Bringing the financial system into the 21st century

The prescription of a commodity as essential goods would trigger in all nations regulations to limit speculative trading in those commodities. The primary purpose is to stop price distortion in commodities that are basic staples commodities in the developing world. In simple words stopping the suits getting rich by making the third world starve.

Summary

The Bretton Woods Agreement provided the framework for sustained economic growth, however as the world economy grew in size and diversity its central premise that the United States could become the “reserve” economy became unsustainable.

Rather than alter the framework to provide additional pillars to underpin the international financial system, the western capitalist world systematically unwound the institutions and frameworks of the Bretton Woods system through financial deregulation.

This has brought back uncertainty in international trade; companies involved in significant trading activities have to engage in hedging activity to minimise the risk in currency movements. This in itself can involve risks - one only has to look at Pasminco a resource company that disastrously hedged against currency movements and as a consequence went bust.

The need to divert financial resources to hedging activity removes financial resources from the “real” economy; it increases speculative activity in commodities, currencies and property. It leads to asset bubbles with asset inflation and when they burst asset deflation with dire consequences for the “real” economy.

That is why we need to put in place a new Bretton Woods Agreement.