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BRETTON WOODS, LORD KEYNES AND RESERVE CURRENCY

May 30, 2014

BRETTON WOODS, LORD KEYNES AND RESERVE CURRENCY
Much has happened since the Bretton Woods Conference in New Hampshire in 1944, an international conference called to set out international financial rules for the postwar world. It was a conference attended by one of my heroes of economics, Lord Keynes, whose views undergirded FDR’s New Deal which in turn ended (albeit temporarily and aided by the hit capitalists took because of the Depression) the wealth inequality of the time. With the American dollar established as the world’s reserve currency (as it still is), our country was poised, both politically and financially, for an economic boom. It came after WW II per expectation, and lasted until circa 1974, when the recovered capitalist class suddenly refused to share new wealth productivity with its corporate workers.
It has been downhill (with occasional bubbles and not real economic growth) ever since as the rich and corporate class has hogged all new wealth created by our economy, gone offshore with both production and capital to capture the profit to be made in such slave wage venues, involved itself in speculative ventures (which required bailouts) etc., all the while its remaining workers here (who were not sharing the increased new productivity gains) were and still are subjected to either stagnant or even declining wages (if they even have a job), thanks to the greed of such corporate employers and the austerity economics currently being practiced with the blessings of both parties, a set of practices that can only be described as an unmitigated disaster. Keynes’s advice at Bretton Woods, then and now, was and is being ignored. We are all either past, current or prospective losers as a result. As I have repeatedly warned, the chickens will be coming home to roost. The foul fowl have arrived. Evidence?
The rest of the world is looking at our deficit vs. GDP ratio. Many countries (such as high wage – high tax Sweden and Germany) have surpluses or only occasional brushes with frictional deficits (which they quickly repair). Here deficits are ongoing and perennial and will not improve with austerity as a policy. We refuse to tax to repair such deficits, and Republicans on the House Ways and Means Committee are currently in favor of extension of an immediate 50% depreciation on new machinery and equipment to corporations along with another goodie for corporations which would ADD over 600 billion dollars to the deficit over 10 years (while refusing to extend unemployment compensation to 3 million starving Americans who are looking for a job – a job these same Republicans extinguished with support of their pro-outsourcing friends among the rich and corporate class). We hear from some on the committee that such tax giveaways to the rich will result in more jobs and improvement of the economy in a replay of the old “trickle down” game. Right; introduction of more robots in the productive process guarantees an increase in human employment. The real result: Republicans wish to provide a giant and permanent loophole for the already rich while Americans stand in the breadline and unemployed veterans sleep on the sidewalks and under the bridges. Such policies make for Luddites and, ultimately, civil commotion.
I have saved the best evidence for the end. Russia and China are now negotiating trade agreements with other countries and among themselves in non-dollar denominations. As the increasingly shaky U.S. economy continues to sputter (see yesterday’s reevaluation of our first 2014 quarter’s economic performance to be negative – for the first time in three years) due to wage inequality, corporate greed and failure of policy leading to giant deficits, others are talking of a new world reserve currency of a basket of currencies to supplant the dollar. The Bretton Woods agreements, which have served the world and our country well since WW II, are at death’s door, thanks to our anti-Keynesian policies which further enrich the already rich and further impoverish the already impoverished and our failure to repair the result with responsible taxation and Keynesian policies that put Americans to work instead of waiting for private enterprise to make such decisions on employment for us. As I often write, it is our economy, not theirs, so let’s act like it.
We are the only country in the world whose domestic currency and the world’s reserve currency are the same, and if that happy situation ends, the dollar’s value will be up for grabs daily domestically as well as internationally – since other countries (see Japan and especially China along with mischief Putin could initiate) regularly play currency games, games that under such a new reserve regime could play havoc here at home as we import inflation, redo domestic contracts stated in dollar terms etc.
How to save our currency reserve status (and in the process, America)? Abandon austerity as policy; adopt Keynesian tactics as policy; tax responsibly and regain public control of the irresponsible legislative process under which we have been needlessly suffering. It isn’t rocket science. We know that Keynesianism works; we know that austerity in large economies (per one of the world’s great economists, Joseph Stiglitz) does not work and never has. The choice is obvious, so if this set of legislators prefers appeasement of the superrich and the campaign contributions that flow into their electoral coffers over what is plainly in the best interests of America and its people, then let’s remove such politicians irrespective of party and do what is right for America and its people. Now. GERALD E

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