This month was extraordinarily busy with the details of working out TIMU. Sometimes making 10 hour days! Including some two hour night sessions when the creative juices were flowing!
Major breakthrough came on January 15 when the senior advisor to the UNGA President's Commission on Expert on the Monetary and Financial Crises declared that basing a new international curreny on carbon permission credits and have each nation a carbon account in its balance of payments is "a briljant idea."
On January 16 I approached my publisher-on-demand whom I had met 2 years ago at a Praxis Peace Conference in Croation. After one hour we fully understood one another and after sending him a draft outline of the book and a couple of additional documents we are all set to proceed till a publishing date in the beginning of May.
Please, look at the TIMU Working Group site at http://groups.yahoo.com/group/TIMUgroup
Wednesday, January 28, 2009
Tuesday, December 23, 2008
Latest abstract for an article on TIMU
December 22, 2008
This article presents a proposal for transforming the international monetary system into the Terra International Monetary Union (TIMU). The TIMU system would be an essential part of a comprehensive approach to dealing with the global economic recession and the climate crisis, given that an international monetary system is the glue of the economic and financial system. While reform proposals, such as Keynes’ “bancor”, Stiglitz’s “global greenback” and others address themselves to providing the monetary glue of a new global non-national monetary standard between nations, the TIMU proposal adds to this huge challenge the inclusion of the ecological dimension, i.e. of carbon debts and credits, into their balance of payments (BOP) by adding an extra line for a carbon account. Using clauses of the proposed FEASTA's Treaty of Noordwijk Aan Zee, TIMU’s integrated accounting unit, the Terra, would include both the economic and carbon debts and credits between nations. By integrating both accounts TIMU’s Central Bank would become the global facility that administers the balance of payments between financial creditor nations in the global North who are ecological debtors to the nations in the global South, and the financial debtor nations in the global South who are ecological creditors to the nations in the global North. As a result sustainability, stability and equity can be achieved in the monetary field, possibly within a decade. The article describes the historical context of international efforts for a world currency--Mill’s political economy treatise of 1844, the 1867 Paris Conference, 1930 Bank of International Settlements, 1944 Keynes Plan, IMF’s 1969 Special Drawing Rights. Then it presents the six major components of the Terra International Monetary Union, particularly its Global Central Bank’s accounting, monitoring and credit creating activities and the necessary monetary institutions of the nations that become signatories of the TIMU Treaty. This is followed by a categorized list of reasons for the TIMU approach in dealing with economic and climate crises, showing both its strengths and weaknesses. Constraints and challenges for an eventual TIMU Treaty are discussed within the context of the ever deepening economic and climate crises. Main authors consulted are: Bonpasse 2007; Cohen 2004; Douthwaite 1992; Duncan 2005; Eichengreen 2008, Greider 1987 and 2003; Minsky 2008; Mishkin 2007; Mundell, various years; Skidelsky 2003; Stiglitz 2003. A discussing paper of 10 pages is available up
on request.
This article presents a proposal for transforming the international monetary system into the Terra International Monetary Union (TIMU). The TIMU system would be an essential part of a comprehensive approach to dealing with the global economic recession and the climate crisis, given that an international monetary system is the glue of the economic and financial system. While reform proposals, such as Keynes’ “bancor”, Stiglitz’s “global greenback” and others address themselves to providing the monetary glue of a new global non-national monetary standard between nations, the TIMU proposal adds to this huge challenge the inclusion of the ecological dimension, i.e. of carbon debts and credits, into their balance of payments (BOP) by adding an extra line for a carbon account. Using clauses of the proposed FEASTA's Treaty of Noordwijk Aan Zee, TIMU’s integrated accounting unit, the Terra, would include both the economic and carbon debts and credits between nations. By integrating both accounts TIMU’s Central Bank would become the global facility that administers the balance of payments between financial creditor nations in the global North who are ecological debtors to the nations in the global South, and the financial debtor nations in the global South who are ecological creditors to the nations in the global North. As a result sustainability, stability and equity can be achieved in the monetary field, possibly within a decade. The article describes the historical context of international efforts for a world currency--Mill’s political economy treatise of 1844, the 1867 Paris Conference, 1930 Bank of International Settlements, 1944 Keynes Plan, IMF’s 1969 Special Drawing Rights. Then it presents the six major components of the Terra International Monetary Union, particularly its Global Central Bank’s accounting, monitoring and credit creating activities and the necessary monetary institutions of the nations that become signatories of the TIMU Treaty. This is followed by a categorized list of reasons for the TIMU approach in dealing with economic and climate crises, showing both its strengths and weaknesses. Constraints and challenges for an eventual TIMU Treaty are discussed within the context of the ever deepening economic and climate crises. Main authors consulted are: Bonpasse 2007; Cohen 2004; Douthwaite 1992; Duncan 2005; Eichengreen 2008, Greider 1987 and 2003; Minsky 2008; Mishkin 2007; Mundell, various years; Skidelsky 2003; Stiglitz 2003. A discussing paper of 10 pages is available up
on request.
