The Third Currency Option – Junk the Dollar and the Euro

Europe’s Been Onto Something … While the US gently weeps

The EU region calling for a ‘G8 + India & China’ conference to thrash out this global monetary issue – and has been twisting the knife in the reluctant US side. The US has been dragging its feet. While the EU has been going gung-ho on this, the US has been floating many trial balloons.

Warren Buffet, Paul Volcker and Lawrence Summers have been co-opted by the President-elect of the US – Barack Obama. There has been talk of a manipulation in bullion prices – which may be required for re-anchoring currencies. Interesting deals – considered impossible till a few years, are being done in a tearing hurry.

Europe would obviously like to break the dollar hegemony – and muscle into the racket. They know the Third World-Russia-China are not prepared.

And what do Europeans want – some seats at the global regulatory table, to force US moneybags (for now) and others to seek approvals, which will come at a cost … or is it that the approvals will come at a price …

Which will solve no one’s problems … back to square one …

The US Gameplan

US analysts, led by Paul Krugman, have been calling for Barack Obama to emulate Roosevelt – who waded into WW2, with 25,000 tons of nationalized gold. If gold is nationalized, it may depress demand in the short term – giving rise to huge volatility in gold prices. But Warren Buffett has been on the silver bandwagon for a while – and that is making the gold-silver equation hazy. What if Warren Buffet becomes the new US Treasury Chief? There is the real risk of another fraud like the gold standard happening all over again.

The US has been making its moves – differently. Paul Krugman’s Nobel Prize is an indication of this. Will the US use Paul Krugman as the Keynes of the Bretton Woods. The background of Bretton Woods itself, is of course, something that the US and Europe do not want the world at large to know.

The financial stimulus plan hasn’t even a snow flakes chance in hell – as there are no targets left who can be funded. Industrial corporations are lip deep in debt. The housing sector is knackered. The tech sector has over capacity. No go, no show.

What Has Been India upto? Either … or …

India seems to completely lack direction on how to move independently in times like these. After, all why should India even look at IMF and World Bank – which are fig leaf organizations of the West, as transfer mechanisms of wealth from the Third World to the rich.

Interestingly, Manmohan Singh has done some huge work in the last 60 days – the nuclear deal with the USA and NSG, the IBSA Summit, the ASEAN free trade agreement – and now his three Asian nation visits. India’s Trade and Commerce Minister, Kamal Nath, has been talking about a multi-lateral set up. The UN was made to issue a statement on this. While the US has been resisting calls for action, busy doing post-mortem, Asia and Europe have been moving.

India is unlikely to get seriously affected by the current crisis – which is possibly creating complacency in India about what needs to be done.Or India is working on a different plan, of which we know nothing. After all, India does believe in moving steadily (even, if slowly).

Are we reading too much into this? At times, India has seemed clueless.

Russia and China – The DragoBear Dance

The big issue is of course, China and Russia. China has 2 trillion of US dollars – and what does China do with this? This crisis seems to have made the Chinese Premier shaky. Russia has come out from a default about a decade ago – with a nearly US$400 billion reserves – flexing its muscles in Georgia and dependent on a high oil prices. What happens to Russia if a new Pacific Republic (Cuba, Haiti, West Indies, etc) were to start drilling for oil? In 5 years, the world would be awash with oil – and Russia’s mineral earnings could evaporate.

So, the world may not trust China and Russia too much. Russia and China can be the party poopers – but they cannot be the life of the party. Russia and China as significant military powers as well as a part of P5, will want their pound of flesh. They will, of course, be afraid of being left out!

Among the P5, US and EU have their own reserve currencies – leaving Russia and China out in the open. Russia and China (as full P5 powers) will want a ‘lion’s share’ of influence in any new architecture. Which any Third World grouping will not give.

The US will not have them and the EU does not want them!

Stalemate.

Russia and China play blame-the-US game

The US has been evading transparency by not revealing M3 figures (on dubious grounds), printing money 24×7×365 and creating toxic assets. Now when the muck has hit the fan, they are acting coy. And this made the Chinese very angry.

China has alleged that the US has plundered the world – and is is now looking after its own. China alleges that the US is not bothered about the problems the US has created for other countries.

Late In the day, Mr.Hu … This is something that the world has been talking about for a long time. China has been a major supporter (and victim) of this scam – by allowing US companies unlimited access and support. Chinese citizens have been duped with low paying jobs at these enterprises.

Is China forgetting history … Mr.Hu – Today it is the US – but yesterday, it was Europe, Mr.Hu. Europe was blockaded by the US for the last 100 years – and hence, European loot is possibly forgotten in China. European loot was accompanied by a lot of bloodshed and killing also, Mr.Hu.

Has the Leopard Changed its spots Possibly, you dont know, Mr.Hu, because China has very little wildlife left. Leopards dont change their spots. Europe behaves today, because it has no options.

China is making common cause with EU over the dollar crisis. While Chinese disappointment is understandable, their actions are beyond comprehension. Just why will Europeans be bothered about Chinese welfare? Just look at their history!!

For that matter why in the world would anyone be interested in Chinese welfare – except the Chinese, of course. The Chinese Government is looking at all options – except Chinese welfare, unfortunately.

