandong 321, 323, 326–9, 336, 397 smaller conferences in Parisian suburbs 330 unfinished peace of 4 US assessment of budget positions ahead of 249 and Wilson see Wilson, Woodrow: and Versailles Victory Loan 343 Vienna 42, 109, 116, 117–18 Congress of 273, 274–5 Kreditanstalt 495 Viereck, George Sylvester 66 Volpi, Giuseppe 466 Vorwaerts 162–3 Vossische Zeitung 154 Wallace, Hugh Campbell 360–61 Wang, C.


pages: 543 words: 147,357

Them And Us: Politics, Greed And Inequality - Why We Need A Fair Society by Will Hutton

Andrei Shleifer, asset-backed security, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Blythe Masters, Boris Johnson, Bretton Woods, business cycle, capital controls, carbon footprint, Carmen Reinhart, Cass Sunstein, centre right, choice architecture, cloud computing, collective bargaining, conceptual framework, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, debt deflation, decarbonisation, Deng Xiaoping, discovery of DNA, discovery of the americas, discrete time, diversification, double helix, Edward Glaeser, financial deregulation, financial innovation, financial intermediation, first-past-the-post, floating exchange rates, Francis Fukuyama: the end of history, Frank Levy and Richard Murnane: The New Division of Labor, full employment, George Akerlof, Gini coefficient, global supply chain, Growth in a Time of Debt, Hyman Minsky, I think there is a world market for maybe five computers, income inequality, inflation targeting, interest rate swap, invisible hand, Isaac Newton, James Dyson, James Watt: steam engine, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, knowledge worker, labour market flexibility, liberal capitalism, light touch regulation, Long Term Capital Management, Louis Pasteur, low cost airline, low-wage service sector, mandelbrot fractal, margin call, market fundamentalism, Martin Wolf, mass immigration, means of production, Mikhail Gorbachev, millennium bug, money market fund, moral hazard, moral panic, mortgage debt, Myron Scholes, Neil Kinnock, new economy, Northern Rock, offshore financial centre, open economy, plutocrats, Plutocrats, price discrimination, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, railway mania, random walk, rent-seeking, reserve currency, Richard Thaler, Right to Buy, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, Rory Sutherland, Satyajit Das, shareholder value, short selling, Silicon Valley, Skype, South Sea Bubble, Steve Jobs, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, the scientific method, The Wealth of Nations by Adam Smith, too big to fail, unpaid internship, value at risk, Vilfredo Pareto, Washington Consensus, wealth creators, working poor, zero-sum game, éminence grise

Policy-makers and bankers themselves had always been more attached to competition than regulation – it was intellectually and philosophically more acceptable, and it afforded huge opportunities to make serious money. But now there was a paradigm shift in the argument. Markets, bankers argued, would do better than the state. Banks, they claimed, needed more freedom to manage their balance sheets and risk in an environment of floating exchange rates and free capital movements. Leading the charge were the banking communities in New York and London, using all their influence, especially with free-market-inclined Conservative and Republican politicians, to break down rules and promote competition. Who, after all, could be against more competition? Like motherhood and apple pie, it seemed a self-evident public good, especially now that the market panics, bank runs and credit crunches coincident with deregulated finance which had inspired the irksome rules in the first place were slipping from living memory.

Indeed, as herd, bubble effects grew and more aggressive risk-taking became the norm, it became increasingly obvious that more competitive banking structures would eventually be bad for everyone. But for big finance there remained no doubt that it was on the right track. There was already a vast pool of money available to the banks and other companies, managed by professional treasury managers – the so-called interbank money market. This had been developing since the 1960s and was given a huge boost when the era of floating exchange rates began. Companies, banks and even countries dealing in cash denominated in one of the world’s reserve currencies could lend to each other in that currency or access the interbank market in another reserve currency – principally the dollar and the yen, but also the pound, the Swiss franc and German mark – and hedge against the risk of potentially adverse, loss-making movements. They could buy derivatives – essentially promises to settle a deal in the future at a rate linked to today’s rate (arithmetically connected to relative future interest rates) – or they could swap each other’s liabilities and assets.


pages: 590 words: 153,208

Wealth and Poverty: A New Edition for the Twenty-First Century by George Gilder

"Robert Solow", affirmative action, Albert Einstein, Bernie Madoff, British Empire, business cycle, capital controls, cleantech, cloud computing, collateralized debt obligation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, deindustrialization, diversified portfolio, Donald Trump, equal pay for equal work, floating exchange rates, full employment, George Gilder, Gunnar Myrdal, Home mortgage interest deduction, Howard Zinn, income inequality, invisible hand, Jane Jacobs, Jeff Bezos, job automation, job-hopping, Joseph Schumpeter, knowledge economy, labor-force participation, longitudinal study, margin call, Mark Zuckerberg, means of production, medical malpractice, minimum wage unemployment, money market fund, money: store of value / unit of account / medium of exchange, Mont Pelerin Society, moral hazard, mortgage debt, non-fiction novel, North Sea oil, paradox of thrift, Paul Samuelson, plutocrats, Plutocrats, Ponzi scheme, post-industrial society, price stability, Ralph Nader, rent control, Robert Gordon, Ronald Reagan, Silicon Valley, Simon Kuznets, skunkworks, Steve Jobs, The Wealth of Nations by Adam Smith, Thomas L Friedman, upwardly mobile, urban renewal, volatility arbitrage, War on Poverty, women in the workforce, working poor, working-age population, yield curve, zero-sum game

Investment credits and rapid depreciation allowances—although better than no tax cuts at all—tend to favor the re-creation of current capital stock rather than the creation of new forms of capital and modes of production. Antitrust suits are directed chiefly against successful competitors (such as IBM) and ignore the government policies as the root of most American monopoly. The system of floating exchange rates deals with lapses in international trade by depreciating the dollar rather than by forcing a competitive response of greater productivity and new products. Our taxation and subsidy systems excessively cushion failure (of businesses, individuals, and local governments), reward the creativity and resourcefulness chiefly of corporate lawyers and accountants, and wait hungrily in ambush for all unexpected, and thus unsheltered, business success.

See Food and Drug Administration federal aid, economic growth and federal borrowing federal budget Federal Deposit Insurance Corporation (FDIC) federal disability benefits Federal Home Loan Bank federal programs, growth of Federal regulation. See Regulation Federal Reserve Feige, Edgar Feldstein, Martin Ferguson, Charles feudalism Filipinos Financial markets. See also Stock market Financing Failure: A Century of Bailouts first-job barrier First National Bank of Boston fiscal integrity floating exchange rates Food and Drug Administration (FDA) food stamps Forbes Ford, Gerald Ford, Henry Ford Foundation Ford Motor Company foreign money Forrester, Jay Fortune foundations France Frank, Barney Fraser, Malcolm Freddie Mac Friedman, Milton Friedman, Thomas fringe benefits G Galbraith, John Kenneth Galileo gambler’s ruin gambling impulse gambling stocks Gans, Herbert GAO.


pages: 226 words: 59,080

Economics Rules: The Rights and Wrongs of the Dismal Science by Dani Rodrik

airline deregulation, Albert Einstein, bank run, barriers to entry, Bretton Woods, business cycle, butterfly effect, capital controls, Carmen Reinhart, central bank independence, collective bargaining, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Donald Davies, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, Fellow of the Royal Society, financial deregulation, financial innovation, floating exchange rates, fudge factor, full employment, George Akerlof, Gini coefficient, Growth in a Time of Debt, income inequality, inflation targeting, informal economy, information asymmetry, invisible hand, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labor-force participation, liquidity trap, loss aversion, low skilled workers, market design, market fundamentalism, minimum wage unemployment, oil shock, open economy, Pareto efficiency, Paul Samuelson, price stability, prisoner's dilemma, profit maximization, quantitative easing, randomized controlled trial, rent control, rent-seeking, Richard Thaler, risk/return, Robert Shiller, Robert Shiller, school vouchers, South Sea Bubble, spectrum auction, The Market for Lemons, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, trade liberalization, trade route, ultimatum game, University of East Anglia, unorthodox policies, Vilfredo Pareto, Washington Consensus, white flight

Greg Mankiw, the Harvard professor and author of a leading economics textbook, provided a list in his blog a few years back.3 Here are some of the top ones (the numbers in parentheses indicate the percentage of economists who agree with the proposition). 1. A ceiling on rents reduces the quantity and quality of housing available. (93%) 2. Tariffs and import quotas usually reduce general economic welfare. (93%) 3. Flexible and floating exchange rates offer an effective international monetary arrangement. (90%) 4. Fiscal policy (for example, tax cuts and/or government expenditure increases) has a significant stimulative impact on a less than fully employed economy. (90%) 5. The United States should not restrict employers from outsourcing work to foreign countries. (90%) 6. The United States should eliminate agricultural subsidies. (85%) 7.


pages: 215 words: 64,460

Shadows of Empire: The Anglosphere in British Politics by Michael Kenny, Nick Pearce

battle of ideas, Berlin Wall, Boris Johnson, Bretton Woods, British Empire, colonial rule, corporate governance, Dominic Cummings, Donald Trump, eurozone crisis, Fall of the Berlin Wall, floating exchange rates, Francis Fukuyama: the end of history, full employment, global reserve currency, imperial preference, informal economy, invention of the telegraph, Khartoum Gordon, labour mobility, liberal capitalism, Mahatma Gandhi, mass immigration, Monroe Doctrine, Nixon shock, quantitative easing, reserve currency, Ronald Reagan, trade route, Washington Consensus

It was simultaneously embarking on major rises in military and social spending under conditions of full employment and, in so doing, putting enormous pressure on the dollar. The dollar was overvalued and the international monetary system that had supported its global role could no longer be patched up through the bilateral currency swaps and gold pool arrangements that had been used in the 1960s. Efforts to repair it failed. By 1973, floating exchange rates had become entrenched, and currency fluctuations became the shock absorbers of the global economy. The sterling area finally disappeared. The collapse of Bretton Woods inaugurated an era in which the governing frameworks of Anglo-American political economy changed profoundly. The managed international monetary system in which both the USA and the UK had a stake, as sovereigns of the world's two major currencies, was gradually replaced by a liberalised economic order under renewed American leadership.


pages: 239 words: 62,311

The Next Factory of the World: How Chinese Investment Is Reshaping Africa by Irene Yuan Sun

barriers to entry, Bretton Woods, capital controls, clean water, Computer Numeric Control, deindustrialization, demographic dividend, Deng Xiaoping, Donald Trump, European colonialism, floating exchange rates, full employment, global supply chain, invisible hand, job automation, low skilled workers, M-Pesa, manufacturing employment, means of production, mobile money, post-industrial society, profit motive, purchasing power parity, race to the bottom, RAND corporation, Ronald Reagan, Shenzhen was a fishing village, Silicon Valley, Skype, special economic zone, structural adjustment programs, Triangle Shirtwaist Factory, union organizing, Washington Consensus, working-age population

