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[...] combining high returns to financial capital (requiring high interest rates) with high profit rates for American businesses (requiring low interest rates) was never going to be easy, and Volcker knew this. It was a combination that could only come about if another way of providing that profit could be found. And one way to do that would be to reduce wages. [...]
[...] if 'the weak suffer what they must', their very capacity, let alone willingness, to reproduce the power of the strong declines precipitiously.
on why Volcker would have opted to fix Bretton Woods (if he had the choice)
put another way, by Marquis de Condorcet later on the page, "real power lies not with the oppressors but with the oppressed" (though it's a bit misleading)
[...] unlike in the late 1960s, German inflation was less of at threat with Volcker on the loose. The American vacuum cleaner, powered by Volcker's high interest rates, could now be counted upon to suck the fresh Deutsche Marks in, preventing them from making their way immediately from France back into Germany. [...]
think more about why
[...] The more US deficits grew, the greater the global Minotaur's appetite for Europe and Asia's capital. Its truly global significance was due to its role in recycling national circuits (profits, savings, surplus money) through the international circuits that Wall Street had established. It kept the gleaming German factories busy. It gobbled up everything produced in Japan and later in China. And, to complete the circle, the foreign (or American) owners of these distant factories sent their profits, their cash, to Wall Street--a modern tribute to the global Minotaur.
[...] The gold standard was underpinned by the idea of depoliticizing money by linking its quantity to the amount of gold--a metal that politicians could not conjure up from thin air since it was provided exogenously by nature. Today the same fantasy of apolitical money can be foudn not just in the construction of a European central bank that is answerable to no parliament [...] but also in newfound digital currencies like Bitcoin, whose selling point is the absence of political authority over them. Margaret Thatcher's precious point was that controlling interest rates and the supply of money is a quintessentially political activity which, if removed from the purview of a democratically elected parliament, would occasion a steady descent into authoritarianism.
[...] France's treasury director at the time, a certain Jean-Claude Trichet, expressed the French authorities' hubris admirably. In a bid to refute the plain truth that the Deutsche Mark was the anchor keeping the EMS-ERM system grounded, he denied the dominance of the German currency with the extraordinary statement that 'the anchor of the [EMS] system is the system itself'.
Incapable of grasping the finer aspects of French postmodern sophistry, Bundesbank officials were aghast. [...]
this is actually so funny
John Major, Britain's prime minister [...] committed his government to shunning 'the soft option, the devaluer's option that would be a betrayal of our future and our children's future'. It was the signal speculators needed, with George Soros famously ahead of the pack, to take the British government to the cleaner's: a once-in-a-century opportunity to profit from a commitment to an exchange rate with the Deutsche Mark that the Bundesbank had signalled it would not defend. [...]
I vaguely remember reading a long-form journalistic piece about it several years back, but at the time I didn't know much about the history of the European Union or anything so it's cool to revisit it with that context in mind
The result was that German workers, as their share of their employers' profits fell, could not afford the goods they produced. Deprived of domestic demand, surplus German products thus flowed to places like Ireland, Greece and Spain, where demand for them was supported by the loans Franz and his Frankfurt banker colleagues, dipping into the German corporate profit glut, had shifted to Europe's periphery. The export of German goods and German profits to the rest of the eurozone created debt-fuelled annual growth of 5 per cent in Greece and Ireland [...]
result of the Hartz reforms. German banks were loaning money to consumers in the periphery (interest rate arbitrage basically)
But this was not a bailout. Greece was never bailed out. [...] Greece's bailout, then Ireland's, then Portugal's, then Spain's primarily rescue packages for French and German banks.
The idea is simple: the central bank buys from commercial banks other people's debts. Who are these 'other people'? They can be families that owe mortgages to the bank, corporations, or even a government that has sold bonds to the bank. In exchange for these debts and the stream of income they produce, the central bank deposits dollars or euros in an account the commercial bank keeps at the central bank. Where does the central bank find the money? From thin air, is the answer: they are just numbers that the central bank conjures up and adds to the commercial bank's account. Why do this? In the hopes that the commercial bank will use this money by lending it to businesses wishing to invest and to families wanting to buy houses, cars, gadgets and so on. If this happens, economic activity will rise again as liquidity sets in. [...]
[...]
To cut a long story short, a great deal of believing must occur before QE delivers on its promise to boost the real economy. [...] banks tend to lend the money conjured up by the central bank not to other banks or to Jack and Jill but to companies. Except that these companies do not invest the borrowed money in machinery and workers, fearful that the demand will not be there for extra output produced. What they do is to buy back their own shares in the stock market in order to increase their price and collect a nice bonus for having 'added value to the company'. While this process does boost, to some extent, upmarket house prices and demand for luxuries, the only genuine beneficiary is gross inequality.