Posts Tagged ‘SDR’

The UN talks global currency… again (as if they didn’t already make fools enough of themselves before)

July 5, 2010

Beacons of political expediency that the United Nations are, they are once again proffering nonsense about what the world may or may not need as currency.

As I already mentioned in previous posts (here for example) the UN is suggesting nothing but more of the same. Sure the titles of what pass for reports at the UN are catchy but once you’re done reading you realize they suggest nothing but more of the same except with a different name. To wit:

Scrap Dollar As Sole Reserve Currency: UN Report

http://www.reuters.com/article/idUSTRE65S40620100629?feedType=RSS&feedName=topNews

Excerpts and comments:

A new United Nations report released on Tuesday calls for abandoning the U.S. dollar as the main global reserve currency, saying it has been unable to safeguard value.”

Guido here: OK, the caption is reasonable because true.

The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency,” the U.N. World Economic and Social Survey 2010 said.”

Guido here: True enough. But aren’t you guys late to the party? The USDollar has lost about 94% of its purchasing power over the past 100 years and it is now you realize it is not a stable currency?

[purchasing+power.gif]

The report supports replacing the dollar with the International Monetary Fund’s special drawing rights (SDRs), an international reserve asset that is used as a unit of payment on IMF loans and is made up of a basket of currencies.

Guido here: Due to the fact that the SDR still maintains a portion of gold backing, it is a better proposition to other fiat currencies. Nonetheless, the largest component of the SDR is still “a basket of currencies” i.e. it is largely a fiat currency. So, in actual fact, UN officials prove they don’t understand what is at the heart of our current crisis.

The report said a new reserve system “must not be based on a single currency or even multiple national currencies but instead, should permit the emission of international liquidity — such as SDRs — to create a more stable global financial system.”

Guido here: This is what the UN is so good at. Telling us what to do but not how. “Permit the emission of international liquidity”… great idea… but how? Are you guys advocating a fiat currency? If so, how is that different from what we currently have?

“Such emissions of international liquidity could also underpin the financing of investment in long-term sustainable development,” it said.

Guido here: If you understand what the statement above means, please explain it to me. My opinion is that this is what your tax Dollars are financing: talking heads.

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David Walker former US Comptroller General telling it how it is

November 1, 2009

http://www.garynorth.com/public/department79.cfm

Take the power to create and manage the money supply away from government and central banks. Accumulate gold and silver bullion.

 

Something nasty this way cometh…. (gold)

October 31, 2009

The reason I keep yapping about gold is two fold. An unchecked fiat monetary system within a democratic environment, must inherently and by necessity lead to an inflationary blow-off phase (2003/2007) accompanied by the total debasement of the currency. This is not an opinion. If you doubt this assertion, then take a gander at the header gracing the pages of this blog. The other reason is that in an environment of floating exchange rates where despite unimaginably low yields credit creation is contracting and currencies are deliberately devalued, nothing other than gold and/or silver can help to preserve wealth.

That is because a fiat monetary system can only survive in a context of relative values, high monetary velocity and low savings. The inescapable outcome is that financial value progressively runs away from intrinsic value and nominal profits are progressively concentrated in fewer and fewer sectors till they are concentrated in the financial industry only.

Since whether our “authorities” like it or not, gold is a rare commodity and, as such, it is nobody else’s debt, gold still plays a role in state finances. However, the fiat logic dictates that gold should be devalued by any means possible or, at least, not accounted at its true value. Thus as the fiat monetary logic develops, the authorities have a vested interest in avoiding any reference to gold and certainly have an interest in discouraging the public from demanding physical gold in exchange for currency because this is tantamount to saving thus lowering the velocity of money.

Accumulating gold in an environment of low yields and cratering credit creation is the only thing that can be done to preserve wealth. Accumulating gold is direct action to signify a loss of confidence in the monetary system, the policies and the instigators of the policies.

http://www.marketskeptics.com/2009/10/gold-market-reaching-breaking-point.html

The futility of stimulus on the back of an over stimulated economy

August 2, 2009

This is a chart of US deficit spending since 1935

FRED Graph

The following, is the related chart of US government borrowing (debt)…

Graph: Gross Federal Debt

… and this is a chart of US GDP year on year (yoy) percentage progression …

FRED Graph

All charts are official US government data provided by the Fed of St Louis. And although self explanatory, I am going to parse what these charts mean.

The short explanation is that despite borrowing and spending ever increasing amounts of money, we are not getting wealthier and each additional dollar of “stimulus” has an exponentially decreasing effect on GDP expansion with the result that Western governments are today bankrupt and, by necessity, are shifting towards a fascist form of government.

The longer answer.

As stated in previous essays, government is not a for profit entity. Government’s only income is through taxes (licenses, fees, duties, income taxes, inheritance taxes, sales tax, stamp duty …).

Just like you and me, if government spends more than what it receives in taxes, then it must borrow the difference.

Just like you and me, when government borrows money, it pays interest. The more money you borrow, the more money you have to spend on interest… but… government has no income so it can only pay more interest if it extracts more money from the economy in the form of taxes.

