Bretton Woods - #3 of Series:
Could a Collapse of Cryptocurrencies Force a Reform of the Global Monetary System?
Beyond Bretton Woods — Part Three of Our Series
By STEVE HANKE, Special to the Sun | August 7, 2021
...the Bretton Woods system broke down and was abandoned in 1973. Since then, the world has been flying blind. Indeed, we have — in the words of Jacques de Larosière, the former managing director of the International Monetary Fund — a global monetary non-system.
This is a short article without much heft, but yes, we have a global monetary system that is devoid of rules and thus devoid of discipline. The upshot is that we have a dominant currency - the US$ - where the supply is determined at the discretion of the Federal Reserve Board representing the interests of private bankers, the US Treasury, and the political class. What happens essentially is that politics decides how much money must be spent to alleviate any economic or political pressures. The US Treasury issues bonds and the Fed buys the bonds with blank checks. This is how we spend $8 trillion without ever raising any tax revenues. Money for nothing, but the chips are not free.
This money courses through the financial system, i.e., banks and shadow banks, and finds its way into the pockets of financiers. It gets invested in asset plays and perhaps some new production, but mostly in asset plays like your residential real estate market. Much investment finds its way into securities markets, driving up the price of the tech and healthcare sectors to nosebleed levels, with all the incumbent risks and low yields. What this means is that our national savings invested in securities and housing (i.e., invested in the USA) is assuming much greater risks for less reward. This at a time when a large part of the population is slipping into retirement and dancing around their home appreciation. What they should see is downside risk and fragility.
As Nouriel Roubini writes today: the specter of stagflation is looming everywhere. This never ends well.