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New Financial Order Aims to Minimizes the US Influence

By: Steve Johnson

2/9/2009 - 15 Comments

I have been writing about the weakness of the US currency for quite some time and the increasing likelihood of the global economy moving on to greener currencies.

The last time the world leaders meet to establish a financial order was 1944, at a mountain range called Bretton Woods in New Hampshire.

At the time, the US was in the best financial position in the world and therefore called the shots to setup a postwar financial system.  The plan included the creation of the International Monetary Fund (IMF), the World Bank and a fixed exchange rate built around the US dollar that was linked to gold (until 1971). 

But now that the global economy is unraveling, world leaders are calling for a ‘new Bretton Woods’.

Here is one I read in an article today in Time Magazine

“... Politicians from Beijing to Berlin to Brasília see the current crisis as the product of a messed-up global financial infrastructure dominated by the U.S., and they will soon be pushing for big changes--whether Americans like them or not.

All this will begin to gel on April 2, when the newish international organization known as the G-20--the leaders of 19 of the world's biggest national economies, plus the European Union--meets in London. An unofficial meeting has already taken place, at the World Economic Forum in Davos, Switzerland, where G-20 officials (with the conspicuous exception of those from the U.S.) made speeches, conversed in the halls and gave a sense of the direction in which the world outside the U.S. wants to head.”

 “The global discussion of the financial crisis is strikingly different from the one in the U.S. Here there's still something of a debate over whether the mess is the result of too much government interference in the housing market or too little government regulation of financial markets. In the rest of the world, that's no debate: inadequate and inconsistent financial regulation is uniformly blamed. What's more, a consensus seems to have emerged among the world's finance ministers and central-bank bosses that the chief underlying cause of the crisis was an unbalanced and out-of-control system of global capital flows in which some big-spender countries (namely the U.S.) ran up huge debts while big savers (China and India, for example) hoarded surpluses."

"After the emerging-market currency collapses of the late 1990s, in which IMF aid wasn't much help, the lesson that emerging economies such as China and India took was that they needed to build up gigantic reserves of U.S. dollars to protect their currencies. To build those reserves, they ran big trade surpluses, which were in turn enabled mainly by record trade deficits in the U.S., which were in turn enabled by massive borrowing from around the world. It was an extremely unbalanced financial ballet, and it has now come crashing to the ground."

It you haven’t read my article series on Understanding the Economy, you should because this is almost exactly what I'm been talking about happening as the global economy will eventually lead to a global financial system with power over central banks in four key areas - 1) currency supply, 2) interest rate, 3) banking regulations and 4) asset rating agency authority.

The US has over spent its currency and everyone knows it. World financial leaders are gathering together in agreement to confront the extreme unbalanced trade deficits based on currency protectionism that has brought us to this point in history. These nations have gained a lot of financial strength over the last decade and are now in a position where they no longer need to hold massive reserves to protect their currencies.

They are getting ready to un-peg or un-link the value of their currencies to the dollar, which will instantly give them wealth as the wealth of the US will be transferred to them through their strengthening currencies. The trillions of dollars they have saved and borrowed to the US will be returned to them in the strengthening of their currencies, while the assets of the US will decrease in value to reflect the massive debt that the US owes to the world.  

Welcome to the new financial world order.   

 

This week I participated in several blog carnivals

They did an excellent job and as usual, there are tons of great articles. If you have the time, I highly suggest you skim through this week’s carnivals.

Carnival of Personal Finance 190th edition

Carnival of Money Stories 95th edition

Money Hacks Carnival #50

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