Thursday, December 11, 2008
Revised abstract of the TIMU proposal
Eaxctly one week ago I posted the abstract for TIMU. Today you find the revised version. One of the major reason of revising the abstract is the discovery of a very similar proposal by the Irish group, Cap and Share, a representive of which I met at last year's UN Commission for Sustainable Development. Attached below are their Money Systems description and the new abstract that is going to be sent out to a dozen publications to find out their interest in the article.
MONEY SYSTEMS can be found on www.capandshare.org which deals with the "Foundations of an Economics of Sustainability", an area that transcends the foundation of the ecological sustainability of the US Society of Ecological Economists.
"Feasta believes that a radical monetary reform is one of the keys to sustainability and has a number of members working in the area. For further information, e-mail money@feasta.org. If you would like to participate in our online discussions on this topic, please visit our money forum.d out their interest." Particularly Douthwaite's post of November 19, 2008 is most up to date statement of FEASTA's position that is also brought to Pozan''s UNFCCC negotiations.
REVISED ABSTRACT
This article presents a proposal for transforming the international monetary system, i.e. the Terra International Monetary Union or TIMU system. TIMU would be an essential part of a comprehensive approach to dealing with the global economic recession and the climate crisis, while also expediting humanity’s transition into sustainable societies, the social, political and ecological relations of which will lead to greater purchasing power and quality of life not only in the global North, but especially in the global South. While reform proposals, such as Joseph Stiglitz’s “global greenback” intend to remove the US dollar as the international monetary standard between nations, the TIMU proposal adds to this the challenge of including the ecological dimension, i.e. carbon debts and credits, into their balance of payments (BOP) by adding a carbon account with terras (Latin for Earth) as the accounting unit and standard. The article outlines the fatal flaws of the present international monetary system, particularly after the collapse of the Bretton Woods architecture in August 971. As it was no longer possible to convert US currency with gold and as the mechanism to adjust surplus and deficits in the trade balances and capital flows between countries disappeared, excessive credit creation resulted, one of the major causes of the present global recession. (Eichengreen 2008; Duncan 2005; Stiglitz 2006; Douthwaite 1992.) Building on the IMF’s Special Drawing Rights (SDRs) the article proposes an integrated monetary system where carbon accounting and allocation follow the cap-and-share proposals and the FEASTA Treaty of Noordwijk as presented by Douthwaite and Meyer. Rather than reforming the IMF, the article considers the constraints and challenges of a transformed international monetary system, where TIMU’s Global Central Bank engages in accounting, monitoring and credit creating activities that would lead to a sustainable, stable and equitable global economic system.
MONEY SYSTEMS can be found on www.capandshare.org which deals with the "Foundations of an Economics of Sustainability", an area that transcends the foundation of the ecological sustainability of the US Society of Ecological Economists.
"Feasta believes that a radical monetary reform is one of the keys to sustainability and has a number of members working in the area. For further information, e-mail money@feasta.org. If you would like to participate in our online discussions on this topic, please visit our money forum.d out their interest." Particularly Douthwaite's post of November 19, 2008 is most up to date statement of FEASTA's position that is also brought to Pozan''s UNFCCC negotiations.
