Published on 3 Aug 2019
Published on 3 Aug 2019
What if tomorrow nobody but the United States would use the US-dollar? Every country, or society would use their own currency for internal and international trade, their own economy-based, non-fiat currency. It could be traditional currencies or new government controlled crypto-currencies, but a country’s own sovereign money. No longer the US-dollar. No longer the dollar’s foster child, the Euro.
No longer international monetary transactions controlled by US banks and – by the US-dollar controlled international transfer system, SWIFT, the system that allows and facilitates US financial and economic sanctions of all kinds – confiscation of foreign funds, stopping trades between countries, blackmailing ‘unwilling’ nations into submission. What would happen? – Well, the short answer is that we would certainly be a step close to world peace, away from US (financial) hegemony, towards nation states’ sovereignty, towards a world geopolitical structure of more equality.
We are not there yet. But graffiti are all over the walls signaling that we are moving quite rapidly in that direction. And Trump knows it and his handlers know it – which is why the onslaught of financial crime – sanctions – trade wars – foreign assets and reserves confiscations, or outright theft – all in the name of “Make America Great Again”, is accelerating exponentially and with impunity. What is surprising is that the Anglo-Saxon hegemons do not seem to understand that all the threats, sanctions, trade barriers, are provoking the contrary to what should contribute to American Greatness. Economic sanctions, in whatever form, are effective only as long as the world uses the US dollar for trading and as a reserve currency.
Once the world gets sick and tired of the grotesque dictate of Washington and the sanction schemes for those who do no longer want to go along with the oppressive rules of the US, they will be eager to jump on another boat, or boats – abandoning the dollar and valuing their own currencies. Meaning trading with each other in their own currencies – and that outside of the US banking system which so far even controls trading in local currencies, as long as funds have to be transferred from one nation to another via SWIFT.
Many countries have also realized that the dollar is increasingly serving to manipulate the value of their economy. The US-dollar, a fiat currency, by its sheer money mass, may bend national economies up or down, depending on which direction the country is favored by the hegemon. Let’s put the absurdity of this phenomenon in perspective.
Today, the dollar is based not even on hot air and is worth less than the paper it is printed on. The US GDP is US$ 21.1 trillion in 2019 (World Bank estimate), with current debt of 22.0 trillion, or about 105% of GDP. The world GDP is projected for 2019 at US$ 88.1 trillion (World Bank). According to Forbes, about US$ 210 trillion are “unfunded liabilities” (net present value of future projected but unfunded obligations (75 years), mainly social security, Medicaid and accumulated interest on debt), a figure about 10 times the US GDP, or two and a half times the world’s economic output.
This figure keeps growing, as interest on debt is compounded, forming part of what would be called in business terms ‘debt service’ (interest and debt amortization), but is never ‘paid back’. In addition, there are about one to two quadrillion dollars (nobody knows the exact amount) of so-called derivatives floating around the globe. A derivative is a financial instrument which creates its value from the speculative difference of underlying assets, most commonly derived from such inter-banking and stock exchange oddities, like ‘futures’, ‘options’, ‘forwards’ and ‘swaps’.
This monstrous debt is partly owned in the form of treasury bonds as foreign exchange reserves by countries around the world. The bulk of it is owed by the US to itself – with no plans to ever “pay it back” – but rather create more money, more debt, with which to pay for the non-stop wars, weapon manufacturing and lie-propaganda to keep the populace quiet and in lockstep.
This amounts to a humongous worldwide dollar-based pyramid system. Imagine, this debt comes crashing down, for example, because one or several big (Wall Street) banks are on the brink of bankruptcy, so, they claim their outstanding derivatives, paper gold (another banking absurdity) and other debt from smaller banks. It would generate a chain reaction that might bring down the whole dollar-dependent world economy. It would create an exponential “Lehman Brothers 2008” on global scale.
The world is increasingly aware of this real threat, an economy built on a house of cards – and countries want to get out of the trap, out of the fangs of the US-dollar. It’s not easy with all the dollar-denominated reserves and assets invested abroad, all over the globe. A solution may be gradually divesting them (US-dollar liquidity and investments) and moving into non-dollar dependent currencies, like the Chinese Yuan and the Russian Ruble, or a basket of eastern currencies that are delinked from the dollar and its international payment scheme, the SWIFT system. Beware of the Euro, it’s the foster child of the US-dollar!
There are increasingly blockchain technology alternatives available. China, Russia, Iran and Venezuela are already experimenting with government-controlled cryptocurrencies to build new payment and transfer systems outside the US-dollar domain to circumvent sanctions. India may or may not join this club – whenever the Modi Government decides which way to bend – east or west. The logic would suggest that India orients herself to the east, as India is a significant part of the huge Eurasian economic market and landmass.
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India is already an active member of the Shanghai Cooperation Organization (SCO) – an association of countries that are developing peaceful strategies for trade, monetary security and defense, comprising China, Russia, India, Pakistan, most Central Asian countries and with Iran waiting in the wings to become a full-fledged member. As such, SCO accounts for about half of the world population and a third of the world’s economic output. The east has no need for the west to survive. No wonder that western media hardly mention the SCO which means that the western average public at large has no clue what the SCO stands for, and who are its members.