The answers A new currency floated by the five major economies who are most affected today – China, Russia, India, Brazil, South Africa. Maybe Japan will also join in. But, the answer, Mr.Hu is with these 5 – and not Europe.

OK … join the gang

Sometime back, Medvedev joined China in blaming the US. Now that the blame game is over, is it finished. Over. Satisfied with blaming the US, Mr.Medvedev.

Now what

Mr.Medvedev, now that you have blamed the US, are you better off. Apart from some (dubious) satisfaction, what else have you got.

Russia has a lot to feel bad about, I agree. US$400 billion is a lot of money – and to see it being printed out of existence, cannot be good. Sometime back China started the blame game – and now Russia has joined in. However, I am yet to see any constructive action. Especially from China and Russia.

Russia, China should join up with with Brazil, South Africa and India to present an alternative to the world community. With this grouping and backing, at least a 100 countries will sign up within 30 days.

Wakey, wakey, Mr.Medvedev. Let us get to work. Blaming the US gets us no where.

Japan + ASEAN

China-leaning Lee Kuan Yew with an Islamic Malaysia may not be very hot about ‘giving so much influence’ to a ‘new member’ like India for an ASEAN initiative. Any action which hurts the US, their largest market and patron, will be something that will make Japan and ASEAN hesitate. The very economic model of ASEAN + Japan is undervalued currency + exports to the USA. Hence, they will be wary of any initiative that affects the USA – and the West.

Status Quo …

And that is why South Africa and Brazil are essential for India. China and Russia must join in. The benefits are too obvious – and the fallout is non-existent!

The New 5 – Three Horsemen Of Apocalypse

The real action will be 5 countries – Russia and China on one hand – and India, South Africa and Brazil on the other.

The G3 (i.e. India, South Africa and Brazil) have functioning democracies, decent regulatory systems (which can be ramped up), the technology platforms, the trading systems, a vibrant entrepreneurial class – all of which is powering their economies forward. What they don’t have is P5 status – which is useful, though not essential.

This Washington meeting – Contours Of The Deal

During the con-fab, ‘committees will be set up’ which will create mechanisms for this management. The EU-USA-Asia may agree (for the time being) on a broad a global regulatory and oversight body to monitor and maintain oversight over a Dollar-Euro currency regime. Some of Asia may want to cling to this Dollar-Euro skirt.

But what the BRICS must work on is a Third reserve currency for the Third World.

The new currency may an Asian-Developing world currency. The big issue for the developing world will be obtaining assurances against predatory raids by the dollar bloc and the Euro-zone to dismantle any new system – like the alleged plot of 1997 Asian crisis.The lesser issues will also be inter-bank settlements, anchoring currencies (the role of gold or bullion).

Following is a 2ndlook at the how the Third currency option will work.

The Organization for the 3rd currency option

Q: Who will handle this currency?

A: The BRIX Reserve Organization will be a the global body which will manage the operations of the BRIX currency. This organization will have initially shareholding by the BRICS countries – equally.

Q: What will happen when new shareholders come in?

A: The promoter shareholders will (later) offer shareholding to other countries to the extent of minimum 1% of total capital and not exceeding 5%. The promoter countries will gradually reduce their shareholding proportionately and equally by inducting other shareholders or selling existing shareholding to new shareholders.

Q: What will be the capital contribution by member countries?

Member countries will contribute to capital equal to 4000 tons of gold (but not gold). Capital will be increased by addition of new members and/or existing members. In case of exchange rate fluctuations, exchange rate will be based on 90 days average. In case of any significant decline in exchange value, concerned member country to make good the shortfall in capital contribution or face shift in member status.

Q: What will be the role of gold in BRIX-BRO system?

A: All citizens of member countries will be allowed to own and trade in gold – within and outside the country during peacetime. In cases of national emergencies, countries may impose export restrictions for a limited defined period.

Governments will not be required to maintain any gold balances at all.

Q: What will be the role of BRO?

A: Firstly to provide and maintain Realtime Settlement System (RSS) – a on line, real time, trading platform – for all the national currencies of member banks and countries. Additionally, there can be ‘permitted’ currencies’ – like the Dollar and the Euro, for trading in non-member currencies.

The RSS will enable participating members will be allowed to nett off transactions.Th BRO will also approve ‘standard packages’ for over-the-counter (OTC) trading of derivative products.

Q: How will BRO make money?

A: The RSS will earn fees through transaction fees and earnings from float – which currently is used by the US and ECB. Individual countries based on trade and production patterns can expand or contract currency supply. Based on supply and demand for individual currency, the RSS will aid the price discovery and setting. National Central Banks will be able to borrow or lend BRIX through the BRO.

Q: Who will man the BRO?

A: Banking specialists will be deputed from (initially, founder) member countries in equal proportion at each level in the organization. Over a period of time, the BRO will build it own cadre of banking specialists – starting with entry level candidates.

The Currency

Q: What will the currency be called?

A: Initially, the start up name of the currency unit can be BRIX.

Q: How will the BRIX currency look like?

A: The BRIX currency will only exist in bank accounts. It will not be printed, circulated physically or stored in vaults.

