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Other • Russia’s Plan For The BRICS To Dismantle The Dollar System
Russia’s Plan For The BRICS To Dismantle The Dollar System
SUNDAY, MAY 12, 2013 AT 3:38PM
Contributed by Valentin Mândr??escu, Editor of Reality Check @ The Voice of Russia. Former commodity trader, economist, journalist. Nomadic lifestyle. When not in Moscow, he can be found travelling across Eastern Europe. Areas of interest: world economy, East European politics, and the theory of propaganda.
The status of the US dollar as the world reserve currency gives the US a number of advantages over other countries. The world’s most important commodities are priced and traded in dollars, even if most of these commodities are not produced in the US. The fact that the world’s financial system is based on the dollar allows the Federal Reserve to export inflation to other countries, while the Federal Government runs a huge deficit with impunity.
So far, only China has been active in challenging the dollar supremacy. The internationalization of the yuan is an official priority of Chinese leaders. Currency swap agreements with major trade partners like Brazil, France, or Australia are small but important steps in the Chinese strategy. Changing the world financial system is not an easy task and certainly a very challenging undertaking for China. Now, it seems that Beijing has found an ally in the Kremlin. And there appears to be a consensus between the BRICS countries: the urgent necessity to dismantle the dollar system.
A week before the recent BRICS summit in Durban, the Kremlin administration has silently produced a document which describes the Russian strategy in the context of BRICS cooperation. The document makes for a fascinating read for anyone brave enough to plow through the dense Russian legalese. The strategy has been designed in the “inner circle” of Vladimir Putin’s team, so it is safe to assume that it represents the official view on the BRICS future.
In Russia, politics are Byzantine; the fact that the Kremlin decided not to hide the document or leak it to a chosen few journalists, but publish it outright is a very strong signal, a very vocal angry signal directed at the US. A signal that the Western media chose to ignore.
In the recitals section of the document, the authors point out that “there is a common desire of the BRICS partners to reform the outdated global financial and economic framework that doesn’t take into account the growing economic weight of the emerging markets.” Moreover, the Russian strategists view the BRICS as a tool to reform the way the world is being governed. Then the document hammers home its message:
Russia assumes that, given enough political will of the leadership of the BRICS countries to advance their cooperation, this alliance can become one of the key elements of a new system for global governance, primarily in the economic and financial domains.
Move aside New World Order! The BRICS are coming to change the world.
The goals are clear. In the section titled “Strategic goals,” the first point on the BRICS’ agenda is the reform of the world financial system in order to make it “fairer, more stable, and more efficient.” In the later chapters, it is spelled clearly that this “reform” is actually a dismantling of the dollar system.
It is worth noting that the place of this issue in the list of the BRICS’ priorities speaks volumes about its importance. Judging by the order of priorities, depriving the dollar of its status as the world reserve currency is more important than “preventing breaches of sovereignty” (a.k.a. the “Syrian problem”) or “expanding economic cooperation.”
The language used in this document indicates that it has been written or strongly influenced by Sergei Glaziev, the president’s economy advisor, who is known for masterminding the economic aspects of the Eurasian Union between Russia, Belarus, and Kazakhstan. Glaziev has repeatedly accused Fed Chairman Ben Bernanke of starting “a currency war” against the emerging markets. He also believes that Bernanke’s policy will ultimately lead to a military confrontation: “the conservation logic of the current financial and political system leads to a further escalation of military and political tensions, including the start of a major war” (read more).
A whole chapter of the strategy document is dedicated to step-by-step instructions on dismantling the existing global financial system. The list of measures includes:
Reformation of the world currency system in order to create a representative, stable and predictable system of world reserve currencies;
Reduction of the risks of destabilization of currency and equity markets linked to massive cross-border flows of capital;
Increasing the use of national currencies in the trade between BRICS countries;
Increasing the level of cooperation between BRICS countries in order to promote their interest in the domain of world trade;
Strengthening the BRICS Exchange Alliance;
Creating independent rating agencies.
Since the Durban Summit, at least one of those measures has been implemented: RT reported that “China’s Dagong Global Credit Rating agency is to set up the joint venture with US-based Egan-Jones Ratings Co (EJR) and Russia’s RusRating JSC to challenge the three major US ratings agencies.” As BRICS countries try to achieve the rest of their stated goals, it remains to be seen if the dollar system survives the joint onslaught of the biggest emerging economies.
http://www.testosteronepit.com/home/201 … ystem.html
Statistics: Posted by yoda — Sun May 12, 2013 11:10 pm
View full post on opinions.caduceusx.com
Fascinating: A New Map Of The U.S., Created By How Our Dollar Bills Move
A theoretical physicist used data readily available on the Internet to track the general movement of cash in America. What he identified were clear areas of economic influence, city-states within the United States.
Click here for the map and article.
View full post on AgainstCronyCapitalism.org
American • The Tailwinds Pushing the U.S. Dollar Higher
The Tailwinds Pushing the U.S. Dollar Higher
March 27, 2013
If we shed our fixation with the Fed and look at global supply and demand, we get a clearer understanding of the tailwinds driving the U.S. dollar higher.
I know this is as welcome in many circles as a flashbang tossed on the table in a swank dinner party, but the U.S. dollar is going a lot higher over the next few years. For a variety of reasons, many observers expect the dollar to decline against other currencies and gold, the one apples-to-apples measure of a currency’s international purchasing power.
The tailwinds pushing the dollar higher are less intuitively appealing than the reasons given for its coming decline:
1. The Federal Reserve printing another trillion dollars (expanding its balance sheet) will devalue the dollar because money supply is expanding faster than the real economy.
2. The Fed is printing money with the intent of devaluing the dollar to make U.S. exports more competitive globally and thereby boost the domestic economy.
Let’s examine each point.
1A. If much of the Fed’s new money ends up as bank reserves, it is "dead money" and not a factor in the real economy. Fact: money velocity is tanking:
1B. Money is being destroyed by deleveraging and writedowns. This is taking money out of the real economy while the Fed’s new money flows to banks.
1C. The purchasing power of the dollar is set by international supply and demand, not the Fed’s balance sheet or the domestic money supply.
As for point 2:
2A. Exports are 13% of the economy. A stronger dollar would reduce the cost of oil, helping 100% of the economy, including exporters. Why would the Fed damage the entire economy to boost exports from 13% to 14% of the domestic economy? It makes no sense.
2B. Most U.S. exports are either must-have’s (soybeans, grain, etc.) that buyers will buy at any price because they need to feed their people (and recall that agricultural commodities often fluctuate in a wide price band due to supply-demand issues, so if they rise 50% due to a rising dollar, it’s no different than price increases due to droughts) or they are products that are counted as exports but largely made with non-U.S. parts.
How much of the iPad is actually made in the U.S.? Basically zero. Is it counted as an export? Yes. How much of a Boeing 787 airliner is actually manufactured in the U.S.? Perhaps a third. Sorting out what is actually made in the U.S. within complex corporate supply chains is not easy, and the results are often misleading.
2C. Many exports are made and sold in other countries by U.S. corporations, and so the sales are booked in the local currency. The dollar could rise or fall by 50% and most of the U.S. corporate supply chain and sales would not be affected because many of the goods and services are sourced and sold in other nations’ currencies. The only time the dollar makes an appearance is in the profit-loss statement at home.
Americans tend not to know that up to 75% of U.S. corporations’ revenues are generated overseas, in currencies other than the dollar. This may be part of Americans’ famously domestic-centric perspective.
2D. Most importantly, the American Empire needs to control and issue the global reserve currency. The Fed is a handmaiden to the Empire; the Fed’s claims of independence and its "dual mandate" are useful misdirections.
Some analysts mistakenly believe that Fed policies are aimed at boosting the relatively modest export sector (which we have already seen is a convoluted mess of globally supplied parts, sales in other currencies, etc.) from 13% to 14% of the domestic economy.