REVISED ABSTRACT
This article presents a proposal for transforming the international monetary system, i.e. the Terra International Monetary Union or TIMU system. TIMU would be an essential part of a comprehensive approach to dealing with the global economic recession and the climate crisis, while also expediting humanity’s transition into sustainable societies, the social, political and ecological relations of which will lead to greater purchasing power and quality of life not only in the global North, but especially in the global South. While reform proposals, such as Joseph Stiglitz’s “global greenback” intend to remove the US dollar as the international monetary standard between nations, the TIMU proposal adds to this the challenge of including the ecological dimension, i.e. carbon debts and credits, into their balance of payments (BOP) by adding a carbon account with terras (Latin for Earth) as the accounting unit and standard. The article outlines the fatal flaws of the present international monetary system, particularly after the collapse of the Bretton Woods architecture in August 971. As it was no longer possible to convert US currency with gold and as the mechanism to adjust surplus and deficits in the trade balances and capital flows between countries disappeared, excessive credit creation resulted, one of the major causes of the present global recession. (Eichengreen 2008; Duncan 2005; Stiglitz 2006; Douthwaite 1992.) Building on the IMF’s Special Drawing Rights (SDRs) the article proposes an integrated monetary system where carbon accounting and allocation follow the cap-and-share proposals and the FEASTA Treaty of Noordwijk as presented by Douthwaite and Meyer. Rather than reforming the IMF, the article considers the constraints and challenges of a transformed international monetary system, where TIMU’s Global Central Bank engages in accounting, monitoring and credit creating activities that would lead to a sustainable, stable and equitable global economic system.
Tuesday, December 9, 2008
GM and MG: The Connection
GM AND MG: THE CONNECTION
Frans C. Verhagen, M.Div., M.I.A., Ph.D., sustainability sociologist
Earth and Peace Education Associates International (EPE)
Www.globapepe.org ; www.fcvnyc.blogspot.com ; gaia1@rcn.com;
718 275 3932 (voice and fax); 917 617 6217 (cell))
Tuesday, December 09, 2008
During these days that the GM is trying to survive with the assistance of government loans, its connection with the reverse of its acronym, i.e. MG is hardly considered, though it is of great importance for its survival and revival of the US and world economy.
MG, like M1, M2, and M3 are abbreviations that indicate different categorizations in the supply of money. MG stands for the global money supply (MG-money global) and is a fundamental part of the international monetary system which is an essential, though heavily underestimated part of the global economy. What then is the connection of GM with MG?
GM’s slide into near disappearance has many domestic and international causes. Among the former are the lack of strategic planning, a short-term profitability horizon, legacy costs, etc. Among the latter are the competition with better foreign cars, insufficient international collaboration in research and development, etc. and …MG.
Starting in the 1970s the US followed a debt policy that played havoc with the international monetary system by excessively increasing the global money supply which led to an oversupply of credit which led to overinvestment, overheated economies in the surplus countries and the busting of those economic bubbles. This excessive credit creation which was a main consequence of the unbalanced balance of payments (BOP) was made possible by having the US dollar function as the major international reserve currency. Though John Maynard Keynes had proposed an excellent solution for a sound balance of payments system at Bretton Woods at the waning months of World War II in 1944, US Treasury Dexter White prevailed in having the US dollar become the accounting unit and the dominant reserve currency of the new system. As long as the dollar was pegged to the gold standard, the US was unable to import far more than it exported because those payments could not be supported by the gold in Fort Dix. By closing the gold window in August 1971, President Nixon made the international monetary system and its BOP very unstable. It was already somewhat unstable before that date because of problems with the expansion of credit in an ever larger global trading system.
Part of the present recession and probably depression in the next couple of months is the international community’s degradation of the international monetary system. The US has trillions of dollars on the debit side of its current account (CA) balance, while China has almost one trillion dollars in US dollar reserves on its credit or surplus side of its CA balance, most of which are invested in US treasury bills. The global economic system would crash if either the US suddenly stopped functioning as the world’s credit creation institution by drastically reducing its imports or if China were to decide to suddenly withdraw its US T bills which action would throw its own export-oriented economy into a tailspin. Thus, the enormous gap between deficit and surplus countries keeps the global economic system unbalanced, volatile, fragile, and unsustainable. It is also being made further unsustainable, fragile, etc on account of its wealth and income distribution because, as presently structured, it enriches the few, impoverishes the many and endangers the planet.
