What are the risks to a continuation of Bretton Woods II?
McCulley: The number one risk to Bretton Woods II is protectionism, notably in the United States. The U.S. consumer wins from the Bretton Woods II arrangement but the losers are those in the U.S. manufacturing sector who are being hollowed out by the cheap labor in China. And the manufacturers who are being hollowed out apply pressure in the political arena and politicians tend to respond to it because those who are being hollowed out by global competition tend to be single issue voters. In that context, we focused a lot on a bill circulating in Congress known as the Schumer-Graham bill which says that America will apply a 27.5 percent tariff across the board on all goods coming in from China if China doesn’t revalue its currency within the next six months in a meaningful way. From the standpoint of economics, you couldn’t think of a more silly idea, but it is a risk. Risk number two is that Bretton Woods II endemically has bubbles associated with it. The United States has very low inf