This overlooks the fact that the most important export of the U.S. is U.S. dollars for international use. I explained some of the dynamics in Understanding the "Exorbitant Privilege" of the U.S. Dollar (November 19, 2012) and What Will Benefit from Global Recession? The U.S. Dollar (October 9, 2012).
Which is easier to export: manufactured goods that require shipping ore and oil halfway around the world, smelting the ore into steel and turning the oil into plastics, laboriously fabricating real products and then shipping the finished manufactured goods to the U.S. where fierce pricing competition strips away much of the premium/profit?
Or electronically printing money and exchanging it for real products, steel, oil, etc.?
I think we can safely say that creating money out of thin air and "exporting" that is much easier than actually mining, extracting or manufacturing real goods. This astonishing exchange of conjured money for real goods is the heart of the "exorbitant privilege" that accrues to the issuer of the global reserve currency (U.S. dollar).
It’s important to put the Fed’s $3 trillion balance sheet in a foreign-exchange (FX) and global perspective:
- The FX market trades $3 trillion a day in currencies.
- Global financial assets are estimated at around $210 trillion. The Fed’s balance sheet is 1.5% of global assets.
The key to understanding the dollar and Triffin’s Paradox is that as the global reserve currency, the dollar serves both domestic and international markets. Of the two, the more important market is the international one.
To act as the global reserve currency, a currency must be exported in sufficient size to facilitate the gargantuan trade in a $60 trillion global GDP/ $210 trillion global economy. There are only two ways to export enough currency to be remotely useful:
1. Run massive trade deficits, i.e. import goods and export dollars.
2. Loan massive quantities of dollars to nations that will place the dollars in international circulation.
The famous Marshall Plan that helped Western Europe rebuild its economies was just that: a series of large loans of dollars to dollar-starved economies. This was necessary because the U.S. was running trade surpluses in the postwar era and was therefore not exporting dollars.
This leads to a startling but inescapable conclusion: no exporting nation can issue the global reserve currency. That eliminates the European Union, China, Japan, Russia and every other nation running surpluses or modest deficits.
Many commentators are drawing incorrect conclusions from various attempts to bypass the dollar in settling trade accounts. For example, China is setting up direct exchanges where buyers and sellers can exchange their own currencies for renminbi, eliminating the need for intermediary dollars.
This is widely interpreted as the death knell for the dollar. But this misses the entire point of the reserve currency, which is that it must be available in quantity for everyone to use, not just those doing business with the domestic economy of the issuing nation.
Here’s a practical example. The $100 bill is "money" everywhere in the world, recognizable as both a medium of exchange for gold, other currencies, goods and services, and as a store of value that is priced transparently (often on the black market). For the Chinese renminbi/yuan to replace the dollar as the global reserve currency, China would need to "export" enough currency to grease trade large and small worldwide, and enough electronic money to act as reserves that support domestic lending in nations holding the reserve currency.
This is yet another poorly understood function of the reserve currency: it acts as foreign exchange reserves, backing up the holder’s currency, and as reserves in its central bank that act as collateral for its domestic issuance of credit.
In other words, the U.S. has issued and exported trillions of dollars because this is the necessary grease for global trade, currency stability and issuance of credit by nations holding dollars. The U.S. didn’t run massive trade deficits by accident: it needed to "export" more dollars as the volume of global trade expanded.
Issuing credit and loans in dollars wasn’t enough, so the U.S. exported dollars in exchange for commodities and goods.
For China to issue the global reserve currency, it would have to decouple the yuan from the U.S. dollar and start running deficits on the order of $500 billion a year.
Many observers think China is preparing to back its currency with gold, and they mistakenly conclude (yet again) this would be the death knell for the dollar. But they haven’t thought through how currencies work: their value is ultimately set like everything else, by supply and demand.
In an export-dependent country like China, a gold-backed currency would not be exported in quantity–it wouldn’t be "exported" at all, because China "imports" others’ currencies in exchange for goods.
Assuming some of the gold-backed currency was exported, it would quickly end up in savings accounts or bank vaults, being a proxy for gold. There will be none available for facilitating trade in the $210 trillion global economy.
This dual nature of money trips up many analysts. Establishing a currency that is "as good as gold" but not exporting it in quantity means it will be hoarded as a store of value and be unavailable to facilitate trade. Money has to act both as a store of value and as a means of exchange.
This is why U.S. $100 bills are carefully stored in plastic in distant entrepots of the world, safeguarded as real money, available as a store of value and as a means of exchange.
Currencies can be exchanged in a Forex (FX) marketplace, but the reserve currency is the "winner take all" in the real world. If you hold out an equivalent sum in various currencies around the world, the trader in the stall will likely choose the $100 bill because he is not sure of the value of the other funny-money in his home currency and he knows he can easily exchange the $100 everywhere.
The other currencies might trade on the FX market at some percentage of the dollar, but in the real world they are effectively worthless because there isn’t enough of them available to establish a transparent, truly global market. To do that, a nation has to export monumental quantities of their currency and operate their domestic economy in such a fashion that the currency is recognized as being a store of value.
In a very real sense, every currency is a claim not on the issuing central bank’s balance sheet but on the entire economy of the issuing nation.
All this leads to two powerful tailwinds to the value of the dollar. One is simply supply and demand: as the global economy slides into recession, trade volumes decline, and the U.S. deficit shrinks. (It’s already $250 billion less than was "exported" in 2006.) That will leave fewer dollars available on the global market.
In the case of the U.S., which exports large quantities of what the world needs (grain, soy beans, etc.) while buying mostly stuff that is falling in price in recession (oil, surplus manufactured goods, etc.), the trade deficit could decline significantly. (It is currently around $40 billion a month.)
And what does a declining trade deficit mean? It means fewer dollars are being exported. The global GDP is about $60 trillion, of which about 25% is the U.S. economy. Into this vast sea of trade, the U.S. "exports" about $500 billion in U.S. dollars via the trade deficit. Put in perspective, it isn’t that big compared to the machine it is lubricating.
So what happens when there are fewer dollars being exported? Demand for existing dollars goes up, pushing the "price/cost" of dollars up–basic supply and demand.
The second tailwind is the demand for dollars from those exiting the euro and yen. The abandonment of the euro is already visible in these charts, courtesy of Market Daily Briefing: Peak Euros.
We can anticipate this desire to transfer euros and yen into dollars will only increase as those currencies depreciate. Let’s say, just as an example, $5 trillion in euros starts chasing $1 trillion in available U.S. dollars. What will that do to the value of the dollar?
Some ask why those selling euros won’t buy Chinese yuan. Where are you going to find $1 trillion in yuan? It isn’t even convertible on an open market, and since China is an importer of currency, there isn’t 1 trillion yuan floating around the global marketplace to buy even if you wanted to.
Many people scoff when I suggest the dollar could rise 50% (i.e. the DXY dollar index could climb from its current level around 80 to 120) or even 100% (DXY = 160) in the years ahead. I know it’s the highest order of sacrilege to even murmur this, but if global demand for dollars picks up, the Fed isn’t printing nearly enough to dent the rise in the dollar.
As a lagniappe outrage, consider the domestic fallout from a decline in U.S. stocks and the U.S. economy. The Fed’s precious horde of political capital will leak away, and its ability to print more money will be proscribed by political resistance and a loss of faith in the Fed’s claimed omnipotence.
Any reduction in Fed printing would only limit the quantity of dollars available to global buyers, further pushing up its price on the open market.
http://www.oftwominds.com/blog.html
Statistics: Posted by yoda — Wed Mar 27, 2013 6:11 am
View full post on opinions.caduceusx.com
American • The Rising U.S. Dollar Will Be Corporate Earnings/Market-Ne
January 9, 2013
Many U.S. corporations derive 50%-65% of their revenues overseas. As the U.S. dollar rises, the foreign-exchange boost to overseas profits of the past decade will reverse.
