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Why the pump priming won't help the financial crisis

By Ken McKay - posted Tuesday, 27 January 2009


That is why we need a new Bretton Woods Agreement to revalue the world’s currencies in order to enable the current account deficit to become manageable and to establish a regime of fixed exchange rates to stabilise the international economy.

Floating exchange rates have made economic policy makers lazy; when economic problems arise too great a reliance has been placed on the market correcting the issue through exchange rate changes. Again the symptoms become treated but the underlying structural issues are not addressed.

What would the new Bretton Woods agreement need to achieve?

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First, a revaluation of the Chinese currency, in exchange the developed world would need to free up agricultural trade and remove the inefficient agricultural subsidies.

A new system of fixing international exchange rates to reduce speculation and regulation of commodity trading particularly in food items to stop speculators in the developed world causing immense harm in the developing nations is also required.

The United States would need to transfer significant proportions of its gold reserves as compensation for the long term restructuring of its current account deficit.

Will the economic policymakers respond accordingly?

Not likely, too much vested interest. So what should you do?

Simple short sell everything because we ain’t seen nothing yet, the real earthquake is around the corner.

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About the Author

Ken McKay is a former Queensland Ministerial Policy Adviser now working in the Queensland Union movement. The views expressed in this article are his views and do not represent the views of past or current employers.

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