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Posts Tagged ‘Bretton Woods’

Will a New BRICS Currency Change Anything? Maybe | Mises Wire

Posted by M. C. on May 6, 2023

Unless the BRICS are willing to give up the power to create money out of thin air and create a currency that is backed 100 percent by gold or other commodities, any new currency will likely suffer the same problems as the dollar and other fiat currencies.

https://mises.org/wire/will-new-brics-currency-change-anything-maybe

Jon Wolfenbarger

Money first originated through the voluntary exchange of commodities, such as gold and silver, in order to eliminate the inefficiencies of barter.

As Austrian school of economics founder Carl Menger explained:

Money is not an invention of the state. It is not the product of a legislative act. Even the sanction of political authority is not necessary for its existence. Certain commodities came to be money quite naturally, as the result of economic relationships that were independent of the power of the state.

However, governments quickly learned that they could gain enormous wealth and power by taking control of money. Ludwig von Mises detailed in his magnum opus Human Action how this control has harmed human progress and noted that “For two hundred years the governments have interfered with the market’s choice of the money medium. Even the most bigoted étatists [statists] do not venture to assert that this interference has proved beneficial.”

Murray N. Rothbard further elaborated in What Has Government Done to Our Money? that

government meddling with money has not only brought untold tyranny into the world; it has also brought chaos and not order. It has fragmented the peaceful, productive world market and shattered it into a thousand pieces, with trade and investment hobbled and hampered by myriad restrictions, controls, artificial rates, currency breakdowns, etc. It has helped bring about wars by transforming a world of peaceful intercourse into a jungle of warring currency blocs. In short, we find that coercion, in money as in other matters, brings, not order, but conflict and chaos.

We see this chaos every day, with the economy bouncing from inflation to deflation and boom to bust. How did we reach this point and could it change going forward?

Devolution Of Money from Gold to Fiat Currencies

Prior to World War II, the British pound was the world’s “reserve currency.” However, after the war, the United States had the strongest economy and largest amount of gold reserves in the world.

At the Bretton Woods Conference in 1944, the US dollar was tied to gold at thirty-five dollars per ounce, and all other currencies were tied to the US dollar at fixed exchange rates. That made the dollar the “world reserve currency,” which means it was the only currency accepted throughout the world for the settlement of international trade accounts.

In the 1960s and early 1970s, the US government’s out-of-control spending spurred a run on US gold reserves by foreign governments. In response, President Richard Nixon ended all ties between the US dollar and gold in 1971. Since then, there has been no commodity backing for any currencies in the world. This led to higher inflation and lower living standards than would have otherwise occurred.

Following the Arab oil embargo of 1973, the US government agreed to provide military support to Saudi Arabia in exchange for Saudi Arabia agreeing to sell oil only in US dollars. This “petrodollar” arrangement helped solidify the dollar as the world’s reserve currency for the past fifty years.

What can compete with the US dollar now?

Rise of the BRICS

“BRICS” is an acronym for five of the largest emerging countries: Brazil, Russia, India, China, and South Africa. The BRICS countries comprise about 42 percent of the global population and 32 percent of global gross domestic product (GDP). By contrast, the US has only 4 percent of the global population and 16 percent of global GDP.

In addition, several countries are rumored to be joining the BRICS alliance in the future, including Saudi Arabia, the United Arab Emirates, Egypt, Turkey, Thailand, and Indonesia.

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The Bretton Woods Institutions and the Accelerated Dystopian Transformation of the Food Industry

Posted by M. C. on September 8, 2022

Subsequently, in 2020, the IMF stressed the importance of raising the prices of “land-intensive food (for example, beef).” This would help reduce the consumption of animal products by shifting “consumer preferences away” from items like meat, milk, and egg products. In essence, the IMF supports having “taxes levied” on “meat, dairy, and ultra-processed food” in order to “discourage their overconsumption.” 

Time for “World” and “International” institutions to go. Oh ya, guess who is paying for them.

https://mises.org/wire/bretton-woods-institutions-and-accelerated-dystopian-transformation-food-industry

Birsen Filip

The global food industry is currently undergoing a major transformation in the name of averting “climate change” that will involve the adoption of new technologies in the production process and the creation of alternative food products for consumption. Facilitating this transition has become a key priority of many international organizations and institutions, including the World Economic Forum (WEF), the United Nations, and the Bretton Woods institutions, which consist of the World Bank, the International Monetary Fund (IMF), and the World Trade Organization (WTO).

However, while the role of the WEF in the “Great Food Transformation” has been garnering more attention in recent months, those of the IMF, World Bank and WTO have gone relatively unnoticed. Like the WEF, these institutions have been highlighting the negative effects of the agriculture sector on the climate over the past few years, primarily “crop cultivation and livestock production.” They also claim that, in addition to being detrimental to the environment, meat and dairy products are “unhealthy” foods. According to the IMF, “reducing livestock emissions” is among the key actions needed to meet the “climate neutrality target [also known as net-zero emissions] by 2050,” which will also include “replacing polluting coal, gas and oil-fired power with energy from renewable sources, such as wind or solar” in over 120 countries. With respect to agriculture, the IMF advises “diversifying away from beef production” by “applying enhanced farm management practices and new technologies.”