One of the most glaring omissions in mainstream financial-media stock market commentary is the connection between the U.S. dollar’s relative value and corporate earnings. I have often commented on this bullish consequence of a weakening dollar. 50%-60%+ of global corporate earnings and profits are non-U.S., i.e. booked overseas in a currency other than the U.S. dollar (USD). As the dollar weakened, global corporate profits skyrocketed as earnings in euros, yen, etc. rose when stated in dollars.
In other words, overseas profits expand as if by magic when stated in dollars.
When the euro and the dollar were 1-to-1 back in the early 2000s, then 100 euros of profit converted to $100 when stated in dollars. When the euro rose to $1.60, then the same 100 euros of profit earned by the U.S. corporation in Europe converted to a stupendous $160 in profit when stated in dollars.
This explains why the Fed has been so keen to trash the dollar: it magically increases corporate profits and thus drives stocks higher. The mainstream financial media’s explanation for the weak-dollar policy is that the Fed is anxious to increase exports, but this is a sideshow; exports make up less than 9% of the U.S. GDP. The real action is in corporate profits, which thanks to the weak dollar are near all-time highs of $2 trillion, about 14% of the nation’s entire GDP.
Record Corporate Profits (Economix, N.Y. Times)
As the dollar strengthens, overseas profits will decline when stated in dollars.
Courtesy of Chartist Friend from Pittsburgh, here are two charts showing the long-term trend in the U.S. dollar: up.
No wonder corporate profits have risen strongly since 2002, other than that brief spot of bother in 2008: the dollar’s relentless decline magically boosted global corporate profits. Since many Fortune 100 U.S. companies (McDonalds, etc.) derive 2/3 of their revenues overseas, this foreign-exchange (FX) created boost in profits is a dominant dynamic in U.S. corporate profits.
If we combine the FX drag of a rising USD with the cyclical top in corporate earnings described in What If Corporate Earnings Have Topped Out?, we discern a potential double-whammy on earnings and thus stock market valuations.
http://www.oftwominds.com/blog.html
Statistics: Posted by yoda — Wed Jan 09, 2013 7:11 am
View full post on opinions.caduceusx.com
American • If Obama Can Just Create A Trillion Dollar Coin, Then Why
If Obama Can Just Create A Trillion Dollar Coin, Then Why Do We Have To Pay Taxes?
By Michael, on January 7th, 2013
If Barack Obama can "solve" the debt ceiling crisis by printing up some trillion dollar coins, then why does the federal government need our money? As another debt ceiling showdown approaches, many in the liberal media are suggesting that if Congress does not raise the debt ceiling that Obama should just have the U.S. Treasury create a trillion dollar platinum coin and use it to pay our bills. It sounds crazy, but many notable voices (including Paul Krugman of the New York Times) are supporting this idea. But if the federal government has had the power to create trillion dollar coins out of thin air all this time, then why do we have to pay taxes? Not only that, why do we have a national debt? If the federal government can just create money whenever it wants, then why does the federal government ever have to borrow it from others? The U.S. Constitution actually grants Congress the power to "coin money", so why is the Federal Reserve doing it? Those are some very important questions. Most Americans don’t even realize that the U.S. government never actually needed to borrow a single penny from anyone else. The U.S. Congress has the authority to create debt-free money whenever it wants to. Conceivably, the entire federal government could be funded without ever borrowing a single dollar and without ever receiving a single dollar from any of us in taxes. Just imagine that – a nation without a single penny of national debt, no income tax and no IRS. What a wonderful world that would be. Of course there would be other potential dangers under such a system (such as runaway inflation), and those dangers would have to be addressed. But the truth is that we don’t have to have an income tax or 16 trillion dollars of government debt. We only have those things because we have chosen to have those things.
Sometimes, a crisis can illuminate options that most people had not considered previously. As another debt ceiling crisis draws closer, many are looking for ways for the U.S. government to be able to continue to pay its bills if Congress does not authorize an increase in the debt ceiling.
If a debt ceiling agreement is not worked out, the U.S. government will soon only be able to pay about half the bills that are coming due after interest payments on the national debt (which will almost certainly be prioritized) are made.
That is why a lot of people on the left are pushing the "trillion dollar coin" alternative. So how would this work exactly? The mechanics were recently explained by Jim Pethokoukis on his American Enterprise Institute blog…
There are limits on how much paper money the U.S. can circulate and rules that govern coinage on gold, silver, and copper. BUT, the Treasury has broad discretion on coins made from platinum. The theory goes that the U.S. Mint would create a handful of trillion dollar (or more) platinum coins. The President would then order the coins deposited at the Fed, who would then put the coin(s) in the Treasury who now can pay all their bills and a default is removed from the equation. The effects on the currency market and inflation are unclear, to say the least.
In my opinion, if anyone in the federal government is going to be creating money out of thin air, it should be the U.S. Congress. After all, according to Article I, Section 8 of the U.S. Constitution, it is the U.S. Congress that has been granted the authority to "coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures".
But those that are pushing Obama to create a "trillion dollar coin" point to a law that Congress passed that allows the U.S. Treasury to mint platinum coins. The following is from a recent CNN article…
Normally, the Federal Reserve is charged with issuing currency. But U.S. law, specifically 31 USC § 5112, also grants Treasury permission to "mint and issue platinum bullion coins and proof platinum coins."
This section of law was meant to allow for the printing of commemorative coins and the like. But the Treasury Secretary has the authority to mint these coins in any denomination he or she sees fit.
But it wouldn’t quite be that easy. According to a recent ABC News article, some elements of the coin design would have to be determined by legislation…
The more difficult part comes sometime after the decision is made to coin the platinum and before the Mint gets to work in sculpting the pieces.
At that point, the American people must decide whose face will adorn the trillion dollar trinket. The process to determine the “specs” of the coin, U.S. Mint Public Affairs Specialist Genevieve Billia warns, must be “determined by legislation,” creating the potential for another congressional impasse.
So we would likely end up back at square one.
But if printing up a "trillion dollar coin" does not work out, Paul Krugman of the New York Times has come up with another option…
Don’t like the platinum coin option? Here’s a functionally equivalent alternative: have the Treasury sell pieces of paper labeled “moral obligation coupons”, which declare the intention of the government to redeem these coupons at face value in one year.
It should be clearly stated on the coupons that the government has no, repeat no, legal obligation to pay anything at all; you see, they’re not debt, and therefore don’t count against the debt limit. But that shouldn’t keep them from having substantial market value.
Of course there is a very, very low probability that any of these wild ideas will ever be tried, but this debate has raised some very interesting points.
The truth is that we do not have to have a system where more money is only created when more debt is created. We could have a system where the federal government directly creates debt-free money that is spent directly into circulation by the federal government.
In fact, this has happened before.
As I have written about previously, during the presidency of JFK a limited number of debt-free United States Notes were issued by the U.S. Treasury and spent by the U.S. government directly into circulation without any new debt being created. In fact, each bill said "United States Note" right at the top.
Unfortunately, after JFK’s presidency no more debt-free United States Notes were ever issued.
But even before JFK, there were times when debt-free United States Notes were being used. According to Wikipedia, United States Notes were first used during the Civil War….
They were originally issued directly into circulation by the U.S. Treasury to pay expenses incurred by the Union during the American Civil War. Over the next century, the legislation governing these notes was modified many times and numerous versions have been issued by the Treasury.
So why are we using debt-based Federal Reserve Notes today instead of debt-free United States Notes?
If the Federal Reserve did not exist and the U.S. government directly created money instead of borrowing it, it is conceivable that we could have a national debt of $0.00 today instead of $16,432,707,263,449.56.
