A New Bretton Woods?

We were in Rome about a year and a half ago, as part of a traveling celebration of our 35th wedding anniversary.

One evening as we were lollygagging through the busy rain-slicked streets and sidewalks, we passed in front of a very special building. It was the Rome headquarters of the European Union, or "EU".

I wanted to take a picture of the building's entry, because that is what tourists do--take pictures of important places. Seeking a broader view, I crossed the street. While positioning myself and the phone to snap a pic, the guard across the street noticed my activity. He started waving at me frantically, indicating that what I was doing was not permitted.

Excuse me. I was taking a picture of a public building.

In America, we take pictures of .gov buildings, because we have, you know, a government of the people, by the people and for the people, which means, among other things that the people can take pictures of their headquarterses (as Golem might say.)

Is this not the way you do it in Europe? No pictures of the RomeEU headquarters?

Nevertheless, here is my smuggled pic:

If you squint at my little jpeg here, you may discern the guard's upraised right alarm, a gesture of command intended to communicate a stop order on my touristic activity. It vaguely resembles another raised-arm signal that was in use in Europe 75 years ago, during the regime of Mussolini and that German guy who considered the Italian dictator to be his own puppet.

Or maybe I'm being too cynical about this incident. Maybe the guard was saluting me in some way, acknowledging my importance as an American tourist in the city of Rome.

Now, a year and a half later, this morning, seated comfortably in my own humble domicile, back in the USSA . . . I was pondering the idea of government--whether it is truly "of. . .by the people", or is it something else? Is it, as many citizens insist during these times of tumultuous societal change, actually an institution through which the "1%" (or as they said back in the old days, the "rich and powerful") project their oligarchical manipulations upon the rest of us?

I was thinking about this after reading online an article about how the worldwide financial system that has evolved.

http://seekingalpha.com/article/3993559-back-square-one-financial-system-needs-reset?ifp=0

In this Seeking Alpha blogpost, Valentin Schmid, as "Epoch Times" examines our international monetary system. His analysis appears to be generated from a well-informed position in the world of money, assets and power.

Mr. Schmid raises the question of whether the current (worldwide) debt load can ever be repaid, because there isn't enough "real money" to go around.

This got my attention, because I have been thinking for a while that there isn't enough "real money" to go around.

Haha, as if I knew about such things. I don't know much about money; if I did, I would have more of it.

Anyway, Mr. Schmid's question is answered by his guest interviewee, Paul Brodsky, in this way:

. . . "I would argue central banks lost the ability to control the credit cycle. Some relatively minor event could trigger a series of events that creates the need for a sit-down among global monetary policy makers who finally have to acknowledge publicly that their policies are no longer able to control the system, the global economy, which is based on ever increasing demand through ever increasing credit.

And what might occur is a natural drop in output. So you'll see GDP growth begin to fall. Real GDP growth across the world maybe even be going into contraction and that would spell doom for these balance sheets. And this is not something I'm predicting or trying to time at all, but the natural outcome of that would be a sit-down like a Bretton Woods where arrangements are reconsidered."

https://en.wikipedia.org/wiki/Bretton_Woods_Conference

So what is coming is, perhaps, this:

To compensate for a stalling of global productivity, the movers/shakers of the world may construct a new, top-down rearrangement of the world financial system. The purpose of this revision will be to fix the problem of not enough money to go around. Such an extensive reconstruction as this would be has not been done since the Bretton Woods agreement that was promulgated by delegates from 44 Allied nations in 1944.

In a 21st-century world inhabited by billions of inhabitants, our accessibility to natural resources has heretofore been determined by how many holes we could drill in the ground to extract natural resources; and how many acres of crops we could plant to produce food; how many factories we could build, and so on. . . building an economy to work toward spreading the bounty around.

In the future, however, we will be moving to a "knowledge" economy. Wealth creation will not be about how much you can dig in a day's time, nor how much you can plant, nor what you can cobble together in your back yard or over on Main Street.

Wealth generation in the future will be determined by what you know, so start learning now.

The first three essential things to know are these:

Reading, Writing, Arithmetic.

Well gollee, maybe it won't be such a brave new world after all.

However this thing plays out, if enough of us can master these three skills, .gov of the people, by the people and for the people will not perish from the earth, we hope.

Glass half-Full

The Invisible Hand of Capitalism, 21st-century version

I'm a regular guy who is trying to learn a thing or two about how things work and what makes the world go around and so forth and so on.

Back in the day, early 1970s, I was a clueless college student trying to figure things out. My draft # was 349, so I didn't have to go to Nam. I know some who did have to go, and I appreciate their service to our nation.

So there I was at LSU in 1970, an English major, clueless about the world and everything in it. (I thank the Lord that my children have made better decisions than I did in their early life choices.) One good thing about being an English major is that you do learn how to read and write well, and that helps a lot as we go through life. To this day, I do not regret learning to read and write copiously.

Well, the years rolled by and I got along all right, with much help from God and my wife, and some dear friends with whom we raised our young'uns. I did sales for awhile, then drifted into construction and stayed on that path for most of the working life. We managed to get the three youn'uns through college and out on their own and that was a great blessing.

