Counter Fiat Money!

September 23, 2011

http://www.pbs.org/wgbh/pages/frontline/warning/view/

Brooksley Born:

“We didn’t truly know the dangers of the market, because it was a dark market,” says Brooksley Born, the head of an obscure federal regulatory agency — the Commodity Futures Trading Commission [CFTC] — who not only warned of the potential for economic meltdown in the late 1990s, but also tried to convince the country’s key economic powerbrokers to take actions that could have helped avert the crisis. “They were totally opposed to it,” Born says. “That puzzled me. What was it that was in this market that had to be hidden?”

Read more: http://www.pbs.org/wgbh/pages/frontline/warning/view/#ixzz1YlKmnkWZ

Want to know why we face economic meltdown, start above.

Many economists, of the throwaway kind, will say the cause of our economic meltdown is unsustainable debt levels. Deal with the debt re austerity, or even restructuring,  the problems will go away. They won’t. The problems lie much deeper.  The worst that can happen is a double dip recession? No, our problems may exceed our expectations, so much so that 2008 may have been a significant warning of a lot worse to come. We may be on the cusp of a global recession that will far exceed any we have had before including that of the Great Depression.

The Banking Act of 1933 commonly known as Glass Steagall http://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Act instituted banking reforms to clean up the financial sector following the devastation wrought by the Great Depression of 1929 in the US. Many of the practices in banking, the lack of regulation, doubts re the authenticity of banking transactions in regard to investment bonds, interbank lending, led to a collapse in the markets at that time.

From link above:

Proposed re-enactment

In mid-December 2009, Republican Senator John McCain of Arizona and Democratic Senator Maria Cantwell of Washington State jointly proposed re-enacting the Glass–Steagall Act, to re-impose the separation of commercial and investment banking that had been in effect from the original Act in 1933, to the time of its initial repeal in 1999.[29] Legislation to re-enact parts of Glass–Steagall was also introduced into the House of Representatives. Banks such as Bank of America have strongly opposed the proposed re-enactment.[30]

On January 21, 2010, President Barack Obama proposed bank regulations similar to some parts of Glass–Steagall in limiting certain of banks’ trading and investment capabilities. The proposal was dubbed “The Volcker Rule“,[31] for Paul Volcker, who has been an outspoken advocate for the reimplementation of some aspects of Glass–Steagall[32] and who appeared with Obama at the press conference in support of the proposed regulations. However, in May 2010, Volcker, in an interview with BBC Business Editor Robert Peston, said he was not advocating a return to Glass–Steagall or a complete separation between investment and commercial banking.[33] In a May 2010 interview with Alternet, economist Nouriel Roubini described the “Volcker Rule” as insufficient and “essentially Glass–Steagall-Lite,” allowing conflicts of interest to remain and for financial entities to become too big to fail, a model he described as a disaster, and stated, “We need to go all the way and implement the kind of restrictions between commercial banking and investment banking that existed under Glass–Steagall.”[34]

Gramm Leach Bill repealing Glass Steagall was signed into law by Bill Clinton in 1999. One of the main arguments against this was the following: “Securities activities can be risky, leading to enormous losses. Such losses could threaten the integrity of deposits. In turn, the Government insures deposits and could be required to pay large sums if depository institutions were to collapse as the result of securities losses.

The rules allowing banks responsible for securing their depositors money and using depositors money to speculate for investment purposes were now in place. Banks speculated assured they would be rescued if they were ‘too big to fail’.

Meanwhile from 1970 onward rules governing the use of derivatives http://en.wikipedia.org/wiki/Derivative_(finance) were relaxed. Twinning with Gramm Leach Speculation and Arbitrage  took off and a new global financial industry was born. Thousands flocked to Wall St and other financial centres feeding on the opportunities provided by the global casino relaxing its rules.

But still another component was required to get the financial industry off its feet and up-and-running.

“August 15, 1971, President Richard M. Nixon announced that the United States would no longer redeem currency for gold. This was the final step in abandoning the gold standard.”

http://www.econlib.org/library/Enc/GoldStandard.html

Conclusion

Although the last vestiges of the gold standard disappeared in 1971, its appeal is still strong. Those who oppose giving discretionary powers to the central bank are attracted by the simplicity of its basic rule. Others view it as an effective anchor for the world price level. Still others look back longingly to the fixity of exchange rates. Despite its appeal, however, many of the conditions that made the gold standard so successful vanished in 1914. In particular, the importance that governments attach to full employment means that they are unlikely to make maintaining the gold standard link and its corollary, long-run price stability, the primary goal of economic policy.”

The floating of the dollar in 1971 saw the dollar assume a new reliance on world reserve currency less dependant on a fixed exchange rate determined in gold and more reliant on speculation. http://en.wikipedia.org/wiki/World_currency Other currencies eg the Chinese yuan and the euro in a new globalised and computerised financial trade hedged their own currencies with the purchase of US treasury bonds and financial OTC derivative contracts and FX currency trading on the interbank market. They did this to avail of the rating agency AAA nature of dollar based investment returns in order to give greater stability to their own currency,  and banking for profit investment.