Q: What will happen to current US$-Euro reserves?

A: Initially all dollar reserves will be used to facilitate trade between member and non-member countries. The BRO will maintain Dollar /Euro reserves equal to 3 months requirements for member countries. Excess dollar reserves of member countries will drawn down gradually over 12-36 months based on market developments.

Q: How will monetary expansion of the BRIX be handled?

A: All monetary expansion of the BRO will happen through trade volumes and capital infusions. The BRO cannot print, monetize, expand money supply.

The Mechanics and Operations

Q: How will exchange rates be determined?

A: Demand and supply for currencies will determine exchange rates. Output of products, services, will create supply and demand for various currencies.

Q: Who will be allowed to trade on the RSS?

A: National currencies will be traded on electronic platforms with accredited traders, backed by institutional settlement system, trade guarantee – based on demand and supply for various national currencies.

Member Benefits

Q: What changes will countries need to make?

A: Very few. All transactions must be linked to the index currency – the BRIX. No country will be required to change from their current currency system. As trades happen, a BRIX amount will be created. As the payout happens, that many BRIX will be extinguished.

Q: What reserve requirements will be imposed on member countries?

A: All countries will be required to maintain a reserve of 1 month’s BRIX usage with the BRO. This amount will earn interest rate at market determined rates.

Q: What happens when countries go through emergencies, catastrophes or calamities?

A: In case of extreme volatility in any currency due to currency /economic /natural disaster, the BRO Board of Governors may approve loans – which will be guaranteed by the donor central banks. Loans by BRO will at all times will be covered by guarantees.

The benefit of this that any country can raise loans from BRO by finding sponsors. Thus hegemony by a few powerful country will not be possible. Thus a small economy (like say) Iceland can raise a loan by finding a consortium of guarantor (say African) countries.

National central banks may guarantee ‘interest’ payments or ‘interest+principal’ amounts. In case of normal commercial loans, the principal and interest repayments can be a commercial credit decision by the BRO.

Q: How will countries maintain their foreign currency reserves?

A: Countries will need to maintain minimal BRIX reserves. BRIX will be fully convertible into other currencies. However, since all national currencies will be convertible, the need will be minimal.

Q: What will be the disclosures and information requirements?

A: BRO will collate, circulate and publish information given by all member Governments regarding M3, currency, etc.

Safety, Checks & Balances

Q: What will happen when a ‘rogue’ Government prints too much money?

A: Whenever, exchange rate volatility exceeds the prescribed bands, BRO will impose trade restrictions after due inquiry.

Q: What about predatory currency traders?

A: Since, BRIX cannot be bought except by creating business trade, there cannot be large holdings of BRIX which can be used for predatory activities. National currencies of member countries can be at risk if excessive monetization happens. But, since, trading in all currencies will happen continuously, excessive monetization will first come to light in terms of excess supply and deterioration in exchange rates.

Q: What about fake currency?

A: The BRO will have its own mint and currency printing units which will print currencies for member countries. This will ensure that mala fide, fake currency by foreign agencies, criminal elements will be eliminated. The BRO may also insist that weak economies print their currency at the BRO mint to ensure that there is transparency in money supply.

Q: What about trade in Government debt and securities?

A: All member countries will be required to intimate and route transactions of Government debt, securities through the RSS. This will ensure that there will be complete transparency in debt, M3, etc.

End game

With a BRICS grouping behind an initiative outlined above, a 100 countries will join this system within 30 days. Japan will defect – as will some poorer European countries. OPEC countries will dither – and then join. Singapore and Malaysia may also dither for some time – but will finally join. Most of Africa, South America and Asia will sign up.

With US$6 trillion amongst the BRICS, Japan, ASEAN and Africa, the Third currency Bloc can give a huge financial stimulus to the global economy. Poorer countries can jump start industrialization – and massive orders for high tech equipment can be placed with Japan, EU and USA to jump start their economies.

Bretton Woods – What they wont teach or tell you …

Prequel to Bretton

Keynes’ first book that gained him some following in the world of economics was the ‘Indian Currency And Finance‘. This work examined in significant detail the workings of the Indian currency system. The Indian colonial currency system was anchored to the British pound – and various other local Indian currencies were in use – and even legal tender in large parts of India.

G5 will take on G8

Thus there was always great pressure on Britain to keep the British pound on gold standard – as there was always the option for the common citizen to use coinage from other kingdoms and princely states. In 1900, the British colonial Government tried to enforce circulation of British sovereigns in India – which failed.

Of course, gold importation into India was severely restricted. The gold blockade against India was effective as the major gold production centres were under Anglo Saxon occupation (Australia, Canada, USA, South Africa, Rhodesia, Ghana, etc.).

The Birth Of Bretton Woods

As WW2 was winding down, the Anglo Saxon Bloc went ahead and devised the Bretton Woods system. This system was a copy of the Indian currency system – where instead of the British pound, the American dollar became the Index currency.

Instead of milking only India, the Anglo Saxon Bloc could now milk the whole world. Keynes noted how America when dealing ‘her dependencies, she has herself imitated almost slavishly, India.’ So, when the time came, it took very little time for the US to scale the Indian currency model on the rest of the world.

