Can the Global Financial System Be Updated? And By Whom?

The European Union is Pushing to Overhaul the Post-World War II Financial System.

EU leaders called for a global summit as soon as next month to rewrite the 1944 Bretton Woods accord that paved the way for Europe's post-World War II reconstruction and set up the institutions that oversee the world economy today.

"We had the emerging market crisis, we had the Internet bubble, now we have this massive crisis," French President Nicolas Sarkozy told reporters after chairing the first session of an EU summit late yesterday in Brussels. Europe insists on the "re-foundation of the international financial system."

U.K. Prime Minister Gordon Brown, author of the British bank- bailout plan that was copied across Europe and in the U.S., called for an end-of-year deadline to place each of the world's top 30 banks under the supervision of a panel of regulators from the countries where it is active.

"We now have global financial markets, but what we do not have is anything other than national and regional regulation and supervision," Brown said.

Treatment of tax havens such as the Cayman Islands and Monaco may be overhauled as part of any new global financial framework, Sarkozy said.

... The European initiative is likely to face headwinds from the U.S., which has used its dominance of international financial institutions to promote a brand of capitalism that has come into at least temporary disrepute.

"The U.S. got what it wanted in 1944 and, I suspect, will do so again simply because the Europeans won't be able to decide what they want," said Martin Weale, director of the National Institute of Economic and Social Research in London.

Bloomberg is reporting Trichet Urges Return to 'Discipline' of Bretton Woods

European Central Bank President Jean- Claude Trichet said officials reshaping the world's financial system should try to return to the "discipline" that governed markets in the decades after World War II.

"Perhaps what we need is to go back to the first Bretton Woods, to go back to discipline," Trichet said after giving a speech at the Economic Club of New York yesterday. "It's absolutely clear that financial markets need discipline: macroeconomic discipline, monetary discipline, market discipline."

At Bretton Woods, nations agreed to fix exchange rates, establish the International Monetary Fund and start the process of rebuilding Europe's economy in the aftermath of World War II by encouraging coordinated economic policies. Brown said national regulators must coordinate their work and banks should be pushed to disclose more trading positions.

Gold's Honest Discipline

I certainly agree with Trichet about the need for discipline. When Nixon tossed aside gold convertibility, all fiscal discipline went out the window. On my reading list on the left is a fine book by Vincent R. Locascio called The Monetary Elite Vs. Gold's Honest Discipline.

Locascio argues that it is not impossible in theory to devise an honest monetary system based on something other than gold, but in practice it is unlikely to happen. It's a good book that those in favor of a return to a gold standard would enjoy.

What I think needs to happen is fourfold:

1) Formulate a basis for a sound system of currencies 

2) Eliminate central bank setting of interest rates

3) Eliminate fractional reserve lending

4) Eliminate FDIC

Numbers 2-4 are redundant, actually, because a sound currency system could not have the likes of a Fed micro-mismanaging things or the FDIC guaranteeing anything. And certainly no one would trust banks who made reckless or excessive loans in a free market system unhindered by FDIC.

Instead, the summit participants will likely bicker over regulation without agreeing to do anything until the current system blows sky high. That might not be too much longer at the current rate of progress.

Comments

[moonbat1775:]

666 or 777?
Will it be hell
or something from heaven?

The End must come
but need it come now?

2008 Oct 16 01:13 PM

[Smarty_Pants:]

Isn't it bliss?
Don't you approve?
The FED keeps a-changin' their rate,
Which way will it move?
Where are the clowns?
Send in the clowns.
Don't bother, they're here.


So let's hazard a guess. Instead of moving back toward a fixed and knowable value for any particular currency, we're moving toward a coordinated, global band-aid squad instead. Great. Just what we need.

2008 Oct 16 02:44 PM

[Obama is Bu...:]

After the majority of Europeans have voted down the stupidity that is the EU and their central economic planning -- they now think their reach should extend to the entire planet?

How about the EU prove -- at least to the satisfaction of their own constituents -- that they can properly run Europe.

After that, we'll think about letting them run the whole world.

2008 Oct 16 02:46 PM

[moonbat1775:]

Discipline? Isn't this another word for deflation so the banks can scoop up real assets? Didn't T. Jefferson say something about this?

2008 Oct 16 03:26 PM

[Smarty_Pants:]

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

President Thomas Jefferson, Letter to the Secretary of the Treasury Albert Gallatin, 1802

2008 Oct 16 03:46 PM

[moonbat1775:]

Yea Jefferson!

2008 Oct 16 05:25 PM

[moonbat1775:]

Too bad Hamilton was shot. Ditto "Honest" Abe. Death gave them a stature they did not deserve.

Please! No one kill Greenspan or any of the powers that be. May they live long and not prosper.

2008 Oct 16 05:32 PM

[Steven Hansen:]

i am not sure what everybody wants. there is no transparency. nobody wants rules. nobody goes to jail for screwing everyone.

2008 Oct 16 09:04 PM

[moonbat1775:]

the hand,

Let all the guilty go free but SMASH the government backed fractional reserve banking cartel. The Devil will howl!

2008 Oct 16 09:23 PM