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Bretton Woods for the XXI’st century?

Today it was France’s turn to bailout its troubled banks – BNP, Societe Generale and Credit Agricole, the main banks of the country, all received almost $14 billion in aids to help them re-start landing. But will this work?

To be honest, noone knows. As previously mentioned here, on doitinvest, the financial regulations governing today’s world are so opaque that not even when the governments become the biggest shareholders of some assets they can’t tell even remotely the outcome. Yesterday ING was taken over by the Dutch government, whilst the OECD powers are kicking and screaming for a new Bretton Woods agreement.

But this not a brilliant idea. Not at all. And some politicians probably have not read John Maynard Keynes at all, since they advocate so fervently for a new fixed-trading system. In fact, the Bretton Woods agreement enforced more than 50 years ago a system of fixed exchange rates among the nations and very strict rules for the global commerce. It allowed an island of certainty in an ocean of international trading opportunities. And of course it was mostly beneficial to the USA, who at that time financed virtually all the world commerce. So we at don’t think that this is such a good idea…

Why? Well, first of all because a new Bretton Woods agreement would mean fixing the global economical machinery with a big hammer – if somebody will rise the head, it will get hit. Fixed regulations and tight rules will actually hamper innovation. They will also not adapt to the complexity of today’s financial markets, making flexibility a history of the past. And they will certainly slow down the global economical growth.

Of course, now we have elections in the US and millions of people loosing a big chunk of their life-time savings. This is something that has not happened since the oil shocks in the ’70’s, the ’87 stock market panic, the dot com burst in the 2001… you get the idea, these are the costs of running a market economy. Now the state runs the banking sector in most of the countries, trying to push them with his own money to lend more. Lending more means relaunching the economy and boosting the consumption, which in a keynesian way should restart the economic growth. Not a bad idea. But after all, who said that the state is a good administrator? They don’t have a clue how to sell this to the disoriented masses of investors, whilst the money pumped into the economy through the banks fizzle slowly…into inflation. So good luck to us all – we live in a world of politicians suddenly (and opportunistically) turned into weekend economists. Please read your homework, gentlemen, it does not work quite exaclty as you would imagine…

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