In fact, the IMF published an article in 2019 urging radical changes on the supply side of food production in order to decrease “emissions in agriculture.” Specifically, this article stated that

global production and consumption of red meat (especially beef) and dairy will need to be cut by about 50 percent, through substitution of proteins supplied by plants. Urgent action in the top three beef (United States, Brazil, European Union) and dairy (United States, India, China) producers is key. Second, a large-scale shift is needed away from conventional monoculture agriculture toward practices that support biodiversity, such as organic and mixed crop-livestock farming, sustainable soil management, and ecosystem restoration. Denmark and the Netherlands were among the first countries to announce ambitious organic transformation plans.

Subsequently, in 2020, the IMF stressed the importance of raising the prices of “land-intensive food (for example, beef).” This would help reduce the consumption of animal products by shifting “consumer preferences away” from items like meat, milk, and egg products. In essence, the IMF supports having “taxes levied” on “meat, dairy, and ultra-processed food” in order to “discourage their overconsumption.” According to the IMF:

The average US retail price of a Big Mac, for example, is around $5.60. But with all the hidden expenses of meat production (including health care, subsidies, and environmental losses) the full burden on society is a hefty $12 per sandwich—a price that, if actually charged, could more than halve the US demand for burgers…. Likewise, a gallon of milk would run $9 instead of $3.50 and a store-bought, two-pound package of pork ribs would jump from $12 to $32.

It appears that, much like the WEF, the IMF is so committed to achieving “a Great Food Transformation” that it openly endorses using a centrally planned system to set the quantities and prices of food products to be sold instead of allowing them to be determined through voluntary exchanges in the marketplace, even though this would bring about the demise of economic freedom. The IMF also supports measures aimed at preventing individuals from consuming “animal products for breakfast or lunch.” To encourage the acceptance of these ideas and changes on the part of the people, the IMF has called for promoting the notion that such “dietary changes would entail health benefits as well as public spending savings.”

According to the IMF, achieving “a Great Food Transformation” will also require the redirection of state subsidies and loans toward “sustainable farms producing plant-based protein for human consumption and toward incentives for innovation on alternative proteins and smart farming technologies.” It would also involve “removing tax expenditure favoring products with emission-intensity,” such as “dairy/meat products,” and “providing financial support to R&D initiatives on emission reduction and carbon capture in agriculture.” Additionally, the IMF is of the view that stripping financial institutions of the ability to “lend to nonsustainable agri-food firms” would “provide essential support to a Great Food Transformation.”

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Huge Debt Got Us Hooked on Petrodollars — and on Saudi Arabia | Mises Wire

Posted by M. C. on January 22, 2020

Were petrodollars and petrodollar recycling to disappear, it would have a twofold effect on US government finances: a sizable decline in petrodollar recycling would put significant upward pressure on interest rates. The result would be a budget crisis for the US government, as it would have to devote ever-larger amounts of the federal budget to payments on the debt. (The other option would be to have the US central bank monetize the debt by purchasing ever-larger amounts of it to make up for a lack of foreign demand. This would lead to growing price inflation.)

Further, if participants began to exit the petrodollar system (and, say, sell oil in euros instead) demand for dollars would drop, exacerbating any scenarios in which the central bank is monetizing the debt.  This would also generally contribute to greater price inflation, as fewer dollars will be sucked out of the US by foreign holders.

https://mises.org/wire/huge-debt-got-us-hooked-petrodollars-%E2%80%94-and-saudi-arabia

The Iranian regime and the Saudi Arabian regime are longtime enemies, both vying for control of the Persian Gulf region. Part of the conflict stems from religious differences — differences between Shia and Sunni Muslim groups. But much of it stems from mundane desires to establish regional dominance.

For more than forty years, however, Saudi Arabia has had one important ace in the hole in terms of its battle with Iran: the US’s continued support for the Saudi regime.

But why should the US continue to so robustly support this dictatorial regime? Certainly, these close relations can’t be due to any American support for democracy and human rights. The Saudi regime is one of the world’s most illiberal and antidemocratic regimes. Its ruling class has repeatedly been connected to Islamist terrorist groups, with Foreign Policy magazine last year calling Saudi Arabia “the beating heart of Wahhabism — the harsh, absolutist religious creed that helped seed the worldviews of al Qaeda and the Islamic State.”

Saudis behind the Petrodollar

The answer lies in the fact that the Saudi state is at the center of US efforts to maintain the dollar as the world’s reserve currency, and to ensure global demand for US debt. The origins of this system go back decades.