Government-controlled and regulated blockchain technology may become key to counter US coercive financial power and to resist sanctions. Any country is welcome to join this new alliance of countries and new but fast-growing approach to alternative trading – and to finding back to national political and financial sovereignty.
In the same vein of dedollarization are Indian “barter banks”. They are, for example, trading Indian tea for Iranian oil. Such arrangements for goods to be exchanged against Iranian petrol are carried out through Indian “barter banks”, where currencies, i.e. Iranian rials and Indian rupees, are handled by the same bank. Exchange of goods is based on a list of highest monetary volume Indian trade items, against Iranian hydrocarbon products, for example, Iran’s large import of Indian tea. No monetary transaction takes place outside of India, therefore, US sanctions may be circumvented, since no US bank or US Treasury interference can stop the bilateral trade activities.
At this point, it might be appropriate to mention Facebook’s attempt to introduce a globe-spanning cryptocurrency, the Lira. Little is known on how exactly it will (or may) function, except that it would cater to billions of facebook members around the world. According to Facebook, there are 2.38 billion active members. Imagine, if only two thirds – about 1.6 billion – opened a Libra account with Facebook, the floodgate of libras around the world would be open. Libra is or would be a privately-owned cryptocurrency – and – coming from Facebook – could be destined to replace the dollar by the same people who are now abusing the world with the US-dollar. It may be projected as the antidote to government-controlled cryptocurrencies, thus, circumventing the impact of dedollarization. Beware of the Libra!
Despite US and EU sanctions, German investments in Russia are breaking a 10-year record in 2019, by German business pouring more than €1.7 billion into the Russian economy in the first three months of 2019. According to the Russian-German Chamber of Commerce, the volume of German companies’ investments in Russia is up by 33% – by € 400 million – since last year, when total investments reached € 3.2 billion, the largest since 2008. Despite sanctions which amounted to about € 1 billion combined for 140 German companies surveyed and registered with the Chamber of Commerce, and despite western anti-Russia pressure, Russia-German trade has increased by 8.4 percent and reached nearly € 62 billion in 2018.
In addition, notwithstanding US protests and threats with sanctions, Moscow and Berlin continue their Nord Stream 2 natural gas pipeline project which is expected to be finished before the end of 2019. Not only is the proximity of Russian gas a natural and logical supply source for Germany and Europe, it will also bring Europe independence form the bullying sales methods of the United States. And payments will not be made in US dollars. In the long-run, the benefits of German-Russian business and economic relations will far outweigh the illegal US sanctions. Once this awareness has sunk in, there is nothing to stop Russian-German business associations to flourish, and to attract other EU-Russian business relations – all outside of the dollar-dominated banking and transfer system.
President Trump’s trade war with China will eventually also have a dedollarization effect, as China will seek – and already has acquired – other trading partners, mostly Asian, Asian-Pacific and European – with whom China will deal in other than dollar-denominated contracts and outside the SWIFT transfer system, for example using the Chinese International Payment System (CIPS) which, by the way, is open for international trade by any country across the globe.
This will not only circumvent punishing tariffs on China’s exports (and make US customers of Chinese goods furious, as their Chinese merchandise is no longer available at affordable prices, or no longer available at all), but this strategy will also enhance the Chinese Yuan on international markets and boost the Yuan even further as a reliable reserve currency – ever outranking the US-dollar. In fact, in the last 20 years, dollar-denominated assets in international reserve coffers have declined from more than 90% to below 60% and will rapidly decline further as Washington’s coercive financial policies prevail. Dollar reserves are rapidly replaced by reserves in Yuan and gold, and that even in such staunch supporters of the west as is Australia.
Washington also has launched a counter-productive financial war against Turkey, because Turkey is associating and creating friendly relations with Russia, Iran and China – and, foremost, because Turkey, a NATO stronghold, is purchasing the Russian S-400 cutting-edge air defense system – a new military alliance which the US cannot accept. As a result, the US is sabotaging the Turkish currency, the Lira which has lost 40% since January 2018.
Turkey will certainly do whatever it can to get out from under the boot of the US-dollar stranglehold and currency sanctions – and further ally itself with the East. This amounts to a double loss for the US. Turkey will most likely abandon all trading in US dollars and align her currency with, for example, the Chinese Yuan and the Russian ruble, and, to the detriment of the Atlantic alliance, Turkey may very likely exit NATO. Abandoning NATO will be a major disaster for the US, as Turkey is both strategically, as well as in terms of NATO military power one of the strongest – if not the strongest – nation of the 29 NATO members, outside of the US.
If Turkey exits NATO, the entire European NATO alliance will be shaken and questioned. Other countries, long wary of NATO and of storing NATO’s nuclear weapons on their soils, especially Italy and Germany, may also consider exiting NATO. In both Germany and Italy, a majority of the people is against NATO and especially against the Pentagon waging wars form their NATO bases in their territories in Germany in Italy.
