George Soros Plans New Bretton Woods Conference

A monetary conference sponsored by the Institute for New Economic Thinking – a nonprofit founded in 2009 with a $50 million pledge from oligarch George Soros – will be held April 8-11 at the Mount Washington Hotel in Bretton Woods.

Bretton Woods is, of course, the location of a monetary conference that was held following World War II. Lew Rockwell explained what went down at that conference:

At the end of World war II, the monetary condition of all nations was deplorable. The United States faced a massive debt overhang from the war and yet this country was still a creditor nation to the world. The United States also had huge stockpiles of gold. Most everyone else was flat-out bankrupt, as only a gargantuan government program can accomplish. The main currencies had been wrecked and the main economies along with them.

As was the fashion, world elites assembled to plan some gigantic coordinated solution. They met from July 1 to July 22, 1944, at the Mount Washington Hotel in Bretton Woods, New Hampshire, and drafted the Articles of Agreement. It was nearly a year and a half later, in December 1945, that the agreement was ratified. On March 1947, one of the monstrosities created during event, the International Monetary Fund, began operations.[The World Bank was also created at Bretton Woods-RW]

What was the goal of the plan? It was the same goal as at the founding of the Federal Reserve and the same goal that has guided every monetary plan in modern history. The stated idea was to promote economic growth, encourage macroeconomic stability, and, most absurdly, tame inflation. Of course, it did none of these things.

There are other analogies to the Fed. In the same way that the Fed was to serve as a lender of last resort, a provider of liquidity in times of instability, so too the Bretton Woods Agreement obligated all member nations to make their currencies available to be loaned to other countries to prevent temporary balance of payment problems.

There was to be no talk at all about what created these balance of payment problems. The assumption was that they were like bad weather or earthquakes or floods, just something that happens to countries from time to time. The unspoken truth was that monetary problems and related problems with balance of payment are created by bad policies: governments inflate, spend too much, run high debts, control their economies, impose trade protections, create gigantic welfare states, fight world wars, and otherwise undermine property rights.

As with all government plans, Bretton Woods was dealing with symptoms rather than causes and treating those symptoms in a way that enables and even encourages the disease. It pegged currencies at unrealistic levels, provided a bailout mechanism for governments and banking establishments to continue to do what they should not be doing, and thereby prolonged the problems and made them worse in the long run.

Governments have been throwing our good money after bad for a very long time. The plan, just as with the latest round of bailouts in the United States or Europe, was to dump money on near-bankrupt countries and thereby encourage them to continue with the very policies and practices that created the problem to begin with.

The core problem of the world monetary system after World War II was essentially that the gold standard had broken down, or rather, government had destroyed what remained of the old-fashioned gold standard through relentless inflation, debt, and devaluation. Economists in the Keynesian tradition had encouraged this, viewing money creation as some sort of panacea for all that ailed the world economy.

Keynes, the maestro of the Bretton Woods Conference, had recommended this and celebrated the results. To him, a flexible and standardless currency was the key to macroeconomic manipulation of his beloved aggregates. In a perverse way, he was right about this. A government on the gold standard is seriously constrained. It can’t take a sledgehammer to aggregate supply and aggregate demand. It can’t spend beyond its means. It must pay for the programs it creates through taxation, which means having to curb the appetite for welfare and warfare. There can be no such thing as a Keynesian state on the gold standard, any more then a cocaine addict or compulsive gambler can be on a strict budget.

Keynes’s message at Bretton Woods, [as the great economist Ludwig von Mises summarized it], was that the world elites could turn stones into bread. And so under the influence of Keynes, the target at the Bretton Woods meeting was liberalism itself, which was widely assumed to have failed during the Great Depression. The elites also came out of World War II with a more profound appreciation for the role of central planning. They had reveled in it.

At Bretton Woods, Keynes wasn’t able to get rid of gold completely, as he wanted to, and that did put a check on  money printing and ultimately led to the collapse of the inflationary Bretton Woods Agreement. Murray Rothbard explained:

The rules of the Bretton Woods game provided that the West European countries had to keep piling upon the [dollar] reserves, and even use these dollars as a base to inflate their own currency and credit.

But as the 1950s and 1960s continued, the harder-money countries of West Europe (and Japan) became restless at being forced to pile up dollars that were now increasingly overvalued instead of undervalued. As the purchasing power and hence the true value of dollars fell, they became increasingly unwanted by foreign governments. But they were locked into a system that was more and more of a nightmare. The American reaction to the European complaints, headed by France and DeGaulle’s major monetary adviser, the classical gold-standard economist Jacques Rueff, was merely scorn and brusque dismissal. American politicians and economists simply declared that Europe was forced to use the dollar as its currency, that it could do nothing about its growing problems, and that therefore the U.S. could keep blithely inflating while pursuing a policy of “benign neglect” toward the international monetary consequences of its own actions.

But Europe did have the legal option of redeeming dollars in gold at $35 an ounce. And as the dollar became increasingly overvalued in terms of hard money currencies and gold, European governments began more and more to exercise that option. The gold standard check was coming into use; hence gold flowed steadily out of the U.S. for two decades after the early 1950s, until the U.S. gold stock dwindled over this period from over $20 billion to $9 billion. As dollars kept inflating upon a dwindling gold base, how could the U.S. keep redeeming foreign dollars in gold–the cornerstone of the Bretton Woods system? These problems did not slow down continued U.S. inflation of dollars and prices, or the U.S. policy of “benign neglect,” which resulted by the late 1960s in an accelerated pileup of no less than $80 billion in unwanted dollars in Europe (known as Eurodollars). To try to stop European redemption of dollars into gold, the U.S. exerted intense political pressure on the European governments, similar but on a far larger scale to the British cajoling of France not to redeem its heavy sterling balances until 1931. But economic law has a way, at long last, of catching up with governments, and this is what happened to the inflation-happy U.S. government by the end of the 1960s. The gold exchange system of Bretton Woods–hailed by the U.S. political and economic Establishment as permanent and impregnable–began to unravel rapidly in 1968.

