Debt Man Walking

This article provides a concise and easy to understand explanation of the world economic state of affairs since World War II. Beginning with the formal agreement of Bretton Woods, an informal agreement between the major players emerged in the late 70s and early 80s. As this bargain has begun to unravel in the last few years - dangerously so in the last few months - global players are calling for a "New Bretton Woods". While most agree something has to be done, exact actions are harder to define.

For decades, the United States has relied on a tortuous financial arrangement that knits together its economy with those of China and Japan. This informal system has allowed Asian countries to run huge export surpluses with the United States, while allowing the United States to run huge budget deficits without having to raise interest rates or taxes, and to run huge trade deficits without abruptly depreciating its currency. I couldn't find a single instance of Obama discussing this issue, but it has been an obsession of bankers, international economists, and high officials like Federal Reserve Chairman Ben Bernanke. They think this informal system contributed to today's financial crisis. Worse, they fear that its breakdown could turn the looming downturn into something resembling the global depression of the 1930s.