Ken
I agree that we need a replacement for Bretton Woods, but not what you propose as a replacement. But that good because we need to discuss the issues without getting into dogma, and hopefully a solution will emerge..
At this stage I favour a 'Bancor' world currency style solution as proposed by Keynes.
But before we get to that can we get clear on what the problem is?
As I see it we have a real economy that makes things and does work. In order to smooth the workings of the real economy we have a financial sector. The real economy is the engine, the financial sector the lubricant.
But as soon as greed comes in the financial sector starts driving the real economy, and sooner or later the real economy is driven too hard and it breaks.
There are many systems that could work provided that the real economy remains the dominant factor, and the financial sector remains subservient.
The financial sector must facilitate, not drive.
That is what I would look for in a replacement for Bretton Woods.

I reckon Davity is spot on about the financial system being a lubricant, and not the real economy.
At the moment it is a parasite on the body of the real economy.
After sucking the profits from the economy for the last decade the host has nearly ran out of blood.
I don't mind the authors plan, but it has no chance of taking off. The folks to blame have not been held to account yet! Until they recognise the crime and stop the criminals (instead of re-funding them!) they will once again set up the system to funnel others' wealth to themselves. The current government efforts to prop-up unsustainable and unproductive industries is shocking and culpable.
Profiteers who produce nothing are killing us: the idiot "leaders" who fund them are preposterous.

BTW. One of the few authors to pick up on the pseudo-money supply issue.
Q. Why did governments allow a "blackmarket" fiat money supply to be created?
A. Because they were corrupt and/or incompetant.
This is why I was so annoyed that folks thought Howard/Costello were "good economic managers". This is pure rubbish.
They were lucky enough to be "in" when their neo-con mates over in USA created *artificial* wealth, which we shared in. The banks that have made record profits are now reliant on Government guarantees and *Billions* in RBA liquidity. We, the taxpayer have subsidised the million dollar bonuses and ridiculous salaries of these Ponzi scheme masters.
Once again, the big end of town relies on the middle income earner to bail them out. Trickle down economics is nothing but a scam! (which is why they are defending it vigorously at the moment!)
Folks who understand wealth, as distinct from finance knew quite well what was going on when factories and farms found it tougher and tougher. "Good economic management" was far from the reality of the Howard era. "Blatant greed" and "faux dollars" would be more like it.

You state "If we look at the recent financial crisis, its real root cause is that the private financial institutions have created a “blackmarket” fiat monetary system via the creation of derivatives notionally linked to the residential property market in the United States."

The flaw is that the US government, during a spate of liberal largess in the last 2 years of Clinton's presidency, determined that in addition to the American rights of life, liberty and the pursuit of happiness should be added the right of home ownership. And to that end the congressional overseers of FreddyMac and FannyMae strongly encouraged these 2nd tier mortgage acquirers and packagers to lower their acceptance criteria for home mortgages thus creating the large category of sub-prime mortgages. Since no investment house would buy these mortgages if they were packaged up in large identifiable blocks FreddieMac and FannieMae mixed in a liberal sprinkling of higher quality mortgages that would meet the normal investment criteria of the wholesale mortgage investment trade. 2 years into the Bush Administration the the president tried to stop this foolishness but was overruled by the Democrat controlled congress.

When the sub-prime mortgages started defaulting, because the mortgagees could not afford what they had signed up for, the default rate in the large blocks of mortgages began to skyrocket eliminating the investment safety factor once the mantra of these safe investments for retirees. This is where the wheels fell off due to the government intervention in the "free market" of home mortgages. This intervention caused the housing boom and subsequent bursting bubble because everyone (thought) they could afford a home with lowered mortgage qualification.

There are many other examples of government intervention in the free market through out history- notably the "recession we had to have". In some cases the intervention is good - for example the requirement for short selling on an up tick. But these types of intervention are usually by highly skilled gov't employees - not politicians.

Now, the author wants to put a whole lot more government political intervention into the free market

In the gentleman’s article he speaks of a tri-metallic standard by which currencies will be fixed against one another (dangerous) and furthermore he lazily suggests an economic security council (absurd). On the tri-metallic standard: the 'tri' metals referred to are finite resources. Does anybody see the potential issue in having an international monetary system dependant on an abundance of preciousness? And additionally a monetary/economic system determined by and intrinsically requiring inflation? Does this proposed monetary system which is the most important system internationally, and pales real markets (domestic and otherwise) in significance - imply a no growth future? There are already conflicts occurring namely Iraq where maybe conspiratorially the accessing a finite resource (oil) was cause for invasion (with its myriad catastrophic consequences). Basing a new international monetary system on a neo Bretton Woods (a deconstructed and now obscure) framework would be regressive. The author is more intelligent than I for at least he has a proposition.
Secondly the Economic Security Council with its permanent Council members would ensure the maintenance of a western hegemony. Would it not be appropriate that the fabric of any new international system (economic, military, and/or a new UN) be truly democratic? The world goods wise, monetarily, and most importantly societally has changed and morphed beyond the wildest comprehension of the thinkers that spawned the industrial revolution. Our Anglo philosophers and politicians to this point economically have eschewed serious consideration of alternate models. Now is the time, now is the time to leave our anthro-centric hats at the door and reflect upon notions of potential future

