Bretton Woods 2 is Dead, Long Live Bretton Woods 3?

Abstract

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Contributions in Stock-flow Modeling

“…But as Godley pointed out correctly years ago, fiscal expansion in the US would tend to bring back the 'twin deficits', which he feared would lead to new unsustainable processes. It is in this particular regard that I qualified Godley's results, arguing that low-yielding Treasury debt and dollar leveraging may grant what I elsewhere dubbed 'Bretton Woods 3' arrangements (see Bibow 2009Bibow , 2010a a longer life span than might at first appear.…”

“…It seems to me that, while considering the composition of gross external assets and liabilities and acknowledging the dollar's reserve currency role in his assessments to some degree, Godley failed to fully comprehend the power of what I dubbed 'dollar leveraging' (Bibow 2010a) in explaining the above paradox concerning US's net factor income balance. Also, Godley started from a set of assumptions that may not be appropriate for the issuer of the world's reserve currency, assuming that the interest rate on the debt exceeds GDP growth by a sizeable margin, so that debt sustainability would require a primary surplus (see Godley 1995a, b).…”

The Debate About the Revived Bretton‐woods Regime: A Survey and Extension of the Literature

“…2..Accumulation of US dollar liabilities . Closely related to the previous argument, some authors have maintained that the magnitude of the financial flows required to finance US current‐account deficits will increase at a faster rate than the willingness of the world's central banks and global private investors to accumulate dollar reserves (Roubini and Sester, ; Roubini, ; Hunt, ; Sester, ; Bibow, ). In this connection, Roubini argued that the durability of the Bretton‐Woods II system required a sustained and robust expansion of US domestic demand to absorb the exports of the periphery.…”

“…Roubini () posited that expansionary fiscal and monetary policies in the USA needed to sustain an expansion of domestic demand were underpinning a housing‐market bubble in that country; that author also predicted that the bubble would burst, leading to an economic showdown and driving the exchange rate of the US dollar downward. Wolf () and Bibow () argued that the large US current‐account deficits of the mid‐2000s were unsustainable because a domestic counterpart of those deficits was a build‐up of US household debt, which was being used to finance an unsustainable expansion of private consumption.…”

Economic Policies, Governance and the New Economics

“…Almost all writers, even sympathetic ones, consider a global currency an impractical dream. For example, Bibow (2010) concludes that, …[A]rrangements under which the U.S. dollar would lose its special status as other key countries mature are of course conceivableKeynes's ideas of the early 1940s continue to offer guidance, but absent any such official agreement, a post-dollar standard may still take decades to come about by evolution. (p. 28)…”