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World Bank President Robert Zoellick Calls For Return To "Old Money" Gold Standard
One of the most serious condemnations of the race to the currency bottom to date comes not come from some peripheral media, but from the head of the World Bank itself, who in a just released Op-Ed in the Financial Times says that since the system of floating currencies established by the 1971 Bretton Woods II system, has broken down, it is time to look to a new international system of commerce, one which "should also consider employing gold as an international reference point
of market expectations about inflation, deflation and future currency
values." In other words, welcome back gold standard 2. Of course, this proposal will never attain more than a casual academic reference, as even a partial gold standard will immediately establish a lower bound on how much any given monetary authority can debase its (and, by retaliation, others') currencies. What, however, if very curious, is why this proposal is being floated precisely 3 short days after the Fed has launched its most ambitious attempt to reflate global asset prices and devalue fiat paper. And as is well-known, the IMF has also been quietly proposing a return to an ven more powerful version of the SDR.... Just what will take for the scales to tip, and for the dollar to remain a reserve currency just in retrospect.
From the FT:
Writing in the Financial Times, Robert Zoellick, the bank's president since 2007, says a successor is needed to what he calls the "Bretton Woods II" system of floating currencies that has held since the Bretton Woods fixed exchange rate regime broke down in 1971.
Mr Zoellick, a former US Treasury official, calls for a system that "is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves towards internationalisation and then an open capital account". He adds: "The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values."
His views reflect disquiet with the international system, where persistent Chinese intervention to hold down the renminbi is blamed by the US and others for contributing to global current account imbalances and creating capital markets distortions.
Of course, with a market primed to discount every inflationary possibility, it would not be surprising to see precious metals to continue their near parabolic move higher over the past few days. Silver is already flirting with the $27 in the spot market tonight.
Full comments by Zoellick:
With talk of currency wars and disagreements over the US Federal Reserve’s policy of quantitative easing, the summit of the Group of 20 leading economies in Seoul this week is shaping up as the latest test of international co-operation. So we should ask: co-operation to what end?
When the G7 experimented with economic co-ordination in the 1980s, the Plaza and Louvre Accords focused attention on exchange rates. Yet the policy underpinnings ran deeper. The Reagan administration, guided by James Baker, the then Treasury secretary, wanted to resist a protectionist upsurge from Congress, like the one we see today. It therefore combined currency co-ordination with the launch of the Uruguay Round that created the World Trade Organisation and a push for free trade that led to agreements with Canada and Mexico. International leadership worked with domestic policies to boost competitiveness.
As part of this “package approach”, G7 countries were supposed to address the fundamentals of growth – today’s structural reform agenda. For example, the 1986 Tax Reform Act broadened the revenue base while slashing marginal income tax rates. Mr Baker worked with his G7 colleagues and central bankers to orchestrate international co-operation to build private-sector confidence.
History moved on after the huge changes of 1989 and the experience of the 1980s is still being debated, but this package approach was significant for its combination of pro-growth reforms, open trade and exchange rate co-ordination.
What might such an approach look like today? First, to focus on fundamentals, a key group of G20 countries should agree on parallel agendas of structural reforms, not just to rebalance demand but to spur growth. For example, China’s next five-year plan is supposed to transfer attention from export industries to new domestic businesses, and the service sector, provide more social services and shift financing from oligopolistic state-owned enterprises to ventures that will boost productivity and domestic demand.
With a new Congress, the US will need to address structural spending and ballooning debt that will tax future growth. President Barack Obama has also spoken of plans to boost competitiveness and revive free-trade agreements.
The US and China could agree on specific, mutually reinforcing steps to boost growth. Based on this, the two might also agree on a course for renminbi appreciation, or a move to wide bands for exchange rates. The US, in turn, could commit to resist tit-for-tat trade actions; or better, to advance agreements to open markets.
Second, other major economies, starting with the G7, should agree to forego currency intervention, except in rare circumstances agreed to by others. Other G7 countries may wish to boost confidence by committing to structural growth plans as well.
