Last Lap for Bretton Woods

[Chris Coles]

Re: Last Lap for Bretton Woods

do you think the uk is going to adopt the euro? it appears ever less likely to me, but i'm curious how it looks to someone living there.

The Euro represents many nations, not one. While it has indeed got problems, hardly to be unexpected, it is a stable currency in an unstable world. On the one hand, why should the Euro zone always roll over? Why should the European business environment always be under the heel of the dollar? I suspect that exactly the same thoughts were in the minds of many in the United States at exactly the point where, weakened by war, the UK Pound £ seemed vulnerable enough to make it worth while to take a stand and tell its holders to "take a hike".

the £ was, not that long ago, in exactly the same place as the dollar is today; a thought that must be running through many well oiled minds world wide. Add to that the fact that there are a lot of £'s in circulation and in long term holdings.... precisely the reason why there was so much angst against throwing our hands in with the Euro.... and you start to see the potential for a different strategy.

Pride comes before a fall. Over confidence is the crack in your armour.

[jk]

Re: Last Lap for Bretton Woods

If you chose to go to war, financially and to cover the same ground and the same strategy again and again you have to accept that somewhere down that time line, someone will figure a way around your forces. That is as plain as a pikestaff. All it would need is for a beleaguered British Exchequer, (now certain that it cannot gain the high ground and return good old Sterling to its pride of place), to decide to throw its towel in with the Euro and all bets would be off.

Turning Sterling into Euro's might be all that would be needed and remember, there are a lot of Arabs and Asians holding a lot of Sterling.

War is a chancy business and victory goes to the brave and the bold.

do you think the uk is going to adopt the euro? it appears ever less likely to me, but i'm curious how it looks to someone living there.

[Chris Coles]

Re: Last Lap for Bretton Woods

If you chose to go to war, financially and to cover the same ground and the same strategy again and again you have to accept that somewhere down that time line, someone will figure a way around your forces. That is as plain as a pikestaff. All it would need is for a beleaguered British Exchequer, (now certain that it cannot gain the high ground and return good old Sterling to its pride of place), to decide to throw its towel in with the Euro and all bets would be off.

Turning Sterling into Euro's might be all that would be needed and remember, there are a lot of Arabs and Asians holding a lot of Sterling.

War is a chancy business and victory goes to the brave and the bold.

[jk]

Re: Last Lap for Bretton Woods

With the greatest of respects, you have missed the point. The way around that problem has been a road travelled before, but the last time by the United States. You simply go back to pre Bretton Woods and get together and decide to use Gold as the interface between the currencies and you use the interface between Gold and every other currency to overcome the problem. So, yes, in a very real sense, you are correct, but it is the dollar under pressure and those that use it; not the rest of the planet. I like an old French expression Force Majeure; an unexpected or uncontrollable event that upset's ones plans...... Woops!

there is no doubt in my mind that the dollar cannot remain THE reserve currency long term. but "long term" is a long time. there is no interim alternative. certainly not gold - the politicians and central bankers will not quickly give up the ability to manipulate their budgets and their currencies. only if we go through financial catastrophe will they THEN consider such a radical alternative. thus i believe that for at least the next several years there will be diversification into ad hoc baskets of dollar alternatives, but the dollar will retain a central, albeit ever weakening, role. these changes don't come easily. the transition from the pound to the dollar, after all, took a depression and 2 world wars.

[Chris Coles]

Re: Last Lap for Bretton Woods

there aren't enough euros around for the euro to replace the dollar as reserve and means for trade. let's imagine the chinese decide to trade their trillion dollars in for euros.... what do you think the exchange rate would go to?

the eurozone will have to run enormous trade deficits for many years to get enough euros in global circulation to allow trade to be priced in euros. say, isn't there a country that's already done that?

the dollar is the only thing in big enough supply to be the currency of [reluctant] choice for global trade.

With the greatest of respects, you have missed the point. The way around that problem has been a road travelled before, but the last time by the United States. You simply go back to pre Bretton Woods and get together and decide to use Gold as the interface between the currencies and you use the interface between Gold and every other currency to overcome the problem. So, yes, in a very real sense, you are correct, but it is the dollar under pressure and those that use it; not the rest of the planet. I like an old French expression Force Majeure; an unexpected or uncontrollable event that upset's ones plans...... Woops!

[jk]

Re: Last Lap for Bretton Woods

My view is the ball game is radically different this time to any other period of such instability. In the past when the United States went to war, financially, with the rest of the planet, as it is doing now; there was insufficient dynamic to the rest of the worlds economy to allow them to fight back. But this time is very different indeed.