Which option do you think our children and our grandchildren will wish that we had opted for?
In a system where the government directly created money, it is also conceivable that we could completely do away with the income tax and the IRS completely. The U.S. once prospered greatly without an income tax, and it could do so again.
And the truth is that our system of taxation is broken beyond repair. If you doubt this, just read this article.
So what would the downside be to such a system? Well, of course rampant inflation would be a huge danger. Allowing Congress to print up money whenever they wanted to would be playing with fire. That is why it would be imperative for there to be a hard cap on what the federal government could spend. For example, you could set the cap on spending by the federal government at 20 percent of GDP. That way we would hopefully never end up looking like the Weimar Republic.
And the current federal debt could be paid down a little at a time using newly created debt-free currency. This would have to be done slowly to keep inflation under control, but it could be done.
Of course if you wanted to continue to fund the federal government through taxation, there are other options that would still allow you to do away with the income tax. For example, one of the ways that our founders intended for the federal government to be funded was through tariffs, and we could definitely raise a lot of money that way. Plus, that would have the added benefit of making American companies much more competitive again and it would reduce the flow of American jobs out of the country.
So am I in favor of having Barack Obama create a trillion dollar coin to get around the debt ceiling crisis?
Most definitely not. If it does not violate the letter of the Constitution (which I believe it does), it sure does violate the spirit of it.
But if the U.S. Congress decided to shut down the Federal Reserve and the IRS and they decided to abolish the income tax, and instead they started directly issuing debt-free currency directly into circulation, that is something I would very much be in favor of.
Yes, that system would not be perfect either, but it would be far more preferable to what we have today.
http://theeconomiccollapseblog.com/arch … -pay-taxes
Statistics: Posted by yoda — Mon Jan 07, 2013 11:21 pm
View full post on opinions.caduceusx.com
If Obama Can Just Create A Trillion Dollar Coin, Then Why Do We Have To Pay Taxes?
If Barack Obama can “solve” the debt ceiling crisis by printing up some trillion dollar coins, then why does the federal government need our money? As another debt ceiling showdown approaches, many in the liberal media are suggesting that if Congress does not raise the debt ceiling that Obama should just have the U.S. Treasury create a trillion dollar platinum coin and use it to pay our bills. It sounds crazy, but many notable voices (including Paul Krugman of the New York Times) are supporting this idea. But if the federal government has had the power to create trillion dollar coins out of thin air all this time, then why do we have to pay taxes? Not only that, why do we have a national debt? If the federal government can just create money whenever it wants, then why does the federal government ever have to borrow it from others? The U.S. Constitution actually grants Congress the power to “coin money”, so why is the Federal Reserve doing it? Those are some very important questions. Most Americans don’t even realize that the U.S. government never actually needed to borrow a single penny from anyone else. The U.S. Congress has the authority to create debt-free money whenever it wants to. Conceivably, the entire federal government could be funded without ever borrowing a single dollar and without ever receiving a single dollar from any of us in taxes. Just imagine that – a nation without a single penny of national debt, no income tax and no IRS. What a wonderful world that would be. Of course there would be other potential dangers under such a system (such as runaway inflation), and those dangers would have to be addressed. But the truth is that we don’t have to have an income tax or 16 trillion dollars of government debt. We only have those things because we have chosen to have those things.
Sometimes, a crisis can illuminate options that most people had not considered previously. As another debt ceiling crisis draws closer, many are looking for ways for the U.S. government to be able to continue to pay its bills if Congress does not authorize an increase in the debt ceiling.
If a debt ceiling agreement is not worked out, the U.S. government will soon only be able to pay about half the bills that are coming due after interest payments on the national debt (which will almost certainly be prioritized) are made.
That is why a lot of people on the left are pushing the “trillion dollar coin” alternative. So how would this work exactly? The mechanics were recently explained by Jim Pethokoukis on his American Enterprise Institute blog…
There are limits on how much paper money the U.S. can circulate and rules that govern coinage on gold, silver, and copper. BUT, the Treasury has broad discretion on coins made from platinum. The theory goes that the U.S. Mint would create a handful of trillion dollar (or more) platinum coins. The President would then order the coins deposited at the Fed, who would then put the coin(s) in the Treasury who now can pay all their bills and a default is removed from the equation. The effects on the currency market and inflation are unclear, to say the least.
In my opinion, if anyone in the federal government is going to be creating money out of thin air, it should be the U.S. Congress. After all, according to Article I, Section 8 of the U.S. Constitution, it is the U.S. Congress that has been granted the authority to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”.
But those that are pushing Obama to create a “trillion dollar coin” point to a law that Congress passed that allows the U.S. Treasury to mint platinum coins. The following is from a recent CNN article…
Normally, the Federal Reserve is charged with issuing currency. But U.S. law, specifically 31 USC § 5112, also grants Treasury permission to “mint and issue platinum bullion coins and proof platinum coins.”
This section of law was meant to allow for the printing of commemorative coins and the like. But the Treasury Secretary has the authority to mint these coins in any denomination he or she sees fit.
But it wouldn’t quite be that easy. According to a recent ABC News article, some elements of the coin design would have to be determined by legislation…
The more difficult part comes sometime after the decision is made to coin the platinum and before the Mint gets to work in sculpting the pieces.
At that point, the American people must decide whose face will adorn the trillion dollar trinket. The process to determine the “specs” of the coin, U.S. Mint Public Affairs Specialist Genevieve Billia warns, must be “determined by legislation,” creating the potential for another congressional impasse.
So we would likely end up back at square one.
But if printing up a “trillion dollar coin” does not work out, Paul Krugman of the New York Times has come up with another option…
Don’t like the platinum coin option? Here’s a functionally equivalent alternative: have the Treasury sell pieces of paper labeled “moral obligation coupons”, which declare the intention of the government to redeem these coupons at face value in one year.
It should be clearly stated on the coupons that the government has no, repeat no, legal obligation to pay anything at all; you see, they’re not debt, and therefore don’t count against the debt limit. But that shouldn’t keep them from having substantial market value.
Of course there is a very, very low probability that any of these wild ideas will ever be tried, but this debate has raised some very interesting points.
The truth is that we do not have to have a system where more money is only created when more debt is created. We could have a system where the federal government directly creates debt-free money that is spent directly into circulation by the federal government.
In fact, this has happened before.
As I have written about previously, during the presidency of JFK a limited number of debt-free United States Notes were issued by the U.S. Treasury and spent by the U.S. government directly into circulation without any new debt being created. In fact, each bill said “United States Note” right at the top.
Unfortunately, after JFK’s presidency no more debt-free United States Notes were ever issued.
But even before JFK, there were times when debt-free United States Notes were being used. According to Wikipedia, United States Notes were first used during the Civil War….
They were originally issued directly into circulation by the U.S. Treasury to pay expenses incurred by the Union during the American Civil War. Over the next century, the legislation governing these notes was modified many times and numerous versions have been issued by the Treasury.
So why are we using debt-based Federal Reserve Notes today instead of debt-free United States Notes?
If the Federal Reserve did not exist and the U.S. government directly created money instead of borrowing it, it is conceivable that we could have a national debt of $0.00 today instead of $16,432,707,263,449.56.
Which option do you think our children and our grandchildren will wish that we had opted for?
In a system where the government directly created money, it is also conceivable that we could completely do away with the income tax and the IRS completely. The U.S. once prospered greatly without an income tax, and it could do so again.
And the truth is that our system of taxation is broken beyond repair. If you doubt this, just read this article.
So what would the downside be to such a system? Well, of course rampant inflation would be a huge danger. Allowing Congress to print up money whenever they wanted to would be playing with fire. That is why it would be imperative for there to be a hard cap on what the federal government could spend. For example, you could set the cap on spending by the federal government at 20 percent of GDP. That way we would hopefully never end up looking like the Weimar Republic.
