<blockquote>"
Rothbard supposes that if we do not return to the classical gold standard with realistic prices of gold, the international monetary system is condemned to constant shifts from floating exchange rates to fixed exchange rates and back again. Both these systems bring insoluble problems, function badly and finally collapse. This prediction can be changed only by a fundamental change in the American and world monetary system, consisting of a return to commodity money in a free market, for example gold, and complete exclusion of the state from the monetary scene."
-- Prof. Ing. Ján Lisý, PhD,
Murray Newton Rothbard, 2004</blockquote>
<blockquote>"
In addition, Great Britain persuaded other European countries to adopt the gold exchange standard instead of the full gold standard, in order to promote its own “economic imperialism,” i.e., to spur British exports to the Continent by inducing other countries to return to gold at overvalued exchange rates. If other countries overvalued their currencies vis-à-vis sterling, then British exports would be bolstered. (Britain showed little concern that exports from the Continent would be correspondingly hampered.) The abortive and inflationary gold exchange standard permitted countries to return to gold (at least nominally) earlier and at a higher exchange rate than they otherwise would have essayed.[[url=http://mises.org/rothbard/agd/chapter5.asp#fn24]24[/url]] Other countries were pressured by Great Britain to remain on the gold bullion standard, as she was, rather than proceed onward to restore a full gold-coin standard. To cooperate in international inflation, it was necessary to keep gold from domestic circulation, and to hoard it instead in Central Bank vaults. As Dr. Brown wrote:<blockquote>"In some countries the reluctance to adopt the gold bullion standard was so great that some outside pressure was needed to overcome it . . . i.e., strong representations on the part of the Bank of England that suchaction would be a contribution to the general success of the stabilization effort as a whole. Without the informal pressure . . . several efforts to return in one step to the full gold standard would undoubtedly have been made.[[url=http://mises.org/rothbard/agd/chapter5.asp#fn25]25[/url]]"
-- William Adams Brown, Jr., The International Gold Standard Reinterpreted, 1914–1934 (New York: National Bureau of Economic Research, 1940), vol. 1, p. 355.</blockquote>
One important example of such pressure, joined in force by Benjamin Strong, occurred in the spring of 1926, when Norman induced Strong to support him in fiercely opposing a plan of Sir Basil Blackett's to establish a full gold-coin standard in India. Strong went to the length of traveling to England to testify against the measure, and was backed up by Andrew Mellon and aided by economists Professor Oliver M.W. Sprague of Harvard, Jacob Hollander of Johns Hopkins, and W. Randolph Burgess and Robert Warren of the New York Reserve Bank. The American experts warned that the ensuing gold drain to India would cause deflation in other countries (i.e., reveal their existing over-inflation), and suggested instead a gold exchange standard and domestic "economizing" of gold (i.e., economizing for credit expansion). In addition, they urged wider banking and central banking facilities in India (i.e., more Indian inflation), and advocated continued use of a silver standard in India so as not to disrupt American silver interests by going off silver and thus lowering the world silver price.[[url=http://mises.org/rothbard/agd/chapter5.asp#fn26]26[/url]]
Norman was grateful to his friend Strong for helping defeat the Blackett Plan for a full Indian gold standard. To the objections of some Federal Reserve Board members to Strong's meddling in purely foreign affairs, the formidable Secretary Mellon ended the argument by saying that he had personally asked Strong to go to England and testify.
To his great credit, Dr. Hjalmar Schacht, in addition to opposing our profligate loans to local German governments, also sharply criticized the new-model gold standard. Schacht vainly called for a return to the true gold standard of old, with capital exports financed by genuine voluntary savings, and not by fiat bank credit."[[url=http://mises.org/rothbard/agd/chapter5.asp#fn27]27[/url]]
-- Murray N. Rothbard,
America’s Great Depression, Fith Edition, Page 150, 151, 152</blockquote>
<blockquote>"
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."
-- Mish,
EU Calls For Summit To End Bretton Woods, October 16, 2008</blockquote>
***
Trichet Urges Return to `Discipline' of Bretton WoodsBy John Fraher and Gabi Thesing
October 15, 2008 (Update1)
SourceOct. 15 (Bloomberg) -- 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.''
Some European policy makers are pushing to tighten oversight of markets after the past year's credit squeeze culminated last week in the biggest stock sell-off since 1933. British Prime Minister Gordon Brown has suggested the most sweeping rethink of global financial architecture since U.S. and European officials met in Bretton Woods, New Hampshire, in 1944. The rules they drew up there governed much of the world economy for the following 30 years.
``Creating stability by adapting frameworks that have worked historically can improve credibility and hence the effectiveness of policy stabilization measures,'' said Lena Komileva, an economist at Tullett Prebon Plc in London. ``This idea may gain traction with policy makers.''
Fixed Currencies
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.
``If we don't have discipline, then we are putting into question the functioning of the market economies and the functioning of our financial markets,'' Trichet said.
Asked whether the escalation of the financial crisis exposed shortcomings in the global monetary system, Trichet said central bankers have ``been up to their responsibilities in these exceptional circumstances.''
Trichet and U.S. Federal Reserve Chairman Ben S. Bernanke are struggling to restore order to credit markets after the collapse of Lehman Brothers Holdings Inc. and $638 billion in writedowns make banks reluctant to lend. The ECB and the Fed last week cut interest rates in tandem and this week agreed to flood the financial system with dollars.