By 1974, the US dollar was in a precarious position. In 1971, thanks to profligate spending on both war and domestic welfare programs, the US could no longer maintain a set global price for gold in line with the Bretton Woods system established in 1944. The value of the dollar in relation to gold fell as the supply of dollars increased as a byproduct of growing deficit spending. Foreign governments and investors began to lose faith in the dollar, and both Switzerland and France demanded gold in exchange for their dollars, as stipulated by Bretton Woods. If such demands continued, though, US gold holdings would soon be depleted. Moreover, the dollar was losing value against other currencies. In May of 1971, Germany left the Bretton Woods system and the dollar fell against the Deutsche mark.

In response to these developments, Nixon announced the US would abandon the Bretton Woods system. The dollar began to float against other currencies.

Not surprisingly, devaluing the dollar did not restore confidence in the dollar. Moreover, the US had made no effort to rein in deficit spending. So the US needed to continue to find ways to sell government debt without driving up interest rates. That is, the US needed more buyers for its debt. Motivation for a fix grew even more after 1973, when the first oil shock further exacerbated the deficit-fueled price inflation Americans were enduring.

But by 1974, the enormous flood of dollars from the US into top-oil-exporter Saudi Arabia suggested a solution.

That year, Nixon sent new US Treasury secretary William Simon to Saudi Arabia with a mission. As recounted by Andrea Wong at Bloomberg the goal was to

neutralize crude oil as an economic weapon [against the US] and find a way to persuade a hostile kingdom to finance America’s widening deficit with its newfound petrodollar wealth. …

The basic framework was strikingly simple. The U.S. would buy oil from Saudi Arabia and provide the kingdom military aid and equipment. In return, the Saudis would plow billions of their petrodollar revenue back into Treasuries and finance America’s spending.

From a public finance point of view, this appeared to be a win-win. The Saudis would receive protection from geopolitical enemies, and the US would get a new place to unload large amounts of government debt. Moreover, the Saudis could park their dollars in relatively safe and reliable investments in the United States. This became known as “petrodollar recycling.” By spending on oil, the US — and other oil importers, who were now required to use dollars — was creating new demand for US debt and US dollars.

This dollar agreement wasn’t limited to Saudi Arabia, either. Since Saudi Arabia dominated the Organization of the Petroleum Exporting Countries (OPEC), the dollar deal was extended to OPEC overall, which meant that the dollar became the preferred currency for oil purchases worldwide.

This scheme assured the dollar’s place as a currency of immense global importance. This was especially important during the 1970s and early 1980s. After all, up until the early 1980s, OPEC enjoyed a 50 percent market share in the oil trade. Thanks to the second oil shock, however, much of the world began searching for a wide variety of ways to decrease dependency on oil. By the mid 1980s, OPEC’s share had fallen to less than one-third.

Today, Saudi Arabia ranks behind both Russia and the United States in terms of oil production. As of 2019, OPEC’s share remains around 30 percent. This has lessened the role of the petrodollar compared to the heady days of the 1970s. But the importance of the petrodollar is certainly not destroyed.

We can see the ongoing importance of the petrodollar in US foreign policy, which has continued to antagonize and threaten any major oil-exporting state that moves toward ending its reliance on dollars.

As noted by Matthew Hatfield in the Harvard Political Review, it is likely not a mere coincidence that an especially belligerent US foreign policy has been applied to the Iraqi, Libyan, and Iranian regimes. Hatfield writes:

In 2000, Saddam Hussein, then-president of Iraq, announced that Iraq was moving to sell its oil in euros instead of dollars.

Following 9/11, the United States invaded Iraq, deposed Saddam Hussein, and converted Iraqi oil sales back to the U.S. dollar.

This exact pattern was repeated with Muammar Gaddafi when he attempted to create a unified African currency backed by Libyan gold reserves to to sell African oil. Shortly after his announcement, rebels armed by the US government and allies overthrew the dictator and his regime. After his death, the idea that African oil would be sold on something other than the dollar quickly died out.

Other regimes that have called for abandoning the petrodollar include Iran and Venezuela. The US has called for regime change in both these countries.

Oil Exporters Control US Assets

Threats can be leveled in both directions, however. Last year, for example, Saudi Arabia threatened “to sell its oil in currencies other than the dollar” if Washington “passes a bill exposing OPEC members to U.S. antitrust lawsuits.” That is, the Saudi regime is aware that it has at least some leverage with the US because of the Saudi position at the center of the petrodollar system.

Saudi Arabia is one of few states that can even feign to call the US’s bluff on matters such as these. As has been made abundantly clear by US policy in recent decades, the US is more than willing to invade foreign countries that run afoul of the petrodollar system.

In the case of Saudi Arabia, however, the kingdom’s position as an Iran antagonist — and as the world’s third-largest oil exporter — means that the US is likely to avoid unnecessary conflict.

