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Thursday, March 13, 2008

Kasriel on the Possible Demise of "Bretton Woods II"

by Calculated Risk on 3/13/2008 09:01:00 PM

Northern Trust Chief Economist Paul Kasriel writes: Why Did the Fed Raise Rates in October 1931?

Kasriel reviews some history, and discusses the implications of the possible end of "Bretton Woods II".

Some commentators have referred to the Chinese and Saudi pegging of their currencies to the U.S. dollar as “Bretton Woods II.” We wonder if the demise of Bretton Woods II is not close at hand. If it is, the greenback could plunge, U.S. consumer inflation could spike, and the Fed would have little choice but to stop cutting its policy interest rate, and, perhaps, even have to raise it, as it did in October 1931.