Government debt ballooned from less than 10 percent of GDP in 1980 to more than 100 percent of GDP a mere six years later. In 1986, with no other options left, Nigeria accepted the IMF’s Structural Adjustment Program, a package of emergency loans that gave it a much-needed fiscal lifeline in exchange for acceptance of Washington Consensus policies of privatization and liberalization of the economy. A main thrust was the adoption of a floating exchange rate program with no predefined rates of change. From an exchange rate of roughly 2 naira to US$1 at the beginning of the program, the naira depreciated to 4 in 1987, to 10 in 1991, and further to 22 in 1998.15 By the time I met Lawrence Tung, in 2013, the rate was 165 naira to the dollar. For textile mills, the continued drop in the currency’s value was devastating, because they could no longer afford to import needed spare parts and machinery, and decades of importing them meant that no domestic suppliers existed to fill those needs.


pages: 442 words: 39,064

Why Stock Markets Crash: Critical Events in Complex Financial Systems by Didier Sornette

Asian financial crisis, asset allocation, Berlin Wall, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, capital controls, continuous double auction, currency peg, Deng Xiaoping, discrete time, diversified portfolio, Elliott wave, Erdős number, experimental economics, financial innovation, floating exchange rates, frictionless, frictionless market, full employment, global village, implied volatility, index fund, information asymmetry, intangible asset, invisible hand, John von Neumann, joint-stock company, law of one price, Louis Bachelier, mandelbrot fractal, margin call, market bubble, market clearing, market design, market fundamentalism, mental accounting, moral hazard, Network effects, new economy, oil shock, open economy, pattern recognition, Paul Erdős, Paul Samuelson, quantitative trading / quantitative finance, random walk, risk/return, Ronald Reagan, Schrödinger's Cat, selection bias, short selling, Silicon Valley, South Sea Bubble, statistical model, stochastic process, stocks for the long run, Tacoma Narrows Bridge, technological singularity, The Coming Technological Singularity, The Wealth of Nations by Adam Smith, Tobin tax, total factor productivity, transaction costs, tulip mania, VA Linux, Y2K, yield curve

But hints that a devaluation might be looming can cause massive speculation against the vulnerable currency, as we shall discuss in chapter 8. See also [248] for an eye-opening description of the conundrums of monetary policies. With the end of Bretton Woods in the early 1970s, the market for foreign currency grew rapidly in both size and instability. The liberalization of capital flows that followed the adoption of floating-exchange rates brought vastly larger flows of capital between nations. The first naive presumption is that the exchange rate between two currencies, say the U.S. dollar and the European euro (since January 1999), would be determined by the needs of trade: by North Americans trading with Europeans for euros in order to buy European goods, and conversely. However, there is another important population, the investors: people who are buying and selling currencies in order to purchase stocks and bonds in the U.S. and/or the European markets.

Since these investment demands are highly variable, including a fluctuating component of speculation, currency values prove volatile and prone to the same forces as described in chapters 4 and 5 for stocks and general financial markets. Such forces proved to be at the origin of the speculative bubble on the dollar in the first half of the 1980s [340]. The role of monetary policy allowed by the floating-exchange rate was particularly clear in the context of the large deficit of the U.S. federal budget in the early 1980s, which led to fears that inflation would go sky-high. According to supporters of monetary policy, the key to controlling inflation was that the Federal Reserve did not pump up the money supply too much. Indeed, by allowing a strong dollar (which slows the U.S. economy) and restricting the money supply, the Federal Reserve chopped inflation from 13.3% in 1979 to 4.4% in 1987 to about 2% at the end of the twentieth century.


pages: 206 words: 70,924

The Rise of the Quants: Marschak, Sharpe, Black, Scholes and Merton by Colin Read

"Robert Solow", Albert Einstein, Bayesian statistics, Black-Scholes formula, Bretton Woods, Brownian motion, business cycle, capital asset pricing model, collateralized debt obligation, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, discovery of penicillin, discrete time, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial innovation, fixed income, floating exchange rates, full employment, Henri Poincaré, implied volatility, index fund, Isaac Newton, John Meriwether, John von Neumann, Joseph Schumpeter, Kenneth Arrow, Long Term Capital Management, Louis Bachelier, margin call, market clearing, martingale, means of production, moral hazard, Myron Scholes, Paul Samuelson, price stability, principal–agent problem, quantitative trading / quantitative finance, RAND corporation, random walk, risk tolerance, risk/return, Ronald Reagan, shareholder value, Sharpe ratio, short selling, stochastic process, Thales and the olive presses, Thales of Miletus, The Chicago School, the scientific method, too big to fail, transaction costs, tulip mania, Works Progress Administration, yield curve

Long Term Capital Management’s strategy was very profitable so long as the market continued on a trajectory that had been maintained ever since the company’s inception. However, in July 1997, a financial contagion began in East Asia and spread around the world. It began when Thailand decided to end the fixed exchange rate regime that had pegged the value of its currency, the baht, to the US dollar. Once it moved to a floating exchange rate regime, the baht depreciated significantly, and its public debt, much of which was denominated in US dollars, ballooned dramatically. The Thai government was unable to meet its ongoing debt obligations and it was technically in default. As a consequence of the default, there was an immediate flight out of the baht and the currencies of other neighboring nations. This capital flight further exacerbated the plunge of the baht and caused currencies in Singapore, Indonesia, Japan, South Korea, and the Philippines to decline as well. 170 The Rise of the Quants These currency flights made imported goods from South-East and South Asian nations more expensive, and hence reduced the volume of commodities they could afford.


pages: 7,371 words: 186,208

The Long Twentieth Century: Money, Power, and the Origins of Our Times by Giovanni Arrighi

anti-communist, Asian financial crisis, barriers to entry, Bretton Woods, British Empire, business climate, business process, colonial rule, commoditize, Corn Laws, creative destruction, cuban missile crisis, David Ricardo: comparative advantage, declining real wages, deindustrialization, double entry bookkeeping, European colonialism, financial independence, financial intermediation, floating exchange rates, income inequality, informal economy, invisible hand, joint-stock company, Joseph Schumpeter, late capitalism, London Interbank Offered Rate, means of production, money: store of value / unit of account / medium of exchange, new economy, offshore financial centre, oil shock, Peace of Westphalia, profit maximization, Project for a New American Century, RAND corporation, reserve currency, spice trade, the market place, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade liberalization, trade route, transaction costs, transatlantic slave trade, transcontinental railway, upwardly mobile, Yom Kippur War

It was during these years that deposits in the so-called Eurodollar or Eurocurrency market experienced a sudden upward jump followed by twenty years of explosive growth. And it was during these same six years that the system of fixed parties between the main national currencies and the US dollar and between the US dollar and gold, which had been in force throughout the phase of material expansion, was abandoned in favor of the system of flexible or floating exchange rates — a system which some (e.g. Aglietta 1979b: 831) regard not as a system at all, but as the form taken by the crisis of the pre-existing system. These were distinct but mutually reinforcing developments. On the one hand, the accumulation of a growing mass of world liquidity in deposits that no government controlled put increasing pressure on governments to manipulate the exchange rates of their currencies and interest rates in order to attract or repel liquidity held in offshore markets to counter shortages or surfeits in their domestic economies.

Since there was no viable alternative to the dollar as the principal international reserve currency and medium of exchange, the abandonment of the gold-dollar exchange standard resulted in the establishment of a pure dollar standard. Instead of decreasing, the importance of the US dollar as world money increased, and what had previously existed informally was now established formally (Cohen 1977: 232-8). For about five years, from 1973 to 1978, this pure dollar standard seemed to endow the US government with an unprecedented freedom of action in the production of world money: The system of floating exchange rates . . . eliminated any need for the United States to control its own balance of payments deficit, no matter what its source, because it was now possible to release unlimited quantities of non-convertible dollars into international circulation. Therefore, while continuing to depreciate the dollar in an attempt to recover competitivity in the production of goods, the United States was no longer saddled with the problem of generating a current account surplus with which to finance its capital-account deficit. . . .


pages: 275 words: 77,017

The End of Money: Counterfeiters, Preachers, Techies, Dreamers--And the Coming Cashless Society by David Wolman

addicted to oil, Bay Area Rapid Transit, Berlin Wall, Bernie Madoff, bitcoin, Bretton Woods, carbon footprint, cashless society, central bank independence, collateralized debt obligation, corporate social responsibility, credit crunch, cross-subsidies, Diane Coyle, fiat currency, financial innovation, floating exchange rates, German hyperinflation, greed is good, Isaac Newton, Kickstarter, M-Pesa, Mahatma Gandhi, mental accounting, mobile money, money: store of value / unit of account / medium of exchange, offshore financial centre, P = NP, Peter Thiel, place-making, placebo effect, Ponzi scheme, Ronald Reagan, seigniorage, Silicon Valley, special drawing rights, Steven Levy, the payments system, transaction costs, WikiLeaks

“They’re placeholders for favors.” Hub Culture’s currency, Ven, is an attempt to bridge the divide between virtual currencies and real-world goods and services. People in the network transact in the “local” currency, which is priced from a basket of major sovereign currencies, commodities, and carbon futures. Your Ven can be exchanged for one of the major national currencies based on the same floating exchange rates that govern the value of world currencies against one another. Bitcoin has captured peoples’ imaginations because the money supply is determined by an algorithm, not bureaucrats or economists, and there is a cap to the number of Bitcoins that can be created: 21 million. Two related experiments are the Wuffie Bank and Serios. Wuffie has tried to set up a currency based on reputation, as determined by an algorithm that measures the influence we have on others via our social networks.


pages: 270 words: 73,485

Hubris: Why Economists Failed to Predict the Crisis and How to Avoid the Next One by Meghnad Desai

"Robert Solow", 3D printing, bank run, banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, correlation coefficient, correlation does not imply causation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, German hyperinflation, Gunnar Myrdal, Home mortgage interest deduction, imperial preference, income inequality, inflation targeting, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, market bubble, market clearing, means of production, Mexican peso crisis / tequila crisis, mortgage debt, Myron Scholes, negative equity, Northern Rock, oil shale / tar sands, oil shock, open economy, Paul Samuelson, price stability, purchasing power parity, pushing on a string, quantitative easing, reserve currency, rising living standards, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, seigniorage, Silicon Valley, Simon Kuznets, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, women in the workforce

The euro in this manner is similar to the Gold Standard, which allowed no monetary sovereignty. The decision of a group of developed sovereign countries to revive something akin to a Gold Standard in the twenty-first century requires a bit of explanation. We have to go back to the 1970s when the old Bretton Woods arrangement of fixed exchange rates broke down. Countries were on a de facto flexible or floating exchange rate system. This was a regime for which there were no road maps. Western European countries had previously come together in an arrangement that was called the Common Market (it was later renamed the European Economic Community, EEC). France, the Federal Republic of Germany, Italy, the Netherlands, Belgium and Luxemburg were the original members of what was in effect a customs union. More countries joined the EEC so that by early 1990s there were 15 countries in the European Community/European Union, as it was now labeled.