Moreover, it is likely that Saudi holdings of US debt and other assets are significant. When the Saudis make threats, this implicitly also “include[s] liquidating the kingdom’s holdings in the United States.” As Bloomberg reported, Saudi Arabia has also

warned it would start selling as much as $750 billion in Treasuries and other assets if Congress passes a bill allowing the kingdom to be held liable in U.S. courts for the Sept. 11 terrorist attacks.

We often hear about how China and Japan hold a lot of US debt, and therefore hold some leverage over the US because of this. (The problem here is that were foreigners to dump US assets, they would drop in price. If US debt drops in price, then the the debt must increase in yield, which means the US must then pay more interest on its debt.) But there is good reason to believe that Saudi Arabia is a major holder as well. It is difficult, however, to keep track of how large these holdings are because the Saudi regime has worked closely with the US regime to keep Saudi purchases of American assets secret. When the US Treasury reports on foreign holders of US debt, Saudi Arabia is folded in with several other nations to hide the precise nature of Saudi purchases. Nevertheless, as Wong contends, the Saudi regime is “one of America’s largest foreign creditors.”

The Problem Grows as US Debt Grows

All else being equal, the US should be growing less dependent on foreign holders of debt. This should especially be true of Saudi and OPEC-held debt since the global role of OPEC and the Saudis has been diminishing in terms of global market share.

But all else isn’t equal, and the US has been piling on ever-larger amounts of debt in recent years. In 2019, for example, the annual deficit topped one trillion. In a past, less profligate age, this sort of debt creation would have been reserved only for wartime or a period of economic depression. Today, however, this immense growth in debt levels makes the US regime more sensitive to changes in demand for US debt, and this has made the US regime ever more reliant on foreign demand for both US debt and US dollars. That is, in order to avoid a crisis, the US must ensure that interest rates remain low and that foreigners want to acquire both US dollars and US debt.

Were petrodollars and petrodollar recycling to disappear, it would have a twofold effect on US government finances: a sizable decline in petrodollar recycling would put significant upward pressure on interest rates. The result would be a budget crisis for the US government, as it would have to devote ever-larger amounts of the federal budget to payments on the debt. (The other option would be to have the US central bank monetize the debt by purchasing ever-larger amounts of it to make up for a lack of foreign demand. This would lead to growing price inflation.)

Further, if participants began to exit the petrodollar system (and, say, sell oil in euros instead) demand for dollars would drop, exacerbating any scenarios in which the central bank is monetizing the debt.  This would also generally contribute to greater price inflation, as fewer dollars will be sucked out of the US by foreign holders.

The result could be ongoing declines in government spending on services, and growing price inflation. The US regime’s ability to finance its debt would decline significantly, and the US would need to pull back on military commitments, pensions, and more. Either that, or keep spending at the same rate and face an inflationary spiral.

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What Currency Has the Highest Purchasing Power?

 

 

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Syria Is Lost. Lebanon’s Gold Is Next – LewRockwell

Posted by M. C. on November 6, 2019

https://www.lewrockwell.com/2019/11/no_author/syria-is-lost-lebanons-gold-is-next/

By Steve Brown

The largest reserve gold traders on the planet are the six bullion banks. A bullion bank is a large multi-national bank authorized to serve as a conduit through which Central Banks – and the Fed primary dealers – loan their gold out into the market. All central banks lease gold, to maintain their balance sheet and to provide sovereign collateral when a currency swap or paper trade won’t work. It’s called the gold carry trade.

There are currently six clearing banks on the LBMA handling gold lease transactions: Barclays, Scotia, Deutsche Bank, HSBC, JPM, and UBS all of which are primary Fed Dealer Banks, too. Central Banks need real money as collateral – physical gold holdings – to back paper (debt instruments) and as guarantor of foreign exchange sovereign liquidity, or when dealing with failed or semi-failed states.

The Bullion Banks not only guarantee and lease their own gold reserves, but require adjustments to physical gold holdings based on Geopolitical events particularly during times of war. For example, Libya, Afghanistan, Iraq, Syria, Egypt and the Ukraine have all turned over their physical gold holdings to the IMF – which acts by proxy for the Fed and G7 Central Banks – for favorable lending terms or settlement of debt to the West, or their gold is seized by force of arms.

Nixon officially closed the US international sovereign gold trading window in 1971, alleged to be temporary, now ostensibly never to re-open. Officially Nixon’s gold closure still applies to US gold trading, but the “official” world is not the real world. Thus, the US engages in covert gold trading shrouded in secrecy, generally by proxy to the IMF and via gold carry trade gold swaps.  (Also see: IMF voting rights and reform and the Exchange Stabilization Fund)

The international gold window is not about a “gold standard” but about international trade in gold. That trade is to support currency swaps to manipulate currency markets; to enhance interest returns by leveraging other debt products providing a higher return; or to build or deplete foreign exchange reserves held by a sovereign or Central Bank. Thus, the international gold window still exists in the form of the gold carry trade.