Third, these steps would assist emerging economies to adjust to asymmetries in recoveries by relying on flexible exchange rates and independent monetary policies. Some may need tools to cope with short-term hot money flows. The G20 could develop norms to guide these measures.
Fourth, the G20 should support growth by focusing on supply-side bottlenecks in developing countries. These economies are already contributing to half of global growth, and their import demand is rising twice as fast as that of advanced economies. The G20 should give special support to infrastructure, agriculture and developing healthy, skilled labour forces. The World Bank Group and the regional development banks could be the instruments of building multiple poles of future growth based on private sector development.
Fifth, the G20 should complement this growth recovery programme with a plan to build a co-operative monetary system that reflects emerging economic conditions. This new system is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves towards internationalisation and then an open capital account.
The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.
The development of a monetary system to succeed “Bretton Woods II”, launched in 1971, will take time. But we need to begin. The scope of the changes since 1971 certainly matches those between 1945 and 1971 that prompted the shift from Bretton Woods I to II. Serious work should include possible changes in International Monetary Fund rules to review capital as well as current account policies, and connect IMF monetary assessments with WTO obligations not to use currency policies to remove trade concessions.
This package approach to economic co-operation reaches beyond the recent G20 dialogue, but the ideas are practical and feasible, not radical. And it has clear advantages. It supplies a growth and monetary agenda that parallels the G20 financial sector reforms. It could be built upon prompt incremental actions, combined with credible steps to be pursued over time, allowing for political dialogue at home. And it could help rebuild public and market confidence, which will remain under stress in 2011. Perhaps most importantly, this package could get governments ahead of problems instead of reacting to economic, political and social storms.
Drive or drift? How the G20 decides could determine whether multilateral co-operation can achieve a strong economic recovery.
Little can be added here except for one recent popular quote, which explains why we eagerly welcome more and more high level individuals condemning the fiat system, and petitioning to a reversion the system that actually worked without creating quadrillions in imaginary debt-money (and the inevitable fiat devaluation that always follows): "What is the most resilient parasite? Bacteria? A virus? An intestinal
worm? An idea. Resilient... highly contagious. Once an idea has taken
hold of the brain it's almost impossible to eradicate. An idea that is
fully formed - fully understood - that sticks; right in there somewhere."
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Goldmoney.com Bitchez ?
Instead of coins - how about notes with a thin gold foil strip embedded in them? The notes could use extensive modern anti-counterfeiting techniques so people would know they're legit.
I appreciate your comment. Well thought out and reasonable.
Most folks dealing with the gold standard concept skip right over the Real Bills Doctrine. There are complex details woven in this economic tapestry that need to be shown.
Reading Antal Fekete and Nelson Hultberg helps. There is a counter argument by Robert Blumen as well.
Study up, but in case you are already up to speed, please include this in your exposition. I think it will round out any discussion.
ROFL, that's about as likely as Barack showing his birth certificate.
Yeah, well we need to do that too!
[If the world ever manages to return to a gold standard, people must demand only physical gold coins and bars. All forms of "gold backed paper" is inherently pure fraud, as has been proven over and over and over again. To carry around gold coins is no burden, but prevents the predator class from stealing the wealth everyone else produces.]--honestann
Great post. Thanks, honestann.
Although, I'm OK with gold/silver/copper.
The point really, is a return to honest money.
This kite was fashioned not to fly, just take up space in the garage.
I agree it won't fly, but it might add hot air so that another kite can lift.
Old money is the good money because it's still worth something
Somehow, after reading this I had an image of SDRs partially based on gold ETFs. Who said you can't have the best of both worlds? Oh, wait...
Gold not mr spoon is going to the moon.
http://www.buygoldbullion.org.uk
(d)
Maybe I'm just dense, but when I read his comments, all I'm seeing is a call to kill the dollar's role as the world reserve currency and replace it with a basket of currencies. Not much different from the rhetoric that's been associated with the G20 for over a year now except he's not advocating the SDR or Bancor. His proposal is not calling for the basket to be based on or even include gold - just that central bankers should be using gold as a reference point (or measuring stick) for managing it. I don't see where this proposal is really offering any viable solution to the problem of fiat malfeasance.