To stem against this trend, the former German Defense Minister, Ursula von der Leyen, from the conservative German CDU party, is being groomed to become Jean-Claude Juncker’s successor as President of the European Commission. Mr. Juncker served since 2014. Ms. Von der Leyen was voted in tonight, 17 July, with a narrow margin of 9 votes. She is a staunch supporter of NATO. Her role is to keep NATO as an integral part of the EU. In fact, as it stands today, NATO is running the EU. This may change, once people stand up against NATO, against the US vassal, the EU Administration in Brussels, and claim their democratic rights as citizens of their nation states.
Europeans sense that these Pentagon initiated and ongoing wars and conflicts, supported by Washington’s European puppet allies, may escalate into a nuclear war, their countries’ NATO bases will be the first ones to be targeted, sinking Europe for the 3rdtime in a 100 year world war. However, this one may be all-destructive nuclear – and nobody knows or is able to predict the damage and destruction of such a catastrophe, nor the time of recovery of Mother Earth from an atomic calamity.
So, let’s hope Turkey exits NATO. It would be giant step towards peace and a healthy answer to Washington’s blackmail and sabotage against Turkey’s currency. The US currency sanctions are, in the long run, a blessing. It gives Turkey a good argument to abandon the US dollar and gradually shift towards association with eastern moneys, mainly the Chinese Yuan, thereby putting another nail in the US-dollar’s coffin.
However, the hardest blow for Washington will be when Turkey exits NATO. Such a move will come sooner or later, notwithstanding Ms. Von der Leyen’s battle cries for NATO. The breaking up of NATO will annihilate the western power structure in Europe and throughout the world, where the US still maintains more than 800 military bases. On the other hand, the disbanding of NATO will increase the world’s security, especially in Europe – for all the consequences such an exit will bear. Exiting NATO and economically exiting the US-dollar orbit is a further step towards dedollarization, and a blow to US financial and military hegemony.
Finally, investments of the Chinese Belt and Road Initiative (BRI), also called the New Silk Road, will be mostly made in Yuan and local currencies of the countries involved and incorporated in one or more of the several BRI land and maritime routes that eventually will span the globe. Some US-dollar investments may serve the People’s Bank of China, China’s Central Bank, as a dollar-divesting tool of China’s huge dollar reserves which currently stands at close to two trillion dollars.
The BRI promises to become the next economic revolution, a non-dollar economic development scheme, over the coming decades, maybe century, connecting peoples and countries – cultures, research and teaching without, however, forcing uniformity, but promoting cultural diversity and human equality – and all of it outside the dollar dynasty, breaking the nefarious dollar hegemony.
Peter Koenig is an economist and geopolitical analyst. He is also a water resources and environmental specialist. He worked for over 30 years with the World Bank and the World Health Organization around the world in the fields of environment and water. He lectures at universities in the US, Europe and South America. He writes regularly for Global Research; ICH; RT; Sputnik; PressTV; The 21st Century; TeleSUR; The Saker Blog, the New Eastern Outlook (NEO); and other internet sites. He is the author of Implosion – An Economic Thriller about War, Environmental Destruction and Corporate Greed – fiction based on facts and on 30 years of World Bank experience around the globe. He is also a co-author of The World Order and Revolution! – Essays from the Resistance. He is a Research Associate of the Centre for Research on Globalization. Copyright © Peter Koenig, Global Research, 2019 This article was originally published on New Eastern Outlook.
JULY 29, 2019
Debts that can’t be paid, won’t be. That point inevitably arrives on the liabilities side of the economy’s balance sheet.
But what of the asset side? One person’s debt is a creditor’s claim for payment. This is defined as “savings,” even though banks simply create credit endogenously on their own computers without needing any prior savings. When debts can’t be paid and debtors default, what happens to these creditors?
As President Obama showed, banks and bondholders can be bailed out by new Federal Reserve money creation. That is what the $4.6 trillion in Quantitative Easing since 2008 was all about. The Fed has spent the last few years supporting stock market prices (and holding down gold prices) by manipulating the forward option markets.
But this artificial life support to keep the debt overhead afloat is nearing the reality of the debt wall. The European Central Bank has almost run out of available euro-bonds to buy. The new fallback position to keep the increasingly zombified U.S. and Eurozone financial markets afloat is to experiment with negative interest rates.
Writing down savings by a few percentage points helps bring the glut of creditor claims marginally back towards balancing bank deposits with the ability of debtors to pay. But such marginal moves are rarely sufficient. A quantum leap is needed.
Governments have long followed a basic guideline when faced with a need to devalue their currencies (for instance, as the dollar was devalued against gold in 1933). Nothing is worse for a politician or central banker than to be overly shy when it comes to devaluation. The motto is, “Always depreciate to access.” That means at lest 25 percent, often a third when a basic structural adjustment is needed.
The recent experiment in negative interest rates writing down savings as a necessary compliment to the inevitable debt writedowns means that financial policy makes are beginning to fact the hitherto unthinkable fact that many zombie companies and debtors have no foreseeable means of paying the amounts that they owe on paper.
The tendency of debts to grow exponentially at rates in excess of the economy’s ability to create an economic surplus to pay creditors has been known for nearly 5,000 years. My book “… and forgive them their debts” describes how ancient Near Eastern rulers recognized the inherent tendency of financial dynamics to cause instability, leading to debt bondage and forfeiture of land to creditors.
