The new Bretton woods moment


Period: 14 – 20 November 2020

Top news story: The main news of recent days (which has gone somewhat beyond the formal framework of the week) has been that the leaders of the major Bretton Woods institutions, including IMF Chief Kristalina Ivanova Georgieva-Kinova and FED Head Jerome Hayden Powell, have begun to say, that the global financial system needs to be reformed. Georgieva even stated that a new Bretton Woods conference was needed.

To illustrate the situation more clearly, let us cite the fragment of the speech of K. Georgieva when Andorra joined the IMF:

«While we look forward to welcoming Andorra as our 190th member, the work of the IMF embodies the values of cooperation and solidarity on which the sisterhood and brotherhood of mankind are based. Today we face a new Bretton Woods moment. A pandemic that has already cost more than a million lives. An economic calamity that will make the world economy 4.4 per cent smaller this year and strip an estimated USD 11 trillion of output by next year. And untold human desperation in the face of huge disruption and rising poverty for the first time in decades. Once again, we face two massive tasks: to fight the crisis today and build a better tomorrow» (taken from the original source)

Of course, Andorra’s role in the world financial system is nil, and the speech that took place a month ago could have been somewhat random. But events of the past week suggest that this is a well-established view that will determine the actions of the world’s financial (dollar) system leaders in the years to come. More strictly, the need to reform the Bretton Woods model, which had not previously been intended for public agenda, has emerged in recent weeks as a key position of global financial governance (see, for example).

We note that the US elections did not play a major role in these processes. In a sense, all more or less increasingly knowledgeable economists and financiers understand that a new US leader, regardless of his personality, will be forced to act in accordance with objective circumstances. No matter what kind of socio-political reforms he will carry out in his own country.


Japan’s GDP in the third quarter increased by 5,0% per quarter after -8.2% in the second quarter. The annual decline decreased from -10,2% to -5,8%:

Japan GDP Annual Growth Rate

Fixed investment continues to decline even quarterly (-3,4% after -4,5%) and is found at the level of spring-summer 2014:

Japan Gross Fixed Capital Formation

Industrial production in Japan in September remained in strong annual loss (-9,0%).

In Russia, the loss increased to its worst in three months (-5,9%).

The Euro Area construction output returned to annual loss in September:

Euro Area Construction Output

The balance of orders in the British industry deteriorated significantly in November:

United Kingdom CBI Industrial Trends Orders

Not surprisingly, the British are depressed again – consumer sentiment has almost returned to the spring 11-year low:

United States NY Empire State Manufacturing Index dropped again in November:

United States NY Empire State Manufacturing Index 

A similar process, albeit on a smaller scale, is taking place in Philadelphia:

United States Philadelphia Fed Manufacturing Index

Sales in the Italian manufacturing sector have fallen again.

Japanese PMI deteriorated in November in both manufacturing and services:

Japan’s CPI is the weakest in 4 years (-0,4% per year) and, without fresh food, in 10 years (-0,7%).

The Euro Area CPI fell 0,3% a year in October – a repeat of its 6-year low:

In China, newly built house price increases have been minimal since 2016:

The volume of credit in Indonesia went into year-on-year loss in October for the first time in 18 years:

Unemployment in Australia in October is the worst in three months. Canada’s private sector employment has been declining for eight consecutive months.

The number of applications for unemployment benefits in the United States has increased, both under the regular programme and for emergency:

United States Initial Jobless Claims

Retail sales in the United States in October grew minimally in six months (+0,3% per month). The annual increase has slowed down:

United States Retail Sales YoY

A similar situation excluding cars:

United States Retail Sales Ex Autos MoM

New car sales in the EU fell 7,8% a year in October, after 3,1% in September.

The Central Bank of China left monetary policy unchanged.

The Central Bank of Indonesia unexpectedly cut rates by 0,25% to a record low 3,75%.

The Central Bank of Turkey sharply (4,75%) raised the rate to 15,00%; and promised to supply liquidity through weekly repo. This caused the Turkish Lira to grow sharply:

The Central Bank of South Africa has left everything intact and made it clear that rate cuts are unlikely, and increases are real in the second half of 2021.

Summary: Some of the findings were already made at the beginning of the review: all relevant leaders of serious institutions have begun to understand that it is not possible to stop objective economic processes by purely political means. In the book «Reminiscences of the Future», representing the theoretical description of the economic model on which the Khazin Foundation relies in its work (English translation), the main reason for this phenomenon is described in detail. It consists of too large a share of total credit in relation to GDP.
Modelling showed that when the credit ratio becomes redundant, monetary and financial mechanisms cease to work as instruments of economic stimulus. Thus, the efficiency of the Bretton Woods institutions has fallen to critical, and the main task of the political authorities becomes the need to radically reduce the «credit overhang». Even more precisely: the recession will happen automatically, as numerous experts already predict, using various vivid images such as «collapse», «catastrophe», «collapse of markets» and so on.
But the political decisions in this process can be different. Objectively (as M. Khazin said at the Dartmouth Conference in Dayton, Ohio on 5 November 2014), there are two policy scenarios for this crisis: to support either the real sector or the financial sector. And the difference between Trump and Biden’s methods is this: Trump saves the real US economy in a crisis, and Biden saves the global financial (Bretton Woods, dollar) system.
Of course, in the «pure» form it is impossible to implement these scenarios, but the accents will appear quite clearly. Until recently, this distinction was tried to hide from the public, but in recent days it has become impossible. And it is within this dichotomy that any political pronouncements by the leaders of the major countries, especially the US, should be taken into account.


Leave a comment