pages: 555 words: 80,635

Open: The Progressive Case for Free Trade, Immigration, and Global Capital by Kimberly Clausing

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, active measures, Affordable Care Act / Obamacare, agricultural Revolution, battle of ideas, Bernie Sanders, business climate, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, corporate social responsibility, creative destruction, currency manipulation / currency intervention, David Ricardo: comparative advantage, Donald Trump, floating exchange rates, full employment, gig economy, global supply chain, global value chain, guest worker program, illegal immigration, immigration reform, income inequality, index fund, investor state dispute settlement, knowledge worker, labor-force participation, low skilled workers, Lyft, manufacturing employment, Mark Zuckerberg, meta analysis, meta-analysis, offshore financial centre, open economy, Paul Samuelson, profit motive, purchasing power parity, race to the bottom, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, Silicon Valley, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transfer pricing, uber lyft, winner-take-all economy, working-age population, zero-sum game

If anything, countries with higher tariffs have larger trade (current account) deficits (fig. 6.4). Some suggest that, if the United States wants to reduce its trade deficit, it should pay more attention to the value of the US dollar in international markets. However, most major economies—the Eurozone (as a whole), Japan, the United Kingdom, Australia, Canada, and the United States—have floating exchange rates. In other words, the sellers and buyers of currency determine the value of exchange rates in the foreign currency markets, leaving little room for the Federal Reserve and other central banks to affect exchange rates in these countries. This is likely for the best, since monetary policy (the actions of the central bank) can then be devoted to more useful ends, like working to counter recessions.


pages: 286 words: 82,970

A World in Disarray: American Foreign Policy and the Crisis of the Old Order by Richard Haass

access to a mobile phone, anti-communist, Berlin Wall, Bretton Woods, carbon footprint, central bank independence, colonial rule, cuban missile crisis, currency manipulation / currency intervention, deindustrialization, Doha Development Round, Donald Trump, Edward Snowden, energy security, European colonialism, failed state, Fall of the Berlin Wall, floating exchange rates, global pandemic, global reserve currency, hiring and firing, immigration reform, invisible hand, Mikhail Gorbachev, Monroe Doctrine, moral hazard, mutually assured destruction, open economy, quantitative easing, RAND corporation, reserve currency, Ronald Reagan, South China Sea, special drawing rights, Steven Pinker, UNCLOS, UNCLOS, uranium enrichment, Yom Kippur War

In recent years, the rate of growth in world trade has slowed significantly. What also occurred was a falling off of domestic political support for trade pacts in the United States and many other countries, casting uncertainty over future efforts to promote a more open world trading system. There was arguably less formal governance but still significant coordination on the monetary side. The principal characteristics of the era were floating exchange rates, central bank independence, and dollar dominance. The IMF assessed (“surveilled”) economies and gave them public report cards but had no power to insist on reforms other than when it was involved in extending loans to governments in financial difficulty. In the banking arena, the so-called Basel Committee established standards (for example, for the amount of capital required to be kept on hand) that banks were encouraged to follow.


pages: 309 words: 85,584

Nine Crises: Fifty Years of Covering the British Economy From Devaluation to Brexit by William Keegan

banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Boris Johnson, Bretton Woods, British Empire, capital controls, congestion charging, deindustrialization, Donald Trump, Etonian, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial thriller, floating exchange rates, full employment, gig economy, inflation targeting, Just-in-time delivery, light touch regulation, liquidity trap, Martin Wolf, moral hazard, negative equity, Neil Kinnock, non-tariff barriers, North Sea oil, Northern Rock, oil shock, Parkinson's law, Paul Samuelson, pre–internet, price mechanism, quantitative easing, Ronald Reagan, school vouchers, short selling, South Sea Bubble, The Chicago School, transaction costs, tulip mania, Winter of Discontent, Yom Kippur War

We have seen the lengths to which the Wilson government went to try to avoid changes, such as the devaluation of the pound in 1967, which were in fact necessary. But when the Bretton Woods system broke down in 1971–73 – with the Nixon administration no longer being prepared to support the rates of other currencies against the US dollar, which was itself devalued – the world embarked on not so much a system as a non-system of ‘floating rates’. Once the major nations embarked on a world of floating exchange rates, there could be wild gyrations in those rates. It was concern about these in the course of the 1970s that contributed to the decision on the part of Chancellor Schmidt, President Giscard and Roy Jenkins to press for ‘a zone of monetary stability’ in Europe, which led to the setting up of the European Monetary System. When Chancellor Lawson was conducting his campaign for the UK to join the ERM, one of the principal objections put forward by his bête noire Sir Alan Walters – Mrs Thatcher’s political adviser – was that the ERM was ‘half-baked’: the abolition of capital controls meant that the ERM was inevitably subject to what could become intolerable speculative pressures; by contrast, the proposed single currency, the euro, would not – at least for those within the system.


pages: 223 words: 10,010

The Cost of Inequality: Why Economic Equality Is Essential for Recovery by Stewart Lansley

"Robert Solow", banking crisis, Basel III, Big bang: deregulation of the City of London, Bonfire of the Vanities, borderless world, Branko Milanovic, Bretton Woods, British Empire, business cycle, business process, call centre, capital controls, collective bargaining, corporate governance, corporate raider, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, deindustrialization, Edward Glaeser, Everybody Ought to Be Rich, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, Goldman Sachs: Vampire Squid, high net worth, hiring and firing, Hyman Minsky, income inequality, James Dyson, Jeff Bezos, job automation, John Meriwether, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, laissez-faire capitalism, light touch regulation, Long Term Capital Management, low skilled workers, manufacturing employment, market bubble, Martin Wolf, mittelstand, mobile money, Mont Pelerin Society, Myron Scholes, new economy, Nick Leeson, North Sea oil, Northern Rock, offshore financial centre, oil shock, plutocrats, Plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, Right to Buy, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, shareholder value, The Great Moderation, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, Tyler Cowen: Great Stagnation, Washington Consensus, Winter of Discontent, working-age population

The liberalisation of global capital markets and the sweeping away of domestic controls over credit enabled global finance a gradual return to the supremacy it had last enjoyed in the nineteenth century. In the post-war era, the international finance industry was a highly regulated system with largely fixed exchange rates and heavy restrictions on capital flows. By the mid-1980s, it was marked by lax regulations on lending, the free mobility of capital and for most countries, freely floating exchange rates. Moreover the other pillars of the market experiment adopted in the US and the UK—the weakening of unions, the axing of business regulations and the switch from maintaining employment to fighting inflation—also served to re-concentrate power in the hands of the leaders of the global finance industry. Nowhere was this dismantling of the post-war financial and state economic apparatus more welcome than in the offices of the City, Wall Street and the other financial centres.


When the Money Runs Out: The End of Western Affluence by Stephen D. King

Albert Einstein, Asian financial crisis, asset-backed security, banking crisis, Basel III, Berlin Wall, Bernie Madoff, British Empire, business cycle, capital controls, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, congestion charging, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-subsidies, debt deflation, Deng Xiaoping, Diane Coyle, endowment effect, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial repression, fixed income, floating exchange rates, full employment, George Akerlof, German hyperinflation, Hyman Minsky, income inequality, income per capita, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Kickstarter, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, London Interbank Offered Rate, loss aversion, market clearing, mass immigration, moral hazard, mortgage debt, new economy, New Urbanism, Nick Leeson, Northern Rock, Occupy movement, oil shale / tar sands, oil shock, old age dependency ratio, price mechanism, price stability, quantitative easing, railway mania, rent-seeking, reserve currency, rising living standards, South Sea Bubble, sovereign wealth fund, technology bubble, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, trickle-down economics, Washington Consensus, women in the workforce, working-age population

One possibility would be to take lessons from the 1980s Savings and Loan crisis in the US, where bad debts were ultimately bundled up into the Resolution Trust Corporation. Admittedly, the establishment of a eurozone ‘bad bank’ would leave eurozone taxpayers to pick up the 238 4099.indd 238 29/03/13 2:23 PM Avoiding Dystopia bill. That, however, would be small price to pay if, as a result, nations within the single currency were then able to thrive: far better to have orderly losses than a catastrophic collapse. DEALING WITH DEBT: COUNTRIES WITH FLOATING EXCHANGE RATES The great advantage of an independent monetary policy is the ability to delay until tomorrow what might otherwise be necessary today. It’s easy enough, for example, to see that the US, the UK and Japan – all of which have ropey fiscal positions, at least judged by post-­war standards – have been under no real pressure to deliver austerity with the savage urgency required of nations in southern Europe.


pages: 920 words: 233,102

Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State by Paul Tucker

Andrei Shleifer, bank run, banking crisis, barriers to entry, Basel III, battle of ideas, Ben Bernanke: helicopter money, Berlin Wall, Bretton Woods, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, conceptual framework, corporate governance, diversified portfolio, Fall of the Berlin Wall, financial innovation, financial intermediation, financial repression, first-past-the-post, floating exchange rates, forensic accounting, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, George Akerlof, incomplete markets, inflation targeting, information asymmetry, invisible hand, iterative process, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, liberal capitalism, light touch regulation, Long Term Capital Management, means of production, money market fund, Mont Pelerin Society, moral hazard, Northern Rock, Pareto efficiency, Paul Samuelson, price mechanism, price stability, principal–agent problem, profit maximization, quantitative easing, regulatory arbitrage, reserve currency, risk tolerance, risk-adjusted returns, road to serfdom, Robert Bork, Ronald Coase, seigniorage, short selling, Social Responsibility of Business Is to Increase Its Profits, stochastic process, The Chicago School, The Great Moderation, The Market for Lemons, the payments system, too big to fail, transaction costs, Vilfredo Pareto, Washington Consensus, yield curve, zero-coupon bond, zero-sum game

To police the rules of the game agreed at the famous Bretton Woods conference in New Hampshire’s White Mountains, the International Monetary Fund (IMF) and the World Bank were created. At its heart, the system relied on the dollar holding its value against gold, but the US authorities proved unable to square that with their foreign and domestic policy priorities. The Bretton Woods framework collapsed in the early 1970s under the weight of US fiscal profligacy and inflationary incontinence. Since then, most countries have opted for a floating exchange rate with domestic (or, as in the euro area, regional) control of monetary policy. Technically, each jurisdiction is free under IMF treaty rules to adopt capital controls, but the strong norm has been that they do not do so. This was a world, most thought, in which the effects of one country’s monetary policy on others would be confined to shifts in exchange rates, leaving national economies to manage their own domestic monetary course in the interests of their own citizens.