What is to be done with GM and MG? One major approach that is good for GM and a healthy, i.e. equitable global money supply is to increase aggregate purchasing power in both the global North and South by starting to increase the minimum wage, particularly in industrializing developing countries. Chapter 9 in Richard Duncan’s The Dollar Crisis: Causes, Consequences and Cures shows in detail how such innovation could be brought into existence. Another major approach would be the creation of a global central bank that would not only reduce the enormous debts and surpluses by bringing them into balance, but would also include accounting of carbon emissions in a new BOP mechanism which would transfer funds of high income, high carbon debtor countries in the North to low income and carbon creditor countries in the South. Part of such system is emerging in the IMF and its Special Drawing Rights facility, but it has to be expanded to reflect the accounting of carbon emissions during this ever deepening climate crisis. I have called such system the Terra International Monetary Union or TIMU system where Terra—Latin for Earth—becomes the new international accounting unit and major reserve currency replacing the US Dollar. TIMU can be phased in somewhat similar ways as the European Monetary Union was phased in or other similar efforts such as the Chiang Mai Initiative in Asian countries. Notwithstanding the many obstacles and constraints that the TIMU system were to encounter on the global level humanity is at a crossroads in the next decade where transformation has to take place during this period of the Great Transition and Generation Transition in order for people and planet to survive and thrive. GM and other industries in the US and abroad would be able to be assisted financially within the bounds of an ethical, efficient and balanced international monetary system, where the global money supply (MG) would be controlled by global central bank which would replace the IMF and, particularly, its weighted decision making system that is biased in favor of the countries in the North, particularly the US, and biased against countries in the global South.
Frans C. Verhagen, M.Div., M.I.A., Ph.D., sustainability sociologist
Earth and Peace Education Associates International (EPE)
Www.globapepe.org ; www.fcvnyc.blogspot.com ; gaia1@rcn.com;
718 275 3932 (voice and fax); 917 617 6217 (cell))
Tuesday, December 09, 2008
During these days that the GM is trying to survive with the assistance of government loans, its connection with the reverse of its acronym, i.e. MG is hardly considered, though it is of great importance for its survival and revival of the US and world economy.
MG, like M1, M2, and M3 are abbreviations that indicate different categorizations in the supply of money. MG stands for the global money supply (MG-money global) and is a fundamental part of the international monetary system which is an essential, though heavily underestimated part of the global economy. What then is the connection of GM with MG?
GM’s slide into near disappearance has many domestic and international causes. Among the former are the lack of strategic planning, a short-term profitability horizon, legacy costs, etc. Among the latter are the competition with better foreign cars, insufficient international collaboration in research and development, etc. and …MG.
Starting in the 1970s the US followed a debt policy that played havoc with the international monetary system by excessively increasing the global money supply which led to an oversupply of credit which led to overinvestment, overheated economies in the surplus countries and the busting of those economic bubbles. This excessive credit creation which was a main consequence of the unbalanced balance of payments (BOP) was made possible by having the US dollar function as the major international reserve currency. Though John Maynard Keynes had proposed an excellent solution for a sound balance of payments system at Bretton Woods at the waning months of World War II in 1944, US Treasury Dexter White prevailed in having the US dollar become the accounting unit and the dominant reserve currency of the new system. As long as the dollar was pegged to the gold standard, the US was unable to import far more than it exported because those payments could not be supported by the gold in Fort Dix. By closing the gold window in August 1971, President Nixon made the international monetary system and its BOP very unstable. It was already somewhat unstable before that date because of problems with the expansion of credit in an ever larger global trading system.
Part of the present recession and probably depression in the next couple of months is the international community’s degradation of the international monetary system. The US has trillions of dollars on the debit side of its current account (CA) balance, while China has almost one trillion dollars in US dollar reserves on its credit or surplus side of its CA balance, most of which are invested in US treasury bills. The global economic system would crash if either the US suddenly stopped functioning as the world’s credit creation institution by drastically reducing its imports or if China were to decide to suddenly withdraw its US T bills which action would throw its own export-oriented economy into a tailspin. Thus, the enormous gap between deficit and surplus countries keeps the global economic system unbalanced, volatile, fragile, and unsustainable. It is also being made further unsustainable, fragile, etc on account of its wealth and income distribution because, as presently structured, it enriches the few, impoverishes the many and endangers the planet.