To prevent this rising indebtedness from tearing their realms apart, rulers started their first full year on the throne by clearing away the overhang of arrears that had been accruing on personal and agrarian debts. The aim was to restore an idealized “mother condition” in which bondservants were liberated, able to start with a Clean Slate with their self-support land returned to them, in balance with regard to their income and outgo.
An analogy would be the idyllic condition that the U.S. economy would achieve if we could restore the financial situation that existed in 1945. The end of World War II left an economy in which most families were almost debt-free. Families and businesses and were rife with cash, as there had not been much opportunity to spend during the wartime years, and the Great Depression had wiped out substantial debts. Returning soldiers were able to start families and buy homes by committing to pay only 25 percent of their income for 30 years. This era was as close as the United States came to a Clean Slate. Today it seems an unrecoverable golden age – as the ancient Near East seemed to be to debt-wracked imperial Rome.
Germany’s Economic Miracle consisted of its Allied Monetary Reform of 1948 – a Clean Slate erasing most personal and business. That debt cancellation was fairly easy because most debts were owed to Nazis, and the Allies were glad to see their savings claims for payment wiped out.
Fast forward to today: Indebted students graduate with an obligation to pay so much education debt that they cannot qualify for mortgages to buy homes of their own. Marriage rates are down, U.S. homeownership is plunging, and rents are rising. Automobile debt also has soared, leading to rising default rates second only to student debt defaults. The overhang of junk-mortgage debts that crashed the economy in 2008 remains on the books of families who managed to survive the ten million foreclosures under the Obama bailout of Wall Street. (His constituency turned out to be his Donor Class, not the junk-mortgage victims among his voters. He characterized them as “the mob with pitchforks” to the banksters he invited to the White House to celebrate his bailout.)
By driving down interest rates, the Fed’s policy of Quantitative Easing has subsidized an enormous debt buildup without increasing the interest burden proportionally. This has enabled corporations to carry much higher debt and even indulge in leveraged buyouts and stock buyback programs.
This QE policy has made financial engineering much more enriching than industrial engineering. But it has painted the U.S. and European economies into a corner. At some points, interest rates will inevitably begin to rise back up. Some countries will have to increase rates in order to borrow to stabilize their exchange rates when their balance of trade and payments falls into deficit. Other countries will simply see that the game is over and will give up the pretense that the personal, corporate and public-sector debt overhead can be paid.
It is to prepare for this inevitable eventuality that Europe is experimenting with its trial run of negative interest rates. Once the technique is established, it will prepare the way for the inevitable step of writing down national savings in line with the economy’s ability to pay.
That ability is shrinking much more than at any time since the 1920’s, which gave way to the Great Depression despite the many debt writedowns of 1931-32. The exponential mathematics of compound interest have created more and more claims on personal income and corporate cash flow, leaving less and less to be spent on goods and services.
Until a debt write-down occurs, storefronts will continue to close, arrears will mount, students will continue to postpone marriage and family formation, high-risk bonds will begin to give way and default.
That should be what economic theory is all about. But for the past generation, economic models have pretended that banks and creditors act responsibly enough not to make bad loans. Pension fund managers pretend that they can provide for future retirement by corporate or public employees by earning 8 percent annually ad infinitum, doubling every 7 years, as if this is really possible in an economy not really growing outside of the Finance, Insurance and Real Estate (FIRE) sector (and even so, growing at only 1 or 2 percent). How then can the economy pay its debts without imposing financial austerity much like Third World countries subjected to IMF austerity programs?
Today’s economic orthodoxy denies that this debt problem can exist. Debt dynamics and the exponential growth curve of compound interest does not exist in the parallel academic universe that somehow has been situated in the social science department instead of the literature department as science fiction.
Perhaps someday a revamped economics curriculum will include the study of history to see how earlier societies have coped with the inherent tendency of debts to increase faster than the ability to be paid. It is a long history with many examples. Western civilization has failed to solve the financial problem that Near Eastern societies were able to cope with by intervening from “outside” the economy.
But these formative debt experiences are as repressed today as sexual drives repressed academically before the work of Freud. Academic economists are financial prudes. Debt cancellation is historically the solution. Quantitative Easing and bailouts of the One Percent can only be a temporary substitute. We should think of them as “abstinence” from recognizing the need to write down bad loans (“savings”) along with the bad debts.
False hope breeds crippling apathy – This is what I have to think to myself when I see the news media fervor over the second arrest of billionaire Jefferey Epstein, or similar events which in most cases end up fading into the background and forgotten. The public’s favorite distraction has always been to watch high profile people kicked out of their castles in the clouds, but I would point out that even when the globalists sacrifice one of their own in the public eye it is usually only to satiate the masses and their hunger for justice for a very short time. The system is not designed to root out evil; it is designed to obscure and perpetuate evil.
Epstein is a perfect example of this. He was already prosecuted on pedophilia charges over 12 years ago and received a “sweetheart” plea deal which allowed him to serve a mere 13 month sentence. How many child rapists get that kind of treatment in our court system? And what about the vast array of people (including political leaders) that were close friends and associates with Epstein during his “Lolita Express” days? Are we really to believe they knew nothing about what was going on? That they visited his island and never saw any wrongdoing?