And the current federal debt could be paid down a little at a time using newly created debt-free currency. This would have to be done slowly to keep inflation under control, but it could be done.
Of course if you wanted to continue to fund the federal government through taxation, there are other options that would still allow you to do away with the income tax. For example, one of the ways that our founders intended for the federal government to be funded was through tariffs, and we could definitely raise a lot of money that way. Plus, that would have the added benefit of making American companies much more competitive again and it would reduce the flow of American jobs out of the country.
So am I in favor of having Barack Obama create a trillion dollar coin to get around the debt ceiling crisis?
Most definitely not. If it does not violate the letter of the Constitution (which I believe it does), it sure does violate the spirit of it.
But if the U.S. Congress decided to shut down the Federal Reserve and the IRS and they decided to abolish the income tax, and instead they started directly issuing debt-free currency directly into circulation, that is something I would very much be in favor of.
Yes, that system would not be perfect either, but it would be far more preferable to what we have today.
So what do you think? Should we keep our current system of debt-based money, or would a system of debt-free money be better?
Please feel free to post a comment with your opinion below…
View full post on The Economic Collapse
Gold and Silver • Art Cashin On The Trillion Dollar Coin Alchemy
Art Cashin On The Trillion Dollar Coin Alchemy
http://www.zerohedge.com/news/2013-01-0 … in-alchemy
Submitted by Tyler Durden on 01/04/2013 09:34 -0500
Art CashinDebt CeilingNew York Fed
It would appear that even the venerable Art Cashin had to rub his eyes in incredulity at the recircling of the idea of the Treasury minting a "Trillion Dollar Platinum Coin" to solve the debt-ceiling ‘problem’. His brief discussion on the idea is summed up perfectly in his final six words "anybody got an ebook on alchemy?"
Via Art Cashin: The Mayans Weren’t The Only Ones With Strange Ideas
With a debt ceiling battle about to resume, a rather bizarre idea from last year’s debate has resurfaced. It appeared on a couple of blogs and concerned the minting of a "trillion dollar platinum coin". Under section K of Federal law, the Treasury Secretary appears to have carte blanche on the design and issuance of platinum coins.
The Treasury normally writes checks against the taxes it collects. When the tax receipts run out, they borrow money (bonds) to write checks against. That borrowing can run up into the debt ceiling, resulting in the looming confrontation.
The thesis claims that Geithner should authorize the coin, deposit it at the New York Fed and write checks against it, rather than selling more bonds.
Anybody got an eBook on alchemy?
Only those who have no clue about the money creation process in a fractional reserve economy could be vacuous enough to suggest that an idiotic "fix" such as this has any hope of working. All the proposal does, in effect, is suggest a devaluation of the currency relative to an absolute precious metal asset, which in itself is nothing new, and most recently was conducted, with great "success" by FDR in the 1930s.
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Can a $1 Trillion Coin End Debt Ceiling Crisis?
By Charles Riley | CNNMoney.com – Fri, Jan 4, 2013 12:53 PM EST.. .
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The lights of the U.S. Capitol remain lit into the night as the House continues to work on the "fiscal cliff" legislation proposed by the Senate, in …more
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What if the threat of a voluntary default by the United States could be erased by simply turning one tiny scrap of platinum into a coin?
That’s right. No debt ceiling problem. No bickering in Congress. No market jitters. The only thing needed is for the Treasury Department to mint a platinum coin with a face value of $1 trillion.
Of course, this is not going to happen. Creating money out of thin air is hardly a solution. It could lead to even more concerns from those worried about inflation. Critics of the Federal Reserve’s monetary easing programs would likely be apoplectic if the Treasury Department trumped Ben Bernanke’s "helicopter drop" by minting a trillion more new dollars.
The influential New York Times columnist Paul Krugman has already dubbed the talk a "gimmick." But here is why some people think this bizarre strategy could work.
Last week, Treasury Secretary Tim Geithner made it official: Federal borrowing has reached the $16.394 trillion debt ceiling.
Treasury, which runs the government’s debt-issuance operation, is busy creating about $200 billion of headroom by employing what it calls "extraordinary measures." That should cover about two months’ worth of borrowing.
When the two months expire, Treasury will no longer be able to pay the country’s bills — that is, it won’t be able to borrow more money to pay for spending already authorized by Congress.
If Congress does not act to raise the debt ceiling, the U.S. will default on its debts. Not good. But this is where the platinum coin comes in. Normally, the Federal Reserve is charged with issuing currency. But U.S. law, specifically 31 USC § 5112, also grants Treasury permission to "mint and issue platinum bullion coins and proof platinum coins."
This section of law was meant to allow for the printing of commemorative coins and the like. But the Treasury Secretary has the authority to mint these coins in any denomination he or she sees fit.
With a $1 trillion coin in hand, Treasury could deposit the money into Fed accounts, and pay its debts in that manner, instead of relying on bond issuance.
And none of this requires Congressional consent. Talk about an elegant solution.
The White House unsurprisingly hasn’t commented on the idea. But Rep. Jerrold Nadler is on board. "I’m being absolutely serious," he told Capital NY. "It sounds silly but it’s absolutely legal."
Trillion Dollar Coins: The Ultimate Debt Ceiling End-Around?
http://abcnews.go.com/blogs/politics/20 … nd-around/
With President Obama having kicked off debt ceiling negotiations by vowing not to negotiate over the debt ceiling, a new option for paying off the nation’s considerable tab is gaining momentum with cheeky fiscal and monetary wonks.
It goes like this: Should Congress fail to extend the U.S. debt limit — reached again on Dec. 31 — the president could ask the Treasury to begin printing trillion dollar coins (in a process explained mostly seriously by Jim Pethokoukis on his American Enterprise Institute blog), a number of which could then be put toward fulfilling debt obligations in the event new legislation stalls in Congress.
While there are laws in place to regulate how much paper, gold, silver or copper currency can be circulated by the government, there is nothing so clearly stated when it comes to platinum. That door open, the Treasury could have the U.S. Mint melt and mold a few trillion dollars of it, then ship the goods over to the Federal Reserve for safekeeping until the time comes to pay the bills.
The more difficult part comes sometime after the decision is made to coin the platinum and before the Mint gets to work in sculpting the pieces.
At that point, the American people must decide whose face will adorn the trillion dollar trinket. The process to determine the “specs” of the coin, U.S. Mint Public Affairs Specialist Genevieve Billia warns, must be “determined by legislation,” creating the potential for another congressional impasse.
Also to note: The likeness sculpted into its side must belong to a dead person, ruling out early favorite Ikea Monkey, but boosting the candidacies of Ronald Reagan and John Maynard Keynes.
Obama to pay US debt with trillion-dollar coins?
http://rt.com/usa/news/trillion-dollar-debt-coin-353/
Published: 04 January, 2013, 20:27
With the fiscal cliff averted for now, it’ll be a few weeks until the debt ceiling debate is the next major money issue in Washington. Luckily, some economists say that crisis can be curbed as well, and all it will take is one very valuable coin.
By February, the United States will once again reach its maximum borrowing amount from foreign nations — the debt ceiling — and the House of Representatives and Senate will be stuck deciding if it’s worth raising it once again or rallying for another solution. In recent days, an alternative approach — one that is almost all too perfectly bizarre — has been tossed around. It would involve minting a few trillion dollar platinum coins, and although it’s an unlikely answer, it’s all too legit.
The United States can’t just print paper money all willy-nilly every time it exhausts its borrowing options, but the US can, however, have a figurative field day when it comes to some types of coin.
As analyst Chris Krueger from Guggenheim Securities’ Washington Research Group explains to the American Enterprise Institute, “There are limits on how much paper money the U.S. can circulate and rules that govern coinage on gold, silver and copper. BUT, the Treasury has broad discretion on coins made from platinum.”