All of the above factors combined to create a global investment banking industry where profit was maximised through speculation in derivative trading, foreign currency exchange rates, and the exchange of financial futures products becoming ever more complex and further removed from reality as the industry assumed a life of its own due to lack of regulation.

2008 saw the collapse of Lehmans as the world realised much of its investments were in useless subprime paper. Since then in spite of QE1 and QE2 from Obama, the global financial world has deteriorated and we are on the cusp of  ‘the great global meltdown’.

The response of politicians has been abysmal. Ben Bernanke of the US Fed only response is to throw more fuel on the fire.

We need to clarify the difference between the central banks and the markets.

There has been a massive coordinated push by central banks around the world to push liquidity support to the embattled euro, see here

http://seekingalpha.com/article/294195-central-banks-sell-dollars-to-prevent-liquidity-crises

It seems to me we are moving towards a stateless world currency led by the Fed.

The Fed is not only battling markets, but moves like this are attempting to negate free market capitalism as attempted by the markets, replacing it with a new Banking Socialism run by the Wizard of Oz, Bernanke and his clones.

This is a new bubble matrix world where even the markets themselves are being manoeuvered out of existence. Bernanke wants EMU to pump more money into the system, but here’s the problem:

Anyways, the bondholders get to squeeze another 3 months till end of December? Then the EFSF comes into play, but its against the rules to pump the QE that Geithner wants, so the money will have to come from money raised on the capital markets by participating countries enjoying their contributions to the EFSF.

Two things will be asked for: a) that there be an increased injection of funding to up the ¢440 bn available and b) greater political and monetary cohesion to make sure the creditors get their say.

The problem is EFSF puts Germany and France big time on the hook for bailouts, plus Spain, Portugal, Ireland and possibly even France itself (looking into bailing out some dodgy looking banks), may need to dip into the fund.

Greater political and monetary cohesion is a political joke at this stage. It was not on a few years ago when Lisbon scraped through. It certainly isn’t now politically on the cards to give more hammers and sickles to the banking/bondholder class to give them more powers to impose more austerity on us rabbits!!

Meanwhile economists are lining up to predict the breakup of the EMU:

Desmond LAchman was on Morning Ireland, amazingly Pravda RTE must be beginning to acknowledge the inevitable as well. Desmond joins growing list of economists forecasting breakup of the EMU possibly towards the end of this year:

http://www.aei.org/scholar/72

http://en.wikipedia.org/wiki/Martin_Feldstein

Surprisingly Stiglitz is in favour of euro bonds so unlike Roubini, Stiglitz seems to have lost the plot

Unless we get an orderly breakup the problems and chaos will escalate

http://gfs.eiu.com/Article.aspx?articleType=gef&articleId=1928440777&secID=1

Unfortunately, in our case we have no wise leaders such as Olaffur Grimsson

http://video.cnbc.com/gallery/?video=3000046687

In summary, there is €750 trillion of OTC currency trading out there: we need the following enacted in full asap:

“In September 2009, G-20 Leaders agreed in Pittsburgh that:

All standardised OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end-2012 at the latest. OTC derivative contracts should be reported to trade repositories. Non-centrally cleared contracts should be subject to higher capital requirements. ”

http://ec.europa.eu/internal_market/financial-markets/docs/derivatives/20100915_proposal_en.pdf

A new global currency based on the gold standard to bring back stability to global finance needs enactment. Current austerity measures are making matters worse. No one knows the vast extent of how much debt, how much derivative OTC paper debt is out there concealed on the books of  banks across the world.

The G20 as part of its cleanup of the derivative market should establish a new gold backed world reserve currency to allow countries to transition to it over a ten year period. This process should be urgently undertaken because if it is not done, under present policies, pretty soon the dollar and currencies based on the dollar eg the yuan and even the euro, will disappear in value to zero, and that which won’t dive to zero, will be counterfeit.

For us Punt Nua may not be a route to take anymore.

We may be in a Hobsons choice situation where the inevitable choice between two objectionable alternatives is between Punt Nua and joining a commonwealth relationship with the UK and adopting sterling currency.

Only this way could our financial affairs be unwound with the leverage coming from UK and the ECB.

Realistically our political establishment is too much infiltrated by the banks. We have no Olafur Grimsson mindset in charge.

Sucks Sutherland made a speech yesterday to lash those doubting austerity. Goldman Sachs need their money back and that is what Suds is paid to do.

Expect a visit soon form John Bruton of IFSC to stoke support for the casino financial services sector squid thats plays a large part in the mess we’re in, these bankers want to suck blood.

Brooksley Born can take any satisfaction she can out of her warning. She told us so!  What she warned of has come to pass.

End

23/09/11

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