Why didn’t they come forward immediately? Why did they wait until Epstein was already being prosecuted before they publicly admonished him? Is it because they were involved in the same activities? And if so, why have they not been prosecuted as well?
My point is, people should lower their expectations that justice will be served or that the “dominoes will fall” in the Epstein case. Also, keep in mind that James Comey’s daughter, Maureen Comey, will be on the prosecution team in the case, AND , Donald Trump’s Labor Secretary, Alexander Acosta, is the same man who brokered Epstein’s immunity deal. Like strands of malignant cancer, these people are wrapped around every facet of government.
But this is not just about Epstein, and as much as I would also like to see the guy hang for his crimes, I have to admit that this latest event is probably nothing more than another piece of theater meant to give the public false hope that the system is changing and that elitist criminals will be treated the same as any other criminal. How often does this ever happen?
How about the Bernie Madoff scandal? Madoff runs a Ponzi scheme that devoured $65 billion in client funds and he is sentenced to 150 years in prison, but JP Morgan, the bank that HELPED Madoff move his stolen money, got nothing more than a fine.
In the wake of the 2008 credit crash and the exposure of the fraudulent derivatives market, many people thought banker heads were going to roll, yet in the US only one banker, a little known executive at Credit Suisse named Kareem Sarageldin, actually served jail time. After admitting to fraud and inflating bond prices associated with mortgage backed securities, Sarageldin was sentenced to 30 months in prison.
The Financial Times went on to publish an article in 2018 on this matter, claiming they would “dispel the myth that no one was held accountable for the derivatives crash”. They came up with a list of 47 names. The article went on to admit that the vast majority of bankers arrested were in Iceland (where the prisons are like country clubs). The rest came primarily from low level banks or were mid-level employees. The number of CEO’s on the list is decidedly slim, and banks like JP Morgan and Goldman Sachs, the biggest perpetrators of derivatives fraud, are decidedly absent.
The base argument for these types of articles is in itself a kind of fraud. I don’t think that most people assume that “no one” was prosecuted over the fraud that helped create the crash of 2008, a crash the economy is still suffering from. I think that most people assume none of the elites at the top of the pyramid were prosecuted, and perhaps with the exception of former IMF managing director Rodrigo Rato in Spain who was only charged with credit card fraud, this assumption is a correct one.
The most egregious criminals are rarely ever touched by scandal or jail time because they stand in key positions within our system. You will never see central bankers in the Federal Reserve suffer punishment for consistently and deliberately fueling economic bubbles through artificially low interest rates and stimulus measures. You will never see them prosecuted for deliberately imploding these bubbles with perfectly timed liquidity tightening and interest rate hikes into economic weakness.
In fact, just this week Fed Chairman Jerome Powell told the Financial Services Committee that if Trump tried to fire him, he would simply ignore him and remain in his position for the full term. It is rather odd to me that almost no one in the alternative media covered his statement, perhaps because it runs contrary to the latest narrative that Powell is “afraid of Trump” and that Trump now has control of the Fed. This is nonsense. Even Trump’s own acting Chief of Staff noted that Trump “knows he does not have the authority to fire Powell”.
People who think the President chooses the Fed Chairman do not understand how the system actually works. The Fed board controls who the Chair is, and can simply vote to put whoever they wish in the position regardless of what the President does, according to Bill English, a former FOMC secretary and advisor to the Board. This means that Trump’s “choice” of Fed Chair is merely ceremonial. Trump has no power whatsoever over the central bank.
So why does this delusion persist? Again, because people become addicted to false hope. The banking elites will never be punished by the system they control. They would have to be punished by other means.
You will never see IMF heads punished for loan sharking nations into oblivion. Hell, the Bank for International Settlements laundered money for the Nazis and yet they were never punished and still exist to this day! The president of the BIS at the time, Thomas McKittrick, never faced prosecution after the war, went on to work for Chase Manhattan bank, and received a pleasant eulogy from The New York Times after his death in 1970, even though the New York Times also reported on admissions from the BIS that they had helped the Nazis.
Some might argue that this trend of one law for the people and no law for the money elite will finally change under Donald Trump’s presidency, but I find that sentiment to be highly naive. First and foremost, Trump is far too close the money elite to punish them, even if he wanted to. His extensive associations with Rothschild banking agent Wilber Ross, the man who bailed Trump out of his considerable debts in his Atlantic City casino project in the 1990s and who is now Commerce Secretary in Trump’s cabinet, sets a tone for Trump’s presidency that is NOT anti-banker or anti-globalist.
It should be clear to most people now that there will be no “draining of the swamp”, not even from the White House. Trump’s promises to seek prosecution of the Clintons for their criminal activities, which include mishandling of classified data, fraud, and a host of other repulsive behaviors, have fallen flat. Trump’s campaign position to hold the Federal Reserve accountable for the historic bubble they have inflated in stock markets through low interest rates and stimulus is gone. Now Trump takes credit for the bubble as if it is a good thing, and is demanding even more stimulus from the Fed.
And yet, there are still people out there that imagine this is all part of some elaborate ruse on Trump’s part; that he is playing a game of “4D Chess” with the globalists. I believe this insane delusion stems from a singular psychological malfunction that is suffered by many people – the idea that the system, no matter how corrupt, can be fixed from the inside.