“Although the Treasury can’t just create money out of thin air to pay its bills, there is a technicality in the law that says the Treasury has special discretion to create platinum coins of any denomination, and the thinking is that [Secretary of the Treasury] Tim Geithner could make the coin and walk it over to the Federal Reserve and deposit it in the Treasury’s bank account,” adds Joe Weisenthal of Business Insider.
Although the idea seems outrageous, it’s been discussed repeatedly in the media since the start of 2013, and has even been brought up by an influential member of Congress.
"It sounds silly but it’s absolutely legal,” Rep. Jerrold Nadler (D-New York) tells New York Capital this week. "There is specific statutory authority that says that the Federal Reserve can mint any non-gold or -silver coin in any denomination, so all you do is you tell the Federal Reserve to make a platinum coin for one trillion dollars, and then you deposit it in the Treasury account, and you pay your bills.”
More than 1,000 people have already petitioned the Obama administration to order the minting of a coin on the White House’s We the People webpage, and New York Times economist Paul Krugman considered the option himself this week. Of course, doing as much is easier said than done. Designing the actual look of the coin would be up to Congress, and asking the House and the Senate to agree on the face adorning a one-trillion-dollar coin would likely lead to all sorts of Capitol Hill bickering.
Chris Krueger adds to the American Enterprise Institute that this option has a “VERY low probability” of ever happening, and Business Insider’s Weisenthal willingly says it’s a silly route to take, in his own opinion.
“But what’s sillier is a rich nation having a debate on whether it will pay what it owes, which is what the debt ceiling fight is all about. So in the face of such silliness, this unfortunately may be required,” he says.
Statistics: Posted by DIGGER DAN — Sun Jan 06, 2013 10:27 am
View full post on opinions.caduceusx.com
The Dollar, The Fed, and Freedom
* I gave this speech on April 15th 2009 in Charlottesville Virginia. I had forgotten about it but stumbled across it again today. It deserves a post to ACC.
So we’re here to make our voices heard because we believe, we feel, we know, that there is something very wrong our country. Over the past year we’ve seen our IRAs shrink, the value of our homes diminish, and in recent months have even begun to fear that our way of life, a way of life that is based on freedom and free enterprise is under serious threat.
And it is under threat. But this is not a new phenomenon. We have just recently entered an acute stage of crisis. For quite a while we have we have observed the continual decline in the purchasing power of our dollar. It gets harder and harder to make ends meet. Slowly, year by year, more and more of our freedoms are taken away by bureaucrats who enforce ever more numerous regulations. We say nothing as the tentacles of government reach into every corner of our once private lives. We have said nothing, but that time is past. We now say we have had enough.
As a fan of freedom it pleases me to see such open advocacy for liberty today. But this crisis, and the ensuing fallout is not Obama’s fault. It’s not Tim Gietner’s fault. It’s not Hank Paulson’s fault. It’s not even Ben Bernake’s fault, solely.
The main reason we find ourselves in the midst of the current economic calamity is because of the deeply flawed Federal Reserve driven economic regime this country has lived under since 1913.
The famous economist Murray M. Rothbard once said, “The Federal Reserve System virtually controls the nations monetary system, yet it is accountable to no one. It has no budget, it is subject to no audit, and no Congressional Committee knows of, or can truly supervise its operations.”
We are told that the Federal Reserve exists for our benefit. We are told that the world would fall apart without its guiding hand. This is false.
Most people don’t really know what the Federal Reserve is.
The Federal Reserve is an ingenious institution that bridges the gap between the federal government and the large banks of the world. It is a central bank that sets the price of money, that is interest rates for the US and by extension much of the world. It is after the US government the most powerful institution in the world. But it is most importantly a cartel by which the most powerful banks in the world protect their interests, often at our expense.
It is a cartel like any other. Only the Federal Reserve doesn’t deal in sugar, oil, or drugs, It deals in money. People forget that money is a commodity in addition to the means by which commodities are exchanged.
The Fed gets to set the cost of money arbitrarily. If it wishes to raise interest rates it does so. If it wishes to lower interest rates it does so. By doing either one it determines the fate of millions by sheer decree. There is no market mechanism at work here. Whether the Fed moves is the opinion of fallible, often very fallible, Fed governors. I for one do not like my fate being determined by a small group of secretive and thoroughly unelected “masters of the universe” that I know are at least as human as I am.
I would prefer that interest rates be set by the market. If a bank wanted my money it’d give me a higher rate. If it didn’t it’d offer me a lower rate. Banks sell money. Don’t forget that. Money is subject to the same rules of supply and demand that turnips are. The bankers however have done a very good job of convincing people that that there is some kind of mystical element to what they do. I’m here to tell you that there is no magic. Bankers adhere to the 3/6/3 rule. That is get the money at 3%, lend it at 6% and be on the golf course by 3 PM.
The Fed has many powers granted to it by Congress through the Federal Reserve Act. But the most important of these powers is the ability to create money out of nothing. Just move a couple of decimal points to the left and poof new money to do whatever the Fed wants to do. OK it’s not quite that simple, but it’s close to that simple.
It’s a great trick. Whenever the government needs another credit card to pay its bills it just asks the Fed to make a new one. And then another. And then another. And then another. Until we have a debt that threatens to destroy the Republic itself.
This is our current situation. We are trying to use yet more debt to extricate ourselves from a situation that was created by the reckless creation of debt. It will eventually destroy us if we don’t head in a new direction in the very near term. Seriously when does it end? When do we start being adults? When do we start doing the right thing?
The truth is that the federal government and the Federal Reserve don’t believe that they adhere to the same laws of economics that the rest of us live under. Vice president Cheney for example is famous for saying that deficits don’t matter. They may not matter to him but they matter to most of us. Deficits have to be serviced. Debt does have a cost. Eventually the house of cards will fall. Even if we can print money with abandon the piper has to be paid. And the piper is paid with inflation.
Inflation is not soley the rise of prices, this is a common misunderstanding. It is in fact the increase of the money supply. The “inflation” of the amount of money. For example imagine for a second that there is $100 in the universe. Now imagine if the Fed decided to print another $100 into existence. What happens to the original $100? It becomes half as valuable. That’s what’s happening now.
As the fed pours more money into the world economy each dollar we own is worth less. Of course there’s always a delay.
Inflationary monetary policy does work for some, the thing is it’s usually not you or me.
Lets say for instance that a cement company gets a piece of a construction industry bailout and is able to buy its cement at $5 a bag with citizen subsidized dollars, but 6 months down the line we decide that we want to build a porch. Well now there is much more Fed created money chasing the same amount of cement (and other goods.) Now I have to buy my cement at $7 a bag from the company that got the federal bailout because prices have gone up across the board. They “make” 2 bucks on the same cement just by virtue of the fact that they got the Fed created money first and had the right friends in Washington and New York. The cement company didn’t create any value. It was just able to short circut the money flow from Washington.
Many Americans are becoming increasingly aware that though they play fair their government and the institutions surrounding it do not.
We teach our children to be honest. We are honest in our business dealings. Yet the powers that be have little regard for fair play. In fact many of us feel as though the rule makers look at us as suckers, or worse.
Why is it that the three wealthiest counties in the United States according to Forbes Magazine , Fairfax County VA, Loudon County VA, and Howard County MD, just happen to ring Washington DC? It is because it is in the leafy suburbs of Washington that the wealth of this great nation is aggregated and then doled out to an immense bureaucratic class. We, the producers of the nation are the bureaucrat’s cash cows. They make the rules to benefit themselves and their agencies. They are paid handsomely by us to enforce rules and write codes that make our lives more difficult.
Between the Federal Reserve attacking the value of our savings by destroying the dollar and the federal government taking more and more of our depreciated dollars it is amazing that more Americans are not up in arms.