There the financial sector advocates of low inflation during the 1970s and 1980s were mainly long-term investment institutions (life insurance companies and pension funds) and the stockbrokers who served them.14 That is because, on behalf of households, they were the major investors in long-term nominal bonds. Another demand-side force was the community of central bankers and monetary economists. Of course, CBI would increase their power and influence, but they did have arguments. Even under the Bretton Woods regime, under which most countries pegged their currency to the dollar, itself pegged to gold, Chicago economist Milton Friedman and others were making the case that floating exchange rates would permit smoother adjustment to international current account imbalances. But precisely because that would restore domestic monetary sovereignty, it posed the question of how politicians could be deterred from abusing the monetary power. After Bretton Woods collapsed, those issues could not be ducked, prompting a quarter-century-long debate about rules versus discretion (as told in the next chapter).


pages: 357 words: 99,684

Why It's Still Kicking Off Everywhere: The New Global Revolutions by Paul Mason

anti-globalists, back-to-the-land, balance sheet recession, bank run, banking crisis, Berlin Wall, business cycle, capital controls, centre right, citizen journalism, collapse of Lehman Brothers, collective bargaining, creative destruction, credit crunch, Credit Default Swap, currency manipulation / currency intervention, currency peg, do-ocracy, eurozone crisis, Fall of the Berlin Wall, floating exchange rates, Francis Fukuyama: the end of history, full employment, ghettoisation, illegal immigration, informal economy, land tenure, low skilled workers, mass immigration, means of production, megacity, Mohammed Bouazizi, Naomi Klein, Network effects, New Journalism, Occupy movement, price stability, quantitative easing, race to the bottom, rising living standards, short selling, Slavoj Žižek, Stewart Brand, strikebreaker, union organizing, We are the 99%, Whole Earth Catalog, WikiLeaks, Winter of Discontent, women in the workforce, working poor, working-age population, young professional

It was Ben Bernanke’s book on the Great Depression that taught us the monetarist truism: ‘To an overwhelming degree the evidence shows that countries that left the Gold Standard recovered from the Depression more quickly than countries that remained on gold.’23 The lesson is this: he who devalues his currency first escapes the crisis first. In the 1930s, tight monetary policy, driven by adherence to gold, exacerbated the depression. This time there is no Gold Standard, but a system of free-floating exchange rates. Britain was first out of the blocks to devalue—the governor of the Bank of England, Mervyn King, told colleagues privately that he was proud of his contribution to the 20 per cent slide of sterling after 2008. America launched an effective devaluation strategy with QEII, despite simultaneously claiming to be for ‘a strong dollar’. Then, during the desperate flight to safety in August 2011, when both America and the eurozone toyed with default, others piled into the currency game: Switzerland and Japan sold mountains of money to try and depreciate their own currencies.


pages: 356 words: 103,944

The Globalization Paradox: Democracy and the Future of the World Economy by Dani Rodrik

affirmative action, Asian financial crisis, bank run, banking crisis, bilateral investment treaty, borderless world, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, central bank independence, collective bargaining, colonial rule, Corn Laws, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, Doha Development Round, en.wikipedia.org, endogenous growth, eurozone crisis, financial deregulation, financial innovation, floating exchange rates, frictionless, frictionless market, full employment, George Akerlof, guest worker program, Hernando de Soto, immigration reform, income inequality, income per capita, industrial cluster, information asymmetry, joint-stock company, Kenneth Rogoff, land reform, liberal capitalism, light touch regulation, Long Term Capital Management, low skilled workers, margin call, market bubble, market fundamentalism, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, microcredit, Monroe Doctrine, moral hazard, night-watchman state, non-tariff barriers, offshore financial centre, oil shock, open borders, open economy, Paul Samuelson, price stability, profit maximization, race to the bottom, regulatory arbitrage, savings glut, Silicon Valley, special drawing rights, special economic zone, The Wealth of Nations by Adam Smith, Thomas L Friedman, Tobin tax, too big to fail, trade liberalization, trade route, transaction costs, tulip mania, Washington Consensus, World Values Survey

Alas, they were. The missing ingredients would be brought into the picture much later as the problems of free finance became more apparent. The painful lessons of the interwar period would have to be relearned. Currency floating, in particular, worked very differently from what most economists expected at the time. By the 1980s, “excessive volatility” and “misalignment” had become bywords for floating exchange rates. As these pieces of economist’s jargon suggest, there were two problems: currency values fluctuated too much on a day-to-day basis; and there were prolonged periods of currency under-or overvaluation that created difficulties at home and for trade partners. Consider the travails of the British pound. We have historical data on the value of the pound against the U.S. dollar back to 1791 that provide us with a long historical perspective on currency instability.


Rogue States by Noam Chomsky

anti-communist, Asian financial crisis, Berlin Wall, Branko Milanovic, Bretton Woods, business cycle, capital controls, collective bargaining, colonial rule, creative destruction, cuban missile crisis, declining real wages, deskilling, Edward Snowden, experimental subject, Fall of the Berlin Wall, floating exchange rates, land reform, liberation theology, Mikhail Gorbachev, Monroe Doctrine, new economy, oil shock, RAND corporation, Silicon Valley, strikebreaker, structural adjustment programs, Tobin tax, union organizing, Washington Consensus

That’s what many economists call the “golden age” of modern capitalism (modern state capitalism, more accurately). That was a period, roughly up until about 1970, a period of historically unprecedented growth of the economy, of trade, of productivity, of capital investment, extension of welfare state measures, a golden age. That was reversed in the early ‘70s. The Bretton Woods system was dismantled, with liberalization of financial markets and floating exchange rates. The period since has often been described as a “leaden age.” There was a huge explosion of very short-term, speculative capital, completely overwhelming the productive economy. There was marked deterioration in just about every respect—considerably slower economic growth, slower growth of productivity, of capital investment, much higher interest rates (which slow down growth), greater market volatility, and financial crises.


Data and the City by Rob Kitchin,Tracey P. Lauriault,Gavin McArdle

A Declaration of the Independence of Cyberspace, bike sharing scheme, bitcoin, blockchain, Bretton Woods, Chelsea Manning, citizen journalism, Claude Shannon: information theory, clean water, cloud computing, complexity theory, conceptual framework, corporate governance, correlation does not imply causation, create, read, update, delete, crowdsourcing, cryptocurrency, dematerialisation, digital map, distributed ledger, fault tolerance, fiat currency, Filter Bubble, floating exchange rates, global value chain, Google Earth, hive mind, Internet of things, Kickstarter, knowledge economy, lifelogging, linked data, loose coupling, new economy, New Urbanism, Nicholas Carr, open economy, openstreetmap, packet switching, pattern recognition, performance metric, place-making, RAND corporation, RFID, Richard Florida, ride hailing / ride sharing, semantic web, sentiment analysis, sharing economy, Silicon Valley, Skype, smart cities, Smart Cities: Big Data, Civic Hackers, and the Quest for a New Utopia, smart contracts, smart grid, smart meter, social graph, software studies, statistical model, TaskRabbit, text mining, The Chicago School, The Death and Life of Great American Cities, the market place, the medium is the message, the scientific method, Toyota Production System, urban planning, urban sprawl, web application

As global trade required ‘modern’ organization through the early part of the twentieth century, the Bretton Woods agreement was signed in 1944 by committed countries in order to maintain exchange rates to a fixed value in terms of gold. On its failure in 1971 – due to the dollar’s inability to retain value in the light of a global recession – the detachment of monetary value from a mineral ore to a new system of floating exchange rates ‘de-materialized’ money (Harvey 1990). As the representation of value continues to become further abstracted from goods and services, for example, through electronic BACS transfers and online and mobile banking, we soon arrive at the role of money in society today. In the abstraction of value from a material representation to a promissory token, both time and identity become obfuscated.


pages: 358 words: 106,729

Fault Lines: How Hidden Fractures Still Threaten the World Economy by Raghuram Rajan

accounting loophole / creative accounting, Andrei Shleifer, Asian financial crisis, asset-backed security, assortative mating, bank run, barriers to entry, Bernie Madoff, Bretton Woods, business climate, business cycle, Clayton Christensen, clean water, collapse of Lehman Brothers, collateralized debt obligation, colonial rule, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, diversification, Edward Glaeser, financial innovation, fixed income, floating exchange rates, full employment, global supply chain, Goldman Sachs: Vampire Squid, illegal immigration, implied volatility, income inequality, index fund, interest rate swap, Joseph Schumpeter, Kenneth Rogoff, knowledge worker, labor-force participation, Long Term Capital Management, longitudinal study, market bubble, Martin Wolf, medical malpractice, microcredit, money market fund, moral hazard, new economy, Northern Rock, offshore financial centre, open economy, price stability, profit motive, Real Time Gross Settlement, Richard Florida, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, school vouchers, short selling, sovereign wealth fund, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, upwardly mobile, Vanguard fund, women in the workforce, World Values Survey

The Response to the Dot-Com Bust After the crash in the NASDAQ index in 2000–2001 and the recession that followed, the Federal Reserve tried to offset the collapse in investment by cutting short-term interest rates steadily. From a level of 6½ percent in January 2001, interest rates were brought down to 1 percent by June 2003. Such a low level, unprecedented in the post-1971 era of floating exchange rates, sent a strong signal to the economy. House purchases picked up as more people found they could afford the lower mortgage payments. Increased housing demand encouraged more home construction, which was already being given a boost by the low interest rates at which developers could borrow. Output growth, riding on productivity growth, was strong, but jobs were really what the public and politicians wanted.


pages: 363 words: 107,817

Modernising Money: Why Our Monetary System Is Broken and How It Can Be Fixed by Andrew Jackson (economist), Ben Dyson (economist)

bank run, banking crisis, banks create money, Basel III, Bretton Woods, business cycle, call centre, capital controls, cashless society, central bank independence, credit crunch, David Graeber, debt deflation, double entry bookkeeping, eurozone crisis, financial exclusion, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, Fractional reserve banking, full employment, Hyman Minsky, inflation targeting, informal economy, information asymmetry, intangible asset, land reform, London Interbank Offered Rate, market bubble, market clearing, Martin Wolf, means of production, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, negative equity, Northern Rock, price stability, profit motive, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, risk-adjusted returns, seigniorage, shareholder value, short selling, South Sea Bubble, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, unorthodox policies

To prevent these flows interfering with the fixed exchange rates, the UK used a combination of capital controls (to limit the outflows due to the acquisition of foreign assets), quantitative and qualitative restrictions on bank lending, and control of interest rates (to limit the availability and demand for domestic credit which could fuel imports). Despite the huge government deficits run up during the war, the destruction of large swathes of Europe, and a highly repressed financial system, from 1945 to 1971 growth was uniformly high and unemployment very low. For these reasons this period is commonly referred to as the golden age of capitalism. Floating exchange rates Between 1945 and 1971 a new dynamic developed. By international agreement, oil had always been priced in US dollars and as a consequence the oil exporting nations of the Middle East had amassed a substantial surplus of dollars, invested mainly in US Government securities (bonds). By 1965, the French President, Charles de Gaulle, was decrying the world’s dependence on the US dollar and calling for a return to a national gold standard, and in 1971 Switzerland and France each demanded redemption in gold of its central bank’s holdings of dollars.


