 |
Business | Industries | Finance | Tax |
| Index: > A B C D E F G H I J K L M N O P Q R S T U V W X Y Z |
|
|||||
| First Prev [ 1 2 3 4 5 6 7 8 9 ] Next Last |
In 1945, Roosevelt and Churchill prepared the postwar era by negotiating with Joseph Stalin at Yalta about respective zones of influence; this same year U.S. and Soviet troops joined together in Germany and confronted one another in Korea.
Harry Dexter White succeeded in getting the Soviet Union to participate in the Bretton Woods conference in 1944, but his goal was frustrated when the Soviet Union would not join the IMF. In the past, the reasons why the Soviet Union chose not to subscribe to the articles by December 1945 have been the subject of speculation. But since of the release of relevant Soviet archives, it is now clear that the Soviet calculation was based on the behavior of the parties that had actually expressed their assent to the Bretton Woods Agreements. The extended debates about ratification that had taken place both in the UK and the U.S. were read in Moscow as evidence of the quick disintegration of the wartime alliance.
Facing the Soviet Union, whose power had also strengthened and whose territorial influence had expanded, the United States assumed the role of leader of the capitalist camp. The rise of the postwar United States as the world's leading industrial, monetary, and military power was rooted in the impact of the U.S. military victory, in the instability of the national states in postwar Europe, and the wartime devastation of the Soviet economy.
Thus, American power had to be used to rebuild U.S.-friendly regimes and free market capitalism, especially in Europe, and prevent Soviet-backed regimes from spreading across the war-torn countries of Europe. The conflict, however, was that European nations, which still nominally held large colonial possessions overseas, could not simultaneously rebuild their own economies, and hold on to their colonial empires. The fiscal discipline imposed by Bretton Woods made the U.S. the only nation that could afford large-scale foreign deployments within the Western alliance. Over the course of the late 1940s and early 1950s, the United Kingdom and France were gradually forced to accept abandoning colonial outposts, which would in the late 1950s and early 1960s, lead to revolt and finally independence for most of their empires.
The price paid for this position—especially in the Cold War climate—was the militarization of the U.S. economy, what U.S. President Dwight D. Eisenhower called the "armament industry" and "the military-industrial complex," and the related notion that the U.S. should assume a protective role in what was referred to as "the free world." Looking back at the origins of the Cold War, in a paper that Harry Dexter White was writing at the time of his death, he lamented the "tensions between certain of the major powers" that had brought "almost catastrophic" consequences, including an "acute lack of confidence in continued political stability and the crippling fear of war on a scale unprecedented and almost unimaginable in its destructive potentialities." [1]
Despite the economic effort imposed by such a policy, being at the center of the international market gave the U.S. unprecedented freedom of action in pursuing its foreign affairs goals. Because of the surplus in the balance of trade, it was possible to keep armies abroad and to invest outside the United States. Because other nations could not sustain foreign deployments, U.S. power to decide why, when and how to intervene in global crisis increased. The dollar continued to function as a compass to guide the health of the world economy, and exporting to the U.S. became the primary economic goal of developing or redeveloping economies. This arrangement came to be referred to as the Pax Americana, in analogy to the Pax Britannica of the late nineteenth century. (See Globalism)
After the end of World War II, the U.S. held $26 Billion in gold reserves, of an estimated total of $40 Billion (approx 60%). As world trade increased rapidly through the 1950s, the size of the gold base increased by only a few percent. In 1958, the U.S. trade deficit swung negative. The first U.S. response to the crisis was in the late 1950s when the Eisenhower administration placed import quotas on oil and other restrictions on trade outflows. More drastic measures were proposed, but not acted on. However, with a mounting recession that began in 1959, this response alone was not sustainable. In 1960 with Kennedy's election a decade long effort to maintain the Bretton Woods at the $35/ounce price was begun.
The design of the Bretton Woods System was that only nations could enforce gold convertibility on the anchor currency - the United States. Gold convertibility enforcement was not required, but instead, allowed. Nations could forgo converting dollars to gold, and instead hold dollars. Rather than full convertibillity, it provided a fixed price for sales between central banks. However, there was still an open gold market, 80% of which was traded through London, which issued a morning "gold fix," which was the price of gold on the open market. For the Bretton Woods system to remain workable, it would either have to alter the peg of the dollar to gold, or it would have to maintain the free market price for gold near the $35 per ounce official price. The greater the gap between free market gold prices and central bank gold prices, the greater the temptation to deal with internal economic issues by buying gold at the Bretton Woods price and selling it on the open market.
The first effort was the creation of the "London Gold Pool." The theory of the pool was that spikes in the free market price of gold, set by the "morning gold fix" in London, could be controlled by having a pool of gold to sell on the open market, which would then be recovered when the price of gold dropped. Gold price spiked in response to events such as the Cuban Missile Crisis, and other smaller events, to as high as $40/ounce. The Kennedy administration began drafting a radical change of the tax system in order to spur more productive capacity, and thus encourage exports. This would culminate with his tax cut program of 1963, designed to maintain the $35 peg.
In 1967 there was an attack on the pound, and a run on gold in the "sterling area," and on November 17, 1967, the British government was forced to devalue the pound. U.S. President Lyndon Baines Johnson was faced with a brutal choice, either he could institute protectionist measures, including travel taxes, export subsidies and slashing the budget - or he could accept the risk of a "run on gold" and the dollar. From Johnson's perspective: "The world supply of gold is insufficient to make the present system workable—particularly as the use of the dollar as a reserve currency is essential to create the required international liquidity to sustain world trade and growth." He believed that the priorities of the United States were correct, and that, while there were internal tensions in the Western alliance, that turning away from open trade would be more costly, economically and politically, than it was worth: "Our role of world leadership in a political and military sense is the only reason for our current embarrassment in an economic sense on the one hand and on the other the correction of the economic embarrassment under present monetary systems will result in an untenable position economically for our allies."
While West Germany agreed not to purchase gold from the U.S., and agreed to hold dollars instead, the pressure on both the Dollar and the Pound Sterling continued. In January 1968 Johnson imposed a series of measures designed to end gold outflow, and to increase American exports. However, to no avail: on March 17, 1968, there was a run on gold, the London Gold Pool was dissolved, and a series of meetings began to rescue or reform the system as it existed. However, as long as the U.S. commitments to foreign deployment continued, particularly to Western Europe, there was little that could be done to maintain the gold peg.
The attempt to maintain that peg collapsed in November 1968, and a new policy program was attempted: to convert Bretton Woods to a system where the enforcement mechanism floated by some means, which would be set by either fiat, or by a restriction to honor foreign accounts.
| Politics | Business | Finance |
 |
 |
 |
|