The thing is we have just gotten used to being abused. We know that the federal government is bigger than us and can squash us if it wants, so every April 15th we bow and then go on with our lives.
This year though lets take a moment to remember the string of failed Obama appointments, people who would have happily expanded the state if given the chance, who it was discovered hadn’t paid their taxes. Is it only we out in the hinterlands that pay our taxes? I swear if you are going to advocate for big government at least pay your taxes.
I personally, in case you haven’t figured it out by now, am not an advocate of big government. I would like to see a much smaller government in fact. I would like to see an end to the bailouts. I’d like to see an end to the never ending regulation that emanates from Washington. But most of all I’d like to see an end to the Federal Reserve and the havoc it creates in the economy.
There is a way to do these things believe it or not that in relative terms is simple. Reinstate a gold standard.
A gold standard does a few things.
First if a dollar is backed by gold one knows that there is real value in the money one owns. It is tied down. It can’t be inflated away by a central bank that wishes to pay back debt at depreciated levels, and have no doubt that is exactly what the Fed is scheming, at the expense of you and your savings.
It also restricts the growth of government, something that under the current dollar regime seems impossible. There is only so much gold in the world, therefore the government can only grow but so big. Or at least it will have to get the approval of its citizens who will have to fork over their gold based dollars to finance an expansion.
A gold standard will also encourage social security. Now I don’t mean the FDR created government program, I mean actual social security. People will be able to save for their future secure in the fact that gold has retained its value over 5 millennia. In Jesus’ time an ounce of gold would buy the average Roman a nice tunic and a pair of well made boots or sandals. Today that same ounce will buy a fairly nice suit and a decent pair of shoes. The gold has retained its value. Can the same be said of the US dollar over say a much more modest period of time.? A century? Definitely not. In fact since the Federal Reserve took control of the dollar in 1913 the dollar has depreciated to about 2.5% of its original worth.
Gold and its sister silver most importantly empower the average person who has the discipline to amass it. Gold rewards those who live below their means and think forward. It punishes those who make their living with economic slight of hand. Gold increases transparency and shifts power to everyday people. This is why the current system that is built on opacity and looks with derision at those of us who live outside of the Beltway or off of the island of Manhattan fights reinstatement of the gold standard. (When of course they are concerned with it at all.)
Our founders wanted a gold standard for the same reason they instituted the right to bear arms in the constitution. A population with guns has power. Likewise a population with gold has power. If we really want change in this country. If we really want government to work as much as government can work we must insist on a new gold standard.
The socialists will hate it. The central bankers will hate it. The corporations in bed with the government will hate it. And this is why the people must insist upon it.
If we want to take our government back we must take our money back. The best way to do this is with a new gold standard.
The post The Dollar, The Fed, and Freedom appeared first on AgainstCronyCapitalism.org.
View full post on AgainstCronyCapitalism.org
The Giant Currency Superstorm That Is Coming To The Shores Of America When The Dollar Dies
By recklessly printing, borrowing and spending money, our authorities are absolutely shredding confidence in the U.S. dollar. The rest of the world is watching this nonsense, and at some point they are going to give up on the U.S. dollar and throw their hands up in the air. When that happens, it is going to be absolutely catastrophic for the U.S. economy. Right now, we export a lot of our inflation. Each year, we buy far more from the rest of the world than they buy from us, and so the rest of the world ends up with giant piles of U.S. dollars. This works out pretty well for them, because the U.S. dollar is the primary reserve currency of the world and is used in international trade far more than any other currency is. Back in 1999, the percentage of foreign exchange reserves in U.S. dollars peaked at 71 percent, and since then it has slid back to 62.2 percent. But that is still an overwhelming amount. We can print, borrow and spend like crazy because the rest of the world is there to soak up our excess dollars because they need them to trade with one another. But what will happen someday if the rest of the world decides to reject the U.S. dollar? At that point we would see a tsunami of U.S. dollars come flooding back to this country. Just take a moment and think of the worst superstorm that you can possibly imagine, and then replace every drop of rain with a dollar bill. The giant currency superstorm that will eventually hit this nation will be far worse than that.
Most Americans don’t realize that there are far more dollars in use in the rest of the world than in the United States itself. The following is from a scholarly article by Linda Goldberg…
The dollar is a major form of cash currency around the world. The majority of dollar banknotes are estimated to be held outside the US. More than 70% of hundred-dollar notes and nearly 60% of twenty- and fifty-dollar notes are held abroad, while two-thirds of all US banknotes have been in circulation outside the country since 1990
For decades we have been exporting gigantic quantities of our currency.
So what would happen if that process suddenly reversed and massive piles of dollars started coming back into the country?
It is frightening to think about.
Well, I guess the key is to get the rest of the world to continue to have confidence in the U.S. dollar so that will never happen, right?
Unfortunately, there are lots of signs that the rest of the world is accelerating their move away from the U.S. dollar.
For example, it was recently announced that the BRICS countries are developing their own version of the World Bank…
The BRICS (Brazil, Russia, India, China and South Africa) bloc has begun planning its own development bank and a new bailout fund which would be created by pooling together an estimated $240 billion in foreign exchange reserves, according to diplomatic sources. To get a sense of how significant the proposed fund would be, the fund would be larger than the combined Gross Domestic Product (GDP) of about 150 countries, according to Russia and India Report.
And as I noted in a previous article, over the past few years there have been a whole host of new international currency agreements that encourage the use of national currencies over the U.S. dollar. The following are just a few examples…
1. China and Germany (See Here)
2. China and Russia (See Here)
3. China and Brazil (See Here)
4. China and Australia (See Here)
5. China and Japan (See Here)
6. India and Japan (See Here)
7. Iran and Russia (See Here)
8. China and Chile (See Here)
9. China and the United Arab Emirates (See Here)
10. China, Brazil, Russia, India and South Africa (See Here)
Will this movement soon become a stampede away from the U.S. dollar?
That is a very important question.
But you don’t hear anything about this in the U.S. media and our politicians are not talking about this at all.
Meanwhile, our “leaders” seem to be doing everything that they can to destroy confidence in the U.S. dollar. The Federal Reserve is printing money like there is no tomorrow, and the federal government continues to run up trillion dollar deficits year after year.
They do not seem to understand that they are systematically destroying the U.S. financial system.
Other world leaders get it. For example, Russian President Vladimir Putin once said the following…
“Unreasonable expansion of the budget deficit, accumulation of the national debt – are as destructive as an adventurous stock market game.During the time of the Soviet Union the role of the state in economy was made absolute, which eventually lead to the total non-competitiveness of the economy. That lesson cost us very dearly. I am sure no one would want history to repeat itself.”
Wow.
Why can’t most of our politicians see how destructive debt is?
What the federal government continues to do is absolutely insane. The national debt increased by more than 24 billion dollars on the day after Thanksgiving this year. But utter disaster has not struck yet, and most Americans are not really that concerned about the debt. So things just keep rolling along.
And of course our national debt of $16,309,738,056,362.44 is nothing when compared to the future liabilities that our federal government is facing. Just check out what a recent article in the Wall Street Journal had to say about all this…
The actual liabilities of the federal government—including Social Security, Medicare, and federal employees’ future retirement benefits—already exceed $86.8 trillion, or 550% of GDP. For the year ending Dec. 31, 2011, the annual accrued expense of Medicare and Social Security was $7 trillion. Nothing like that figure is used in calculating the deficit. In reality, the reported budget deficit is less than one-fifth of the more accurate figure.
Other economists paint an even gloomier picture. According to economist Niall Ferguson, the U.S. government is facing future unfunded liabilities of 238 trillion dollars.
So where are we going to get all that money?
Well, why don’t we just print more money than ever before so that the U.S. government can borrow and spend more money than ever before?
