What is a Surplus Recycling Mechanism? An idea going back to Bretton Woods

09/02/2011 by

In yesterday’s post I claimed that Mrs Merkel is right on almost everything except that she seems unaware of the fact that her own wishes will only come true if our currency union is equipped with something that I called a Surplus Recycling Mechanism (SRM). What is an SRM? And why am I saying that it is sine qua non in a currency union?The answers lie in the debates that took place during the Bretton Woods conference. The very debates which led, eventually, to the establishment of what I refer to as the postwar Global Plan. In summary, from the late 1940s to 1971, the United States actively played the role of SRM, recycling wilfully its own surpluses to Europe and Japan. No market mechanism could do this. It was a mechanism that was run, administered and finetuned constantly by skilled officials. Of course, by the 1960s it run out of steam, as the USA turned into a deficit country. From that moment onwards the Global Plan‘s days were numbered. And when it crashed on 15th August 1971, the era of the Global Minotaur began, giving rise to another type of SRM. But more on this in future posts. Today I am posting here Chapter 3 of my forthcoming Global Minotaur, as a contribution to our discussion of what the SRM is and how it worked, at a global scale, from the late 1940s to 1971. In future posts I shall tell the rest of my story until we reach the point when the suggestion is fully spelled out  that Mrs Merkel would be right if only she understood that an SRM is necessary within the eurozone. For now, all comments are welcome. To download the chapter, click here : Chapter 3 – The Global Plan

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