QE2 risks currency wars and the end of dollar hegemony … As the US Federal Reserve meets today to decide whether its next blast of quantitative easing should be $1 trillion or a more cautious $500bn, it does so knowing that China and the emerging world view the policy as an attempt to drive down the dollar. The Fed's "QE2" risks accelerating the demise of the dollar-based currency system, perhaps leading to an unstable tripod with the euro and yuan, or a hybrid gold standard, or a multi-metal "bancor" along lines proposed by John Maynard Keynes in the 1940s. China's commerce ministry fired an irate broadside against Washington on Monday. "The continued and drastic US dollar depreciation recently has led countries including Japan, South Korea, and Thailand to intervene in the currency market, intensifying a 'currency war'. In the mid-term, the US dollar will continue to weaken and gaming between major currencies will escalate," it said. – UK Telegraph
Dominant Social Theme: The US, especially, must take more care – and grow more responsible.
Free-Market Analysis: We have been examining in these past few days, the future of money and have offered our clairvoyant feedbackers and larger audience a perspective that is not focused necessarily on an imminent US economic meltdown. That is not to say it won't happen, but we have detected a certain level of promotional zeal that makes us a tiny bit uncomfortable. Everywhere we look right now, it seems the media – even the mainstream media – are filled with conversation about the untenable situation of the dollar.
We do not deny this, of course. We have spent the better part of two years (and eight years before that) documenting the demise not only of the dollar but of the larger Anglo-American elite that has spent at least a century attempting to create one-world governance through the use of wars, horrible fear-based promotions and corrupt global vehicles of command and control.
Let us begin at the beginning however, with the regime of George W. Bush. (Unhappy thought.) This Republican president could have reduced spending, cut social programs and generally enacted a fiscally conservative administration that would further have enhanced the dollar's standing in the world. Instead, from the outset, President Bush pushed for expanded social programs and more and more power for the US$3 trillion per year Leviathan; he even tried at one point to extend federal power directly into church programs. After 9/11 and without any precedent or even real justification, the US attacked both Afghanistan and Iraq in wars that will probably cost US$2 trillion or more before they are done – and those are only the direct costs.
Under Bush, the various money schemes of the Anglo-American elite were left strictly alone. The Clinton Democrats had left a "surplus" and it would have been possible, perhaps, to start to undo the entire system, including the Fed's endless waves of money printing, without crashing it. But this was not Bush's agenda, nor the agenda of those around him.
As a result, Bush questioned neither the US graduated income tax nor the Federal Reserve which kept rates so absurdly low under Alan Greenspan that an ever-increasing monetary bubble was all-but-assured. When the bubble finally popped, Bush approved of the TARP program of US$700 billion and then, under Ben Bernanke, the Federal Reserve began pumping out trillions and trillions to bail out preferred lenders and chosen bankers not only in the US but abroad as well.
Our point here is not to rehearse the psychotic war-mongering and over-spending of George Bush but to point that Bush was able to do what he did without demure from the establishment wise men in both the US and Britain. This means to us that there was a level of de facto acceptance of his actions. The totality of his insane actions (mirrored in fact by Tony Blair in Britain) may not have been entirely pre-determined but they were not apparently unwelcome either.
And this brings us back to the issue of whether the Anglo-American elite has actively sought a worldwide economic meltdown and, if so, whether they expected what they are now dealing with. We have suggested on many occasions that the elite may have wanted a depression but that the global crisis has spiraled out of control. We base this assumption on what seems to be a high level of desperation affecting elite actions at the moment.
Yes, we can see this mechanism manifested in the lengths that the elite-controlled EU and Federal Reserve are willing to go to try to ensure the viability of the remnants of the current system. In the EU, the leading Eurocrats are willing once again – and in the hot spotlight of euro-condemnation – to revise the Lisbon Treaty without a vote so as to configure it in such a way that it provides necessary leeway to "handle" the ongoing crisis. In the US, the Federal Reserve is preparing to pump yet MORE money into the economy – perhaps trillions more – to try to kick-start employment and entrepreneurship. The elite is seemingly terrified of spiraling frustration in the US and Europe and increased civil unrest.
The Fed's determination to pump trillions more into the US economy (and thence the world's) can be seen within this context as a desperate gambit to salvage elite ambitions regarding global governance. It is desperate (and rash) because the dollar remains the world's reserve currency and US monetary policy thus inevitably has a tremendous impact on other currencies and countries. Whenever the dollar moves (down) other economies, in fact even the largest, have to react.