I believe that the US has crucially misjudged the overall mood and is certainly more vulnerable to a shift change from the dollar to the Euro as the base trading currency. It only needs relatively few BIG players to change currencies for the whole thing to backfire and the trend to become unstoppable. In that case, the ECB is much better off sticking to its own policy and sitting this out, rather than trying to quickly square the circle as you suggest they will, from political pressure. The ECB is not in the firing line this time, the dollar is. Just at this particular moment in the history of finance, the United States does not hold the strong cards it needs to pull off another route of the rest of the planet.

No one, can beat the market trend all of the time. No one! I believe we are about to see a great sea change, a crossover from the dollar to the Euro as the base currency of trade. The ECB, seeing that potential, will stick it out for they have nothing to lose and everything to gain.

there aren't enough euros around for the euro to replace the dollar as reserve and means for trade. let's imagine the chinese decide to trade their trillion dollars in for euros.... what do you think the exchange rate would go to?

the eurozone will have to run enormous trade deficits for many years to get enough euros in global circulation to allow trade to be priced in euros. say, isn't there a country that's already done that?

the dollar is the only thing in big enough supply to be the currency of [reluctant] choice for global trade.

[Chris Coles]

Re: Last Lap for Bretton Woods

if the u.s. enters recession, i don't see how europe can avoid following. if the ecb stays with its mandate, europe's recession may well be worse than the u.s.'s. i think the ecb will eventually pay attention to europe's gdp more than europe's cpi. and when the ecb finally caves to political pressure, i would think that gold will take off like a scalded [yellow] dog.

My view is the ball game is radically different this time to any other period of such instability. In the past when the United States went to war, financially, with the rest of the planet, as it is doing now; there was insufficient dynamic to the rest of the worlds economy to allow them to fight back. But this time is very different indeed.

I believe that the US has crucially misjudged the overall mood and is certainly more vulnerable to a shift change from the dollar to the Euro as the base trading currency. It only needs relatively few BIG players to change currencies for the whole thing to backfire and the trend to become unstoppable. In that case, the ECB is much better off sticking to its own policy and sitting this out, rather than trying to quickly square the circle as you suggest they will, from political pressure. The ECB is not in the firing line this time, the dollar is. Just at this particular moment in the history of finance, the United States does not hold the strong cards it needs to pull off another route of the rest of the planet.

No one, can beat the market trend all of the time. No one! I believe we are about to see a great sea change, a crossover from the dollar to the Euro as the base currency of trade. The ECB, seeing that potential, will stick it out for they have nothing to lose and everything to gain.

[akrowne]

Re: Last Lap for Bretton Woods

Both Japan and Canada are in a similar situation in terms of threats to the export complex as the US currency plummets (of course, Canada has raw materials to export even if finished goods cannot be. Japan and Europe, not so lucky).

If these export-driven countries think that throwing their own currencies under a bus is the best solution, things will certainly get interesting. Will that allow bubbling to shift into these other currency zones, or will it just magnify the near-term global crack-up boom (will the US-centered "no bid" continue to haunt the Eurozone and the loonie, etc?)

Who knows, but either way it is good for gold... hint hint.

[jk]

Re: Last Lap for Bretton Woods

welcome back, aaron. it's good to see you posting again.

it's interesting to contemplate the euro and the ecb's position. the ecb has only 1 mandate: price stability. but the political pressures can only grow.

airbus' deteriorating competitive position is indicative of the situation of all european manufacturers of internationally traded goods. the caveat is to keep in mind that some of the manufacturing may have been offshored from europe to asia or the americas. [witness european automakers' plants in the u.s.] but politically, the degree to which e.g. bmw is insulated from the euro by virtue of doing some of its manufacturing the u.s., is also the the degree to which it is not maintaining employement in the e.u.

if the u.s. enters recession, i don't see how europe can avoid following. if the ecb stays with its mandate, europe's recession may well be worse than the u.s.'s. i think the ecb will eventually pay attention to europe's gdp more than europe's cpi. and when the ecb finally caves to political pressure, i would think that gold will take off like a scalded [yellow] dog.

does this mean that gold and german bunds are the perfect hedge?

[akrowne]

Re: Last Lap for Bretton Woods

A possible explanation is that Italy is not a world class power.

Or more directly: Italy isn't the backer of the world's (ailing) reserve currency. The US's problems per se matter more, because it has so much more to lose.