But the international gold window is much more than a trade and collateral window, the international gold window is still an essential factor in Geo-politics. Conflicts and alliances require the gold carry trade to operate by covert, by proxy, or by overt means. The gold carry trade market also operates by acquiring the gold reserves of failed states such as Iraq, Libya, Syria, Afghanistan, or Ukraine, at prices subsidized by the US taxpayer.

Or the cost of their lost treasure is borne by the unknowing, unaware local population partaking in a “colour revolution” or the “Arab Spring” for example, on behalf of Washington.

The banking crisis in Lebanon is one recent example, where geopolitics and finance – especially relating to gold – intersect. Lebanon has relatively high physical gold reserves relative to its economy and relative to other Middle Eastern states, and Lebanon has been a player in the carry trade for many years.

However, according to one confidential source and many reports, Lebanon has dialed-back its carry trade activities since 2015. By scaling back its carry trade activity, Lebanon has provoked the ire of western Central Banks, and made it more difficult for Lebanon to protect its currency.

The reason for Lebanon’s de-leveraging in the gold carry trade is unknown, but one can only speculate that along with US sanctions versus Lebanon, the international currency cartel has its eye on Lebanon’s gold reserves. By extension, The Neocon-Neoliberal ‘Blob’ believes that by harming Lebanon, the Blob can likewise curtail Hezbollah’s influence.

Israel too, currently subject to its own self-induced purgatory in leadership, desperately needs a visible geopolitical victory, and no doubt US and Israeli central bankers see Lebanon’s finance as low-hanging fruit, since Hezbollah cannot be militarily defeated. How do we know? …well, David Ignatius tells us so…

Germany

Germany demanded return of its gold reserves from New York (called repatriation).  In reality repatriation ends the lease conditions by which the Federal Reserve holds German gold. That Germany leased approximately 300 tonnes of gold to the US Exchange Stabilization Fund during the US financial collapse is well known, and the ESF undoubtedly disposed of that German gold by carry trade means, to support the US dollar and stock market. Effectively the US government may sell or lease any “commodity” as it sees fit, in its possession, whether strategic oil reserves or gold – even if that gold “belongs” to a foreign power…

Ukraine

Long a hotbed of corruption, shady dealings, and political intrigue, the Ukraine has leveraged its gold reserves via the carry trade and leasing system for many years now.  Falling prey to the IMF predatory system of capital is another Ukraine specialty, since Ukraine’s gold is its only real strategic asset, besides it location adjacent to Eastern Europe…

Argentina

Likewise, the IMF was the worst possible option for Argentina. Argentina was forced to sell 1/3rd of its physical gold reserves from 2009-2013, to prevent a replay of 2001 by placating US bond holders. Argentina’s gold reserves played a major role in keeping the country somewhat liquid, but now western powers want the rest of that gold – represented by bondholder lawsuits – since Argentina just defaulted again.

Netherlands

In 2014 the Dutch Central bank announced that 122 metric tonnes of gold had been repatriated from the United States. The DCB’s loss of confidence in the US likely relates to the collapse of the US financial system from 2008-2009.  It’s likely too that the Netherlands loaned some sovereign gold reserves to the Fed/ESF during that crisis, and has not seen its gold returned.

Venezuela

Half of Venezuela’s reserves are in gold. The structural and fundamental problem is that Venezuela cannot lease gold via the bullion banks because the physical gold was repatriated, and the gold still present in US /London vaults is sanctioned…

Summary

Trouble is, most of the third world and Non-Aligned Movement – with the exception of Iran, Lebanon, and Venezuela – have already turned over their gold to the West. So, there is little physical gold for Washington to cajole, appropriate, or steal from destabilized sovereign entities or failed states Washington creates…

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What if US had raised interest rates? | A Wild Duck

 

 

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EconomicPolicyJournal.com: The Latest and Greatest Bretton Woods Committee Propaganda

Posted by M. C. on October 26, 2019

 …let’s say a $1 billion to a country like Indonesia or Ecuador — and this country would then have to give ninety percent of that loan back to a U.S. company, or U.S. companies, to build the infrastructure — a Halliburton or a Bechtel. These were big ones. Those companies would then go in and build an electrical system or ports or highways, and these would basically serve just a few of the very wealthiest families in those countries. The poor people in those countries would be stuck…

The definition of foreign aid and a NATO membership requirement.

https://www.economicpolicyjournal.com/2019/10/the-latest-and-greatest-bretton-woods.html#more

The Bretton Woods Committee, a globalist organization in the crony worst sense, is out with a propaganda video celebrating the 75th anniversary of the 1944 conference at Bretton Woods, which has launched decades of crony international economic management.

The video skips over the collapse of the Bretton Woods exchange rate system.

And it doesn’t explain that the greater Bretton Woods system was a crony system built on US dollars that resulted in massive dollar printing beyond foundational gold supplies.