As dollars piled up abroad and gold continued to flow outward, the U.S. found it increasingly difficult to maintain the price of gold at $35 an ounce in the free gold markets at London and Zurich. Thirty-five dollars an ounce was the keystone of the system, and while American citizens have been barred since 1934 from owning gold anywhere in the world [In 1974,Gerald Ford repealed the law preventing Americans from owning gold-RW] , other citizens have enjoyed the freedom to own gold bullion and coin. Hence, one way for individual Europeans to redeem their dollars in gold was to sell their dollars for gold at $35 an ounce in the free gold market. As the dollar kept inflating and depreciating, and as American balance of payments deficits continued, Europeans and other private citizens began to accelerate their sales of dollars into gold. In order to keep the dollar at $35 an ounce, the U.S. government was forced to leak out gold from its dwindling stock to support the $35 price at London and Zurich.

A crisis of confidence in the dollar on the free gold markets led the United States to effect a fundamental change in the monetary system in March 1968. The idea was to stop the pesky free gold market from ever again endangering the Bretton Woods arrangement. Hence was born the “two-tier gold market.” The idea was that the free-gold market could go to blazes; it would be strictly insulated from the real monetary action in the central banks and governments of the world. The United States would no longer try to keep the free-market gold price at $35; it would ignore the free gold market, and it and all the other governments agreed to keep the value of the dollar at $35 an ounce forevermore. The governments and central banks of the world would henceforth buy no more gold from the “outside” market and would sell no more gold to that market; from now on gold would simply move as counters from one central bank to another, and new gold supplies, free gold market, or private demand for gold would take their own course completely separated from the monetary arrangements of the world.

Along with this, the U.S. pushed hard for the new launching of a new kind of world paper reserve, Special Drawing Rights (SDRs), which it was hoped would eventually replace gold altogether and serve as a new world paper currency to be issued by a future World Reserve Bank; if such a system were ever established, then the U.S. could inflate unchecked forevermore, in collaboration with other world governments (the only limit would then be the disastrous one of a worldwide runaway inflation and the crackup of the world paper currency). But the SDRs, combatted intensely as they have been by Western Europe and the “hard-money” countries, have so far been only a small supplement to American and other currency reserves.

All pro-paper economists, from Keynesians to Friedmanites, were now confident that gold would disappear from the international monetary system; cut off from its “support” by the dollar, these economists all confidently predicted, the free-market gold price would soon fall below $35 announce, and even down to the estimated “industrial” non-monetary gold price of $10 an ounce. Instead, the free price of gold, never below $35, had been steadily above $35, and by early 1973 had climbed to around $125 an ounce, a figure that no pro-paper economist would have thought possible as recently as a year earlier.

Far from establishing a permanent new monetary system, the two-tier gold market only bought a few years of time; American inflation and deficits continued. Eurodollars accumulated rapidly, gold continued to flow outward, and the higher free-market price of gold simply revealed the accelerated loss of world confidence in the dollar. the two-tier system moved rapidly towards crisis-and to the final dissolution of Bretton Woods.

This is the “happy” period that Soros would like to turn back to. As Soros’ INET puts it Bretton Woods was:

the scene of the great conference that established a renewed global economic architecture as World War II drew to a close.

Got that? “great conference”, “global economic architecture”. If there is any question that Soros would like to see a one world government, INET’s review of the strengths and weaknesses of Bretton Woods should put that to rest:

In the years since the 1944 conference, the globalization of production, trade, and especially finance, has transformed our economy, but has not yet transformed our system of regulation or our tools of policy intervention. Indeed, our very habits of thought and speech lag behind the realities that we desperately need to think and speak about.

INET somehow, with a straight face, just as the world tries to figure out how to get out from under the last remant of the  Bretton Woods agreement, the global dollar reserve standard, says that the Bretton Woods agreement:

….established the World Bank and chose the American dollar as the backbone of international exchange. The meeting provided the world with badly needed post war currency stability.

As Rothbard detailed, there never was any currency stability in the early years of Bretton Woods and there certainly isn’t any now. But it is under the guise of the success of earlier elite global planning that Soros will bring his group of merry global plotters to Bretton Woods. Among those scheduled to be there, in addition to Soros are:

Paul Volcker, Former Chairman, Federal Reserve

Adair Turner, Chairman, Financial Services Authority

Richard Bronk, London School of Economics

Gordon Brown, Former Prime Minister, United Kingdom

Paul Davidson, Co-Founder, Journal of Post Keynesian Economics

Martin Wolf, Chief Economics Commentator, Financial Times

Niall Ferguson, Professor of History, Harvard University

Andy Haldane, Executive Director, Financial Stability, Bank of England

Simon Johnson, Professor of Entrepreneurship, Global Economics and Management, Sloan School of Management, Massachusetts Institute of Technology

Henry Kaufman, President, Henry Kaufman & Co., Inc.

Zhu Min, Special Advisor, International Monetary Fund

Carmen Reinhart, Dennis Weatherstone Senior Fellow, Peterson Institute for International Economics

Kenneth Rogoff, Professor of Economics, Harvard University

Jeff Sachs, Director of the Earth Institute

Joseph Stiglitz, University Professor, Columbia Uni

Tuesday, February 22, 2011

Source: Economic Policy Journal