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Dawn of a new economic era? Soros convenes experts in Bretton Woods
Published: 11 April, 2011, 10:49
Edited: 13 April, 2011, 16:11
TAGS: Politics, Budget, History, USA, Cary Johnston, Lauren Lyster, Banking, Government Spending
With emerging economies taking a leading role, a new era could be dawning in the world of global economics. That was one of the main topics on the table at the Bretton Woods conference in the US, hosted by billionaire philanthropist George Soros.
The economic theories expounded upon at the conference are ideas that could change the world; the sight of billionaire George Soros, together with PhDs and Nobel Prize winners against backdrop of historical Bretton Woods certainly suggests there is real hope that they will.
It was there that the allied nations came together during World War II in crisis searching for stability. They formed the International Monetary Fund and what today is known as the World Bank, and established the US dollar as the global reserve currency.
In New Hampshire, decades later in the wake of the latest financial crisis, a group of influential economists and former policy makers have come together to rethink that framework in response to a different world.
"We have got to have a serious plan to reconstruct the international institutions, for the times we are in not the times that are gone," says British former prime minister Gordon Brown.
By-gone times, says Brown, are the centuries of American and European dominance. With the BRIC nations of Brazil, Russia, India and China fueling more global growth, they need a bigger seat at the table.
Critics say “in with the new,” should mean “out with the old” orthodoxy of Bretton Woods…and the IMF for one.
"I think the IMF has mainly played a destructive role by promoting financial liberalization in many parts of the world that contributed to the financial meltdown," says Professor Gerald Epstein from the Political Economy Research Institute.
And handling that meltdown in the United States, with billions going to bail out banks that are still too big to fail, is just one reason some of these critics are questioning the US dollar as the global reserve currency.
"If you have crony capitalism and you lose confidence in US institutions, which has happened since 2008, the quality of the dollar and of New York as the financial center can deteriorate very markedly," says Robert Johnson, executive director from the Institute for New Economic Thinking.
“The problem that has been in a world of flexible exchange rates is that the dollar as the reserve currency gets a special benefit by being the reserve currency. Some of the imbalances don’t get corrected, and basically the US can get away with a lot of things other countries can’t,” Sassan Ghahramani, President and CEO of the New York-based SGH Macro Advisors, told RT.
Watch the interview in full.
And deterioration in the political will for tough banking reform has some concerned we may be heading for another crisis.
"Depends on what one calls a crisis but I would have to say yes – the concentration of power in finance is greater today than it was before this crisis," says a former JP Morgan executive.
But with mostly western academics talking shop, it is hard to say if the world will come away from Bretton Woods with any new roadmap. According to the man who still has Obama’s ear, his former top economic aid, no one is going to run to Washington and pass legislation next week.
“These kinds of ideas in sphere after sphere have had very important effects," said Larry Summers, president emeritus of Harvard University.
However, these effects are hard for some to see at this point.
“Where is the political will for reshaping the world economy? Who has a proposal that's actually workable? There is plenty of conversation, particularly around the role of the dollar, but no consensus at all on how to replace that," says Professor Simon Johnson, MIT Sloan School of Management.
It seems there is just consensus on the need for change, and a hope that sage wisdom will not just stay tucked in hills of Bretton Woods.
11.04.2011, 09:53
11 comments
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These four countries have to rewrite everything what other developed countries are rewritten after WWII. I could tell one thing very well that the leadership of Russia Federation has vision. I want him to take leadership role in this new globalization. He has to move or reform very fast. We need reform badly in our globe economic systems. We need to have stable globe currencies in order to make our globe economic systems to become more efficiency. Depending on one currency does not make good on our globe economic.
Let's me tell you that western countries are in deadlock. They want to reform, but they cannot reform. Whether western countries are reforming or not, they are going to behind so from his counterpart who are moving or reforming their countries in order to catch new 21st century, in the end western countries are going to blame some countries. It is what the losers have to tell in the globalization. In this globalization, everybody is winner. The one that who afraid to adopt or reform the countries, they are the one who are going to become losers. BRIC have to work together no matter what costs in their political structures in the countries.
BRIC countries are not inevitably interested to replace the dollar with a new currency, because they have a lot of dollars in their national reserves. In a long term, or in a medium range term, that would be probably damaging for American economy, as well for the US debt. However, United States are also not interested for dollar to lose its status right now, for that way they can cover extraordinarily large budget gap. With some new global currency US would be forced to find out a new way for doing things, and that could be painful. Therefore, neither the Obama administration, nor the next US admin, would be really interested to change the dollar global status, even though the delay will surely cause the US economy sinking yet deeper.
Another negative implication for the west is that EU and US are continuing to lose their share in the world's economy (production of goods, trade, etc.). Some serious people think that there is only one option left for US/EU to avoid their further stagnation relative to BRIC countries: That is to use the war as a tool for regaining the previous privileged positions. So far they are advancing well along this direction (Iraq, Afghanistan, Libya), but these small wars are generally very expensive and so are very self-destructive financially. Besides, these small wars are not damaging the BRIC countries. Is it, therefore, that we are being driven towards a big war? Big financial changes have always been, as a rule, followed by the world war. Just recall that the WWII came into existence just after the big economic turmoil and a tsunami effect that it had on all EU countries in early 30's.