Trump is right: namely, that there is a grave trade imbalance. However, this is not even a half truth; it is, at best, a 1/8th truth, which, in typical Trump fashion, he inflates, misunderstands, misrepresents, and mis-corrects.
The Bretton Woods agreement from 1944 set out the parameters of the world financial and banking system which has functioned, more or less, but recently rather less than more, for the last 80 years. Among the items of the 1944 agreement were a) that U.S. dollar would be the world's reserve currency (the reference point, so to speak to which all other currencies would be pegged); and b) that each nation's imports and exports would be roughly equal, on average, over time (short-term imbalances would cancel out).
What has gone wrong, and increasingly so, as globalization has taken hold, is the following:
First, the U.S. has moved from a heavy manufacturing-based industrial economy to an information-driven and service-based post-industrial economy (think Mark Z'berg, Larry Paige, Jeff Bezos), whereby the manufacturing jobs moved to countries with vastly cheaper labor forces (principally Asia, where the state does not fund pensions or universal health care, and due to controlling planned economies, can more easily exploit labor). This has left a huge swathe of workers in the mining, manufacturing, and farming industries in America increasingly behind in real earning power. Just look at the map of which states voted for Trump in 2024: the Great Lakes (heavy industry) and the Appalachians and mid-West (mining and farming) voted solidly for Trump.
Second, China has figured out how to game the Bretton Woods system, by producing vastly more products that the Chinese population consumes, thereby flooding world markets with cheaper goods than the U.S or EU can produce. This has led to a) a huge and persistent trade imbalance with China, and b) a huge concentration of foreign hard currencies in the Chinese govt's coffers (the Chinese of course demand payment in 'real' money, not in Chinese currency).
The original Bretton Woods agreement envisaged no enforcement mechanism to correct a large and persistent trade imbalance. It presumed the good will of all participants. Clearly, the system has become unworkable. This is the 1/8th truth which Trump has grasped. Unfortunately, his proposed solution, to re-build the world's financial system according to his own model, is a cure worse than the disease.
Punishing China with trade tariffs will not work. We have already seen why: the Chinese simply retaliate in kind, without changing the fundamental flaws in the system in itself.
Punishing the EU with trade tariffs will not work either, because the EU is not the problem to start with.
Deporting illegal workers from American soil will not work either, because the problem is not that illegal workers have taken away jobs from American citizens; the missing jobs, principally in mining and manufacturing, were 'exported' long ago to Asia, and they are not coming back because American firms will not pay workers a wage competitive enough to do that kind of work any more.
In short, Trump is trying to solve a world economic problem by imposing unilateral 'sanctions' and retreating into isolationism. This will lead to one or the other of two scenarios: a) the rest of the world will cooperate and pass America by, or b) plunge the world economy into the turbulent seas of uncoordinated and piecemeal 'deals' which can be abandoned at the drop of a hat.
The correct solution to the fundamental flaws of Bretton Woods would be to hold another international conference to address the issues, and come to a new and better agreement. This seems, at present, unlikely to happen, as Trump does not understand even the most rudimentary principles of international negotiation.
Nonetheless, I present a link below, with some sensible suggestions for a truly new world order, based on including many nations which are not faring well under the old world order. America, of course, won't warm to it, since it envisages de-pegging the world's currencies from the U.S. dollar, and divesting the U.S. of its prima donna position in the IMF. American 'exceptionalism' will have to give way, if the world economy is to be stabilized for the 21st century. Some more suggestions follow in the article linked below:
https://www.boell.de/en/2024/06/12/bretton-woods-revisited-creating-monetary-and-economic-order-fit-for-the-21st-century
@moonbus saidSome interesting suggestions, but mostly impractical. Here is a summary for those who dont want to read the whole thing [Generated by Perplexity AI]
Trump is right: namely, that there is a grave trade imbalance. However, this is not even a half truth; it is, at best, a 1/8th truth, which, in typical Trump fashion, he inflates, misunderstands, misrepresents, and mis-corrects.
The Bretton Woods agreement from 1944 set out the parameters of the world financial and banking system which has functioned, more or less, but rec ...[text shortened]... /en/2024/06/12/bretton-woods-revisited-creating-monetary-and-economic-order-fit-for-the-21st-century
Key Proposal: A coalition of global institutions calls for a new Bretton Woods Conference to reform the international monetary and financial system, addressing 21st-century challenges like climate change, inequality, and debt crises.