Trichet suggested that slowing growth in the 15-nation euro region may curb inflation, paving the way for more rate cuts after the ECB reduced its benchmark by 50 basis points to 3.75 percent.
`Downside Risks'
``There has been a materialization of the downside risks to growth and we have to take that into consideration in all respects, and particularly as regards the influence that it has on the upside risks for price stability,'' Trichet said.
He indicated that recent market turmoil was partly a consequence of the deregulation that occurred after Bretton Woods' demise. That was triggered in 1971, when inflation forced the U.S. to abandon the dollar's peg to gold, an anchor of the system, heralding the era of floating exchange rates.
``The explosion of the first Bretton Woods in a way could be interpreted as a rejection of discipline,'' said Trichet.
Brown, who has pushed for a decade to strengthen the hand of international authorities overseeing the financial system, said Oct. 13 in London that ``we must devise new rules for a world of global capital flows'' just as the founders of Bretton Woods ``devised rules for a world of limited capital flows.''
``We now have global financial markets but what we do not have is anything other than national and regional regulation and supervision,'' Brown told reporters today before a European Union summit in Brussels.
To contact the reporters on this story: John Fraher in London at
jfraher@bloomberg.netGabi Thesing in New York at
gthesing@bloomberg.netLast Updated: October 15, 2008 05:31 EDT
***
EU Pushes for Overhaul of Postwar Financial SystemBy James G. Neuger and Mark Deen
October 16, 2008 (Update2)
SourceOct. 16 (Bloomberg) -- European Union leaders pressed for an overhaul of the global financial system to prevent a repeat of the credit crunch that sparked the biggest stock-market selloff since the Great Depression.
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 do not have the right to miss this opportunity to re- construct our financial system,'' French President Nicolas Sarkozy told reporters today after chairing a two-day EU summit in Brussels. ``Crises can be turned into opportunities.''
The European initiative is likely to face resistance from the U.S., which has used its dominance of international financial institutions to promote its brand of capitalism.
``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.
Sarkozy today went beyond calls by fellow European leaders such as U.K. Prime Minister Gordon Brown for global bank supervision and tighter regulation, saying governments need to consider re-anchoring currencies, the hallmark of the original Bretton Woods agreement.
Currencies
That dollar-based monetary system fell apart in the 1970s, giving way to today's freely floating currencies.
President George W. Bush ``definitely'' favors holding a Group of Eight meeting before the end of the year, White House spokesman Tony Fratto said in Washington. European governments pressed for a wider summit, including leaders of developing economies such as China, India, Brazil and South Africa.
To jumpstart that process, Sarkozy, holder of the EU's six- month presidency, will travel with European Commission President Jose Barroso to the U.S. on Oct. 18 to meet Bush.
Separately, concern mounted that the banking crisis will drag down the broader European economy, where business and consumer sentiment had already slumped to the lowest level since the September 2001 terrorist attacks in the U.S.
``This financial crisis is starting to have an impact on consumers and companies,'' Barroso said.
Global Approach
While stressing a global approach to regulation, European governments have yet to spell out what they want from the wider summit. It was unclear whether leading countries -- including Britain -- would give up their longstanding opposition to handing over business regulation to outside authorities.
Calls for a single financial supervisor in Europe continued to get little traction. Instead, the leaders agreed that bank supervisors from the 27 countries will meet once a month to share insights.
Proposals for stiffer regulation floated by EU leaders included more international supervision for cross-border banks, a global ``early warning'' system for crises, a revamp of the International Monetary Fund, tougher regulations on hedge funds, new rules for credit rating companies, limits on executive pay and punishments for excessive risk-taking.
Level Playing Field
EU leaders will set up a financial crisis taskforce to improve coordination among the bloc's 27 governments, and endorsed an easing of ``mark-to-market'' accounting to maintain a level playing field with the U.S.
That accounting standard, lampooned as ``absurd'' by Sarkozy, forced banks to alter the value of their securities holdings along with daily market fluctuations, exacerbating losses in times of market slumps.
Prime Minister 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.
``The reform of the international financial system is not only necessary to prevent a crisis happening again, it is essential to end the current crisis,'' Brown said today.
Tax Havens
Treatment of tax havens such as the Cayman Islands and Monaco may be overhauled as part of any new global financial framework, Sarkozy said.
``It will be part of discussions Saturday in Washington,'' the French leader said. ``Will we continue to work with tax havens? It's a valid question. We've passed into a new era. It's a question we'll put on the table and immediately.''
EU governments initially reacted to the crisis in a ``piecemeal and ad hoc'' fashion, ``creating an impression of disorder and sending confused signals to financial markets,'' aides to Barroso said in a paper prepared last week.
In the meantime, European leaders have committed as much as $2 trillion to guarantee interbank lending and buy stakes in banks, to prevent hobbled credit markets from tipping the broader economy into recession.
The U.S. followed suit, announcing an unprecedented $250 billion government investment in banks, starting with nine institutions deemed critical to the survival of the system.
Growing doubts that the bailout will keep the U.S. out of recession hammered U.S. stocks, leading to the steepest plunge since the crash of 1987.
To contact the reporter on this story: James G. Neuger in Brussels at
jneuger@bloomberg.net; Mark Deen in Brussels at
markdeen@bloomberg.netLast Updated: October 16, 2008 10:40 EDT