Nouriel Roubini proposes an interesting framework to approach the current situation in the global financial markets.
Can we think of Bretton Woods 2 as a Prisoners Dilemma Nash Game between the US and China? Certainly Larry Summers referred to it as a "balance of financial terror" game. So, will the outcome be cooperation for global rebalancing or hard landing mutually assured financial destruction, i.e. MAD or MAFD?
I would only add that we deal in fact with a trilemma, add EU to the two entities considered by Mr. Roubini. As well, collaboration for an exit out of the status qvo is more than necessary. This means that all parties, including the US, have to change the rules of the game. Hence the need for a Bretton Woods 3. For a link to the initial posting and the ensuing conversation, follow this: US-China "Balance of Financial Terror" Game. A Prisoners Dilemma Game: hard landing MAD or Chinese pre-emption as the likely solution?
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There are signs that before the situation gets any more stable/better, it will get worse. Considering how farther away Washington DC and Paris/Berlin get by the day, a Bretton Woods 3 is increasingly inconceivable. The most one can hope for may be an implicit/de facto equivalent to a Bretton Woods accord. Yet even this is hard to achieve unless one currency can assume a leadership/referential position. Alas, the US dollar cannot play that role for a while...
Factors that could change this predicament include: political changes in the two European capitals, a healthy US balance sheet, revived economies in Japan and Germany.
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