In a place called Bretton Woods, New Hampshire, the Allies met in 1944 to plan what the world would look like once WWII was over. Victory was not assured, but it was clear that the cost of defeating Hitler would be devastating at best. The goal of this conference was to devise how everyone would work together to prevent what everyone saw as the root problem of relentless war in Europe – economic Depression accelerated by national competition. The system of currency exchanges was only partially successful, but the conference identified the need for the Marshall Plan, the IMF, and the World Bank. Our modern financial world dates to this time.
Something like the Bretton Woods Conference is going to be convened in an effort to prevent the most recent crisis from happening again. We don’t appear to have slipped into a Depression, but we came awfully close. What kind of currency system will be appropriate? What regulation of markets needs to be common to all of the developed world? These and many other questions that put the entire world financial system up for grabs are about to be debated. It will be the first test of President Obama on an international stage.
I like to predict what I see happening in world financial markets for one simple reason: I can. It’s not that I’m psychic or particularly smart that lets me do it. What fascinates me is the incredible gap between ordinary people that rely on things and the professionals that make these systems work in a predictable, mechanical fashion. The truth is that these systems are run by people who have their own motives and shortcomings. If you can get yourself into their world for a little bit, or even just stare at the deep chasm between their world and ours you can often see where we are talking and acting completely past each other. That’s a sign that things have gotten terribly out of balance and something that seems unpredictable is about to happen.
An unnamed worker on “The Street”, as Wall Street is known, recently sat down and talked with a Yahoo commentator. The result is fascinating, if for no other reason than it shows us the humanity of the system that was rarely shown before. What he saw was that the motivations and competition was completely out of whack with what was really happening. Understanding this, especially when no one else seems to, is the key to making predictions in any system we depend on in this world.
The people that are about to plan a new world financial system are no less human. I expect that the hoopla around the coming conference will show us just who they are and what motivates them. For this reason, it is very hard for me to predict even as I feel very optimistic about the results. If we remember the humanity involved nothing happens in the shadows. It’s one of the great keys to open government and Democracy.
I can’t predict a thing beyond this conclave for just this reason. I’m happy about that.
One thing that will ultimately cross the minds of some of the participants will be what exactly what this thing we call “money” actually is. I don’t expect a navel-gazing exercise to be held in public, but it will come up in some form. After all, national currencies are created and destroyed by central banks in response to the needs of their particular market all the time. These are sometimes exchanged for other currencies that move for their own reasons. In the end, what do they represent? The creation of something physical is too simple an answer for this new age of intellectual property and copyrights. If value can be spontaneously created, why not money? Isn’t it all a matter of what people place a value on, regardless of what it is?
The problem is that humans do not always make rational choices when it comes to placing a value on something. A lot of commerce is based on status and fashion now that we have gotten a good chunk of the world well beyond subsistence living. A great deal of what this new conference will be regulating is, by its nature, not rational. But that’s what people are all about, like it or not. The economy has to be not only by people, but for people.
I’m sure this won’t be lost on those who devise whatever is coming next. My guess is that they will be just as scared and humbled as those who attended the conference at Bretton Woods hoping that the war was going to go their way. That’s good. It’s a very human response.