pages: 349 words: 104,796

Greed and Glory on Wall Street: The Fall of the House of Lehman by Ken Auletta

business climate, corporate governance, financial independence, fixed income, floating exchange rates, interest rate swap, New Journalism, profit motive, Ronald Reagan, Saturday Night Live, traveling salesman, zero-coupon bond

United States economic supremacy was being challenged. Trade agreements with the East beckoned. The State Department was not focused on international finance, and National Security Adviser Henry Kissinger was preoccupied with other matters, including a miserable war in Vietnam. Peterson supervised the principal staff work leading to the replacement of the international gold standard with a floating exchange rate. Working with Kissinger, he helped prepare for the Nixon-Brezhnev Summit of 1972, and chaired important trade negotiations with the Soviet Union, Poland and Japan. In the first volume of his memoirs, White House Years, Henry Kissinger says of Peterson’s appointment: I agreed enthusiastically when, at OMB Director George Shultz’s urging, the new post of Assistant to the President for International Economic Affairs was created at the White House—though it technically represented a diminution of my power.


pages: 264 words: 115,489

Take the Money and Run: Sovereign Wealth Funds and the Demise of American Prosperity by Eric C. Anderson

asset allocation, banking crisis, Bretton Woods, business continuity plan, business process, buy and hold, collective bargaining, corporate governance, credit crunch, currency manipulation / currency intervention, currency peg, diversified portfolio, fixed income, floating exchange rates, housing crisis, index fund, Kenneth Rogoff, open economy, passive investing, profit maximization, profit motive, random walk, reserve currency, risk tolerance, risk-adjusted returns, risk/return, Ronald Reagan, sovereign wealth fund, the market place, The Wealth of Nations by Adam Smith, too big to fail, Vanguard fund

According to Dooley, Folkerts-Landau, and Garber, “the periphery countries chose a development strategy of undervalued currencies, controls on capital flows, trade reserve accumulation, and the use of the [core] as a financial intermediary that lent credibility to their own financial systems. In turn, the U.S. lent long term to the periphery, generally through foreign direct investment.”16 As Dooley, Folkerts-Landau, and Garber understood economic history in 2003, the collapse of Bretton Woods I was the result of growing prosperity in Europe and Japan. However, they go on to argue that the subsequent period of free-floating exchange rates was “only a transition during which there was no important [economic] periphery.”17 (As Dooley, Folkerts-Landau, and Garber put it, “the communist countries were irrelevant to the international monetary system.”) Europe and Japan, Dooley, Folkerts-Landau, and Garber contend, have now been replaced by an “Asian periphery” that is proceeding down the same path as their predecessors in Berlin, Paris, and Tokyo.


pages: 397 words: 112,034

What's Next?: Unconventional Wisdom on the Future of the World Economy by David Hale, Lyric Hughes Hale

affirmative action, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Berlin Wall, Black Swan, Bretton Woods, business cycle, capital controls, Cass Sunstein, central bank independence, cognitive bias, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, debt deflation, declining real wages, deindustrialization, diversification, energy security, Erik Brynjolfsson, Fall of the Berlin Wall, financial innovation, floating exchange rates, full employment, Gini coefficient, global reserve currency, global village, high net worth, Home mortgage interest deduction, housing crisis, index fund, inflation targeting, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Just-in-time delivery, Kenneth Rogoff, Long Term Capital Management, Mahatma Gandhi, Martin Wolf, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, money market fund, money: store of value / unit of account / medium of exchange, mortgage tax deduction, Network effects, new economy, Nicholas Carr, oil shale / tar sands, oil shock, open economy, passive investing, payday loans, peak oil, Ponzi scheme, post-oil, price stability, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, sovereign wealth fund, special drawing rights, technology bubble, The Great Moderation, Thomas Kuhn: the structure of scientific revolutions, Tobin tax, too big to fail, total factor productivity, trade liberalization, Washington Consensus, Westphalian system, WikiLeaks, women in the workforce, yield curve

FED FUNDS RATE: The short-term interest rate at which US depository institutions lend to each other overnight within the Federal Reserve System. FEEDBACK LOOP: A channel or pathway that is formed by an “effect” returning to its “cause”; it generates either more or less of the same effect. FIAT MONEY: Money that has value solely through governmental decree, not through any intrinsic value or ability to be redeemed for specie or commodity. FLOATING EXCHANGE RATE: When the value of a currency is allowed to fluctuate according to market forces and is not fixed by government entities. FOREIGN DIRECT INVESTMENT: Investment of foreign assets into domestic structures, equipment, and organization. Excludes foreign investment in domestic stock markets. FOREIGN EXCHANGE RESERVES: Liquid assets held by a central bank or government entity that are used to intervene in the foreign exchange market.


pages: 393 words: 115,263

Planet Ponzi by Mitch Feierstein

Affordable Care Act / Obamacare, Albert Einstein, Asian financial crisis, asset-backed security, bank run, banking crisis, barriers to entry, Bernie Madoff, break the buck, centre right, collapse of Lehman Brothers, collateralized debt obligation, commoditize, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, disintermediation, diversification, Donald Trump, energy security, eurozone crisis, financial innovation, financial intermediation, fixed income, Flash crash, floating exchange rates, frictionless, frictionless market, high net worth, High speed trading, illegal immigration, income inequality, interest rate swap, invention of agriculture, light touch regulation, Long Term Capital Management, low earth orbit, mega-rich, money market fund, moral hazard, mortgage debt, negative equity, Northern Rock, obamacare, offshore financial centre, oil shock, pensions crisis, plutocrats, Plutocrats, Ponzi scheme, price anchoring, price stability, purchasing power parity, quantitative easing, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, too big to fail, trickle-down economics, value at risk, yield curve

By the early 1990s, the finance industry as a whole was generating over 6.5% of economic output, while Wall Street’s share of GDP had tripled to around 1%. Wall Street was still a minor player in the scheme of things, but a feisty one, a growing one. No other sector had grown at that rate. Even the computer industry, in the age of the PC and the mass-produced silicon chip, had not grown that fast. That turbocharged growth was fueled by two principal ingredients. First, the advent of floating exchange rates in 1971 had gradually led to the dismantling of international controls on the movement of capital. As capital started to become ever more mobile, Wall Street firms were ideally placed to skim a little froth from the river of money as it passed on through.2 Secondly, Wall Street had perfected the art of ‘disintermediation.’ The term is ugly and obscure, but its meaning is startlingly simple.


pages: 358 words: 119,272

Anatomy of the Bear: Lessons From Wall Street's Four Great Bottoms by Russell Napier

Albert Einstein, asset allocation, banking crisis, Bretton Woods, business cycle, buy and hold, collective bargaining, Columbine, cuban missile crisis, desegregation, diversified portfolio, floating exchange rates, Fractional reserve banking, full employment, hindsight bias, Kickstarter, Long Term Capital Management, market bubble, mortgage tax deduction, Myron Scholes, new economy, oil shock, price stability, reserve currency, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, short selling, stocks for the long run, yield curve, Yogi Berra

As we have seen, a study of five periods of undervaluation would create symmetry of distribution, with two periods of undervaluation in the final quarter of the century. Given the structural changes in the economy one might have expected proclivity to undervaluation to have diminished. Throughout the century, the elasticity of the US currency increased. There was the move from the gold standard to one of gold exchange standard, implementation of Bretton Woods, and then a free-floating exchange rate. The increasing ability of the Federal Reserve to provide a monetary response in periods of distress might suggest that the return of equities to fire-sale prices would become less prevalent. It is interesting that such a phenomenon is not evident in the data. The oscillation of the q ratio around the geometric mean does not appear to be any more volatile in the first half of the century than it was in the second.


pages: 471 words: 124,585

The Ascent of Money: A Financial History of the World by Niall Ferguson

Admiral Zheng, Andrei Shleifer, Asian financial crisis, asset allocation, asset-backed security, Atahualpa, bank run, banking crisis, banks create money, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, BRICs, British Empire, business cycle, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collateralized debt obligation, colonial exploitation, commoditize, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, deglobalization, diversification, diversified portfolio, double entry bookkeeping, Edmond Halley, Edward Glaeser, Edward Lloyd's coffeehouse, financial innovation, financial intermediation, fixed income, floating exchange rates, Fractional reserve banking, Francisco Pizarro, full employment, German hyperinflation, Hernando de Soto, high net worth, hindsight bias, Home mortgage interest deduction, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, iterative process, John Meriwether, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour mobility, Landlord’s Game, liberal capitalism, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, means of production, Mikhail Gorbachev, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, Naomi Klein, negative equity, Nelson Mandela, Nick Leeson, Northern Rock, Parag Khanna, pension reform, price anchoring, price stability, principal–agent problem, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, quantitative hedge fund, RAND corporation, random walk, rent control, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, seigniorage, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spice trade, stocks for the long run, structural adjustment programs, technology bubble, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Malthus, Thorstein Veblen, too big to fail, transaction costs, undersea cable, value at risk, Washington Consensus, Yom Kippur War

A currency peg can mean higher volatility in short-term interest rates, as the central bank seeks to keep the price of its money steady in terms of the peg. It can mean deflation, if the supply of the peg is constrained (as the supply of gold was relative to the demand for it in the 1870s and 1880s). And it can transmit financial crises (as happened throughout the restored gold standard after 1929). By contrast, a system of money based primarily on bank deposits and floating exchange rates is freed from these constraints. The gold standard was a long time dying, but there were few mourners when the last meaningful vestige of it was removed on 15 August 1971, the day that President Richard Nixon closed the so-called gold ‘window’ through which, under certain restricted circumstances, dollars could still be exchanged for gold. From that day onward, the centuries-old link between money and precious metal was broken.