I agree with the author; We need a new international financial agreement based largely on what Keynes had in mind for Bretton Woods. The original Bretton Woods Agreement was doomed once the USA passed domestic peek oil production in 1973 and the Basle Agreements really didn't recognize the problems.
In July 1999 I wrote the following as part of a letter to The Bulletin about an article titled, “Old Mother Hubbard.”
The world really is upside down when many of the worlds leaders think it is reasonable for the largest and most prosperous economy to be seen as the consumer of last resort.
We are failing to clearly distinguish between various types of capital and what I consider to be pseudo capital. The longest lasting real capital is agricultural land whether it is growing crops meat or timber and all it demands is careful and adequate maintenance. A second class of real capital are depletable resources such as coal, oil and other minerals. If any country wastes or exports these items to support current consumption it is robbing it’s future generations. This leads to the pseudo capital. America is consuming, for example, Arabian oil (a real asset), paying for it by creating bank balances in American banks for Arab princes and claiming that these balances can be on lent as if they were real capital.
Adam Smith was adamant that capital should not be allowed to move across borders. Politicians need to institute a different exchange system for genuine international trade. This could be based on a composite international exchange currency instead of the ridiculous reliance on the American dollar and the USA’s unwillingness to control its money supply and the fictitious savings, in international trade terms, of its professional and business class.
Everyone who believes that economic management is chiefly concerned with improving the well being of the human race needs to remember, every day, section 6 of chapter ten of the General Theory of Lord Keynes.

Mike Keyter makes the comment that economics based on scarcity leads to war, however it is obvious he is not a student of history.
Long expensive modern wars cannot be funded by anything but a fiat monetary system.
The US went on to fiat monetary system during the civil war because the bimetallic monetary system (at the time) would not have provided sufficient funds. The Vietnam conflict triggered the need for the US to leave the Gold Standard.
I am not suggesting that wars would not occur but the whole power dynamic would change. The hawks would not only have to out argue the doves but the bankers, as to engage in major conflicts would require the unwinding of the international trade institutional frameworks. The creation of a cooperative international monetary system will beget greater international cooperation in diplomacy out of necessity.
Also he assume growth requires growth of money supply. It is obvious he does not understand the dominance of the US in the IMF and World Bank otherwise he would not have attacked the formation of a body that involves developing nations and effectively gives them equal economic power to the western economic powers.

Slasher,

I argued without much detail that a bi or tri metallic standard is deficient in its ability to fund when national interest (the prevailing interest) requires money for its purposes. You agree with this point when you state 'Long expensive modern wars cannot be funded by anything but a fiat monetary system'. May I also add here that long expensive 'anything’s' can't be funded by anything other than a fiat monetary system. We currently have a form of a fiat monetary system which I believe you support the idea of and the below is taken from Wikipedia for expediency to make my point:

http://en.wikipedia.org/wiki/Fiat_currency

I don't have a strong opinion on what form a new monetary system should take only for the reason that I can't see the current financial system changing anytime soon. Those darn vested interests…

Slasher, I'm well aware of the members of the ‘Washington Consensus’ and the imperialist tendencies those institutions have. I stated that any international monetary cooperative should be 'truly democratic' - so I don't see how the proposed cooperative in the article mimicking (from my interpretation) the current UN Security Council model could afford national equality - with ‘permanent members’ it maintains structurally a power imbalance.

To the point of growth requiring credit growth (and I ask an economist to disagree here) - credit growth has consistently exceeded nominal GDP growth, and higher debt levels to GDP ratios have also been the trend. I loosely say that this is a historical fact for the last 150 years or so.

Regards MATT

that was 50 years not 150 years

Ken

You keep claiming to refute the Austrian school of economics theory of money and credit, but it is obvious from reading what you have written that you have not read it, do not understand it, and have not refuted it.

You haven't read any original sources of Austrian economics, have you? Please answer this question.

The arguments you have put forward in this article were refuted by Ludwig von Mises in The Theory of Money and Credit 1912, and in Human Action 1948.