What is to be done with GM and MG? One major approach that is good for GM and a healthy, i.e. equitable global money supply is to increase aggregate purchasing power in both the global North and South by starting to increase the minimum wage, particularly in industrializing developing countries. Chapter 9 in Richard Duncan’s The Dollar Crisis: Causes, Consequences and Cures shows in detail how such innovation could be brought into existence. Another major approach would be the creation of a global central bank that would not only reduce the enormous debts and surpluses by bringing them into balance, but would also include accounting of carbon emissions in a new BOP mechanism which would transfer funds of high income, high carbon debtor countries in the North to low income and carbon creditor countries in the South. Part of such system is emerging in the IMF and its Special Drawing Rights facility, but it has to be expanded to reflect the accounting of carbon emissions during this ever deepening climate crisis. I have called such system the Terra International Monetary Union or TIMU system where Terra—Latin for Earth—becomes the new international accounting unit and major reserve currency replacing the US Dollar. TIMU can be phased in somewhat similar ways as the European Monetary Union was phased in or other similar efforts such as the Chiang Mai Initiative in Asian countries. Notwithstanding the many obstacles and constraints that the TIMU system were to encounter on the global level humanity is at a crossroads in the next decade where transformation has to take place during this period of the Great Transition and Generation Transition in order for people and planet to survive and thrive. GM and other industries in the US and abroad would be able to be assisted financially within the bounds of an ethical, efficient and balanced international monetary system, where the global money supply (MG) would be controlled by global central bank which would replace the IMF and, particularly, its weighted decision making system that is biased in favor of the countries in the North, particularly the US, and biased against countries in the global South.
Thursday, December 4, 2008
Summary of the TIMU proposal
While solutions to the deepening global recession and the climate crisis have a score of dimensions that are to be integrated in order to be resolved, one major dimension that is not given sufficient attention on the global level is the one of the monetary system. This system of floating currencies, fiat money, accounting units, exchange rates, reserve currencies, balance-of-payments mechanisms, --a major support to any global economic system—is in dire need not only of reform, but of transformation. Such transformed system should not only provide stability in balancing monetary matters of economic debts and credits between nations, but should also include a carbon account that reflects the ecological, particularly carbon credits and debits of member states. The resulting system would be an integrated international monetary union where the present inconvertible US Dollar is replaced by a new accounting unit which can be called the Terra-Latin for Earth-to symbolize the integrated accounting of social and ecological realities between nations. This proposed transformed international monetary system can be called the Terra International Monetary Union or TIMU because the final phase will lead to an integrated global payment union that settles the accounts of both economic and ecological, i.e. carbon credits and debts. This TIMU proposal reflects the reality of 21st century’s economic and climatological challenges by conceptualizing the economic creditor nations in the global North which are ecological debtor nations and economic debtor nations in the global South which are ecological creditor nations.
The article presents the history of monetary relations between nations, particularly as expressed in the Bretton Woods institutions of the IMF and IBRD, the August 1971 US abrogation of the gold standard and the present limitations and even fatal flaws of the international monetary system, that also underlie the food, fuel, climate crises. Guides in this section are Eichengreen, Keynes, Duncan and others. After setting the historical context for the TIMU proposal will be compared with various reform proposals one of which is the “global greenback” proposal by Joseph Stiglitz. Taking the 4 phases of the 1980s Delors Commission that lead to the establishment of the European Monetary Union as an example 5 phases will be presented for TIMU to become a conceptual reality. The scheduled April 20, 2009 international economic summit would decide to set up the UN Commission on the Integrated International Monetary System which would lead to a Cooperation Fund, which would lead to an Monetary Institute, to a partial monetary union of current economic accounting with the establishment of a global central bank and, finally, a complete monetary union that integrates accounting of both economic and ecological, i.e. carbon credits and debts between nations.