Leftists believe this. Many conservatives believe this. Despite all evidence to the contrary, people WANT to imagine a world in which evil can be defeated if only the right people are put in place within the system. If they vote the right way, if they support the right party, if they rally around the right investigation, if they protest peacefully on the steps of Congress or on Wall Street, then the system will be forced to expel the evil and serve the populace once again.
I usually equate our current governmental framework to the “One Ring” from Lord Of The Rings, and I still think there is no better analogy. The core problem is that the system is not only run by corrupt people, it has also been built by them. The system as it stands today is a corruption machine that manufactures evil. Adding good people to an evil machine is not going to stop it. And, as with the One Ring, the people who think they can use an evil machine for good purposes often end up corrupted themselves. You cannot change it, you cannot exploit it for good, you can only destroy it.
In other words, conservatives in the liberty movement in particular need to throw out their illusions that the globalists will be defeated using the very systems the globalists created to serve their interests. And if you cannot change a corrupt system from the inside, then it must be dismantled from the outside and rebuilt from scratch. A constitutional framework and the Bill Of Rights can help in this effort, but these are laws on paper that cannot defend themselves. Without fierce vigilance on the part of the citizenry, laws and rights can be erased.
You will not hear the mainstream media or even much of the alternative media talk about the real solutions to elitist criminality or government corruption. You won’t hear about these solutions because they are hard; they require struggle and sacrifice. Voting is easy, which is why it does not work. Legislation is easy, which is why it does not work. And, protesting with signs on a street corner is easy, and it might spread the word on an issue, but ultimately it does not work. The corruption remains.
There are two options left; first, walk away peacefully from the system and build one that works on your own or with others of like-mind. If you are successful, then expect the corrupt system and the elites behind it to try and stop you. Second, when this happens, the only option left is to fight back and remove the threat. This is where we are inevitably headed, not because we want it, but because they will force the issue.
We can no longer deceive ourselves with notions of absorbing Washington D.C. or Wall Street and making them work for us. The hope that this is possible is poison, and the elites use that poison to weaken public resolve. While we sit around waiting for the system to police itself the Earth turns and they become more powerful. Without a dramatic change in our own strategy, without direct action on our part instead of action through political middlemen, I predict our situation will only become worse.
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He called US currency an anachronism of the modern world economy, accusing Washington of using sanctions as a political tool.
Talking at an international meeting of security representatives in the Russian city of Ufa, the head of Russian intelligence said: “It seems bewildering that the US continues to be the holder of the main reserve currency while behaving so aggressively and unpredictably.”
Naryshkin added: “The monopoly position of the dollar in international economic relations has become anachronistic. Gradually, the dollar is becoming toxic.”
Countries across the globe, including Russia, China, India, and others, have been working to diversify their foreign reserves away from the greenback.
Russia has taken concrete steps towards de-dollarizing the economy. So far, Moscow has managed to partially phase out the dollar from its exports, signing currency-swap agreements with a number of countries, including China, India, and Iran. Russia has recently proposed using the euro instead of the US dollar in trade with the European Union.
June 6, 2019
The story line is going out that the economic boom is weakening and the Federal Reserve has to get the printing press running again. The Fed uses the money to purchase bonds, which drives up the prices of bonds and lowers the interest rate. The theory is that the lower interest rate encourages consumer spending and business investment and that this increase in consumer and business spending results in more output and employment.
The Federal Reserve, European Central Bank, and Bank of England have been wedded to this policy for a decade, and the Japanese for longer, without stimulating business investment. Rather than borrowing at low interest rates in order to invest more, corporations borrowed in order to buy back their stock. In other words, some corporations after using all their profits to buy back their own stock went into debt in order to further reduce their market capitalization!
Far from stimulating business investment, the liquidity supplied by the Federal Reserve drove up stock and bond prices and spilled over into real estate. The fact that corporations used their profits to buy back their shares rather than to invest in new capacity means that the corporations did not experience a booming economy with good investment opportunities. It is a poor economy when the best investment for a company is to repurchase its own shares.
Consumers, devoid of real income growth, maintained their living standards by going deeper into debt. This process was aided, for example, by stretching out car payments from three years to six and seven years, with the result that loan balances exceed the value of the vehicles. Many households live on credit cards by paying the minimum amount, with the result that their indebtedness grows by the month. The Federal Reserve’s low interest rates are not reciprocated by the high credit card interest rate on outstanding balances.
Some European countries now have negative interest rates, which means that the bank does not pay you interest on your deposit, but charges you a fee for holding your money. In other words, you are charged an interest rate for having money in a bank. One reason for this is the belief of neoliberal economists that consumers would prefer to spend their money than to watch it gradually wither away and that the spending will drive the economy to higher growth.
What is the growth rate of the economy? It is difficult to know, because the measures of inflation have been tampered with in order to avoid cost-of-living adjustments for Social Security recipients and the payment of COLA adjustments in contracts. The consumer price index is a basket of goods that represents an average household’s expenditures. The weights of the items in the index are estimates of the percentage of the household budget that is spent on those items. A rise in the prices of items in the index would raise the index by the weight of those items, and this was the measure of inflation.