The success of Bretton Woods-I depended on blockading India from buying gold – which was effectively done by Morarji Desai. (I wonder why the ungrateful Anglo Saxon Bloc has not made a statue of Morarji Desai at Mount Rushmore). He has after all been the single biggest contributor to their prosperity for the last 50 years.

What was Bretton Woods

The world stamped their approval on Bretton Woods.

As per the agreement, all countries of the world would use the dollar as the index currency – for international trade and foreign exchange reserves and for nominal exchange rate fixation. This system allowed the USA to print ‘excess’ dollars. These ‘excess’ initially in limited quantities, but soon at an accelerating pace. Today the USA has flooded the world (and the USA markets with more than US$50 trillion) of excess currency. The housing bubble, the M&A frenzy, the credit crisis are by products of this printing of dollars. With these excess dollars, the US consumers and others bought what they wanted – and US went ahead and printed some more dollars.

Bearing the dollar's cross

Behind Bretton Woods – Gold

If the Bretton Woods system was defective, unfair, weighted et al, why was it accepted? Why did the world believe that only the Anglo-Saxon Bloc could deliver.

Why?

In 1944, the Anglo Saxon Bloc (countries, colonies and companies) controlled more than 90% of gold production and reserves. The largest private gold reserve in the world, India was still a British colony. Hence, it was fait accompli.

The Cornering Of Gold Supplies

For the last 150 years, the ABC countries (America, Australia, Britain, Canada) comprising the Anglo Saxon bloc (countries, colonies and companies) have controlled 90% of the world’s gold production. Till (a large part of) India was a British Colony, they also controlled more than 50% of the above-the-ground gold reserves. This gave them absolute liberty to print depreciating currency and flood the world pieces of paper(called dollars and pounds), manipulate the world financial system and keep other populations poor and backward.

Who paid for the dollar hegemony

Bretton Woods – Broken Promises

The promise of the Bretton Woods system was stability. USA promised the world that they will redeem the US dollar for gold – at a rate of US$35. Anyone could (except Indians and Americans) buy an ounce of gold from the USA for US$35 – managed by the the London Pool system. Within 20 years, the first promise was broken. Redemptions of dollar for gold to individuals was stopped in 1968 (March15th).

The Bretton Woods system worked for 20 years because Indians were not allowed to buy gold. India’s finance minster during that crucial period, Morarji Desai, (allegedly on CIA payroll during Lyndon Johnson’s Presidency 1963-1968), presented a record 10 budgets, between February 1958, up to 1967.

His break with Indira Gandhi began when the Finance portfolio was taken away from him. Morarji Desai’s ban on gold imports allowed the sham of Bretton Woods to continue for 20 years. His adamant attitude on gold cost the government popularity and electoral losses – and the Indian economy and Indians much more. Was it a co-incidence that many of the RBI functionaries later got (and even now) plum postings at LSE (IG Patel) and BN Aadarkar (IMF)?

The Bretton Woods Twins

Bretton Woods also gave rise to the the Bretton Woods twins (the IMF and the World Bank) which are run and managed by the Anglo Saxon countries. The ABC countries, their client states like Japan, OECD, etc. have 65% of the voting rights. With this huge voting majority, less than 5% of the world’s population (of the ABC countries) decide how 95% of the world lives.

The Bretton Woods twins (the IMF and the World Bank) been significant failures. Aid (spelt, ironically, very similarly to AIDS) projects are approved – which are tied to imports from these Anglo Saxon countries.

Bretton Woods Fraud

The Bretton Woods system was technically created by more than 700 delegates from the 44 allied nations. But the match was fixed.

It was designed by the Anglo-Saxon countries (America, Australia, Britain, Canada), for the benefit of the Anglo Saxon countries. Notice how much Britain resisted and finally did not join the European Currency Union. This system has swamped the world with accelerating inflow of dollars (American, Australian, Canadian) and British pounds. Producers and exporters are left with vast reserves of a depreciating currencies.

Nixon Chop And Bush Whack

From the Nixon Chop to the Bush Whack final months of Dubya’s Presidency, the Bush Family has been in the Presidency for 12 years of the 37 years. And in positions of lesser power for the entire period. George Bush Sr. was the US representative to the UN during the Nixon era – when Nixon made his infamous remarks to Kissinger about the ‘sanctimonious Indians’ who had pissed on us (the US) on the Vietnam War’. George Bush Sr. was also the US Vice President during the 8 years of Reagan Presidency.

The bend in the flow

During these 37 years – between the Nixon Chop (1971) and the Bush Whack (2008), the world has changed significantly.

The Nixon Chop

On August 15th, 1971, President Nixon after a two day huddle with 15 advisers at Camp David, delivered the Nixon Chop to the world. The Nixon chop (my name for this event), one month after his China breakthrough, cut the convertibility peg of US$35 to gold as US gold reserves were severely depleted.

The French had been regularly redeeming gold for their dollar earnings – and for this ‘perfidy’ the US had not forgiven France. This was much like the pre-WW2 French methodology of devaluation, new peg, old debt for new gold routine which got the US hackles up. Many decades have passed since these redemption by France, and the new French President, Sarkozy believes it is now possible to renew US-French relations again.