The constraints and challenges of a TIMU like transforming of the present international monetary system are daunting on multiple dimensions of the economic, political and cultural relations between nations. The article will sketch the many positive and negative factors that would help or hinder a serious discussion and adoption of this integrated international monetary system. Some of them are: the disaster of the global economic recession, the growing global awareness of the pending catastrophic effects of the climate crisis which would aggravate the present crises in food, fuel, water, shelter, health, etc... Also included in this discussion is the positive trend of the integration of social and ecological values in a common value system where the term of reference has become the community of life rather than the human community as expressed in the biocentric vision of the Earth Charter. The discussion of these constraints and challenges would lead to the conclusion that a transformed international monetary system such as presented in the TIMU proposal can become a valuable tool in the global tool box in not only dealing with the global economic recession and the climate crisis, but also in expediting humanity’ transition into a sustainability revolution where the social, political and ecological relations between nations will lead to greater purchasing power and quality of life not only in the global North, but especially in the global South. The present unsustainable global economic system that enriches the few, impoverishes the many and endangers the planet will be replaced with a panoply of steady-state economies where not only economic and ecological credits and debits are accounted in an integrated international monetary system, but also where justice, both social and procedural, is the guiding principle as opposed to the present growthism principle
The article presents the history of monetary relations between nations, particularly as expressed in the Bretton Woods institutions of the IMF and IBRD, the August 1971 US abrogation of the gold standard and the present limitations and even fatal flaws of the international monetary system, that also underlie the food, fuel, climate crises. Guides in this section are Eichengreen, Keynes, Duncan and others. After setting the historical context for the TIMU proposal will be compared with various reform proposals one of which is the “global greenback” proposal by Joseph Stiglitz. Taking the 4 phases of the 1980s Delors Commission that lead to the establishment of the European Monetary Union as an example 5 phases will be presented for TIMU to become a conceptual reality. The scheduled April 20, 2009 international economic summit would decide to set up the UN Commission on the Integrated International Monetary System which would lead to a Cooperation Fund, which would lead to an Monetary Institute, to a partial monetary union of current economic accounting with the establishment of a global central bank and, finally, a complete monetary union that integrates accounting of both economic and ecological, i.e. carbon credits and debts between nations.
The constraints and challenges of a TIMU like transforming of the present international monetary system are daunting on multiple dimensions of the economic, political and cultural relations between nations. The article will sketch the many positive and negative factors that would help or hinder a serious discussion and adoption of this integrated international monetary system. Some of them are: the disaster of the global economic recession, the growing global awareness of the pending catastrophic effects of the climate crisis which would aggravate the present crises in food, fuel, water, shelter, health, etc... Also included in this discussion is the positive trend of the integration of social and ecological values in a common value system where the term of reference has become the community of life rather than the human community as expressed in the biocentric vision of the Earth Charter. The discussion of these constraints and challenges would lead to the conclusion that a transformed international monetary system such as presented in the TIMU proposal can become a valuable tool in the global tool box in not only dealing with the global economic recession and the climate crisis, but also in expediting humanity’ transition into a sustainability revolution where the social, political and ecological relations between nations will lead to greater purchasing power and quality of life not only in the global North, but especially in the global South. The present unsustainable global economic system that enriches the few, impoverishes the many and endangers the planet will be replaced with a panoply of steady-state economies where not only economic and ecological credits and debits are accounted in an integrated international monetary system, but also where justice, both social and procedural, is the guiding principle as opposed to the present growthism principle
Abstract for an article on the TIMU proposal
This article presents a proposal for transforming the international monetary system, i.e. the . Terra International Monetary Union or TIMU system. TIMU would be an essential part of a comprehensive approach to dealing with the global economic recession and the climate crisis, while also expediting humanity’s transition into sustainable societies, the social, political and ecological relations of which will lead to greater purchasing power and quality of life not only in the global North, but especially in the global South. While reform proposals, such as Joseph Stiglitz’s “global greenback” intend to remove the US dollar as the international monetary standard between nations, the TIMU proposal adds to this the challenge of including the ecological dimension, i.e. carbon debts and credits, into their balance of payments (BOP) by adding a carbon account . The article outlines the three fatal flaws in the present international monetary system, which came into being after the collapse of the Bretton Woods system (August 1971). With the collapse of Bretton Woods architecture, it was no longer possible to convert US currency with gold and the mechanism which automatically adjusted surplus and deficits in the trade balances and capital flows between countries disappeared, leading to excessive credit creation with its boom and busts. While supporting the need for a Bretton Woods II, the article considers how carbon accounting and allocation can be used to create carbon accounts that can be part of the proposed transformed international monetary system. This system would replace the present US$ standard with the integrated Terra (Latin for Earth) standard which would lead to the return of fixed exchange rates as part of the proposed Global Central Bank’s accounting, monitoring and credit creating activities.