Changes were made that reduced the inflation that the index measured. One change was to substitute a lower price alternative when an item in the index rose in price. Another was to designate a rise in price of an item as a quality improvement and not count it as inflation.
Something similar was done to the producer price index which is used to deflate nominal GDP in order to measure real economic growth. GDP is measured in terms of money, and some of the growth in the measure is due to price increases rather than to more output of goods and services. In order to have a good estimate of how much real output has increased, it is necessary to deflate the nominal measure of GDP by taking out the price rises. If inflation is underestimated, then real GDP will be overestimated. When John Williams of Shadowstats adjusts the real GDP measure for what he calculates is a two-percentage point understatement of annual inflation, there has been very little economic growth since 2009 when a recovery allegedly began, and the economy remains far below its pre-recession level in 2008.
In other words, the belief that the US has had a decade long economic recovery is likely to be an illusion produced by underestimating inflation. Indeed, every day experience with the prices of food, clothing, household goods, and services indicates a higher rate of inflation than is officially reported.
The low unemployment rate that is reported is also an illusion. The government achieves the low rate by not counting the unemployed. The economic and psychological cost of searching for a job are high. There are the economic costs of a presentable appearance and transport to the interview. For a person without a pay check, these costs rapidly mount. The psychological costs of failure to find a job time after time also mount. People become discouraged and cease looking. The government treats discouraged workers who cannot find jobs as no longer being in the work force and omits them from the measure of unemployment. John Williams estimates that the real rate of US unemployment is 20%, not 3.5%
The decline in the labor force participation rate supports Williams’ conclusion. Normally, a booming economy, which is what 3.5% unemployment represents, would have a rising labor force participation rate as people enter the work force to take advantage of the employment opportunities. However, during the alleged ten year boom, the participation rate has fallen, an indication of poor job opportunities.
The government measures jobs in two ways: the payroll jobs report that seeks to measure the new jobs created each month (which is not a measure of employment as a person may hold two or more jobs) and the household survey that seeks to measure employment. The results are usually at odds and cannot be reconciled. What does seem to emerge is that the new jobs reported are for the most part low productivity, low value-added, lowly paid jobs. Another conclusion is that the number of full time jobs with benefits are declining and the number of part-time jobs are rising.
A case could be made that US living standards have declined since the 1950s when one income was sufficient to support a family. The husband took the slings and arrows of the work experience, and the wife provided household services such as home cooked nutritious meals, child care, clean clothes, and an orderly existence. Today most households require two earners to make ends meet and then only barely. Saving is a declining option. A Federal Reserve report a couple of years ago concluded that about half of American households could not produce $400 cash unless personal possessions were sold.
As the Federal Reserve’s low interest rate policy has not served ordinary Americans or spurred investment in new plant and equipment, who has it served? The answer is corporate executives and shareholders. As the liquidity supplied by the Federal Reserve has gone mainly into the prices of financial assets, it is the owners of these assets who have benefited from the Federal Reserve’s policy. Years ago Congress in its unwisdom capped the amount of executive pay that could be deducted as a business expense at one million dollars unless performance related. What “performance related” means is a rise in profits and share price. Corporate boards and executives achieved “performance” by reducing labor costs by moving jobs offshore and by using profits and borrowing in order to buy back the company’s shares, thus driving up the price.
In other words, corporate leaders and owners benefited by harming the US economy, the careers and livelihoods of the American work force, and their own companies.
This is the reason for the extraordinary worsening of the income and wealth distribution in the United States that is polarizing the US into a handful of mega-rich and a multitude of have-nots.
The America I grew up in was an opportunity society. There were ladders of upward mobility that could be climbed on merit alone without requiring family status or social and political connections. Instate college tuition was low. Most families could manage it, and the students of those families that could not afford the cost worked their way through university with part time jobs. Student loans were unknown.
That America is gone.
The few economists capable of thought wonder about the high price/earnings ratios of US stocks and the 26,000 Dow Jones when stock buy-backs indicate that US corporations see no investment opportunities. How can stock prices be so high when corporations see no growth in US consumer income that would justify investment in the US?
When President Reagan’s supply-side economic policy got the Dow Jones up to 1,000 the US still had a real economy. How can it be that today with America’s economy hollowed out the Dow Jones is 25 or 26 times higher? Manipulation plays a role in the answer. In Reagan’s last year in office, the George H.W. Bush forces created the Working Group on Financial Markets, otherwise known as the “plunge protection team,” the purpose of which was to prevent a stock market fall that would deny Bush the Republican nomination and the presidency as Reagan’s successor. The Bush people did not want any replay of October 1987.
The plunge protection team brought together the Federal Reserve, Treasury, and Securities and Exchange Commission in a format that could intervene in the stock market to prevent a fall. The easiest way to do this is, when faced with falling stock prices, to step in and purchase S&P futures. Hedge funds follow the leader and the market decline is arrested.
The Federal Reserve now has the ability to intervene in any financial market. Dave Kranzler and I have shown repeatedly how the Federal Reserve or its proxies intervene in the gold market to support the value of the excessively-supplied US dollar by printing naked gold contracts to drop on the gold futures market in order to knock down the price of gold. A rising gold price would show that the dollar support arrangements that the Federal Reserve has with other central banks to maintain the illusion of a strong dollar is a contrived arrangement rejected by the gold market.