On the opposite side of the world, a beleaguered Indian Prime Minister was celebrating 24 years of Independence with a “ship-to-mouth” economy, dependent on PL-480 grain. Private gold reserves in the Indian economy after nearly 25 years of post-colonial rule, were steadily rising. Over the next 10 years, the western world (and most of the rest) blamed OPEC for post-1971 inflation, gold scaled US$800 an ounce; the Hunt Brothers launched their bid to corner the silver market; stagflation made an entry and Soviet power grew. Nixon Chop , itself the result of many years of gold reserves erosion, was one in many steps that brought the US$ to its knees.

Can the dollar be fixed?

On August 15th, 1971, the world got the Nixon Chop – where even Governments could not redeem dollar holdings. The dollar was put on float. In little time, dollar value depreciated from US$35 per ounce of gold to US$800 in 1980. Over the next 20 years, through various clandestine methods (check out the Edmond Safra and the Yamashita stories links), gold prices were managed and brought down to US$225 per ounce – but still 80% reduction in value of dollar value. Foreign reserves of poor countries got eroded. It was a gigantic fraud on the world – especially the poor, developing countries. And the fraud continues.

Every Few Years

Every 10-25 years, the world seems to go from one financial crisis to another. Trucks full of economic analysis follow each crisis – and everyone agrees after each meltdown, that there will not be another catastrophe. What the poor (and not so poor) economists don’t see is that the Anglo Saxon bloc with 80% of the world’s gold production in a choke-hold does what it wants.

On December 31st, 1974, nearly forty years after Roosevelt nationalized private American gold stocks, Americans were allowed to invest in gold again. Again Indian liberalization (1991) of gold imports happened a good 17 years after the US laws (1974) were liberalized. I wonder, how that was tied.

And that is what has happened for the last 60 years. Of course, all good (for the Anglo-Saxon Bloc) things come to an end. And so has Bretton Woods – I & II.

What Now, Ben?

The whole world seems to be blaming US, Ben Bernanke for the global economic – aka Great Recession. Is it fair? Look at his record below.

Helicopter Ben has been transformed to Santa Ben! (Cartoon - Gary Varvel; Pub. Date - 2008-12-17; source and courtesy - cartoonistgroup.com). Click for a larger picture.

Thus Spake Ben Bernanke

Remarks by Governor Ben S. Bernanke, Before the National Economists Club, Washington, D.C. November 21, 2002 (ellipsis mine)

U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press … that allows it to produce as many U.S. dollars as it wishes at essentially no cost. … …the Fed could find other ways of injecting money into the system–for example, by making low-interest-rate loans to banks or cooperating with the fiscal authorities … If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.

A terse anouncement by the Federal Reserve Board said,

“On March 23, 2006, the Board of Governors of the Federal Reserve System will cease publication of the M3 monetary aggregate. The Board will also cease publishing the following components: large-denomination time deposits, repurchase agreements (RPs), and Eurodollars. The Board will continue to publish institutional money market mutual funds as a memorandum item in this release.

On November 10, 2006 Ben Bernanke justified,

“As I have already suggested, the rapid pace of financial innovation in the United States has been an important reason for the instability of the relationships between monetary aggregates and other macroeconomic variables.”

Ben Bernanke has given ample (and more) indications about what he will do. In fact, more than indications, he was brazen enough to say, what exactly he would do!

How can the world blame him now?

Economy seemed to smooth, then. (Cartoonist - Karl Wimer; Pub. Date - 2009-07-31; source and courtesy - cartoonistgroup.com). Click for larger image.

What Did Others Do

Some other countries tried feebly, and failed, in creating a third currency bloc as an alternative to the US dollar and the Euro.

Japan and ASEAN tried setting up the Asian Monetary Fund – after 1997, currency crisis – and were arm twisted by the US to drop the idea. Malaysia proposed The Gold Dinar in 2002-2003. This was initially limited to the Islamic World only. Neither of the proposals got far.

What would be the US reaction to this such attempts?

War, Oil , Dollars & The Middle East

Cut to the Iraqi invasion by the USA.

The justifications for invading Iraq given by the USA, were finally found to be false. The invasion was finally not related to 9/11. Iraq did not have any WMDs either. So, what was were the reasons for Iraqi invasion?

A ring side observer, former Indian Ambassador to Iraq from 1992 to 1994, Ranjit Singh Kalha’s book, ‘The Ultimate Prize’ makes some interesting observations on the genesis of the Iraq invasion.

“The first mistake Saddam made was when he decided in October 2000 to move away from using US dollars as the currency for oil exports, …under the UN ‘oil-for-food’ programme.” Saddam also converted Iraq’s USD 10 billion reserve fund from US dollars to Euros. “Although this act of Saddam was not of very great economic significance in overall terms, it represented for the United States a direct challenge to the use of the dollar as a currency for transactions,” … in his just-released book, “The Ultimate Prize”. Iran followed Saddam’s move and Venezuela started initiating barter deals outside the dollar system. “If most other Organisation of Petroleum Exporting Countries (OPEC) followed the Iraqi and Iranian example, the stability of the US dollar would be at stake,” Kalha, who was posted in Baghdad during the tumultuous 1992-94 period, says.

