Bretton Woods and funny money

The thing about money is that it's never funny. And when it is, it isn't money anymore.

Money holds value because generally speaking, it represents a fraction of the total wealth of a nation and is trustworthy because it is backed by government. The creation process is usually detailed in one of the Federal Reserve Bank (or a country's Central Bank) publications that nobody ever seems to find the time to read; and is most certainly not derived from watching "Zeitgeist" online. Money is created as individuals take on debt; and is destroyed as greed takes over and financial enablers become directional risk takers -and not really savvy ones at that.

Monetary intervention neither creates nor destroys wealth – the US is not any richer if we print or retire money. But printing money to come to terms with debt is a one way ticket to currency devaluation. In a world where imports are at least as important as exports, it would seem, it is really difficult to decide whether such a policy is advisable or not. But the heat is on because of dramatically rising unemployment on a global scale – governments must be seen acting against unemployment and financial woes in general. And if nobody is quite sure on what the "right" policy mix should be, then any policy that looks good is good enough - no questions asked.

All over Europe and in the US, there is an outcry for return to the old ways of protectionism and state intervention. Some even call for a new "Breton Woods" of sorts – an international monetary system that dictates commercial and financial relations and processes. Remark number one: the first Bretton Woods did not fare that well – in fact not well at all. Soon after its conception, it had to become a "floating" Bretton Woods and finally a sinking one.

And remark number two, there is such a mechanism already in place: it is called global markets, and if we allow them to work freely, they will assign fair prices to all things that can be bought or sold. What they cannot do, however, is take responsibility for the irresponsible actions of individuals and nations living on borrowed time, by means of more and more high yield bonds, municipal bonds and Treasuries. The present crisis is not about valuations or productive capacity. It is a crisis of confidence and the first victim is trust in the system itself, followed by lack of trust in ourselves. We need the state to save us, because we failed ourselves. But this time there is no Superman, no deus ex machina to save us. If we learned anything from our spectacular failures in the past, it is that the only way out of the chaos is investing in ourselves and our capacity for rational thinking and acting. No more - and certainly no less - is needed to find our way out of the present crisis as well. If not, then even German bonds or US Treasuries will slowly but surely end up regarded as nothing more than (sometimes tax-free) glorified junk bonds by the investment community.