Murray Rothbard explained:

In the Bretton Woods system, the United States pyramided dollars (in paper money and in bank deposits) on top of gold, in which dollars could be redeemed by foreign governments; while all other governments held dollars as their basic reserve and pyramided their currency on top of dollars.

Under this system, the US never stopped printing dollars. Rothbard again:

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 United States for two decades after the early 1950s, until the US 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 United States keep redeeming foreign dollars in gold — the cornerstone of the Bretton Woods system?

And then the collapse came:

 On August 15, 1971, at the same time that President Nixon imposed a price-wage freeze in a vain attempt to check bounding inflation, Mr. Nixon also brought the postwar Bretton Woods system to a crashing end. As European central banks at last threatened to redeem much of their swollen stock of dollars for gold, President Nixon went totally off gold. For the first time in American history, the dollar was totally fiat, totally without backing in gold.

And, of course, as John Perkins explained in Confessions of an Economic Hit Man, the Bretton Woods conference also formed the World Bank and the IMF. They are the muscle that provide loans (or back up loans) to nations that will never be able to pay them back on planned terms. Then the IMF and World Bank step in again to muscle the countries to pay back the loans via a  resource grab or on the backs of local taxpayers. (For a recent example, think the Greek financial crisis.)

Perkins told National Public Radio:

[M]y real job was deal-making. It was giving loans to other countries, huge loans, much bigger than they could possibly repay. One of the conditions of the loan — let’s say a $1 billion to a country like Indonesia or Ecuador — and this country would then have to give ninety percent of that loan back to a U.S. company, or U.S. companies, to build the infrastructure — a Halliburton or a Bechtel. These were big ones. Those companies would then go in and build an electrical system or ports or highways, and these would basically serve just a few of the very wealthiest families in those countries. The poor people in those countries would be stuck ultimately with this amazing debt that they couldn’t possibly repay. A country today like Ecuador owes over fifty percent of its national budget just to pay down its debt. And it really can’t do it. So, we literally have them over a barrel. So, when we want more oil, we go to Ecuador and say, “Look, you’re not able to repay your debts, therefore give our oil companies your Amazon rain forest, which are filled with oil.”…

We called ourselves e.h.m.’s. [economic hit men]. It was tongue-in-cheek. It was like, nobody will believe us if we say this, you know?…

The World Bank provides most of the money that’s used by economic hit men, it and the I.M.F.

Of course, nothing about this in the propaganda video below. Everything dome at the Bretton Woods conference was according to this video just wonderful.

–RW

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NATO

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Why Mises Opposed a Global Government for Managing Trade | Mises Wire

Posted by M. C. on August 13, 2019

The dangerous fact is that while government is hampered in endeavors to make a commodity cheaper by intervention, it certainly has the power to make it more expensive. Governments have the power to create monopolies; they can force the consumers to pay monopoly prices; and they use this power lavishly. Nothing more disastrous could happen in the field of international economic relations than the realization of such plans. It would divide the nations into two groups — the exploiting and the exploited; those restricting output and charging monopoly prices, and those forced to pay monopoly prices. It would engender insoluble conflicts of interests and inevitably result in new wars.

https://mises.org/wire/why-mises-opposed-global-government-managing-trade

A recent episode of the Human Action Podcast dealt with Mises’ Omnipotent Government, written between 1939 and 1943 and first published in 1944.

Besides its treatment of German national socialism, Mises’ Omnipotent Government also contains an analysis of the various suggestions for “world government” toward the end of the second World War. This article is a short commentary on Mises’ analysis of proposed international economic frameworks, their shortcomings and their subsequent outcomes.1

A Type of World Government

After maintaining the distinction that he makes earlier in Omnipotent Government between the terms “socialism” and “interventionism,” Mises correctly foresees what later became the most important post-war technique of international economic planning. Namely, international agreements between sovereign states:

The more realistic suggestions for world planning do not imply the establishment of a world state with a world parliament. They propose international agreements and regulations concerning production, foreign trade, currency and credit, and finally foreign loans and investments.

After the second World War, these international agreements took the form of “three pillars”:

  • the Final Act of the Bretton Woods Conference, entering into force in 1945, which gave birth to the World Bank and the International Monetary Fund;
  • the General Agreement on Tariffs and Trade (later becoming the WTO Agreements) of 1947;
  • the Havana Charter for the International Trade Organization of 1948, which failed to enter into force after the United States refused to ratify it.

After the failure of the Havana Charter, the issue of international investment protection was the subject of several thousands of state-to-state bilateral and multilateral investment treaties (BITs and MITs), which specify the substantive rights of foreign investors and applicable dispute resolution mechanisms. A good example of such a treaty is Chapter 11, titled ‘Investment’ of NAFTA, which may be soon replaced by Chapter 14 of the USMCA.

