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Bretton Woods 2 Is Dead, Long Live Bretton Woods 3?

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Executive Summary

This paper sets out to investigate the forces and conditions that led to the emergence of global imbalances preceding the worldwide crisis of 2007-09, and both the likelihood and the potential sustainability of reemerging global imbalances as the world economy recovers from that crisis. The "Bretton Woods 2" hypothesis of sustainable global imbalances featuring a quasi-permanent U.S. current account deficit overlooked that the domestic counterpart to the United States' external deficit - soaring household indebtedness - was based not on safe debts but rather toxic ones.

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