If you can get your head around that, then observe the charts I present above.

What the first chart at top indicates is that the US government has pretty much always run a deficit. In other words, the US gov has consistently spent more than what it earned and other than an outlier during the Clinton era, the secular trend has resumed its downward trend with a vengeance.

Before you stand up and clap for Clinton, observe the next chart in the middle.

Although in the first chart it would appear that Clinton brought deficit spending under control during his tenure, the second chart shows that his borrowing did not abate.

The third chart is the chart of US GDP yoy progression that you will find in many of my essays.

When you take the three charts together, the conclusion is inevitable. The US gov has consistently spent more than what it made in taxes and made up the shortfall by taking on increasing quantities of debt…. but GDP has only ever progressed at a rate of 3% year on year with occasional peaks at 6%

So, despite having overspent like the proverbial drunken sailor for the best part of the last forty years, despite having borrowed sums that have no comparison in human history, we’ve only ever been able to get GDP growing at a clip of 3%yoy.

But wait. That’s not all!!

Not only has GDP only progressed at 3%yoy but, in the meantime, we’ve become a service based economy to the point that consumption constitutes 70% of GDP. This is important to the extent that somebody should ponder the question of how much real wealth is created in a consumer economy; i.e. what part of the 70% of consumption creates the conditions and the means to create something else.

But wait. That’s not all!!

Not only has GDP only progressed at 3%yoy and, along the way, we’ve become a service economy but debt and the monetary base have consistenly expanded at an average of 10%yoy over the past forty years. When money and credit expand faster than the economy, you have inflation. So, a good chunck of that 3% is due to inflation really.

As I point out here, here, here and here, a fiat monetary system combined with “democracy” has an inherently logical and inescapable conclusion. The only variable is time; i.e. how long a government can postpone said conclusion. A fiat monetary system is in fact a pyramid scheme; that is, its existence is predicated on your ability to bring new contributors in at the bottom of the pyramid.

I maintain that our modern fiat monetary system was conceived along with the inception of the US Federal Reserve in 1913. Since then, as the hegemon, the US was able first to manipulate gold’s convertibility domestically thus creating the conditions for unchecked inflation which brought us to 1929. That first crisis lead us straight into WWII. After that, the US was still able to use inflation and debt to carry out hegemonic activities like the Marshall Plan, putting a man on the moon and expanding the military and nuclear arsenal till the late 60s when the cows came home. At that point, Bretton Woods was abrogated and the US convinced all then industrialized countries to abandon a monetary system based on gold and to adopt instead the US$ as their reserve currency along with fiat money. Thus, the hegemon was able to bring in several new contributors at the bottom of the pyramid. Then in order to keep feeding the pyramid, we immediately set to work on the Euro to devalue the currencies of the European countries thus giving a breath of fresh air to the now interconnected global monetary system as well as globalization thus brining in all other countries in on the US$ reserve fiat monetary system.

Great.

Except that today, short of introducing a new world currency, we have run out of contributors to bring in at the bottom of the pyramid.

Of course, if you scan my blog you will find clues that, indeed, we are working on a world currency. The question is, can we effectively introduce a global currency in useful time to give the global US$ based fiat monetary system some new wind. “Useful” time here means in a few months from today!

So, unless someone, somewhere, does not come up with a brilliant idea to restart a modicum of inflation, we are pretty much looking at the same situation the US found itself in at the end of the 60s – that is, sovereign countries are staring at bankruptcy.

Of course, by now you know that I maintain that no Western country will admit to bankruptcy. But as unemployment climbs to unprecedented heights and as social services are reduced and then necessarily discontinued, the West becomes a tinder box of social unrest. As Western governments feel they are losing their grip on power, they will engineer a war.

At this rate and unless something changes in the coming months, I say we have us a global conflict by 2013/2015

Got bullion?

Rep Grayson laughs in Bernanke’s face… and rightly so

July 22, 2009

This excerpt from a CSPAN broadcast requires little or not comment as it is self explanatory.

Other than Bernanke’s attitude that is akin to that of a boy caught doing something down right irresponsible, as kids are inclined to do, what is more important is that Bernanke provides proof of the interdependency of currencies. In a global US$ based fiat monetary system, what happens to the US stock market, the economy and the Dollar happens to all of us around the world.

If you do not find this excerpt frightening, you have not understood the magnitude of the predicament we are in.

IG: Treasury ‘failed’ to adopt bailout safeguards

July 21, 2009

A few months ago, I wrote: “What is going on – my opinion and not so improbable scenario“.  This was an essay that was written as much out of frustration as the desire to show whomever might want to see, that our leaders are truly acting not only irresponsibly but criminally.

Today, we have no other than the top government watch dog weighing in with his findings.

http://thehill.com/leading-the-news/watchdog-treasury-has-failed-to-adopt-bailout-safeguards-2009-07-20.html

The truth is that our “leaders” have, wittingly or not, entered into a bargain with the devil. The moment a government accepts and adopts a monetary system that is by fiat, it by extension has made the conscious decision to debase the national currency. Debasing the national currency inherently and by necessity brings about an increase in debt (personal or at government level – ultimately there is no difference). An increase in debt brings demand forward in time. If demand is accelerated, industrial capacity expansion accelerates too. All great dynamics in principle if managed and modulated.