pages: 492 words: 118,882

The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory by Kariappa Bheemaiah

accounting loophole / creative accounting, Ada Lovelace, Airbnb, algorithmic trading, asset allocation, autonomous vehicles, balance sheet recession, bank run, banks create money, Basel III, basic income, Ben Bernanke: helicopter money, bitcoin, blockchain, Bretton Woods, business cycle, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, cashless society, cellular automata, central bank independence, Claude Shannon: information theory, cloud computing, cognitive dissonance, collateralized debt obligation, commoditize, complexity theory, constrained optimization, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, cryptocurrency, David Graeber, deskilling, Diane Coyle, discrete time, disruptive innovation, distributed ledger, diversification, double entry bookkeeping, Ethereum, ethereum blockchain, fiat currency, financial innovation, financial intermediation, Flash crash, floating exchange rates, Fractional reserve banking, full employment, George Akerlof, illegal immigration, income inequality, income per capita, inflation targeting, information asymmetry, interest rate derivative, inventory management, invisible hand, John Maynard Keynes: technological unemployment, John von Neumann, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, knowledge economy, large denomination, liquidity trap, London Whale, low skilled workers, M-Pesa, Marc Andreessen, market bubble, market fundamentalism, Mexican peso crisis / tequila crisis, MITM: man-in-the-middle, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, natural language processing, Network effects, new economy, Nikolai Kondratiev, offshore financial centre, packet switching, Pareto efficiency, pattern recognition, peer-to-peer lending, Ponzi scheme, precariat, pre–internet, price mechanism, price stability, private sector deleveraging, profit maximization, QR code, quantitative easing, quantitative trading / quantitative finance, Ray Kurzweil, Real Time Gross Settlement, rent control, rent-seeking, Satoshi Nakamoto, Satyajit Das, savings glut, seigniorage, Silicon Valley, Skype, smart contracts, software as a service, software is eating the world, speech recognition, statistical model, Stephen Hawking, supply-chain management, technology bubble, The Chicago School, The Future of Employment, The Great Moderation, the market place, The Nature of the Firm, the payments system, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, trade liberalization, transaction costs, Turing machine, Turing test, universal basic income, Von Neumann architecture, Washington Consensus

Unlike gold and silver, this form of money was based on an understanding that the currency held by a person could be redeemed for a commodity in exchange. As the century rolled on it was this form of money that evolved into fiat money, which is currently used by modern economies. Fiat currencies came into use in 1971 following the decision of President Nixon to discontinue the use of the gold standard. The end of the gold standard helped sever the ties between world currencies and real commodities and gave rise to the floating exchange rate. A distinguishing feature between commodity-backed currencies and fiat currencies, however, is the fact that it is based on trust and not a tangible value per se. Fiat currency is backed by a central or governmental authority and functions in purpose as a legal tender that it will be accepted by other people in exchange for goods and services. It can be looked as a type of IOU, but one that is unique because everyone who uses it trusts it.


pages: 1,477 words: 311,310

The Rise and Fall of the Great Powers: Economic Change and Military Conflict From 1500 to 2000 by Paul Kennedy

agricultural Revolution, airline deregulation, anti-communist, banking crisis, Berlin Wall, Bretton Woods, British Empire, cuban missile crisis, deindustrialization, Deng Xiaoping, European colonialism, floating exchange rates, full employment, German hyperinflation, imperial preference, industrial robot, joint-stock company, laissez-faire capitalism, long peace, means of production, Monroe Doctrine, mutually assured destruction, night-watchman state, North Sea oil, nuclear winter, oil shock, open economy, Peace of Westphalia, Potemkin village, price mechanism, price stability, RAND corporation, reserve currency, Ronald Reagan, Silicon Valley, South China Sea, South Sea Bubble, spice trade, spinning jenny, stakhanovite, The Wealth of Nations by Adam Smith, trade route, University of East Anglia, upwardly mobile, zero-sum game

If anything, the growth in the number of professional statisticians employed by governments and by international organizations and the development of much more sophisticated techniques since the days of Mulhall’s Dictionary of Statistics have tended to show how difficult is the task of making proper comparisons. The reluctance of “closed” societies to publish their figures, differentiated national ways of measuring income and product, and fluctuating exchange rates (especially after the post-1971 decisions to abandon a gold-exchange standard and to adopt floating exchange rates) have all combined to cast doubt upon the correctness of any one series of economic data.189 On the other hand, a number of statistical indications can be used, with a reasonable degree of confidence, to correlate with one another and to point to broad trends occurring over time. The first, and by far the most important, feature has been what Bairoch rightly describes as “a totally unprecedented rate of growth in world industrial output”190 during the decades after the Second World War.

Because of the growing integration of the world economy, the volume of trade both in manufactures and in financial services is much larger than ever before, and together may amount to some $3 trillion a year; but that is now eclipsed by the stupendous level of capital flows pouring through the world’s money markets, with the London-based Eurodollar market alone having a volume “at least 25 times that of world trade.”239 While this trend was fueled by events in the 1970s (the move from fixed to floating exchange rates, the surplus funds flowing from OPEC countries), it has also been stimulated by the U.S. deficits, since the only way the federal government has been able to cover the yawning gap between its expenditures and its receipts has been to suck into the country tremendous amounts of liquid funds from Europe and (especially) Japan—turning the United States, as mentioned above, into the world’s largest debtor country by far.240 It is, in fact, difficult to imagine how the American economy could have got by without the inflow of foreign funds in the early 1980s, even if that had the awkward consequence of sending up the exchange value of the dollar, and further hurting U.S. agricultural and manufacturing exports.


pages: 497 words: 143,175

Pivotal Decade: How the United States Traded Factories for Finance in the Seventies by Judith Stein

"Robert Solow", 1960s counterculture, activist lawyer, affirmative action, airline deregulation, anti-communist, Ayatollah Khomeini, barriers to entry, Berlin Wall, blue-collar work, Bretton Woods, business cycle, capital controls, centre right, collective bargaining, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, deindustrialization, desegregation, energy security, Fall of the Berlin Wall, falling living standards, feminist movement, financial deregulation, floating exchange rates, full employment, Gunnar Myrdal, income inequality, income per capita, intermodal, invisible hand, knowledge worker, laissez-faire capitalism, liberal capitalism, Long Term Capital Management, manufacturing employment, market bubble, Martin Wolf, new economy, oil shale / tar sands, oil shock, open economy, Paul Samuelson, payday loans, post-industrial society, post-oil, price mechanism, price stability, Ralph Nader, RAND corporation, reserve currency, Robert Gordon, Ronald Reagan, Simon Kuznets, strikebreaker, trade liberalization, union organizing, urban planning, urban renewal, War on Poverty, Washington Consensus, working poor, Yom Kippur War

Without growth, unemployment could not be reduced—the very reason that, unlike the United States, Germany and other European countries and Japan employed industrial policies and kept out goods from developing nations. The U.S. trade deficit jumped from $9.5 billion in 1976 to $31.1 billion in 1977 and $34 billion in 1978, despite a cheaper dollar.5 The increased openness of the U.S. economy—integrated finance, floating exchange rates, global trade, unencumbered capital flows—reduced the potency of Keynesian policies on the domestic economy. Some portion of the U.S. stimulus stimulated foreign economies. The United States was left with budget deficits, inflation, and rising imports. When imports flooded the U.S. market as a result of these policies, government blamed industry. Critics claimed that high prices and high wages made domestic goods uncompetitive and caused inflation.


pages: 448 words: 142,946

Sacred Economics: Money, Gift, and Society in the Age of Transition by Charles Eisenstein

Albert Einstein, back-to-the-land, bank run, Bernie Madoff, big-box store, Bretton Woods, capital controls, clean water, collateralized debt obligation, commoditize, corporate raider, credit crunch, David Ricardo: comparative advantage, debt deflation, deindustrialization, delayed gratification, disintermediation, diversification, fiat currency, financial independence, financial intermediation, fixed income, floating exchange rates, Fractional reserve banking, full employment, global supply chain, God and Mammon, happiness index / gross national happiness, hydraulic fracturing, informal economy, invisible hand, Jane Jacobs, land tenure, land value tax, Lao Tzu, liquidity trap, McMansion, means of production, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, new economy, off grid, oil shale / tar sands, Own Your Own Home, Paul Samuelson, peak oil, phenotype, Ponzi scheme, profit motive, quantitative easing, race to the bottom, Scramble for Africa, special drawing rights, spinning jenny, technoutopianism, the built environment, Thomas Malthus, too big to fail

When local government is the issuer, scrip much more easily takes on the “story of value” that makes it into money. Such currencies are often called complementary because they are separate from, and complementary to, the standard medium of exchange. While they are usually denominated in dollar (or euro, pound, etc.) units, there is no currency board that keeps reserves of dollars to maintain the exchange rate. They are thus similar to a standard sovereign currency with a floating exchange rate. In the absence of local government support, because complementary fiat currencies are not easily convertible into dollars, businesses are generally much less willing to accept them than they are proxy currencies. That is because in the current economic system, there is little infrastructure to source goods locally. Locally owned businesses are plugged into the same global supply chains as everyone else.


pages: 461 words: 128,421

The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street by Justin Fox

activist fund / activist shareholder / activist investor, Albert Einstein, Andrei Shleifer, asset allocation, asset-backed security, bank run, beat the dealer, Benoit Mandelbrot, Black-Scholes formula, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, card file, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, discovery of the americas, diversification, diversified portfolio, Edward Glaeser, Edward Thorp, endowment effect, Eugene Fama: efficient market hypothesis, experimental economics, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, George Akerlof, Henri Poincaré, Hyman Minsky, implied volatility, impulse control, index arbitrage, index card, index fund, information asymmetry, invisible hand, Isaac Newton, John Meriwether, John Nash: game theory, John von Neumann, joint-stock company, Joseph Schumpeter, Kenneth Arrow, libertarian paternalism, linear programming, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, market bubble, market design, Myron Scholes, New Journalism, Nikolai Kondratiev, Paul Lévy, Paul Samuelson, pension reform, performance metric, Ponzi scheme, prediction markets, pushing on a string, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk/return, road to serfdom, Robert Bork, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, shareholder value, Sharpe ratio, short selling, side project, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, stocks for the long run, The Chicago School, The Myth of the Rational Market, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, Thorstein Veblen, Tobin tax, transaction costs, tulip mania, value at risk, Vanguard fund, Vilfredo Pareto, volatility smile, Yogi Berra

With the exception of cases where companies are about to be merged or otherwise removed from trading, the stock market is made up of securities conspicuously lacking in expiration dates. So how was it again that arbitrageurs are supposed to force stock prices back into line in the short term? Nobody had a good answer. Believers in the rational market often cited Milton Friedman’s 1951 plea for floating exchange rates or the 1950 paper by UCLA’s Armen Alchian that said inept economic actors would be weeded out by a Darwinistic process. Irrational traders would lose money and disappear from the scene, the thinking went, to be supplanted by rational ones. But this claim was basically just folklore. No one had ever offered a scientific explanation—let alone evidence—of how arbitrage was supposed to work on a market-wide scale.


pages: 488 words: 144,145

Inflated: How Money and Debt Built the American Dream by R. Christopher Whalen

Albert Einstein, bank run, banking crisis, Black Swan, Bretton Woods, British Empire, business cycle, buy and hold, California gold rush, Carmen Reinhart, central bank independence, commoditize, conceptual framework, corporate governance, corporate raider, creative destruction, cuban missile crisis, currency peg, debt deflation, falling living standards, fiat currency, financial deregulation, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, full employment, global reserve currency, housing crisis, interchangeable parts, invention of radio, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, means of production, money: store of value / unit of account / medium of exchange, moral hazard, mutually assured destruction, non-tariff barriers, oil shock, Paul Samuelson, payday loans, plutocrats, Plutocrats, price stability, pushing on a string, quantitative easing, rent-seeking, reserve currency, Ronald Reagan, special drawing rights, The Chicago School, The Great Moderation, too big to fail, trade liberalization, transcontinental railway, Upton Sinclair, women in the workforce