You can also find out why what you are saying is wrong in Murray Rothbard's What Has Government Done to Our Money? Put simply, you don't know what you are talking about. Ignorance by itself is no crime; but loudly persisting in erroneous opinions while not bothering to learn the relevant economics is.

Go ahead: refute Austrian theory, if you can. But spare us your intellectual laziness or dishonesty.

What you are in essence suggesting is nothing but a vast governmental attempt at price fixing. Like Bretton Woods, these schemes don't work, and are the occasion of vast rackets of legal theft. It is characteristic of an unfalisfiable, and therefore irrational belief system, that the more it is disproved, the more its adherents claims that fact as evidence that more of the same is the only cure. Governmental control of the money supply is in a direct conflict of interests with the rest of the population, and has a history of nothing but fraud and abuse on a massive scale. You do not address these issues, and simply argue by magic teapot economics, assuming a quantity x of superior knowledge, goodness and capacity in government that is not reality-based.

I stongly suspect Dr McKay harbours another agenda whilst spruiking his tongue in cheek " basic income " doctrine. Ever an opportunist: "..the real advantage..a healthier population which could increase production of more tradable goods etc ". How disingenuous when so many are unemployed and the Education system rewards those who wag school but are induced to progress to grade twelve just to prove to employers their abundant latent talents. Cooking the books to window dress to the World how educated we are is a sham practiced by every Academic Institution in Oz. Parents shun Govt schools to ensure their siblings are enrolled in prodigious private schools, costing a mint, deluded OP scores are a guarantee to University and a successful career. Employers are aghast at the ignorance of basic reading and writing skills of high achievers churned out by a flawed system.

Our naked Emperor, flushed with success for his economic nous in placating the chutzpah pensioners and welfare mums with his $ 10.4 B stimulus handout, is ramping up the stakes to $ 42 B cognizant his largess will leave a ' black hole ' deficit of $ 200 B future generations will be burdened with. Despite the hype and rhetoric, his Plan B stimulus will fall short in stemming the haemorrhage Aust economy is dogged with. The recession, commodity prices, faltering dollar, and lack of consumer confidence is a sure sign we have arrived at Keating's prophetic " banana and arse end of the World republic ". The May Budget will most certainly include provisions for further injections of public funds to appease an unsatiable appetite, and immortalise Kevin as Oz's greatest spend thrift PM, in our short history.

Deficits have dogged Aust ever since the end of WWII. We have spent more then we earn. Our imports have, except for two years, far exceeded our exports. With Labor at the helm over $ 100 B deficit accrued. It took Costello a decade to redeem this impost, and to create a $ 20 B surplus which was indecently frittered away in just two months. What does it

about our economic management style ? In reality 8.8 % of GDP is a whopping burden most OECD Nations would find untenable.

Narcissist Kev, always the populist is an economic charlatan with no street credibility, mush less appeal for ' battling families ' he so ardently champions. His latest give away $ 950 per child for dual incomes earning < $ 150,000 is a bit rich. It's rewarding the upper echelons of society who don't need handouts. Farmers are gratuitously given $ 950 'hardship'bonuses per person irrespective of their wealth and property size. Divisive pandering to the Nationals. For the States, pumping $ 650 M to spend as they please, preferably to shore up support in marginal seats as an election gambit. Every Oz school even the prodigious sacretarian sector will receive $ 200,000. Coupled with 500 additional science labs and language facilities. As a sweetener, he's giving $ 1600 for every household for insulation and solar panels even to landlords with investment properties. Small business are bestowed tax breaks of 33% on computers, cash registers etc.The entire stimulus plan will not only send the Nation into the red, exacerbate the inflation bogie, lead to further retrenchments and ultimately generate the kind of angst McKay eluded to.

Turnbull's Coalition is vehemently opposed to this gargantuan hoax which was insidiously rushed through Parliment in late night, early morning sittings. Together with the Independents, yesterday torpedoed the Bill, sending Kevy, no doubt into paroxyms of pique fury.

In a nutshell, the nude imposter and his cohorts will have to rehash their package to suit the occasion. We have a Global recession, times are tough with many struggling to cope. Unemployment is rife and worsening. The Business sector is running scared. The Banks are reluctant to lend, property value have plummeted. The comparisons drawn from the 30's Depression is dawning on some,and the vast majority of Aust have in one way or another reined in their credit, expenditure to suit the times.