Also, ominously (see my earlier post), the US public debt already (close to) meets the 100% GDP ratio when one gets past the multi-level-government counting distractions. Then there's the fact that the US additionally has tons of private debt. Then there's the fact that the US GDP is heavily distorted upwards -- could Italy possibly be lying as much as the US? (My guess is there is some level of Eurozone auditing of such vital stats -- does anyone know for sure?) Then there's the off-balance sheet promissary debt, $55 trillion+ and so forth (no one else's health care system is as screwed up as the US's, hence ballooning the cost of medicare).

I wonder how much of Italy's public debt is owned by foreign creditors? Such debt is a much higher risk than domestic, since domestic investors cannot flee inflation. I suspect the US is in a far worse position (obviously, it is in a bad one, per se).

[akrowne]

Re: Last Lap for Bretton Woods

Thank you for posting that JK; I think you took care of my major comments on the initial article (which was excellent, despite my quibbles).

I don't actually consider it a handicap that the Eurozone lacks a single Treasury; in fact I consider that an advantage -- akin to the 19th century free banking period in the US. Yes, your Euro-bond issuer (country) could fail, but the answer to that is not invest in (financially) stupid countries.

The US is proving right now, in blatant obviousness, that unifying the banking system behind a currency zone -- when the political bloc in charge becomes deeply mismanaged (which may be inevitable) -- is not going to lead to more secure returns for investors (especially not outside ones). Even if there is no formal default, there is the "inflation default". Over-strained is over-strained.

A corollary to the above analysis is that the collapse of some parts of the banking system in a free banking environment doesn't tend to weaken the currency in the long term. The 19th century US saw a gradually strengthening currency, not weakening, despite periodic waves of bank failures, and even two defunct central banks.

So let Spain fail; whatever. I'll be holding German bunds (well, not really -- but I wouldn't be too worried if I was). The Euro may take a hit, but cash will rally domestically, my bunds will rally, and the hit to the Euro exchange rate isn't likely to be lasting either.

I wanted to riff on your point #5 as well (assuming you mean the United States). I wonder how many people realize that, given how bogus the GDP is as an absolute metric, just how ominous the public debt is. It is close to $12 trillion including both Federal and non-Federal, whereas national income is more like $6 or $7 trillion.

Taking the more optimistic number, and assuming we could somehow put 10% of the national income per year towards paying it down (and ignoring private debt held by foreigners), that is 17 years to full payoff.

More likely, we can't afford that 10% tithe, so we'll just inflate by that amount.

Hmm, 17 years of 10% inflation reduces the value of today's dollar to 16 cents.

I realize the above isn't very scientific, but it is certainly suggestive, and probably in the right direction (unfortunately).

[Andreuccio]

Re: Last Lap for Bretton Woods

As for the government of Dubai, I think the term is, "if you got the money, who's to tell you where you must spend it"? Personally I would be really distressed to see Venice (Italy) vanish under the waves. A billion dollar glam hotel / condo project in the Arabian Gulf, built a mere decade prior, I can't promise I'd sorely miss. Of course, it's not my money went into building it.

[ Zoog - looks like our posts crossed each other in the "internet ether", and both reference Venice. You aptly mention the mammoth budget project to set up two "tidal gates" at the entrance to Venice harbor to protect it from both rising seas, and the fact that Venices is sinking. Anyone curious to see Venice should plan to go in the next five to ten years max, because I really think we will lose this city. One of the most truly stunning, dreamlike places in the world to see. ]

Tragic. (Venice sinking, not necessarily the Dubai hotel project.)

I lived in Venice for a year. It really was magical. It even snowed once that year. I don't imagine it's likely that'll be happening there again in the near future.

[Chris Coles]

Re: Last Lap for Bretton Woods

i still think a guy's gotta choose: either global warming or peak oil. you can't have both disasters. pick one.

I am tempted to apologise for this, but you have got them both in my humble opinion.

Lukester, that bit about the Caboose.... great! Nice to have a smile on my face so early in the morning.;)

[zoog]

Re: Last Lap for Bretton Woods

i still think a guy's gotta choose: either global warming or peak oil. you can't have both disasters. pick one.

Oh I dunno. Maybe global warming is melting the oil away. Two for one special.:eek::rolleyes:;)

[metalman]

Re: Last Lap for Bretton Woods

Lukester,

I never said I was buying Siberian land - I was just joking ;), I said if you truly believed in global warming, that you should buy Siberian land as that is the one region likely to become productive farmland in a global warming scenario.

As for lack of curiosity, I'm not sure how my examination of global warming theories and hype to date qualifies.

I monitor the global warming racket just as I do a number of others - maybe the thesis will pan out, but then again maybe not.

i still think a guy's gotta choose: either global warming or peak oil. you can't have both disasters. pick one.