Fortunately, I never had to lean heavily on that classic phrase of underemployed English majors, Would you like fries with that?

Long about 2004 or so I decided to ease out of construction work; my wife was doing well in her nursing career. The kids were pretty much on their own. I took a few education classes at the nearby hometown university, and was moving toward some new destiny which we knew not what it would be.

By 'n by, along came the fall of 2008, and the Crash of 2008 on wall street and so forth and so on. You know the story.

And since I had been, back in the good ole carefree college days, an English major, I was still in the habit of reading and writing. Therefore and henceforth I started reading copiously about the financial developments that were so profoundly altering everybody's life, even still yet today, as we speak.

And it seemed to me that the whole economy had kind of gone crazy there for a while, for a few weeks or a few months, as we're seeing in the Big Short. But then things sort of evened out a bit, but they never got back to what they were before and furthermore they still haven't, even though the unemployment rate has dropped down from ~10% in 2009 to the ~5% it is today, according to the BLS or the BS, or some such number-crunchin agency in Washington maybe next to the Brookings or over on K Street or some important think-tank place like that.

Long about that time, early '09 or somewhere in there, all the doomsayers showed up online and everybody and their brother was saying the whole dam world would come apart at the seams again and u better buy gold and it seemed to me like this Crash might do a replay but it never did. Instead, things just kind of got on a long, slightly upward slope to what we have today, whatever it is, somewhere between recession and high cotton, with chronic destagulation and perpetual consternation but no real catastrophe like those fringy preppers (not preppies) had said back in '09 or '10 or whenever that was.

In my clueless English major kind of way, I was keeping an eye on the stock market, just for fun of course because I didn't know much about it, but I must say I was amazed that we never really had another big crash like we had had in '08.

Every time the numbers would take a big turn down, and you'd hear about the market being down a hundred or two hundred, especially in September or October, you' d think this could be the Big one again.

But it never was the big one again. It's been pretty much steady-state destagulation with a few ups and downs here and there-- no inverted hockey-stick graphs.

By 'n by, as the weeks rolled by and as I was wondering about all this, I began to wondering if there wasn't some force or entity that was acting in a big, manipulative and perhaps surreptitious way on behalf of ?whoever ?whatever, the good of mankind, to make the market stay steady instead of taking another dive. It kind of seemed like it. Whoever or whatever it was or is must be pretty daggone powerful or influential. Maybe some Julius Pierpoint Morgan (the original WallStreet bailout artist financier) who was just intervening, out of some sacred duty that had been laid upon him as a knight of the financial garter, on behalf of the whole Western world to keep everything on a relatively even keel so we wouldn't have another Panic of '07 or '29 or 2008.

T'was then I thought about that famous phrase: the Invisible Hand, as applied to economics. There's got to be an Invisible Hand in there somewhere stopping that WallStreet slide every time one starts.

Wikipedia https://en.wikipedia.org/wiki/Invisible_ hand explained to me that Adam Smith had introduced the concept in economics in the year 1759. The Invisible Hand the idea that the multiple economic actions of individuals who are acting independently of each other manage to, by luck or Providence or some unseen beneficent force of the Universe, produce a composite outcome that is beneficial to the whole Market, and maybe the whole world.

So as I became more and more astute in these financial matters, I began to feel, somewhat intuitively or through keen powers of in cumulatively clueless observation that this invisible hand was not some ethereal beneficent presence, but rather, a definite entity in the real world. Something very real. Somebody's doing this! Come on now, who is it?

And now, thanks to Ben Bernanke and his memoir, Courage to Act,

http://www.amazon.com/The-Courage-Act-Memoir-Aftermath-ebook/dp/B00TIZFP0I

I have been duly informed. My days of financial naiveté are over, and I see the world for what it really is.

It was the Fed all along!

If you read the epilogue of Ben's book, you'll see what I mean. Here are just a few favorable developments during that period, the last seven years, that he mentions:

~ Unemployment rate, from Aug 2012 at 8.15 down to 5.7 in Oct 2014, during QE3

~ 3 million jobs added in 2014, the largest annual increase since 1999

~ 10.7 million jobs added from 2010-2014

~ "The Fed's securities purchases and lending programs turned a large profit for the government. . .sent almost $100 billion to the Treasury in 2014"

~ "Households had reduced their debt, their interest payments were low, and the value of their homes was higher, as was the value of most retirement accounts."

~ "Consumer confidence, as measured by surveys, had rebounded."

~ "At the end of 2014, U.S. output was more than 8 percent higher than at the end of 2007, the pre-crisis peak."

So it's plain to see that the Invisible Hand has been absolutely vigilant and effective. But this previously mysterious entity is no longer simply the composite whole enchilada of Capitalism. It is . . .

The Federal Reserve!

Thank you, Uncle Ben and Aunt Janet.

Times have changed, and so. . . has Capitalism. The old days are gone forever. We are now living in a bored new world of managed economy.



Glass Chimera