Only a month after President Nixon announced his trip to China, he went on national television, announced that the United States was in the worst crisis since the Great Depression, and took the dollar off the gold standard. Nixon effectively devalued the U.S. currency for the second time in 40 years.28 In 1971 Nixon unilaterally ended the gold convertibility of the dollar, bringing an end to the Bretton Woods system of managed currencies and ushering in a period of floating exchange rates. Taking a page out of the Democratic playbook of Truman and FDR, Nixon also imposed a 90-day freeze on wages and prices and a 10 percent surcharge on imports. Following the Kennedy–Johnson administration in the United States, there was a massive effort to manage the marketplace, in part by controlling wages. In their book The Commanding Heights, Daniel Yergin and Joseph Stanislaw described the bizarre fact of Richard M.


pages: 586 words: 159,901

Wall Street: How It Works And for Whom by Doug Henwood

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, affirmative action, Andrei Shleifer, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, business cycle, capital asset pricing model, capital controls, central bank independence, computerized trading, corporate governance, corporate raider, correlation coefficient, correlation does not imply causation, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, dematerialisation, diversification, diversified portfolio, Donald Trump, equity premium, Eugene Fama: efficient market hypothesis, experimental subject, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, George Gilder, hiring and firing, Hyman Minsky, implied volatility, index arbitrage, index fund, information asymmetry, interest rate swap, Internet Archive, invisible hand, Irwin Jacobs, Isaac Newton, joint-stock company, Joseph Schumpeter, kremlinology, labor-force participation, late capitalism, law of one price, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, London Interbank Offered Rate, Louis Bachelier, market bubble, Mexican peso crisis / tequila crisis, microcredit, minimum wage unemployment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, oil shock, Paul Samuelson, payday loans, pension reform, plutocrats, Plutocrats, price mechanism, price stability, prisoner's dilemma, profit maximization, publication bias, Ralph Nader, random walk, reserve currency, Richard Thaler, risk tolerance, Robert Gordon, Robert Shiller, Robert Shiller, selection bias, shareholder value, short selling, Slavoj Žižek, South Sea Bubble, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, transcontinental railway, women in the workforce, yield curve, zero-coupon bond

Cross-border movements of private capital were "driven to an important extent by expectations of exchange rate realignments," themselves driven largely by current-account considerations. Deficit countries, then, typically faced outflows, as capital tried to beat a coming devaluation; surplus countries faced inflows, as investors hoped to benefit from the likely revaluation. With the advent of floating exchange rates in 1973, these tendencies were only reinforced. Margaret Thatcher's prompt removal of exchange controls upon her ascension in 1979 set the tone for the 1980s. Ten years later, none of the major and few of the minor rich industrial countries significantly restricted the right of their citizens to hold foreign property. As Turner noted, things were very different the last time capital roamed the globe so freely.


pages: 497 words: 153,755

The Power of Gold: The History of an Obsession by Peter L. Bernstein

Albert Einstein, Atahualpa, Bretton Woods, British Empire, business cycle, California gold rush, central bank independence, double entry bookkeeping, Edward Glaeser, Everybody Ought to Be Rich, falling living standards, financial innovation, floating exchange rates, Francisco Pizarro, German hyperinflation, Hernando de Soto, Isaac Newton, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, large denomination, liquidity trap, long peace, money: store of value / unit of account / medium of exchange, old-boy network, Paul Samuelson, price stability, profit motive, random walk, rising living standards, Ronald Reagan, seigniorage, the market place, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, trade route

New York: Holt Rinehart. Wheatcroft, Geoffrey, 1985. The Randlords. London: Atheneum. White, Michael, 1977. Isaac Newton: The Last Sorcerer. Reading, MA: AddisonWesley. Wilkie, A. D., 1994. "The Risk Premium on Ordinary Shares." A presentation to the Faculty of Actuaries and the Institute of Actuaries, London. Wimmer, Larry, 1975. "The Gold Crisis of 1869: Stabilizing or Destabilizing Speculation Under Floating Exchange Rates." Explorations in Economic History, 12, pp. 105-122. Wirth, Max, 1893. "The Crisis of 1890."Journal of Political Economy, 1, no. 2, pp. 214-235. Wright, Louis B., 1970. Gold, Glory, and the Gospel: The Adventurous Lives and Times of the Renaissance Explorers. New York: Atheneum. -A New History of Rome," Spectator 102 (January 2, 1909), pp. 20-21. 'Where in the world did the Pharaoh of Egypt obtain a bear, much less a polar bear, over two hundred years before the birth of Christ?


India's Long Road by Vijay Joshi

Affordable Care Act / Obamacare, barriers to entry, Basel III, basic income, blue-collar work, Bretton Woods, business climate, capital controls, central bank independence, clean water, collapse of Lehman Brothers, collective bargaining, colonial rule, congestion charging, corporate governance, creative destruction, crony capitalism, decarbonisation, deindustrialization, demographic dividend, demographic transition, Doha Development Round, eurozone crisis, facts on the ground, failed state, financial intermediation, financial repression, first-past-the-post, floating exchange rates, full employment, germ theory of disease, Gini coefficient, global supply chain, global value chain, hiring and firing, income inequality, Indoor air pollution, Induced demand, inflation targeting, invisible hand, land reform, Mahatma Gandhi, manufacturing employment, Martin Wolf, means of production, microcredit, moral hazard, obamacare, Pareto efficiency, price mechanism, price stability, principal–agent problem, profit maximization, profit motive, purchasing power parity, quantitative easing, race to the bottom, randomized controlled trial, rent-seeking, reserve currency, rising living standards, school choice, school vouchers, secular stagnation, Silicon Valley, smart cities, South China Sea, special drawing rights, The Future of Employment, The Market for Lemons, too big to fail, total factor productivity, trade liberalization, transaction costs, universal basic income, urban sprawl, working-age population

Then, strong inward capital flows resumed because a) it looked as if the worst of the crisis was over and India had come out of it in better shape than many countries; and b) Western governments slashed interest rates to very low levels and started ‘quantitative easing’, which raised the relative return on Indian assets. At this point, Subbarao appears to have had a change of heart. Perhaps he thought that a stronger rupee would be good for damping down inflation. Perhaps he was persuaded by the reports of some government committees that had advocated moving towards a floating exchange rate. He turned away from Reddy’s strategy of managing the rupee and allowed the exchange rate to be market-​determined. In 12 months from April 2009, the rupee rose from $1 = Rs. 51 to $1 = Rs. 45, and remained around that level for another year. But Indian inflation was much faster than in other countries. The combined result of these two factors was that India’s export competitiveness against its trading partners worsened sizeably.


pages: 475 words: 155,554

The Default Line: The Inside Story of People, Banks and Entire Nations on the Edge by Faisal Islam

Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, Basel III, Ben Bernanke: helicopter money, Berlin Wall, Big bang: deregulation of the City of London, Boris Johnson, British Empire, capital controls, carbon footprint, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, credit crunch, Credit Default Swap, crony capitalism, dark matter, deindustrialization, Deng Xiaoping, disintermediation, energy security, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, financial repression, floating exchange rates, forensic accounting, forward guidance, full employment, G4S, ghettoisation, global rebalancing, global reserve currency, hiring and firing, inflation targeting, Irish property bubble, Just-in-time delivery, labour market flexibility, light touch regulation, London Whale, Long Term Capital Management, margin call, market clearing, megacity, Mikhail Gorbachev, mini-job, mittelstand, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, negative equity, North Sea oil, Northern Rock, offshore financial centre, open economy, paradox of thrift, Pearl River Delta, pension reform, price mechanism, price stability, profit motive, quantitative easing, quantitative trading / quantitative finance, race to the bottom, regulatory arbitrage, reserve currency, reshoring, Right to Buy, rising living standards, Ronald Reagan, savings glut, shareholder value, sovereign wealth fund, The Chicago School, the payments system, too big to fail, trade route, transaction costs, two tier labour market, unorthodox policies, uranium enrichment, urban planning, value at risk, WikiLeaks, working-age population, zero-sum game

The controls will be slowly lifted for individuals, but Iceland will need tools to control the potential outflow. The ultimate tool for Júlíusdóttir was to join the European Union and the Eurozone, but after losing the April 2013 general election, this seemed off the agenda. In the absence of the EU option, other economic thinkers on the island think that the way forward for a small open economy like Iceland is to copy the Asian countries. Iceland should have a managed floating exchange rate, and a large build-up of foreign-exchange reserves. ‘It has served the Asians well,’ says Guðmundsson at the Central Bank. So that’s an end to inflation targeting, and for the banks an end to the European single market. A single market without a single safety net in banking was one of the causes of Iceland’s excess. ‘All of this was nonsense because there’s a huge difference between growing tomatoes or making shoes and banking.


pages: 840 words: 202,245

Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present by Jeff Madrick

accounting loophole / creative accounting, Asian financial crisis, bank run, Bretton Woods, business cycle, capital controls, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, desegregation, disintermediation, diversified portfolio, Donald Trump, financial deregulation, fixed income, floating exchange rates, Frederick Winslow Taylor, full employment, George Akerlof, Hyman Minsky, income inequality, index fund, inflation targeting, inventory management, invisible hand, John Meriwether, Kitchen Debate, laissez-faire capitalism, locking in a profit, Long Term Capital Management, market bubble, minimum wage unemployment, MITM: man-in-the-middle, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, new economy, North Sea oil, Northern Rock, oil shock, Paul Samuelson, Philip Mirowski, price stability, quantitative easing, Ralph Nader, rent control, road to serfdom, Robert Bork, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Ronald Reagan: Tear down this wall, shareholder value, short selling, Silicon Valley, Simon Kuznets, technology bubble, Telecommunications Act of 1996, The Chicago School, The Great Moderation, too big to fail, union organizing, V2 rocket, value at risk, Vanguard fund, War on Poverty, Washington Consensus, Y2K, Yom Kippur War

