"A year ago," said law professor Ross Buckley on Australia's ABC News last week, "nobody wanted to know the International Monetary Fund. Now it's the organiser for the international stimulus package which has been sold as a stimulus package for poor countries." The IMF may have catapulted to a more exalted status than that. According to Jim Rickards, director of market intelligence for scientific consulting firm Omnis, the unannounced purpose of last week's G20 Summit in Pittsburgh was that "the IMF is being anointed as the global central bank." Rickards said in a CNBC interview on September 25 that the plan is for the IMF to issue a global reserve currency that can replace the dollar. "They've issued debt for the first time in history," said Rickards. "They're issuing SDRs. The last SDRs came out around 1980 or '81, $30 billion. Now they're issuing $300 billion. When I say issuing, it's printing money; there's nothing behind these SDRs. – Huffington Post
Dominant Social Theme: The IMF to the rescue.
Free-Market Analysis: This article on the Huffington Post by Ellen Brown – whom we recently interviewed – is both provocative and forward-looking. We certainly can't say that Brown is a mainstream writer in the sense that she does not merely parrot various predigested elite promotions. Instead, she has proven she has a formidable grasp of the fundamentals of finance in both books and articles. However the Huffington Post is fairly mainstream and the article itself is a good summation of a certain sort. So we will comment on it and hope that Brown doesn't mind we have returned to her work. She shouldn't write such interesting articles!
Of course, we – or some of our contributors – have been having disagreements with parts of Brown's approach and conclusions, and we have some disagreements with this article as well. Here's some more from the article:
SDRs, or Special Drawing Rights, are a synthetic currency originally created by the IMF to replace gold and silver in large international transactions. But they have been little used until now. Why does the world suddenly need a new global fiat currency and global central bank? Rickards says it's because of "Triffin's Dilemma," a problem first noted by economist Robert Triffin in the 1960s.
When the world went off the gold standard, a reserve currency had to be provided by some large-currency country to service global trade. But leaving its currency out there for international purposes meant that the country would have to continually buy more than it sold, running large deficits; and that meant it would eventually go broke. The U.S. has fueled the world economy for the last 50 years, but now it is going broke. The U.S. can settle its debts and get its own house in order, but that would cause world trade to contract. A substitute global reserve currency is needed to fuel the global economy while the U.S. solves its debt problems, and that new currency is to be the IMF's SDRs.
That's the solution to Triffin's dilemma, says Rickards, but it leaves the U.S. in a vulnerable position. If we face a war or other global catastrophe, we no longer have the privilege of printing money. We will have to borrow the global reserve currency like everyone else, putting us at the mercy of the global lenders.
To avoid that, the Federal Reserve has hinted that it is prepared to raise interest rates, even though that would mean further squeezing the real estate market and the real economy.
Rickards pointed to an oped piece by Fed governor Kevin Warsh, published in The Wall Street Journal on the same day the G20 met. Warsh said that the Fed would need to raise interest rates if asset prices rose – which Rickards interpreted to mean gold, the traditional go-to investment of investors fleeing the dollar. "Central banks hate gold because it limits their ability to print money," said Rickards. If gold were to suddenly go to $1,500 an ounce, it would mean the dollar was collapsing. Warsh was giving the market a heads up that the Fed wasn't going to let that happen. The Fed would raise interest rates to attract dollars back into the country. As Rickards put it, "Warsh is saying, 'We sort of have to trash the dollar, but we're going to do it gradually.' . . . Warsh is trying to preempt an unstable decline in the dollar. What they want, of course, is a stable, steady decline."
What about the Fed's traditional role of maintaining price stability? It's nonsense, said Rickards. "What they do is inflate the dollar to prop up the banks." The dollar has to be inflated because there is more debt outstanding than money to pay it with. The government currently has contingent liabilities of $60 trillion. "There's no feasible combination of growth and taxes that can fund that liability," Rickards said. The government could fund about half that in the next 14 years, which means the dollar needs to be devalued by half in that time.
Our disagreements with this analysis (which to be fair is obviously not Brown's directly at any rate) have as much to do with its assumptions as the facts cited. International finance is not so complex in our opinion as Rickards and others would have it. The problems arise, as Brown would obviously agree (we think), because the banking industry in concert with the government has created an unstable paper or fiat money environment.
Having written this, we have to add that this issue is also, in fact, paradoxically, the nub of our disagreement with Brown et. al. It is easy to go down the road of fiat complexity and begin to parse paper currencies and then, potentially, decry what has been created when it doesn't work as planned. It is perhaps harder to draw back and look clearly at the jumbled puzzle and figure out where things first went wrong.
And when was that? As we have stated on most every possible occasion, we believe things went badly awry when for one reason or another people ceased to use gold and silver as money and began using fiat substitutes printed by the state in concert with banking entities and the elite of the day.
There is no doubt from our perspective that gold and silver historically were selected as money through thousands of years of competition with other forms of currency. Once one fully comprehends this central notion, the rest falls into place. There is no need to bother with paradoxes, with substitute currencies, with global central banks. It need not be so convoluted.
There is no need either, in a rational world (were there such a thing) to bother with alternative forms of fiat paper generated at local levels as Brown and others are proposing. That way lies in confusion and frustration in our opinion.
We suggest letting the free market take its course! We are confident, were nations and central banks to somehow get out of the money business (or at least pull back), that some form of a free-market gold and silver standard would emerge once again as it has throughout thousands of years of human history.
There is plenty of gold and silver above ground – likely no less or more proportionately than at any other time. Were the market to hold sway, people would once again return to private money and the various elaborate and artificial plans of the monetary elite would be seen for the unworkable and artificial strategies they are.
We don't think that the IMF is much of a central bank, by the way, nor an inevitable one. We don't even think SDRs are going to prove much of a substitute for the dollar except perhaps in special circumstances. The dollar became the world's reserve currency (a strange nomenclature) after World War II basically because the US was able to enforce its will worldwide. By linking the dollar to purchases of oil, the US was apparently able to ensure that the rest of the world would use the King of currencies.
But the dollar is merely the might of the Anglo-American elite made manifest. In fact, the IMF is a creation of the Anglo-American elite and to the degree that the IMF substitutes for the dollar it merely dresses up the ancient mechanism. Western elites discovered central banking and continue to utilize it no matter how the deck chairs are rearranged.
The UN, the World Bank and numerous other entities are all the creation of the Anglo-American monetary elite so far as we can tell. There is little confusion here. The goal of the Anglo-American elite seems to be the further consolidation of money and power, and such goals do not know national boundaries. Trying to take back control of such a complex and powerful system is difficult in the extreme. The system has its own logic and its own rules, and these will not be easily reconfigured, if at all.
Surely, if the dollar truly founders, the Anglo-American elite will no doubt try to find some alternative methodology – as they are perhaps trying now, though we are not so sure. The goal, as we see it, is not to retain the dollar per se but to retain power. However the dollar still provides a mighty platform for such power. And the nations from whence the Anglo-American elite hail are not necessarily going to benefit from this process, as Brown et. al. point out.
One can be sucked into endless arguments over the world's financial difficulties and the cures that are available. One can speculate endlessly on the evolution of global central banks and the paradoxes that generate and sustain them. But if one keeps one's eye squarely on the currents of history, complexities may be swept away. Monetary elites seek control through the manipulation of money. Gold and silver in a private, market-based system are impossible to manipulate with any regulatory or success. Return to such and begin to prosper.
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