What few, if any, economists and financial market commentators understand is that today all markets are rigged by the plunge protection team. For at least a decade it has not been possible to evaluate the financial situation by relying on traditional thinking and methods. Rigged markets do not respond in the way that competitive markets respond. This is the explanation why companies that see no investment opportunities for their profits better than the repurchase of their own shares can have high price/earnings ratios. This is the explanation why the market’s effort to bring stock prices in line with realistic price/earnings ratios is unsuccessful.
As far as I can surmise, the Federal Reserve and plunge protection team can continue to rig the financial markets for the mega-rich until the US dollar loses its role as world reserve currency.
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We live in a Matrix of Lies in which our awareness is controlled by the explanations we are given. The control exercised over our awareness is universal. It applies to every aspect of our existence. In the article above I showed that not only is our understanding of the economy controlled by manipulation of our minds, but also the markets themselves are controlled by official intervention. In brief, you can believe nothing that you are officially told. If you desire truth, you must support the websites that are committed to truth.
“In America today the population is drowning in unpayable debts—student loan debt, credit card debt, home mortgage debt, state and local government debt, and business debt—but policymakers have reserved forgiveness only for the debt associated with the bad and irresponsible investments of the big banks and financial institutions. The Federal Reserve printed $4 trillion to buy up the banks’ bad debt while permitting ten million homeowners to be foreclosed.”
America Needs A Debt Jubilee
Paul Craig Roberts
May 7, 2019
As school children my friends and I were very interested in archaeology and ancient civilizations. We read all the available books. My best friend intended to become an archaeologist and to explore ancient ruins about which we imagined more than we actually knew.
As far as I can discern these days no one in the general population has any thoughts of Sumer, Babylonia, Assyria, Ur. For the American young the 1940s, not 2,500 BC, is the ancient past.
A time so long ago that it predates the Old Testament by 2,000 years is probably imagined as a brutal and politically incorrect time of inhumanity and human sacrifice. In short, a script for a horror fantasy movie or a video game.
In actual fact, these civilizations were more advanced and more humanitarian than our own. They were more advanced because the rulers were focused on ensuring the society’s longevity by maintaining a livable balance between debtors and creditors. It has all been downhill ever since.
The rulers maintained social balance and, thereby, the life of the society by periodically cancelling debts. The rulers understood that compound interest resulted in debt growing faster than the economy. The consequence would be foreclosures on agricultural land, which would shift riches and power into a small oligarchy of creditors. The ruler and the society would be deprived of a self-supporting population on the land which provided tax revenues, soldiers for the military, and corvee labor to maintain public infrastructure. Disaster would follow. A grasping oligarchy could overthrow the ruler or the dispossessed population could flee to a potential invader offering their military services in exchange for debt forgiveness.
To protect their societies from dissolution by unpayable debts, rulers periodically cancelled agrarian debts owed by the citizenry at large, but not mercantile debts among businessmen.
The reason for debt forgiveness was stability, not egalitarianism.
We know this fascinating story of the Bronze Age’s successful economic policy because Michael Hudson spent 30 years as a research fellow at Harvard University’s Peabody Museum working with scholars of the ancient word. The study resulted in the organization of five colloquia over a decade and in the recent publication of Hudson’s book, “. . . and forgive them their debts.”
In America today the population is drowning in unpayable debts—student loan debt, credit card debt, home mortgage debt, state and local government debt, and business debt—but policymakers have reserved forgiveness only for the debt associated with the bad and irresponsible investments of the big banks and financial institutions. The Federal Reserve printed $4 trillion to buy up the banks’ bad debt while permitting ten million homeowners to be foreclosed. Student loan debt prevents university graduates from forming independent households. Mortgage and credit card debt prevents households from having discretionary income with which to drive retail sales. But modern day economics has no prescription for preventing our society from failing from debt overload.
America long ago lost its independent farmers to debt overload. All it took was a drought, or a dustbowl, or the Fed driving up interest rates on loans, and farmers were foreclosed and the farm properties passed to corporate farming. Today the same thing is happening to dairy producers. Canada’s response to Trump’s tariffs is to place tariffs on US dairy products. The earnings drop leaves American dairy farmers overburdened with debt service. This business, too, seems destined to be concentrated in a few hands. Economic independence is being driven out of American society.
The problems of monopoly, monopsony, oligopoly are real. Especially so when indebted Americans have their high productivity, high value-added jobs offshored and then face robotics displacing the lower paid domestic service jobs that are their current employment. The profit maximizing activities of corporations reduce Americans’ incomes but not their debts. Thus, debt service becomes more difficult.
In the US today we have a situation in which the New York banks control Federal Reserve policy and financial legislation—the deregulation of the banking system and its subsequent bailout, for example. We have a situation in which monopolies, monopsonies, and oligopolies are stronger than the central government, which is unable to rein them in or act against them in any way. Corporations dispossess citizens of their jobs by offshoring the jobs. Creditor demands prevent university graduates from forming households. Debt service preempts retail demand except by further debt expansion.
This is an economy headed down, not up. Clearly, Hammurabi did far better for the Babylonians than Washington can do for Americans.