European central bank raises interest rates

The European Central Bank has announced an increase of 25 basis points in its rate of interest pushing the rate up to 4.5 %.It has done so despite the fact that aside from oil prices inflation is low and unemployment still very high in both Germany and France despite some recent improvement in the rates. Once again, the interest rate hike reveals the monetarist and new classical macroeconomics bias that grips the central bankers. If we look at global circumstances outside of China and India and to a lesser extent the US the future course of the economy is still rather uncertain.The US Fed will announce its position on interest rates next week.Despite the growing recession in manufacturing the overall service sector remains strong in the US.But the loss of manufacturing jobs is raising concern.

Globalization without regulation and some greater state involvement in managed trade is increasingly under attack. Protectionism is understandably growing as the destabilizing impact of monetarist economic policy and untrammeled free trade becomes clearer.

Recently I have been rereading works on Bretton Woods and Keynes' critical role at this historic conference.There are some haunting echoes of the past in our current circumstances.Just look to what US Secretary of the Treasury Hans Morganthau had to say in his opening address at Bretton Woods:

"All of us have seen the great economic tragedy of our times. we saw the worldwide depression of the 1930's. We saw currency disorders develop and spread from land to land, destroying the basis for international trade and international investment and even international faith. In their wake we saw unemployment and wretchedness-idle tools, wasted wealth. We saw their victims fall prey, in places, to demagogues and dictators. We saw bewilderment and bitterness become the breeders of fascism, and, finally of war."(cited in Armand Van Dormael, Bretton Woods:Birth of a Monetary System, p.1 Macmillan , 1971)

At the close of the conference John Maynard Keynes who along with Morganthau and Harry White had been the promoters and brains behind the conference spoke of the conference having negotiated a system of international financial institutuions and practices that would breathe new meaning into the phrase "the brotherhood of man"

Some 62 years later we need to breathe new life into these ideas of how to restructure the international trading system and rescue it from the destructive hands of too many of the world's central bankers who continue to sabotage growth and employment rhrough excessively tight money policies.Its time once again to develop bancor or a variant of a global currency backed by a wide range of commodities, including a basket of new technologies and weighted for human capital. Such a global currency would inject needed liquidity where appropriate and insulate us from the worst deflationary excesses of the central bankers.