Sidelined to the (Indian) National Human Rights Commission, Kalha’s book was also buried under a mound of silence, not reviewed and made no impression in the popular media.

One press release by PTI was recycled by The Economic Times, Outlook, Sahara Samay, The Hindu, India Today, and NDTV. Google and Live Search hardly turned up anything. Yahoo.co.in showed some these links.

Bush Whacking Iraq

Another post which made waves was posted in currencytrading.net – which highlighted how some countries were possibly moving away from the dollar peg or /and diversifying dollar reserves.

These 7 countries were Saudi Arabia, South Korea, China, Venezuela, Sudan, Iran and Russia. Venezuela and Iran have already moved away from designating oil sales in US dollars.

The only plausible reason why US worked so hard to get the 123 Agreement for India was to keep India (and hence, South Africa also) away from any third currency bloc efforts – for some time at least .

Let The Games Begin

In the last 5 years, more than US$10 trillion were printed and the world is awash with dollars.Where did this money go? How was this used?

“Lendings by US commercial banks in the period 2000 to 2004 soared by altogether USD 1,500bn to USD 6,750bn. In the European Monetary Union lending to the private sector by monetary financial institutions (MFI) climbed from roughly EUR 6,200bn end-1999 to not quite EUR 8,700bn at the end of last year.” – Allianz Report, Dresdner Bank.(Links mine)

The recipients of this largesse, mainly Western banks have made (it is whispered) bad loans worth 300-400 billions dollars. I am confident that the actual figure is much higher.

The loans story does not end there.

These loans were in turn sold and re-sold, then packaged and mortgaged, derived and contrived – finally ballooning into the ‘sub-prime’ crisis. Are these welfare payouts by another name? Who will pay for this “lending”? US Consumers are not repaying their housing loans.

Some one has to!

What's Happening Helicopter Ben?

The Federal Reserve & Ben Bernanke

From March 23, 2006, information regarding M3 data was no longer published. The US printing presses started working 24 x 7 x 365.

From there it was a short step away to predict a financial crisis. Nouriel Roubini started off with an estimate of US$1 trillion to US$2.7 trillion write offs. Charles Morris wrote a book, “The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash”.

Yet $1 trillion is the amount of defaults and writedowns Americans will likely witness before they emerge at the far side of the bursting credit bubble, estimates Charles R. Morris in his shrewd primer, “The Trillion Dollar Meltdown.” That calculation assumes an orderly unwinding, which he doesn’t expect. “The sad truth,” he writes, “is that subprime is just the first big boulder in an avalanche of asset writedowns that will rattle on through much of 2008.” wrote Roubini.

Asians Are Funding the US

Total US debt has crossed 300% of GDP (all sectors). What this means is that if every income earning member of the US were to assign 30% of their income, every year, for the next 25 years (at current interest rates and borrowing rates), US debt will come to possible close to zero level. Government debt in comparison to GDP is fluctuating between 50% to now nearly 100%. Some claim that the debt burden is actually declining.

Who is stuck with this hoard of dollars – getting devalued daily. China (with more than 2 trillion dollars), Japan (another trillion dollars), Russia (400 billion dollars), India (300 billion dollars) are the top 4 countries.

Asia lost last year (my estimate) more than US$300 billion dollars due to the monetary policy of the USA. Deliberate, well thought out monetary policy by the USA Government.

The truth is that American lifestyle is being maintained due to Asian stupidity. The Chinese, Japanese, Indian, and other ASEAN countries have lent the USA – which is in the hock by over, US$4 trillion dollars. They will lose US$ 400 billion for the privilege of lending US$4 trillion to the USA. They designate trade in US dollars worth another few trillion dollars a year – which is zero-cost-to-US depreciating currency ‘float’ that the US benefits from.

The Big Mac index (based on two simple ideas of PPP and a standard industrial product) shows the dollar is overvalued against most currencies of the world. This over-valuation range is about 53% in case of India. What that means is that the US pays India only half the amount of what it should actually pay. And India pays double for whatever it buys from the USA.

The Tail That Wags The Dog

Kenichi Ohmae made his reputation with many books at the height of the Japanese boom – holding forth to spell bound audiences on the ‘miracles of Japanese management.’ One of his interesting observations was the quantification of currency trading – which he saw as a positive. “As Kenichi Ohmae observes in his book The Borderless World, the “tail” of foreign exchange trading has in recent years vastly outgrown the original “dog” (Money Meltdown, By Judy Shelton, Page 104).

Living upto his reputation, ” Kenichi Ohmae, nicknamed “Mr. Strategy” during his 23 years as a McKinsey & Co. partner, called for a $5 trillion “international facility” to be made available to financial institutions.” as a solution to the 2008 US-dollar crisis.

What has happened as a result of unsustainable policies (simultaneous budget and current account deficits, and loose monetary and fiscal policies) in the US is that a huge liquidity bubble of $7-10 trillion has caused massive inflation in global prices for all asset classes: property, stocks, commodities, etc. – Percy S Mistry / New Delhi February 28, 2008 (bold letters mine).

