“The System Is Dangerously Unanchored; It Is Every Man for Himself”

“The System Is Dangerously Unanchored; It Is Every Man for Himself”

Published on 22/12/2014

According to former BIS Chief Economist, William R. White, the international (non) monetary system is now in dangerous and uncharted territory.

With negative interest rates now being introduced in Germany and the US and with widespread printing of uncontrolled money supply in many countries, we will find that things do not operate as they used to and there will be unplanned and indeterminate consequences.

Almost every country in the world is in easing mode, following the Fed, and we have absolutely no idea how it will end up.

What are the risks of this non-system?

There is now no automatic adjustment of current account deficits and surpluses; so they can now get totally out of hand. The system is dangerously unanchored. It is every man for himself and we do not know what the long-term consequences of this will be. And if countries get into serious trouble, eg the Russians, there is nobody at the centre of the system who has the responsibility of providing liquidity to people who desperately need it. If we have a number of small countries or one big country which runs into trouble, the resources of the International Monetary Fund to deal with this are very limited. The idea that all countries act in their own individual interest, that you just let the exchange rate float and the whole system will be fine: This all is a dangerous illusion.

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