The US wants to inflate away dollar debts and cannot do so if everyone else joins in the game. Thus it has turned to the G20 and to an expanded and empowered IMF to twist arms and basically intimidate other countries into going along. (See Telegraph article excerpted above.) But as we have pointed out that day is probably long past. China and the rest of the BRIC countries will likely do what they want, though still paying lip-service to the demands of the American behemoths.
The Telegraph article lists several outcomes of the continual debasement of the dollar. The IMF and other countries could agree on an IMF-administered bancor. Alternatively, there is the concept of a "hybrid gold standard" (whatever that means) or merely more of what is taking place now – a continual appreciation of credibility for other currencies, especially the yuan, while the dollar sinks.
Those who stop by the Bell may recognize some of these projections as we have mentioned them from time to time. In fact, an IMF bancor is probably unrealistic because the BRICs won't tolerate a further Anglo-American presidium. And other "solutions" are not likely to empower the Anglo-American axis, either. Of course we are aware of the argument that money power merely moves along with economic and military power wherever it needs to go. We find this argument dubious. Western money power has a locus: Washington DC, Brussels, Tel Aviv and most importantly London's City.
The idea that Western elites can merely transfer their operations and headquarters to Beijing and continue business as usual among the Han is dubious from our point of view. There is also the possibility of China's imminent, or quasi-imminent collapse. The country's real estate is so inflated that entire CITIES are being built on speculation (as we have noted) and we have long-questioned the staying power of the current Chinese communist governments once the economy inevitably implodes.
We are left with a (tentative) conclusion that we have already enunciated – that the Western elites in their pride, greed and arrogance may have started a conflagration that they cannot control. Perhaps if the Internet had not come on the scene to reveal their machinations, it would have been possible to manipulate the world's economies more effectively and to intimidate, in secret, those who needed to be brought along. But it's very hard to run a monetary and military conspiracy under the white-hot glare of a technological and electronic spotlight. Allies shy away and potential enemies are emboldened.
What will happen next? Generally it does not seem to us that the elites will be able to create the necessary global currency they have sought and apparently are seeking, at least not in the short term. To us, anyway, this always seemed a long-term project and the ramifications of speeding it up (as the elite seem to be doing) are puzzling to say the least. Haste does not necessarily increase the potential for success.
Another possibility is that the Anglo-American elite muddles along with an eroding dollar while China and Europe and other BRIC countries gradually attempt to co-opt the dollar's reserve status. Good luck with this however, as the dollar's strength is that it purchases oil and Saudi Arabia in particular would have to be "flipped," which American military power may preclude. Reserve currencies, generally, are treated in academic textbooks as both ancient and amiable. In fact the Anglo-American axis had to level the known world with its murderous military might to impose the hierarchy of the dollar and other Western economic mechanisms (the IMF, etc.). It is not so easy to end this kind of "reserve."
Is it possible of course that the world returns to a de-facto gold standard and that there is some cooperation here between all the major powers. This may be a possibility, but it would end (at least in the short term) the Anglo-American dream of world dominance. Alternatively, the economic environment may simply continue to unravel. Gold and silver will go much higher in a fairly unconstrained environment as the Anglo-American grasp on events, both monetary and military, continues to erode. This might presage the evolution of a fairly unregulated free-banking environment complete with a privately evolving gold and silver standard (alongside real bills as well).
The last time this sort of economic destabilization occurred (in the 1930s), panic set in as it has now. It was only via World War II that the world's economies were rescued and set on track for renewed growth. But a world war is infinitely more difficult to come by these days. With that option at least partially precluded (we think it is anyway, though a war with Iran is always a possibility) and with the truth-telling of the Internet continuing to expose every power elite machination literally in real time it is very difficult to tell what is going to happen next. Of course, as we wrote yesterday, we don't know if there will be a dollar meltdown (and a metals melt up) sooner – or later. Perhaps one will occur after the US elections as the shorts come under increased pressure. Timing is a lot harder to calculate than trends.
What we do know is that the Western power elite is a stubborn and powerful force and that it has plenty of levers to pull that can still influence economies immensely in the West and around the world. As we were finishing this article, a feedbacker sent us a link to an announcement that the Fed is apparently about to hold a major conference at Jekyll Island, commemorating the secret meeting held 100 years ago that created of the Fed. (This just after initiating its controversial QE2 program.) The elite may be losing control, and may be increasingly panicked about it. But these kinds of tin-eared, self-congratulatory occurrences (such as the reported, upcoming Fed meeting) make us wonder increasingly if the powers-that-be have fully grasped the magnitude of what has been unleashed.