The ICBC IPO received subscriptions of half a trillion dollars! IMF estimates of funds with Sovereign Wealth Funds (SWFs) is US$2-3 trillion – and “foreign assets under management of SWFs could reach US$6–10 trillion by 2013“. The same IMF study also estimates that global financial assets are currently valued at US$190 trillion. Commodity prices are going through the roof.

Very soon, major movements will be measured in trillions – thanks to the humongous printing presses, that the US has used in the last few years. Daily trading volumes total US$1.5 trillion in the Forex Markets. To that add trading volumes of debt markets, stock markets and commodity markets. Combined global trading volumes now cross US$3.0 trillion – and growing. This degree of hysterical trading had made the US$ into a giant wrecking ball – which goes out of control very few years.

To overcome this crisis, Kenichi Ohmae says it will require another US$ 5 trillion. The bill for US$ 62 trillion of CDS (Credit Default Swaps) write downs, has just started coming in. Credit card debt of another US$ 10 trillion has just started.

Does George Bush Even Know How Many Zeroes In Trillion?

How Many Zeroes In A Trillion?

Does Dubya know?

To put it in perspective. The whole of India, produced last year, goods and services worth US$1 trillion. And the US – US$14 trillion.

Did banks lend out 7-10 trillion US$ in doubtful loans (Why didnt I get any of this?)? Who will pay the price for this? How will this get financed? Can we continue running the world financial system like this?

Related articles

• Bernanke: Tolerating dissent as Fed chair but pushing past it (seattletimes.nwsource.com)
• DeLong: Ben Bernanke’s Dream World (economistsview.typepad.com)
• What To Watch For In This Week’s FOMC Meeting (businessinsider.com)
• Ben Bernanke: Reports On Fed’s Loans Contained ‘Egregious Errors And Mistakes’ (huffingtonpost.com)
• Bernanke vs. Bloomberg (huffingtonpost.com)
• Ben Bernanke Bites Back (swampland.time.com)

The World Financial System – Shape of Things To Come …

The US President, flanked by Treasury Secretary, Jack Fleischacker, and Paul M.Gruber, Governor, European Central Bank, in a stunning move, announced the merger and re-capitalisation of the IMF and World Bank – a plan to rescue world economy.

IMAR

The new entity has been named as International Monetary Authority & Reserve (IMAR) – and will operate from Paris. It has been given the responsibility for world’s economic stabilisation.

The Governing Council Members will initially comprise of 3 internationally respected financial authorities and investors. The Chairman is likely to be Barran Wolfet and his team members are Sorg Goros and Rim Joggers. “The selection of the Governing Board was done on the basis of consensus and the expertise of the incumbents. This is not the time for being narrow – when the future of the global financial system is at stake.”, said Governor Gruber.

Capital Subscriptions

The US has subscribed to promissory notes worth 25,000 tons of gold, currently held at Fort Knox. The ECB will subscribe to the tune of 20,000 tons of gold – to be held at various European national Government vaults. Australia and Canada have also announced subscriptions to the tune of 10,000 tons of gold each to be held in bonded vaults at Montreal and Canberra respectively. Britain and Switzerland have committed 5000 tons – out of the Bank of England and Schweizerische Nationalbank (SNB) reserves. These countries will be allocated voting rights proportionately, based on IMAR gold reserve subscriptions.

The US dollar will now be backed by IMAR promisorry notes – which President Jack Boucher, asserted will create confidence in the US dollar – and in the world financial system.

Governor Gruber remarked,”The Bretton Woods Agreement has facilitated a “historic economic expansion in the global trade” – and this new measure will further strengthen the Bretton Woods system. IMAR single-point agenda is stabilization of the global economy.” Country reserves will be nominated on the basis of IMAR promissory notes – and countries will report on these regularly. Total monetary aggregates for the national economy will also see a change. “Old economic measures like M3 money figures will no longer be relevant in the era of derivatives and options”, said Gruber.

The ASEAN, Chinese and Japanese Governments have cautiously welcomed this move, with a joint declaration saying “this will hopefully lend some stability to the US dollar – and the trillions of reserves that we maintain”. The new martial law administrators in the South African Government are due to the announce their subscriptions soon. Saudi Arabia, Iraq, the UAE and Singapore have announced that they will be committing substantial assets towards their share of subscriptions. Russia is still undecided – and expected to approve soon.

Criticism

India has criticised the move strongly. Prime Minister, Sonia Gandhi said, “this new system will perpetuate existing economic systems and divisions.” Iran’s President, Mohammed Hussaini bluntly dismissed this development and said, “the developing world will not have a voice in the new organization.”

The new Indian Finance Minister Banta Singh said,”This will not help in restructuring the international finacial systems. This is not the ‘new financial architecture’ that we are want.” When asked what his ideas were were declined to reveal them, as “it too premature.”

The IMAR Governor, Wolfet rejected the criticism, saying, “IMAR will be a international body – for implementing a rescue plan for the world economy. Developing Countries will have 50% representation on the Director’s Register. They, can get even higher voting rights by increased subscriptions. Our past experience shows that countries print currency – and risk global financial equilibrium. We cannot allow that to happen again.”