Other important international agreements include the OECD Codes of Liberalisation of Capital Movements and of Current Invisible Operations and other, “soft,” law such as the World Bank’s Guidelines on the Treatment of Foreign Direct Investment and the FATF Recommendations on Combating Money Laundering and the Financing of Terrorism and Proliferation.

International Government Planning is Government Planning all the Same

Regardless of its form, Mises points out that the concept of planning, whether national or international, remains antithetical to the concept of free enterprise. This is well understood by our readers. Moreover, while planning cannot decrease the price of one good without increasing the prices of others, it can be used to increase prices by creating monopolies:

The dangerous fact is that while government is hampered in endeavors to make a commodity cheaper by intervention, it certainly has the power to make it more expensive. Governments have the power to create monopolies; they can force the consumers to pay monopoly prices; and they use this power lavishly. Nothing more disastrous could happen in the field of international economic relations than the realization of such plans. It would divide the nations into two groups — the exploiting and the exploited; those restricting output and charging monopoly prices, and those forced to pay monopoly prices. It would engender insoluble conflicts of interests and inevitably result in new wars.

This is a foreseeable scenario in the context of international agreements dealing with environmental issues. An example of what lies in store can be found in what has been called the “Renewable Energy Explosion” in Spain. After expanding subsidies for the production of renewable energy from 2004 to 2007, Spain was forced to eliminate these incentives in the wake of the financial crisis, leading to a substantial increase in energy costs and severe losses to previously subsidized enterprises.

Mises also identifies the no true Scotsman fallacy, which is invariably used to justify further planning after the initial plan fails:

[…] some of these schemes worked only for a short time and then collapsed, while many did not work at all. But this, according to the planners, was due to faults in technical execution. It is the essence of all their projects for postwar economic planning that they will so improve the methods applied as to make them succeed in the future.

Do Free Trade Agreements Promote Free Trade?

Mises was very skeptical of the outcomes of post-war foreign trade agreements, arguing that ‘the ultimate goal of every nation’s foreign-trade policy today is to prevent all imports’, and that “an international body for foreign-trade planning would be an assembly of the delegates of governments attached to the ideas of hyper-protectionism.”

It might be safe to say that Mises was too pessimistic on this subject. Arrangements between developed and developing nations after the second World War have substantially increased cross-border trade and and reduced protectionism. The trend was further strengthened in the 1990s after the collapse of the Soviet Union and the adoption by erstwhile Soviet Republics of more liberal approaches to foreign trade.

It is not clear, however, that this expansion can be attributed to the conclusion of international trade and investment agreements, and the question remains the subject of much debate.2 In any case, Mises correctly identifies the state’s ability to circumvent restrictions on protectionist policies by taking recourse to other forms of interventionism:

If pressure or violence is applied in order to force Atlantis to change its import regulations so that greater quantities of cloth can be imported, it will take recourse to other methods of interventionism. Under a regime of government interference with business a government has innumerable means at hand to penalize imports. They may be less easy to handle but they can be made no less efficacious than tariffs, quotas, or the total prohibition of imports.

International investor-state tribunals, constituted on the basis of international investment agreements, have successfully dealt with these forms of intervention since the 1990s, particularly by applying international law concepts of indirect expropriation and fair and equitable treatment.

These decisions, may, however, be regarded as unexpected developments, and have caused a significant backlash by states against the very concept of investor-state dispute settlement. For instance, in January 2019, 22 member states of the European Union undertook to terminate all intra-EU bilateral agreements providing for investor-state arbitration.

These decisions have also lead to the adoption by states of new treaties containing wider exceptions for economic regulation. India, for instance, announced in 2016 that it was terminating 58 of its 83 bilateral investment treaties, after publishing a new, more stringent draft treaty for future negotiations. In a striking illustration of the “planning mentality,” the draft treaty provides, inter alia, that:

Investors and their Investments shall strive, through their management policies and practices, to contribute to the development objectives of the Host State.

The Gold Standard, the Cantillon Effect, and “World Money”

It is interesting to note that just a few decades after the end of the belle époque, the “undesirability” of stable foreign exchange rates seems to have evolved into gospel truth for the governments of the 1940s. After observing that ‘the Keynesian school passionately advocates instability of foreign exchange rates’, Mises finds that “stability of foreign exchange rates was in [governments’] eyes a mischief, not a blessing.”

While the various excuses that lead to the abandonment of the gold standard are familiar to our readers, it may be noted that in the international context, protectionism provides another excuse for states:

The various governments went off the gold standard because they were eager to make domestic prices and wages rise above the world market level, and because they wanted to stimulate exports and to hinder imports.

Mises notes that any return to the gold standard would not require elaborate international agreements or international planning. All that would be required is “the abandonment of an easy money policy and of the endeavors to combat imports by devaluation.” Evidently, it is not necessary that the state re-establish the gold parity that previously existed:3

[…] every government is free to stabilize the existing exchange ratio between its national currency unit and gold, and to keep this ratio stable. If there is no further credit expansion and no further inflation, the mechanism of the gold standard or of the gold exchange standard will work again.

