As I stated in one of my posts at: MacroMouse and in thorough agreement with you Edward, "We have never been here before." Due to the vast imbalances in global ppp's, wages, debts, trade, wealth, exchange rates, etc., which have evolved since the collapse of the Bretton Woods System in 1971-`73, we face the most serious challenge since, oh who knows when, forever. So what would I do with the international financial architecture? If enough serious minds are willing to admit something needs to be done, then there are definately several answers.
The goal, of course, is to rebalance the entire global system. How? Well, many forms of external exchange clearing have been put forth since Plato first advocated it, though none overly appeal to me or many others, as suggested - they reduce too much autonomy. Therefore, I suggest several different forms of conventional exchange clearing and several unconventional forms of internal exchange clearing - which allow a higher degree of local autonomy. I see no other way to otherwise rebalance the massively out of balance system. If we had originally, in 1971, rebuilt the then broken system by making balanced floating exchange the law of the land, we wouldn't be here, but we didn't. Just for the record, we could have made a 10% maximum balance band law the IMF would have been mandated to follow when nation's ppp's drifted out of balance, that they should have been mandated to rebalance, even though we had abandoned the pegged system. A rebalancing framework could have and should have been set up at that time, even if it meant loaning, or using a standby agreement until hostilities ended, the money needed by the U.S. to finish the war, etc. It would have been smarter than destroying the entire system as has nearly happened. There were many ways to rebuild a workable system at the time, it was just the acrimony over the war that prevented such a wise course. I mention this for background on what now must be done.
I have only recently come across enough information and empirical evolution to possibly offer a few new and different answers. I am no where near ready, but I can set the framework. At the outset, moral hazard must be guarded against most in the workings of any new system. As Alfred Marshall suggested, we could use his units of purchasing power as a solid standard of a new architecture. I suggest a very large basket[20% of GDP] of commodities, production, goods, and services as the new standard for all nations. This large 20% is required because I further suggest using many forms of derivatives contracts and bond contracts as insurance for the new system of clearing - to satisfy the large financial interests. I suggest this be a minimal financial computer controlled international clearing architecture - politics removed after implementation. To implement, all capital markets must be either closed[short term] or laws of gradual rebalance must be written into the architecture implementation and evolution. This way all nations can maintain their sovereignty and autonomy more than other already advocated systems. If the laws and computer programs are properly written, the world can evolve over a given timeframe to a new global balance of all thus mentioned markets. Rebalancing is a simple accounting trick if enough financing is forthcoming, to do so. It will take much new IMF financing, but the rebalancing will recreate so much new credit productivity, it will pay itself back over time just as the massive public financing of global WWII did.
There is also internal exchange clearing, a non-conventional system, that I have written George Monbiot about. There are several of these variations, also, but for now I will enter my e-mail to George:
Earlier today I came across an article of yours about a meeting, to come up with an alternative to capitalism other than the other failed system - totalitarianism. I'd like to make a suggestion that there is a way to build such an architecture. BTW, you are my favorite author. The system I am talking about is already here, almost but unrecognized, as yet. On the one side we have what I refer to as Minsky's Heinz `57 capitalisms. On the other we have the Heinz `57 totalitarianisms. None of these are satisfactory. Yet, the answer lies somewhere in the middle between the two. BushCo wants to implement an outrageously totally free [for the corporations that is] capitalism. China, on the other hand is moving from totalitarianism toward BushCo's totally free corporate capitalism. If it goes all the way this would be a big mistake, as the perfect mixed market capitalism lies in between.just a start, I have more,
What I'm talking about here is the world has a chance to help China develop the first perfectly balanced mixed economy of public and private enterprise. I use this example as the developed nations will not yet listen to common sense. Now, I know from reading your books and articles you can easily grasp this. If China were to naturally evolve to a state of 20% public enterprise markets and 80% private enterprise markets we would have a chance to witness something truly amazing in economic history, if properly organized at this % mix. As, at this total market mix the 20% public enterprise market could be used to keep inflation/deflation permanently in check throughout the 80% private enterprise market, thus allowing a fiat money system unlimited potential. I mention this about China as it is the only experiment in the world heading toward and most likely to reach this % threshold. It would be a great loss to the world if we do not recognize this once in earth's lifetime chance to grant the world a new path. E=1/5X is a formula for perfect competition capitalism.
The 20% public enterprise mix must be a total % market organization of all production, goods, and services in order to check inflation/deflation throughout the 80% totally free private enterprise side. A tripple entry banking system can be set up to finance. Alfred Marshall, at the turn of the century, mentioned such a similar mix with his units of purchasing power. This is the same thing, so to speak, at a much expanded macro level. If you can actually see this system, which I think you can, you must see the advantages a fiat system would possess when inflation/deflation can be market controlled, it frees the printing press to have free reign to build an unbelievably wealthy, healthy, strong, and viable moral capitalism.
If China were to discover this capitalism key, the rest of the world would be forced to emulate - gladly as debts and taxes would vanish or could be used productively. They most likely will cross the 1/5X threshold sometime in the near future as they are privatizing at a fast rate - almost 50% already. There is no need for them to cross it in disarray as is the case with many of Europe's social democracies and Russia's failed transition. They only need be shown the simple facts. Please dialogue with me to work out the details. The world needs us George.
I wrote three books about this system through the `80's and `90's. Trouble is they are very crude web published material - not enough free time. I am now retired and have the time to finish. My work will be rewritten and republished this winter. My first paper will be 20 to 30 pages long on global credit productivity - a totally new macroeconomic subject.
everyone, dialogue with me,