We sometimes assume our children will be our babies forever; however, somewhere among our adult debates over cloth or disposable diapers and the juggling of soccer practice and orthodontist payments, our babies grow up. When I began writing this column, Cora was age eleven. Now she's almost fourteen. Her questions regarding the markets and economics have grown along with her, a response to our research for this column. This exposure to history, news, and opinion can become an expanding habit, opening doors (or cans of worms), and leading to more mature questions requiring deeper responses.

When we began this course of economic study through writing the Mom Chronicles, Cora's first lessons included a simplistic explanation of bear markets. Now, she wants to know about the World Bank, the IMF (International Monetary Fund), the WTO (World Trade Organization), and other acronyms tying into these major global economic agencies. Cora recently watched televised protests against these institutions. She wanted to know why these people were so angry, and why it seemed the protestors (including Americans) were projecting these "bad" feelings toward America. I had the same questions, and I also wanted to know if - and how - these protests and the organizations' responses affect global markets and our investment decisions.

To accomplish this goal, I needed to bone up on the issues and explain the information so Cora understands arguments presented by all sides. Hopefully, I can reserve my own opinion until after this information is discussed. I respect her opinion, but I also ask her to support her viewpoints. This method seems to work for us both, as it seems to allow Cora to safely establish her own point of view, and she's learning to support her opinions with research material.

In an effort to answer Cora's questions, she and I read information provided through official websites for each organization (see above), and books and articles from various sources found on the Internet and at libraries. We used the "read between the lines" rule on each bit of news, history, and opinion. This rule is accomplished when we recognize and question the source of the material (who wrote the piece), what the article said, when it was written, where the article was written (nation/country/state/region of origin), and why the article was published. These tools help us better understand the reasoning behind each argument or question, and how the material might influence our own thinking and behavior.

We'll begin this week with a brief generic history of the World Bank and the IMF origins, which will explain connections to the United States. During the 1930s, Americans weren't the only ones suffering from a depressed economy. The withdrawal of American investors from world markets created an atmosphere of competitive trade undercuts among many nations. This competition resulted in currency devaluations and trade barriers, which pulled the entire globe into a downward economic spiral. No industrialized nation could escape this predicament during this age of international markets. WWII temporarily interrupted the spiral, but it didn't resolve the underlying issues of trade problems and the design of global economics.

Before the war ended, Allied forces, led by Americans and the British, feared the element of peace would bring a return to 1930 economic conditions. In June 1944, members from forty-four Allied countries gathered at a conference in New England. During this conference, the idea of a connection between stable climates for economic trade and the ability to economically achieve an equality of trade was established and accepted. Both ideas would be carried out through two distinctly different organizations based on one global economy.

Two economists were responsible for these ideas, but only one lent his name to this new international economic plan. The American economist Harry Dexter White developed the functional ideas, and the British economist John Maynard Keynes endorsed and honed White's ideas with material from his own plans. Keynesian* economics were developed, and these economics were fundamental to both the World Bank and the IMF.

The charter and bylaws for the International Bank for Reconstruction and Development (IBRD), also known as the World Bank, were drafted in about two days within the three-week conference. The IMF agreement was also decided, and a third agency, the International Trade Organization (ITO), was also established at this conference. The ITO was abandoned, only to emerge again as the WTO (World Trade Organization) in 1995.

The World Bank was designed to provide long-term money for development of dams, utilities, and other project-oriented goals. The plan for the IMF was to provide short-term liquidity and temporary finance to prevent nations from taking extreme actions in response to temporary difficult situations. The bank was to be governed by its members, and would be open only to countries that first joined the IMF. Each member would pledge a sum of money proportionate to its national income. The United States contributed $3.2 billion, earning a 35% vote ratio, the largest number of votes. This was just the beginning to what appears to be never-ending U.S. domination in both agencies.

Next week, we'll look at the policies of Keynesian economics, and how they shaped the functions of global markets.

Until then,
Linda Goin

* Pronounced KEENSIAN - a way for us to remember this man's name is to think of the economic plan he devised as "keen" at the time.