The following correspondence was the reply to our objections in the establishment of the G5 in 1985 to “manage” the global economy through intervention on a coordinated basis. Given the fact that the floating exchange rate system affords governments the freedom to now spend as they like pursuing their domestic policy objectives separate and apart from the international fiscal responsibility behind the value of the currency in global capital flows, it is simply unlikely that the current system will be sustainable long-term. Volatility will rise and will spread among the markets driven by swings in currency values. Eventually, in the course of events that will now follow, the global economy will become increasingly more unstable and reflect much higher degrees of volatility as historically has always taken place under floating exchange rate systems. In the end game, the global economy will be attracted to the next major sovereign debt crisis that should appear going into 26 years from the 1985 birth of the G5 (2011) and perhaps culminate in a new global monetary system by 2016.
- Written by Martin A. Armstrong’s Princeton Economics International in 1986
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