Kristalina Georgieva, the International Monetary Fund (IMF) Managing Director at Washington DC, has effectively declared the Bretton Woods financial system set up after the second world war as finished.
“We must seize this new Bretton Woods moment,” she said, “to address some persistent problems like low productivity, slow growth, high inequalities, a looming climate crisis.”
“We have seen global fiscal actions of $12 trillion. Major central banks have expanded balance sheets by $7.5 trillion. These synchronized measures have prevented the destructive macro-financial feedback we saw in previous crises.”
So she argued, with the other side of it being an expectation that 2021 debt levels will go up significantly, “to around 125 percent of GDP in advanced economies, 65 percent of GDP in emerging markets; and 50 percent of GDP in low-income countries.”
The IMF is a government owned global bank of last resort for bankrupt countries which is often criticized for imposing harsh austerity measures.
In this address however Georgieva plays the sweetheart tune, saying we must invest in young people and all the good things.
She does not say what exactly is this new Bretton Woods. Instead she appears to argue for a continuation, stating “what was true at Bretton Woods remains true today.”
So making it quite difficult to read what exactly she is saying, but her idol, and presumably that of IMF, appears to be John Maynard Keynes.
A communist, who strongly believed in centralized power, and argued markets are irrational rather than affected by the government or central bank decisions that lead to artificial booms and busts.
His chief rival was and remains Friedrich Hayek, the Austrian economist who argued if we follow Keynes we will fall into communism.
Keynes argued for more and more state intervention, something that gives IMF more and more power. Hayek argued for market freedom, blaming ill-thought government regulations and even more ill-thought FED interference in the value of money for many ills.
Just what Georgieva thinks besides a march to communism, however, is not too clear, but her carefully chosen words clearly say the Bretton Wood system is not fit for purpose and we need a new one.
That corresponds with Ray Dalio’s claim that money has entered a new phase, with Georgieva effectively backing him by saying thus we need “strong medium-term frameworks for monetary, fiscal and financial policies, as well as reforms to boost trade, competitiveness and productivity.”
Just what sort of reforms presumably would be discussed behind closed doors, but one reading of all this is that she is saying higher debt levels should be tolerated.
That’s besides economists generally agreeing that higher debt levels means lower productivity as you have to pay debt interest instead of building roads.
It is also quite unclear who this debt is actually owed to as the lent money by the FED is printed out of nothing.
They demand interest on it which becomes new money, but at the levels of more than the GDP of the entire economy, this can easily get out of control through a slow decay visible by the greying American skyscrapers.
In short, Keynes was tried and failed. It is perhaps time to give Hayek a chance and give the market a greater role by the state removing many barriers to competition and by the state enforcing its own laws to break up monopolies like Google or Apple which has offshored all production, and thus has impoverished the American skills pool.
Germany on the other hand maintained all manufacturing with little, if any, offshored. The reason is because while American companies answer only to shareholders who care about nothing but profits, the German corporate system requires representation of the workers at the board level.
That translates to Americans had and have no say over a vital part of their life – the work place – while Germans were able to stop the mindless ripping apart of the manufacturing base because what worker would vote to lose their job.
Germany moreover maintains the Hayek viewpoint because they have experienced first hand the Keynes approach: hyperinflation.
Their debt levels therefore are low, which translates to less centralization as they don’t have to answer to the four banks or so that dominate each country.
They stored value and invested it, instead of chaining themselves to endless debt traps that now require a rewrite of the whole system.
That translated to more money for the government to spend rather than less, first because they not wasting it on debt interest, and second because productivity grew as their people are not enchained in wasting their money in debt interest either.
And Germany now rises, rightfully, for their system is simply better and such representation of the people should actually expand in the political arena too through a jury house that sits alongside the two other law making houses.
Otherwise, the octopus with many legs will necessarily become dum for no single man or group of men can react to the great complexities better than those most affected by decisions and events.
If there is to be a new system its chief guiding principle must be the expansion of freedom, starting with the freedom to have certainty over the value of money, something that can be ensured only through market competition over just what is money.
Otherwise, the temptation is too great to restore to regressive taxation through inflation which translates to an impoverishment of the people and the centralization of corporations that curtail freedom, and thus productivity as well as much else.