US and the EU have also announced a doubling in aid allocations. Instead of outright grants in aid, transfers will now be based on mutual trade norms. African countries, for instance, will be able to develop trade with the West – while receiving aid. EU and USA will commit to specific trade volumes, such that Africa will be able to develop, for instance, its mining and resource based industries.

Currency Fluctuations

Governor Gruber claimed that “currency fluctuations are a thing of the past, as trade will now be denominated by currency demand and supply. International currency acceptance will be determined by IMAR reserves of each currency system.”

Gold Reserves

The most interesting part of this development is the quantum of gold being committed by the subscribers. The ECB and the Federal Reserve have been able to fulfill their subscriptions based on gold reserves that they have enhanced in the last few months.

It is being whispered that Barran Wolfet and his team members, Sorg Goros and Rim Joggers had played a major role in the enhancement of these gold stocks – and the formation of IMAR. Initially named as Global Financial Reserve Authority for Development, the IMAR idea was first tossed out over a dinner at the famous Les Ambassadeurs eatery – which offers a classic cuisine by the Ducasse-trained chef, Jean-François Piege.

Want to decode this news? What this really means for you! Ask St.Barnum, The Propaganda Slayer.

Post Script

On 8th October, 2008, it was reported, that both the Republican and Democratic  candidates concede that Warren Buffet …

would be a good replacement for current Treasury Secretary Henry Paulson who is standing down at the end of the current administration.

“I think the first criteria, would have to be somebody who immediately Americans identify with. Immediately say we can trust that individual,” said McCain. Buffett, chief of the Berkshire Hathaway holding company, has supported Obama in the race for the White House.

Andy Mukherjee’s Poverty

Andy Mukherjee – On The American Stimulus Package

Andy Mukherjee, on Wednesday, February 13, 2008, in his syndicated column used his Asian background with devastating effect. Devastating to his (at least, partly Indian) background.

He writes, “the stimulus package that has been put together to keep the U.S. economy from tipping into a recession”.

Just what is the problem with that. In the current economic thinking, all Governments are expected to create these ‘stimulus’ package.

Andy Still Talks Of Aid

He further writes,

“At $168 billion, the largesse is almost three-fifths more generous … than the record $107 billion that 22 rich nations together gave out as official foreign aid in 2005 …” (ellipsis mine)

I thought every country has a right – and as per current acceptable political philosophy, it is the bounden duty of Governments to be generous to their citizens. What exactly is the objection that Andy has to the US Government’s ‘largesse’ and ‘munificence’, (his words)? I am unclear about on that till now.

Which planet is Andy on? Since he is writing a business and finance columns, is he aware (I hope he is) of the large body of research that shows how aid has in fact creates problems – and doesn’t solve any. The notorious PL-480 was abandoned because it elongated the cycle of food scarcity.

Low self esteem, Andy?

He advises,

“Middle-class Asians ought to turn green with envy at the “home bias” implicit in the munificence of President George W. Bush’s administration.”

So what does Andy expect – Uncle Sam should be more liberal to Asians than to Americans? Does he expect Americans to earn and be taxed for the benefit of Asians? And just why does he think that Asians (at least Indians) will turn green with envy.

I am sure that Asia wishes to compete with the largest, best, competitive economies – but surely there is no envy involved (exceptions apart). I am also sure (unlike Andy) that, in time, we will create a level playing field (more important and more on that later) and Americans will want to be born in Asia (and most probably, India).

Andy’s Cheques by mail programme

Unlike the 111 million US households that will enjoy some tax rebate, there won’t be any cheques in the mailbox for the Asian workers.

And who exactly does Andy think, is going to send cheques by mail to Asians? Americans? Just why will Americans do that? How does Andy think Americans will fund this Andy’s ‘cheques by mail’ programme? Does Andy think that 60-80 million working Americans can suport 3 billion Asians?

And why does Andy think that Asians will queue up to take this charity? Just why is Andy’s opinion of Asians so low? Is is it because of his own low self esteem?

Asians Are Funding the US Stimulus Plan

Asia lost last year (my estimate) more than US$300 billion dollars due to the monetary policy of the USA. Deliberate, well thought out monetary policy by the USA Government.

The truth my dear Andy, is that American lifestyle is being maintained due to Asian stupidity. The Chinese, Japanese, Indian, and other ASEAN countries have lent the USA – which is in the hock, by over US$4trillion dollars. They will lose US$ 300 billion for the privilege of lending US$4 trillion to the USA.

What? Asians Fund The USA …

Why? Because the system is fixed. Go back to Bretton Woods! The Anglo Saxon Bloc controlled 80% of the world’s gold production and reserves. Hence, only they could underpin their currency with gold- which the world accepted. It is separate story that they defrauded the world – and the system unravelled within a short 20 years.

And the world has been paying a price for that moment of folly.

What Does Asia Need

Asians need to create a new financial system. That is what Asia needs – and that is what US has been sabotaging for years now.

And a case for that is what I would have expected from you, Andy – or is that too much too ask for!