Eight Core Reforms:
Governance Overhaul: Update IMF/World Bank voting shares and leadership selection (end the US-Europe leadership "gentlemen’s agreement"😉 to reflect modern economic realities.
Climate-Proof Safety Nets: Strengthen global financial crisis tools (e.g., IMF emergency funds) to prioritize climate-vulnerable nations and expand regional financial arrangements.
Debt Restructuring Mechanism: Create a UN-led sovereign debt resolution body to ensure fair, transparent treatment of debt crises, with binding participation from all creditors.
Climate Finance Alignment: Halt fossil fuel funding by multilateral banks and align all financial flows with Paris Agreement goals.
Public Development Banks: Expand their role in financing green transitions, supported by MDBs through technical assistance and credit enhancements.
SDR-Centered System: Replace dollar dominance with Special Drawing Rights as the primary global reserve asset, issued regularly to meet liquidity needs.
Capital Flow Regulation: Introduce an international financial transactions tax to curb speculative trading and fund sustainable development.
Global Tax Architecture: Establish a UN tax convention to combat illicit financial flows, implement a minimum corporate tax, and explore a global wealth tax on the top 1%.
Urgency: The current system—rooted in 1944—fails to address climate risks, debt sustainability, and equitable development. A UN-hosted conference is proposed to implement these reforms.
Authors: Experts from SOAS, Institute for Economic Justice, BRICS Policy Center, Boston University, and Heinrich Böll Foundation.
Contact: Sarah Ribbert (Heinrich Böll Foundation).
Focus areas: Climate finance, debt justice, multilateralism, and equitable representation.
@moonbus saidNon-fiat currencies are wonderful because they force discipline on the monetary system. There are never enough 'dollars' to do everything people want to do, and that maintains the currency's value.
Trump is right: namely, that there is a grave trade imbalance. However, this is not even a half truth; it is, at best, a 1/8th truth, which, in typical Trump fashion, he inflates, misunderstands, misrepresents, and mis-corrects.
The Bretton Woods agreement from 1944 set out the parameters of the world financial and banking system which has functioned, more or less, but rec ...[text shortened]... /en/2024/06/12/bretton-woods-revisited-creating-monetary-and-economic-order-fit-for-the-21st-century
When Bretton Woods was enacted, the US dollar was not fiat. It was convertible to gold. Also, from 1934 to 1967 the price of gold was pegged at $35/oz. Other countries sent gold to the US to back the 'world currency.'
BUT, the supply of US dollars was too small to at the same time:
a) give Americans a nice standard of living, exporting from intact factories to the devastated world, AND,
b) re-build that world under the Marshall Plan, AND,
c) provide loans to all the former European colonies who now wanted to develop.
There weren't enough dollars to do all those things. The dollar became over-valued, so, America produced more dollars WITHOUT adding more gold. "Heeeeey, it's all good!"
But doing that slowly made the dollar exchange rate against gold and the dollar exchange rate other 'pegged' foreign currencies unrealistic.
"By 1971, the money supply had increased by 10%.[10] In May 1971, West Germany left the Bretton Woods system, unwilling to sell further Deutsche Mark for dollars.[11] In the following three months, this move strengthened its economy. Simultaneously, the dollar dropped 7.5% against the Deutsche Mark.[11] Other nations began to demand redemption of their dollars for gold. Switzerland redeemed $50 million in July.[11] France acquired $191 million in gold.[11] On August 5, 1971, the U.S. Congress released a report recommending devaluation of the dollar, in an effort to protect the dollar against "foreign price-gougers".[11] Also in August French President Georges Pompidou sent a battleship to New York City to remove France's gold deposits.[12] On August 9, 1971, as the dollar dropped in value against European currencies, Switzerland left the Bretton Woods system.[11] The pressure began to intensify on the United States to leave Bretton Woods. On August 11, Britain requested $3 billion in gold be moved from Fort Knox to the Federal Reserve in New York.[12] By August 15, Nixon declared that there were only 10,000 metric tons of gold remaining, or less than half of the reserves the U.S. once held."
So on August 15, 1971, Nixon closed the gold window, removing the backing of the US dollar by gold.