Wednesday, December 3, 2008
Great Depression and present recession: causes and cures
Both economic upheavals with the enormous social costs to societies the world over have an underlying cause that is often not recognized.
While in both cases the immediate causes are clear—credit expansion leading to crashes—the underlying cause of both calamities is the relinquishment of the discipline of adhering to a monetary standard. During World War 1 the belligerent nations abandoned the gold standard, so that they could buy more arms on credit once their gold reserves were used up (and transported to the US). This led to huge trade balances which produced an expansion of international liquidity. This liquidity, in turn, caused credit expansion which, in turn, led to over-investment, overcapacity, asset price inflation or bubbles and, finally, in deflation. This same pattern can be seen presently with so much more credit created by all the fancy instruments made possible by removing of regulatory control. However, all that is, in last instance, made possible by the abandonment or collapse of the Bretton Woods institutions when the Nixon Administration went of the gold standard and replaced it by the dollar standard. The enormous trade deficits are part and parcel of the unsustainability of this standard because it allows and pushes one country to become a deficit nation in order for other nations to export their goods and services.
Part of the cure for the present recession is not only to adopt the many measures that the Bush Administration and President-elect Obama are advocating is the need to go off the Dollar standard for “global greenback” that is not tied to one country but which reflects a basket of currencies of major economies. Once the Obama Administration comes in it not only should adopt Stiglitz’s global greenback, but go a step further to take the Terra as the accounting unit of an international monetary system that integrates economic and ecological, i.e. carbon credits and debits, as proposed by the TIMU Initiative on this blog and elsewhere.
While “crony capitalism”, “infectious greed” or the income widening gap can still be considered part of the causation of the Great Depression, Richard Duncan in his 2005 The Dollar Crisis conclusively shows, in my opinion, that the enormous trade imbalances balances between 1914 and 1920 are the underlying cause, a fact that is often overlooked by those analysts who do not take this longer time frame.
While in both cases the immediate causes are clear—credit expansion leading to crashes—the underlying cause of both calamities is the relinquishment of the discipline of adhering to a monetary standard. During World War 1 the belligerent nations abandoned the gold standard, so that they could buy more arms on credit once their gold reserves were used up (and transported to the US). This led to huge trade balances which produced an expansion of international liquidity. This liquidity, in turn, caused credit expansion which, in turn, led to over-investment, overcapacity, asset price inflation or bubbles and, finally, in deflation. This same pattern can be seen presently with so much more credit created by all the fancy instruments made possible by removing of regulatory control. However, all that is, in last instance, made possible by the abandonment or collapse of the Bretton Woods institutions when the Nixon Administration went of the gold standard and replaced it by the dollar standard. The enormous trade deficits are part and parcel of the unsustainability of this standard because it allows and pushes one country to become a deficit nation in order for other nations to export their goods and services.
Part of the cure for the present recession is not only to adopt the many measures that the Bush Administration and President-elect Obama are advocating is the need to go off the Dollar standard for “global greenback” that is not tied to one country but which reflects a basket of currencies of major economies. Once the Obama Administration comes in it not only should adopt Stiglitz’s global greenback, but go a step further to take the Terra as the accounting unit of an international monetary system that integrates economic and ecological, i.e. carbon credits and debits, as proposed by the TIMU Initiative on this blog and elsewhere.
While “crony capitalism”, “infectious greed” or the income widening gap can still be considered part of the causation of the Great Depression, Richard Duncan in his 2005 The Dollar Crisis conclusively shows, in my opinion, that the enormous trade imbalances balances between 1914 and 1920 are the underlying cause, a fact that is often overlooked by those analysts who do not take this longer time frame.
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