But, aggressive, pervasive and unrelenting inflation pumping over several decades, will bring about a debt mountain that ultimately becomes unsustainable. The point at which economic activity is no longer sufficient to service debt, that is the moment inflation has reached the limits of its expansionary effect. At that moment, government is bankrupt. If government is bankrupt, it can no longer provide the services that society has come to expect. As unemployment rises and as social expenditure is reduced and ultimately cut, social unrest is sure to follow.

The problem with social unrest is that it forces a denouement of the irresponsible if not criminal activity of government. However, just like I and some other people know this to be the case, so do some bankers and politicians.

I can tell you now that as self proclaimed holders of the moral high ground, there is no way any Western government or politician will admit to what ultimately is the logical consequence of an unchecked fiat monetary system. Effectively, governments have been running a Ponzi scheme for self serving reasons. Because, that’s what an unchecked fiat monetary system is: it is THE ultimate Ponzi scheme. And as you know, Ponzi schemes only work for as long as you can bring in new contributors at the bottom to feed the pyramid. In forty years from the abrogation of Bretton Woods (the US in the late 60s was exactly where we are today globally – i.e. bankrupt), via the introduction of the Euro to Globalization we have just about brought every country in the world in on the US$ based fiat monetary system.

This is not opinion. This is fact and if you are interested in understanding what is going on, you can read more about it here, here and here and in many other essays on my blog or the blog of Steve Keen for example.

Today, globally, we have outstanding obligations worth five hundred Trillion Dollars and a world economy worth about fifty Trillion Dollars. To put it in perspective, think of having debts for one Million Dollars and a yearly income of one hundred thousand Dollars.

That’s where we are today.

Will the West swollow its pride and set about doing what anyone in their right minds would do in this situation?

I think not. It is far easier for the all mighty West to start a war somewhere and then expand it into a world war.

I say by 2013 or, latest, by 2015

Medvedev Shows Off Sample Coin of New ‘World Currency’ at G-8

July 19, 2009

As I state here towards the end of the essay, introducing a world currency is now one of the only three options left to restart the inflationary cycle. Are we really being prepared for a world currency? If so, introducing this new currency will have to take place within the following 12 to 24 months to have any hope at fostering inflation before a world war.

Before you think that a world currency would be desirable, think of what it takes to introduce a world currency and what is needed to manage it. Think of the economic and social ramifications. Think of a New World Order where there is going to be one supranational entity with virtually unlimited power.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aeFVNYQpByU4

Deflation it is… Ellen Brown’s Web of Debt..

June 21, 2009

A previously (to me) unknown analyst/researcher.

As is also pointed out by Steve Keen in his brilliant essay “The Cavaliers of Credit“, Ms Brown concurs that it is banks that front run money creation through securitization of debt boosted by the magic of fractional reserve banking. The Fed merely follows suit. But now, the securitizaton market is broken so an essential component of the credit creation machine is absent. Thus, whatever money the Fed may be creating through debt monetization the amount is dwarfed by the amount of outstanding credit that now must be either paid off or written off.

http://www.webofdebt.com/articles/quantitative_easing.php

Ding, ding, ding… 17% unemployment in Spain

April 24, 2009

Here we go… official measures put unemployment at 17%… that means that real unemployment is far higher…

At this rate, it looks like we may not need to wait till the end of the year to have unemployment exceed 15% in a bunch of countries…

If you’ve just come to my blog and you don’t realize what high unemployment in Western industrialized countries means… read up… we will be herded into a world war… probably within the next three years, certainly within the next five.

Chocolate coins are now deemed safer than gilts

April 23, 2009

And this is the cold ugly truth. You can lie and grand stand all you want but the insiders know what is going on. Guess what! The insiders say the UK government is at far higher risk of default than what they wish the public to know.

Governments can only postpone the inevitable but cannot avoid it. The trouble with postponing the inevitable is that it creates ever greater imbalances thus adding to the final bill. The ramifications are not only material but human too and the longer we postpone it the more devastating it will be.

Excerpts:

A company that peddles chocolate coins, in other words, is currently deemed a better credit bet than the British Treasury itself.

It is a startling pattern, not least because last summer all of those companies had CDS spreads which were notably higher than the UK government’s”

Thus far, thankfully, this unease has not produced a funding crisis for the UK government. For while mainstream asset managers feel nervous about gilts, they feel equally worried about the obvious alternatives. The price of gold is high, US Treasuries no longer look like a safe haven, and nor do eurozone bonds.

Read the excerpt above again. Understand what the writer is telling you.

All I can say is protect yourself and take action. Pay all your debts and stash some gold.

http://www.ft.com/cms/s/0/1e8cd910-2f57-11de-a8f6-00144feabdc0.html?nclick_check=1