@Rajk999 saidYes, it is a theoretician’s wish list, which has very little chance of being implemented, practically, on all points. nonetheless, worth considering, as an alternative to Trump‘s isolationism.
Some interesting suggestions, but mostly impractical. Here is a summary for those who dont want to read the whole thing [Generated by Perplexity AI]
Key Proposal: A coalition of global institutions calls for a new Bretton Woods Conference to reform the international monetary and financial system, addressing 21st-century challenges like climate change, inequality, and d ...[text shortened]... .
Focus areas: Climate finance, debt justice, multilateralism, and equitable representation.
@spruce112358 saidA lot of people regretted going off the gold standard, and predicted collapse. They may be right, but delayed by several decades. The currencies we now have are not backed by anything of real value, they are entirely virtual currencies, pegged to a completely virtualized Internet banking system. Currency values are now simply numbers in computers somewhere, not backed by gold or anything else tangible.
Non-fiat currencies are wonderful because they force discipline on the monetary system. There are never enough 'dollars' to do everything people want to do, and that maintains the currency's value.
When Bretton Woods was enacted, the US dollar was not fiat. It was convertible to gold. Also, from 1934 to 1967 the price of gold was pegged at $35/oz. Other countries sent ...[text shortened]...
So on August 15, 1971, Nixon closed the gold window, removing the backing of the US dollar by gold.
@moonbus saidThe idea of limiting currency and by extension economic activity based on how much of a certain shiny metal a country possesses is dumb.
A lot of people regretted going off the gold standard, and predicted collapse. They may be right, but delayed by several decades. The currencies we now have are not backed by anything of real value, they are entirely virtual currencies, pegged to a completely virtualized Internet banking system. Currency values are now simply numbers in computers somewhere, not backed by gold or anything else tangible.
@no1marauder saidThe idea of generating absolutely limitless wealth unrelated to any real product or service provided is also dumb.
The idea of limiting currency and by extension economic activity based on how much of a certain shiny metal a country possesses is dumb.
@no1marauder saidStock options and futures are unlimited imaginary wealth, not related to any real product or service provided. Bitcoins are unlimited imaginary wealth, not related to any real product or service.
Who's in favor of that?
@moonbus saidDon't know much about Bitcoin, but stock prices have some relation to a company's profitability which is based on providing a desired product and/or service.https://www.investopedia.com/articles/basics/04/100804.asp#:~:text=In%20general%2C%20strong%20earnings%20generally,be%20profitable%20in%20the%20future.
Stock options and futures are unlimited imaginary wealth, not related to any real product or service provided. Bitcoins are unlimited imaginary wealth, not related to any real product or service.
@no1marauder saidStock prices are related to a company's perceived profitability. No bank in the world will loan you money if what you intend to do with it is buy stocks.
Don't know much about Bitcoin, but stock prices have some relation to a company's profitability which is based on providing a desired product and/or service.https://www.investopedia.com/articles/basics/04/100804.asp#:~:text=In%20general%2C%20strong%20earnings%20generally,be%20profitable%20in%20the%20future.
Stock options and futures are virtual horse races. You're simply betting that a certain stock price will go up or down at some arbitrary date in the future. This is unrelated to any real product or service provided.
There are other even more abstract investment instruments which experts can't explain to laymen, only AI-robots are trading them between themselves, sometimes triggering cascade effects even the experts do not foresee or understand. This is a realm in which quite literally limitless (but imaginary) wealth can be amassed (and lost) in seconds. It is extraordinarily dangerous that the Trump administration is de-regulating stock trading. I predict a big crash.
@moonbus saidThis is false. Modern money is pegged to an abstraction of real wealth - the value of goods and services in that country. That’s what it means for a currency to be “strong” or “weak”.
A lot of people regretted going off the gold standard, and predicted collapse. They may be right, but delayed by several decades. The currencies we now have are not backed by anything of real value, they are entirely virtual currencies, pegged to a completely virtualized Internet banking system. Currency values are now simply numbers in computers somewhere, not backed by gold or anything else tangible.
@moonbus saidStock options and futures are not currencies.
Stock options and futures are unlimited imaginary wealth, not related to any real product or service provided. Bitcoins are unlimited imaginary wealth, not related to any real product or service.