At the end of the Day, who is outrageously out of step and living in a make belief World ?

ah love the austrian school, dogma and bigotry. fundamental assumption is that left alone markets ensure through price mechanism that supply and demand will form a unique equilibria in the economy and magically assume efficient allocation of resources, glory be to god.
however see below in dealing with general equilibrium some fundamental mathematical principles apply.
In mathematical terms the number of equations is equal to the number of individual excess demand functions which in turn equals the number of prices to be solved for. By Walras' law if all but one of the excess demands is zero then the last one has to be zero as well. This means that there is one redundant equation and we can normalize one of the prices or a combination of all prices (in other words, only relative prices are determined, not the absolute price level). Having done this, the number of equations equals the number of unknowns and we have a determinate system. However, because the equations are non-linear there is no guarantee of a unique solution. Furthermore, even though reasonable assumptions can guarantee that the individual demand functions are well behaved, these assumptions do not guarantee that the aggregate demand is well behaved as well.

in simple terms unless all demand functions for all markets are linear there is no guarantee of a unique equilibrium point. Real world is that there can be differing equilibrium points, thus different prices to clear markets, thus non-market intervention can lead to a more beneficial outcome.
sorry i forgot the austrian believe in the flat earth and believe mathematics has no place in economics

quite simply it is possible for some goods to be have a linear supply/demand curve and others to be parabolic in shape if the parabola does not intersect the linear function then no equilibria for whole economy can occur.

similar to current situation where nominal negative interests rates are required, as this is not possible market cannot create an equilibrium point

"thus different prices to clear markets, thus non-market intervention can lead to a more beneficial outcome."

Assuming what you say is true, then how is the information which is not available to the market going to be available to the non-market interventionist ie bureaucrat? Where is he going to get it from? How will he know what the curve is?

How will he know what the equilibrium point is?

Even if he knows it, by definition, that will be the point of *inaction*, won't it? It will be the point at which no-one has anything to gain from taking any action? So the point of the political intervention in respect to the equilibrium will be?

In comparing points on a curve, what is the unit of quantity that is being measured? How do you know it is constant?

All the snivelling, misunderstanding and misrepresentations are not refutations of Austrian theory.

ah austrians got to love they debating skills and intellectual firepower , stumped by simple mathematics.

pls answer why did business cycles go thru boom/busts prior to creation of reserve banks and the monetary system was on full gold standard as advocated by the Austrians?

pls see below

Why abandon floating exchange rates and revert to fixed exchange rates?

To answer this question it is necessary to first understand why exchange rates exists in the first place. Quite simply as different nations have different currencies for trade to occur it is necessary to have the ability to assess the relative value of differing currencies. In ideal situations after currency conversion the same units of a nation’s currency should enable the purchase of equivalent goods and services in the foreign nation as what could be purchased domestically.

Now all we have to do is look at the economist's Big Mac index to see how floating currencies divert from the ideal situation. The Aussie dollar compared to the actual exchange rate for $US is undervalued by 38%, the Euro against the $US is overvalued by 24%, the Swiss Franc against the $US is overvalued by 58% and the British pound is undervalued by 7%.

price clearing works doesn't it.
for price clearing to work in the current crisis we need to have negative nominal interest rates.
the austrians are probably the only people who would defend Hoover's inaction in the great depression

Slasher what you are saying is not even grammatical, let alone logical.

You have not yet established that what you are saying makes sense. What is the unit which the mathematics is measuring and how do you know it is constant? Answer?

(I know that you can't answer the questions I have asked you without self-contradiction or absurdity. And you Ken, I know why you didn't answer the questions I asked you in our previous discussion. It's because you can't. How do I know that? Because I got the questions from a theory that refutes you. If you could have answered them, you would.)

Have the intellectual honesty to admit it. Either that, or answer the questions.

Hey Slasher. What unit is the mathematics measuring? How do you know it is constant? Answer please?

So what are the answers to my questions?

As to the explanation of the business cycle before the existence of reserve banks, read 'What Has Government Done to our Money?: by Murray Rothbard.

Hey Slasher. What unit is the mathematics measuring? How do you know it is constant? Answer please?

You are merely displaying your ignorance of monetary history and theory.

The fact is this. The Austrian theory of economics has refuted you and the author. *After* you have understood what the argument is, and *after* you can correctly represent it, and *after* you have refuted it and *not before*, you will be in the position you are ignorantly and wrongly presuming to be in now.

The very fact that you lead with misrepresentations, and then when called on it, you fall back to evasion and a display of ignorance, just shows the intellectual standards that satisfy you.

What gets me about the critics of the Austrian school is that you don't seem care that you have been refuted. And then you've got the gall to accuse others of dogma!

Hey Slasher. What unit is the mathematics measuring? How do you know it is constant? Answer please?