Finally, Mises dismisses the idea of an international fiat currency, issued by an international monetary authority acting as the lender of last resort. After dealing with what is commonly known today as the “Cantillon effect,” Mises explains that nations could never agree upon the basis of distribution of this new form of central bank money:

The more fateful results of inflation derive from the fact that the rise in prices and wages which it causes occurs at different times and in different measure for various kinds of commodities and labor. Some classes of prices and wages rise more quickly and to a higher level than others. While inflation is under way, some people enjoy the benefit of higher prices on the goods and services they sell, while the prices of goods and services they buy have not yet risen at all or not to the same extent […]

Under a system of world inflation or world credit expansion every nation will be eager to belong to the class of gainers and not to that of the losers. It will ask for as much as possible of the additional quantity of paper money or credit for its own country. As no method could eliminate the inequalities mentioned above, and as no just principle for the distribution could be found, antagonisms would originate for which there would be no satisfactory solution.

Could these observations give us some clues regarding the future prospects of the IMF’s SDR scheme?

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It’s No Bitcoin: Facebook’s Libra Currency Is Tied to Government Currencies | Mises Wire

Posted by M. C. on July 2, 2019

Ah, but … and here is the rub, the Libra is not a naturally limited good, as Bitcoin is, but can be multiplied to infinity. It is not stabilized by reference to a basket of commodities as Hayek recommended. Rather, it will be defined by a changeable basket of fiat currencies!

In other words the Zuckerberg’s Libra can be inflated to worthlessness, as has the Continental through the dollar since 1776.

https://mises.org/wire/its-no-bitcoin-facebooks-libra-currency-tied-government-currencies

In 1975 Hayek eventually gave a lecture entitled “Choice of Currency,” in which he articulated for the first time the provocative demand that the state monopoly on money should be repealed. The publication of the monographs Free Choice in Currency and The Denationalization of Money followed a year later, in which he expanded in greater detail on his ideas on competition between private money issuers. …

What shape would an order reflecting these power-sharing principles take, and how could it emerge? Hayek argues that such an order would take shape if the following liberties were granted:

Fast forward nearly a half century and Hayek’s call for the denationalization of money seems to be a real possibility, not just a crank libertarian position safely ignored by the monetary authorities.

The coming of the block chain technology and cryptocurrencies certainly suggest that the original post-World War II Bretton Woods “settlement” of the status of money, that gold and US dollars, redeemable in gold, were the basis for international settlements, failed. As have later revisions of the idea. Thus, an era of monetary uncertainty may give rise to possibilities for market-oriented reforms.

Bitcoin, as an example of “virtual gold,” gains its value from the limited number of units of that cryptocurrency and the expense in “mining” more of those units, not unlike real gold. While Bitcoin is the best known of the cryptocurrencies, CoinMarketCap.com lists over a thousand crypto currencies that are traded (though a significant percentage of these are actually ICOs — Initial Crypto Offerings — a way to raise funds for a particular project). Much of the power of the cryptos is that they can be easily, and privately, bought, sold, and exchanged.

Hayek predicted that normal market forces would apply to the goods we use to facilitate exchange (“currencies”) if only governments would get out of the way. In a free market for money he suggested that major financial institutions would sponsor competing currencies, probably defined by “baskets” of commodities. He speculates on how the market would maintain the value and stability of such currencies, far better than any political system of legal tender.

To some degree, this seems to be happening with cryptocurrencies.

And then along comes the 900 pound gorilla. Facebook, with two billion users, has decided to enter the cryptocurrency market with its Libra coin. Since the Libra would be usable as a currency on Facebook itself, the company probably has calculated that it will have a strong competitive advantage over any of the competing currencies.

Ah, but … and here is the rub, the Libra is not a naturally limited good, as Bitcoin is, but can be multiplied to infinity. It is not stabilized by reference to a basket of commodities as Hayek recommended. Rather, it will be defined by a changeable basket of fiat currencies!

That’s right. Facebook and Libra’s cooperating founding organizations (including PayPal, Visa, Uber …) hope to provide a stable cryptocurrency by tying it to a group of government currencies! According to Techcrunch:

A Libra is a unit of the Libra cryptocurrency that’s represented by a three wavy horizontal line unicode character ≋ like the dollar is represented by $. The value of a Libra is meant to stay largely stable, so it’s a good medium of exchange, as merchants can be confident they won’t be paid a Libra today that’s then worth less tomorrow. The Libra’s value is tied to a basket of bank deposits and short-term government securities for a slew of historically stable international currencies, including the dollar, pound, euro, Swiss franc and yen. The Libra Association maintains this basket of assets and can change the balance of its composition if necessary to offset major price fluctuations in any one foreign currency so that the value of a Libra stays consistent.

Well, that’s it. Zuckerberg is no Hayek. And the Libra is no Bitcoin.

 

 

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