He wrote that Volcker’s harder-nosed monetarist approach was more or less dictated by the advisory group of bankers who met with the Fed regularly. Greider, Secrets of the Temple, p. 145. 12 OVERSIMPLIFICATION WAS PRECISELY WHY: Volcker later wrote, with what became characteristic ambiguity, “I was as skeptical of the extreme claims of that school about the virtues of constant money growth as I had been about the efficacy of floating exchange rates.… But shorn of some of those extreme claims, the approaches that had been debated (and half forgotten) seemed worth looking at again.” Volcker and Gyohten, Changing Fortunes, p. 167. 13 IN THE SAME BROOKINGS DISCUSSION: Volcker, “Monetary Policy,” in Feldstein, ed., American Economic Policy in the 1980s, p. 160. 14 VOLCKER FACED A DIFFICULT TASK: Greider, Secrets of the Temple, p. 105. 15 VOLCKER RETURNED EARLY: Schmidt and others wanted higher rates in the United States partly because the value of the U.S. dollar was falling against their currencies, reducing their exports to the U.S. 16 THE MONEY SUPPLY GREW MORE SLOWLY: There is typically a lag, but its duration is debatable. 17 “THE OCTOBER [1979] SPURT”: Greider, Secrets of the Temple, p. 140. 18 THE CREDIT CONTROLS WERE STRONGLY SUPPORTED: W.


pages: 843 words: 223,858

The Rise of the Network Society by Manuel Castells

"Robert Solow", Apple II, Asian financial crisis, barriers to entry, Big bang: deregulation of the City of London, Bob Noyce, borderless world, British Empire, business cycle, capital controls, complexity theory, computer age, computerized trading, creative destruction, Credit Default Swap, declining real wages, deindustrialization, delayed gratification, dematerialisation, deskilling, disintermediation, double helix, Douglas Engelbart, Douglas Engelbart, edge city, experimental subject, financial deregulation, financial independence, floating exchange rates, future of work, global village, Gunnar Myrdal, Hacker Ethic, hiring and firing, Howard Rheingold, illegal immigration, income inequality, Induced demand, industrial robot, informal economy, information retrieval, intermodal, invention of the steam engine, invention of the telephone, inventory management, James Watt: steam engine, job automation, job-hopping, John Markoff, knowledge economy, knowledge worker, labor-force participation, laissez-faire capitalism, Leonard Kleinrock, longitudinal study, low skilled workers, manufacturing employment, Marc Andreessen, Marshall McLuhan, means of production, megacity, Menlo Park, moral panic, new economy, New Urbanism, offshore financial centre, oil shock, open economy, packet switching, Pearl River Delta, peer-to-peer, planetary scale, popular capitalism, popular electronics, post-industrial society, postindustrial economy, prediction markets, Productivity paradox, profit maximization, purchasing power parity, RAND corporation, Robert Gordon, Robert Metcalfe, Shoshana Zuboff, Silicon Valley, Silicon Valley startup, social software, South China Sea, South of Market, San Francisco, special economic zone, spinning jenny, statistical model, Steve Jobs, Steve Wozniak, Ted Nelson, the built environment, the medium is the message, the new new thing, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, total factor productivity, trade liberalization, transaction costs, urban renewal, urban sprawl, zero-sum game

For the first time in history, a unified global capital market, working in real time, has emerged.16 The explanation, and the real issue, of the phenomenal volume of trans-border financial flows, as shown in chapter 2, lies in the speed of the transactions.17 The same capital is shuttled back and forth between economies in a matter of hours, minutes, and sometimes seconds.18 Favored by deregulation, disintermediation, and the opening of domestic financial markets, powerful computer programs and skillful financial analysts/computer wizards, sitting at the global nodes of a selective telecommunications network, play games, literally, with billions of dollars.19 The main card room in this electronic casino is the currency market, which has exploded in the past decade, taking advantage of floating exchange rates. In 1998, US$1.3 trillion were exchanged every day in the currency market.20 These global gamblers are not obscure speculators, but major investment banks, pension funds, multinational corporations (of course including manufacturing corporations), and mutual funds organized precisely for the sake of financial manipulation.21 François Chesnais identified about 50 major players in the global financial markets.22 Yet, as argued above, once turbulences are generated in the market, flows take over, as central banks have repeatedly learned to their heavy cost.


pages: 736 words: 233,366

Roller-Coaster: Europe, 1950-2017 by Ian Kershaw

airport security, anti-communist, Ayatollah Khomeini, banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Boris Johnson, Bretton Woods, British Empire, business cycle, centre right, colonial rule, cuban missile crisis, deindustrialization, Deng Xiaoping, Donald Trump, European colonialism, eurozone crisis, Exxon Valdez, failed state, Fall of the Berlin Wall, falling living standards, feminist movement, first-past-the-post, fixed income, floating exchange rates, Francis Fukuyama: the end of history, full employment, illegal immigration, income inequality, Johann Wolfgang von Goethe, labour market flexibility, land reform, late capitalism, liberal capitalism, liberation theology, low skilled workers, mass immigration, means of production, Mikhail Gorbachev, mutually assured destruction, Nelson Mandela, North Sea oil, Northern Rock, oil shale / tar sands, oil shock, open borders, precariat, price stability, quantitative easing, race to the bottom, reserve currency, rising living standards, road to serfdom, Ronald Reagan, Ronald Reagan: Tear down this wall, Sinatra Doctrine, The Chicago School, trade liberalization, union organizing, upwardly mobile, washing machines reduced drudgery, Washington Consensus, Winter of Discontent, young professional

By the end of the 1960s gold was selling for more than double the official price. Bretton Woods was no longer sustainable. On 15 August 1971 President Richard Nixon suddenly announced a dramatic shift in American policy: amid a raft of anti-inflationary measures, he suspended the gold convertibility of the dollar. With that move, the Bretton Woods system – the basis of the post-war economy – was dead. Floating exchange rates were the future. But they entailed further uncertainties for the international economy. How to manage them was the new problem – and would rapidly create difficulties. No patent solution was found. All proposals foundered on the issue, faced by economies of quite varying strength and not least by the central US economy, of combating the worrying rise in inflation without resorting to classical deflationary measures of such severity that they would undermine growth, hugely increase unemployment (with all its attendant social and political consequences), and perhaps plunge the world into a new great depression.


pages: 872 words: 259,208

A History of Modern Britain by Andrew Marr

air freight, Albert Einstein, anti-communist, battle of ideas, Beeching cuts, Big bang: deregulation of the City of London, Bob Geldof, Bretton Woods, British Empire, Brixton riot, clean water, collective bargaining, computer age, congestion charging, cuban missile crisis, deindustrialization, Etonian, falling living standards, fear of failure, Fellow of the Royal Society, financial independence, floating exchange rates, full employment, housing crisis, illegal immigration, Kickstarter, liberal capitalism, Live Aid, loadsamoney, market design, mass immigration, means of production, Mikhail Gorbachev, millennium bug, Neil Kinnock, Nelson Mandela, new economy, North Sea oil, Northern Rock, offshore financial centre, open borders, out of africa, Parkinson's law, Piper Alpha, Red Clydeside, reserve currency, Right to Buy, road to serfdom, Ronald Reagan, Silicon Valley, strikebreaker, upwardly mobile, Winter of Discontent, working poor, Yom Kippur War

It was the prospect of ever greater cuts in public spending, inflation out of control, and the economy in the hands of outsiders that helped break the Labour Party into warring factions and gave the hard left its great opportunity. Had the IMF crisis not happened would the ‘winter of discontent’ and the Bennite uprising have followed? Healey later said he forgave the Treasury for its mistakes in calculating public sector borrowing needs, because nobody had got their forecasts right. He and they were operating in a new economic world of floating exchange rates, huge capital flows and speculation still little understood. It made him highly critical of monetarism, however, and all academic theories which depended on accurate measurement and forecasting of the money supply. He liked to quote President Johnson, who at about this time reflected that making a speech on economics ‘is a lot like pissing down your leg. It seems hot to you, but it never does to anyone else.’


pages: 1,164 words: 309,327

Trading and Exchanges: Market Microstructure for Practitioners by Larry Harris

active measures, Andrei Shleifer, asset allocation, automated trading system, barriers to entry, Bernie Madoff, business cycle, buttonwood tree, buy and hold, compound rate of return, computerized trading, corporate governance, correlation coefficient, data acquisition, diversified portfolio, fault tolerance, financial innovation, financial intermediation, fixed income, floating exchange rates, High speed trading, index arbitrage, index fund, information asymmetry, information retrieval, interest rate swap, invention of the telegraph, job automation, law of one price, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, market clearing, market design, market fragmentation, market friction, market microstructure, money market fund, Myron Scholes, Nick Leeson, open economy, passive investing, pattern recognition, Ponzi scheme, post-materialism, price discovery process, price discrimination, principal–agent problem, profit motive, race to the bottom, random walk, rent-seeking, risk tolerance, risk-adjusted returns, selection bias, shareholder value, short selling, Small Order Execution System, speech recognition, statistical arbitrage, statistical model, survivorship bias, the market place, transaction costs, two-sided market, winner-take-all economy, yield curve, zero-coupon bond, zero-sum game

The only reliable way that clients can determine whether their managers are creating peso problems is to directly examine the strategies that their portfolio managers use. * * * ▶ The Peso Problem The following story is part of the folklore of the Economics Department at the University of Chicago. I have no idea of its veracity. In the 1960s and 1970s, inflation in Mexico was significantly higher than in the United States. Interest rates therefore were higher in Mexico than in the United States. Had there been a floating exchange rate regime then, the Mexican peso would have depreciated relative to the dollar at a rate that would have made investors roughly indifferent between investing in the United States and in Mexico. For example, a U.S. investor would have earned higher interest in Mexico than in the United States, but the premium would have been offset by a decrease in the dollar value of the peso over the period of the investment.


The Empire Project: The Rise and Fall of the British World-System, 1830–1970 by John Darwin

anti-communist, banking crisis, Bretton Woods, British Empire, capital controls, cognitive bias, colonial rule, Corn Laws, European colonialism, floating exchange rates, full employment, imperial preference, Joseph Schumpeter, Khartoum Gordon, Kickstarter, labour mobility, land tenure, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, Mahatma Gandhi, Monroe Doctrine, new economy, New Urbanism, open economy, railway mania, reserve currency, Right to Buy, rising living standards, Scientific racism, South China Sea, the market place, The Wealth of Nations by Adam Smith, trade route, transaction costs, transcontinental railway, undersea cable

It was, he said, ‘a reckless leap in the dark involving appalling political and economic risks at home and abroad’.42 The objection to ROBOT was not just that Butler's medicine was unnecessarily strong. Four arguments sank it. First, although there had been ambiguous signals from across the Atlantic, floating the pound would breach the first commandment of the Bretton Woods doctrine. It was hard to believe that the American response would not be severe. Secondly, it was far from certain that all the other countries in the sterling area would adopt a floating exchange rate. Far from forming a bloc of like-minded states, the sterling countries might break up in anger and acrimony. Thirdly, floating the pound might lead to the break-up of the European Payments Union (a currency pool along sterling area lines) if the pound was devalued against some European currencies. At a time when London was also trying to promote defence cooperation among the Western European states, and soothing French fears of future German aggrandisement, such a large spanner in the European works was unwelcome at best.