Robert Zoellick
Bilderberger
Trilateral Commission
CFR
PNAC Butchering Neocon Monster
World Wildlife Funn (Mass Murder/Global Depopulation)
The Squid (of course)
http://www.nndb.com/people/832/000123463/
Lots more Bilderbergers
http://www.nndb.com/org/514/000042388/
My long term indicators continue to warn of USD strength and EURO weakness.
http://stockmarket618.wordpress.com
C'mon ZH people, you just don't get it! Wake up!
"Devalue currencies", devalued against what?
Commerce, business activity, that's what.
Bernanke's (Trichet's, King's, Shirakawa's, Xiaochuan's, etc.) aim is a form of relativism. By devaluing money the value of (shrinking) commerces is increased, or rather, it appears to increase.
Business activity and value is declining because of the increase in input costs such as the 600% increase in fuel costs since 1999. The increasing value of money relative to commerce is deflation. This has been taking place for some time: since 1999!
Central bank relativism is beside any point as none can print oil or jobs. Adding money is a form of propaganda that many are succumbing to. QE and other liquidity actions are a form of Peak Oil denial.
Another point missed by the ZH contingent is how this new money is going to be destroyed. It will not be done by inflation as this is impossible with diminishing inputs. Money can indeed be destroyed by inflation but this has not taken place so far in the West.
Instead of inflation - where commerce gains value relative to money or hyperinflation where more 'apparent' money is in circulation (see quantity of money theory and velocity) - money currently flows into assets OUT of circulation. The increase in asset prices is due to decrease in circulation along with the shift of funds from one liquidity trap to another.
Inflation destroys money VALUE by increasing the quantity of it in circulation. Liquidity traps are places where money goes to die. Currency traps destroy money because of the impaired balance sheets of the traps themselves. Liquid assets in an institution are forms of capital or collateral. Bad loans when recognized are charged against the pledged collateral.
Liquidity traps are not called traps for nothing. They are easy to get into and impossible to escape when other asset holders are all trying to do the same thing. In this age of electronics the liabilities within an institution can be liquidated in ... 11 seconds!
This leaves the 12+ second contingent holding the empty bag.
So far during this crisis there has been no inflation in developed nations (rather it has accumulated in developing countries such as China). What has happened instead is that liquidity/currency traps have collapsed causing capital/equity to vaporize. There is no fundamental in post- 1999, post- Peak Oil economic environment that would suggest any change to this dynamic.
Money shifted to assets under the circumstances is vulnerable to the instanteous collapse of the asset- holding entities.
In this dynamic, banks that fail will entail large asset losses as will stocks, bonds, commodities contracts and 'paper' derivatives of these, real estate holdings and loan derivatives, physical gold 'holders' will fail and any gold held will be taken by upstream creditors, there will be runs on asset types and establishments managing the asset forms: by this means much of the 'new money' will be destroyed and so- called 'investors' (speculators) will be ruined.
Speculating on inflation is very dangerous. Destruction of asset/liquidity traps is just as certain as inflation and the fact that inflation is being promoted by central banks and large finance houses such as Goldman should give great reasons to pause.
Freegold FTW!
Very simple. US Elite (Israelis mostly) rode the global debt bubble from 1971. All the while used their newly created $$ to buy up even more of the world's gold supplies (including UK and USA's supplies) to the point where they now have the vast majority. Of course they want a gold standard as they will own most of the base money in the world and thus control the world's broad money supply (i.e. allocation of debt). No doubt they will offer to supply some back to the US for consideration ... maybe obliteration of the Muslim world or something like that
+1
that pretty much sums it up!
US defaulted on its obligations under Bretton Woods -- outright default. Who in Europe and Asia sent boats to collect their gold? Can't you see that macro is not all about equations? There also conflicts which cannot be quantified.
Please, do not fall for the elegant math of neoclassical economics -- it didn't prediuct any of the last three years...
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