Don’t laugh. That is actually what some of the top economists in the country are actually recommending.
The most famous economic journalist in the entire country, Paul Krugman of the New York Times, is boldly proclaiming that the solution to all of our problems is to print, borrow and spend a lot more money. He insists that there is no reason to fear that the giant mountain of debt that we are accumulating will someday collapse the system…
For we have our own currency — and almost all of our debt, both private and public, is denominated in dollars. So our government, unlike the Greek government, literally can’t run out of money. After all, it can print the stuff. So there’s almost no risk that America will default on its debt — I’d say no risk at all if it weren’t for the possibility that Republicans would once again try to hold the nation hostage over the debt ceiling.
But if the U.S. government prints money to pay its bills, won’t that lead to inflation? No, not if the economy is still depressed.
Now, it’s true that investors might start to expect higher inflation some years down the road. They might also push down the value of the dollar. Both of these things, however, would actually help rather than hurt the U.S. economy right now: expected inflation would discourage corporations and families from sitting on cash, while a weaker dollar would make our exports more competitive.
Of course what he is prescribing is complete and utter madness.
At some point this con game is going to collapse and the rest of the world is going to say a big, fat, resounding “NO” to the U.S. dollar.
Why should they continue to use a currency that is becoming extremely unstable and that is constantly being manipulated?
And when the rest of the world rejects the U.S. dollar, the value of the dollar will drop like a rock because there will be far less global demand for it.
In addition, if the rest of the world is not using the U.S. dollar for trade any longer, other nations will cease to soak up our excess currency and huge mountains of our currency that are floating around out there will start flooding back to our shores.
At that point we will be looking at inflation unlike anything we have ever seen before. The era of cheap imports will be over and we will pay far more for everything from oil to the foreign-made plastic trinkets that we buy at Wal-Mart.
Most Americans don’t even know what a “reserve currency” is, but when the U.S. dollar loses reserve currency status it is going to unleash a nightmare that most economists cannot even imagine.
So enjoy this holiday season while you can. There are still lots and lots of cheap imports filling the shelves of our stores.
Once the coming giant currency superstorm strikes, we will dearly wish for the good old days of 2012.
Yes, the U.S. dollar is alive and ticking for now. But at the pace that our authorities are abusing it, I would not say that things are looking good for a long and healthy lifespan.
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Gold and Silver • The Dollar Gets Serious Competition
Welcome to the Currency War, Part 5: The Dollar Gets Serious Competition
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by John Rubino on November 26, 2012 ·
Not so long ago the dollar was the world’s only reserve currency. Everything else was one (or several) steps down in terms of safety and liquidity, and major financial institutions acted accordingly, accumulating dollars for the risk-free parts of their portfolios. Global demand for dollars was, as a result, effectively infinite, which meant the US could borrow whatever it wanted, secure in the knowledge that the Treasury bonds it created would find willing buyers.
But quietly, over the past couple of decades, the dollar has been joined at the top by the euro, yen, pound sterling and Swiss franc. And now the list of legitimate reserve currencies has expanded to include Canadian and Australian dollars:
Aussie, Canada dollars termed reserve currencies
LONDON (MarketWatch) — The Australian and Canadian dollars, the world’s leading commodity-rich currencies, are being formally classified as official reserve assets by the International Monetary Fund, marking the onset of a multi-currency reserve system and a new era in world money.
In a seemingly innocuous yet highly portentous move, the IMF is asking member countries from next year to include the Australian and Canadian dollars in statistics supplied by reserve-holding nations on the make-up of their central banks’ foreign exchange reserves. The technical-sounding measure, reflecting growing diversification of the world’s $10.5 trillion of reserves, is likely over time to exert wide-ranging impact on world bond and equity markets.
Expanding by two the list of officially recognized reserve assets from the present five — the dollar, euro, sterling, yen and Swiss franc — signals a new phase in the development of reserve money. For most of the past 150 years, the world has had just two reserve currencies, with sterling in the lead until the First World War, and the dollar taking over as the prime asset during the past 100 years.
Sterling — although still the world’s third reserve currency on IMF figures, just ahead of the yen — has been in relative decline since the Second World War. The birth of the euro in 1999 has turned the European single currency into the world’s No. 2 reserve unit, but it is now officially accepted that the dollar and the euro share their role with smaller currencies.
Enshrining in official thinking a development already evident among reserve managers and on private markets, in a sense, does no more than catch up with reality. However, the IMF step has both practical and symbolic importance and will likely promote further asset diversification among official and private asset managers.
The popularity among central banks of the Australian and Canadian dollars, which have been relatively strong even against the firm U.S. dollar during the past few years, reflect their stable economic growth and intact banking systems since the financial crisis, as well as the influence of Australian and Canadian commodity resources. On informal estimates, worldwide official foreign-exchange holdings in each of the two currencies probably are around $60 billion.
The Chinese renminbi, the Korean won and the Singapore dollar are being held by a relatively small number of central banks. There are no Asian currencies (apart from the yen) on the new IMF list, reflecting their still very low use as official assets.
The renminbi has attracted widespread attention as a possible future reverse currency. But it’s still some years away from attaining that status, primarily because it is not fully convertible. Although held in appreciable quantities by 10 to 15 central banks around the world, the Chinese money lags as a reserve currency behind not just the Australian and Canadian units but also some Scandinavian currencies.
People’s Bank of China Gov. Zhou Xiaochuan said at the weekend: “For the central bank, the next movement related to the yuan [renminbi] is going to be reform of convertibility … We are going to realize it, we are moving in this direction, we need to go further, we will have some deregulation.”
Zhou, who will have completed 10 years at the central bank next month, is widely expected to retire shortly. The focus will be on how much scope the Chinese Communist leadership gives his successor to pursue further financial liberalization.
The importance of the dollar has diminished, from a peak of 71.5% of declared reserves in 2001 to just under 62% by 2012. Outside the five standard reserve currencies, the importance of “other” currencies has risen, from a low of 1.3% in 2001 to 5.3% by end-June 2012, amounting to $310 billion.
Some thoughts
Categorizing Canadian and Australian dollars as reserve currencies makes sense when you view those countries in terms of gold, oil, sunshine and other resources per citizen. By that measure, each Canadian and Australian dollar is backed by a lot more real value than are the currencies of the paper-dependent societies like the US, Europe and Japan. If, as seems likely, we’re in the early stages of a shift away from financial assets and towards real things, the relative strength, and currency exchange rates, of the better-run resource-based economies will keep improving, making their currencies less risky and more profitable investments.
Note that the Chinese renminbi (aka the yuan) and Singapore dollar aren’t on the list. But they will be soon, with China now the second biggest economy (and an aggressive importer of gold) and Singapore becoming the preferred destination of global savings (especially gold storage) now that Switzerland has been cracked by the IRS and other tax authorities. See China’s next step in yuan overhaul is convertibility.
Gold, meanwhile, is once again being accumulated rather than dumped by central banks, and has already, arguably, replaced the dollar as the most coveted reserve asset. This, by the way, is simply a return after a 40-year absence to the place gold has occupied since the beginning of recorded history.
What does this mean for the dollar? First, a lot of central banks and trading firms will sell dollars to buy those other currencies and gold in order to make their portfolios reflect evolving financial realities. That selling pressure will, other things being equal, lower the dollar’s relative value, which is another way of saying that the US might not be able to borrow infinite amounts of money going forward, forcing us to either cut annual deficits far faster than is currently planned or pay a higher interest rate on future borrowings, which would increase future deficits.
The US, in short, will finally be subject to the same economic laws as lesser countries, with the same result: excessive debt and money printing lead to currency crisis which leads to depression
http://dollarcollapse.com/currency-war- … e-of-many/
Statistics: Posted by yoda — Sun Nov 25, 2012 11:02 pm
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