The Failure of Fiat Money

The 300 year old experiment in driving the economy by creating money is over. We've overpopulated the planet and consumed most of its resources. Creating more money to incentivize higher production, or growth – whether done fairly or not -- just won't work anymore. 

The Federal Reserve may for a time be able to manage a money supply appropriate more or less to a plateaued economy, even an economy as unfair as the one it maintains. But from now on any economy will be less and less able to deliver the goods and services expected by ever greater numbers of people. We face at best a long, slow squeeze, a zero-sum game with a shrinking pie. At worse we face a more acute crisis participated by some trigger event: runaway global warming, a large terrorist event or war, another major financial crash.

This time it's different. We face a true economic/ecological depression, not another financial depression, as so often in the past. Back in the 1930s, as on earlier occasions, we had a financial depression, that is, a speculative boom followed by a financial crash. At that time we still had plenty of productive resources and potential, room for population growth, and relatively few externalized costs.

The problem then was the refusal of the central banks or their equivalents to carry out any kind of quantitative easing (QE) or deficit spending when it could have worked; they choose instead to accept insolvency and liquidation on a large scale. But when the necessary stimulus came – in the form of a world war – the resources were there for the economy to rebound and debts to be absorbed. Today the potential for growth is gone. We had a classic financial crash in 2008, but few have noticed that it coincided with a profound, if slow-motion, global eco-crash. Both are still unfolding, and are now deeply intertwined.

Some recent history will be useful to understand how we got to this point:

The Fed, since the 2008 crash, has been using its power to create money to do two things: first, to recapitalize banks which otherwise would have failed, and, second, to absorb the excess debt of the US government. As a result, the big commercial banks have avoided insolvency and the federal government has been able to run continued deficits without rising interest rates.

The Fed recapitalized the banks by buying their toxic assets (mostly worthless mortgage-backed securities), and it absorbed excess US government debt by direct purchase of long-term government securities (quantitative easing). But this monetary "cure" for the financial crisis has turned out to be worse than the disease.

Buying the banks' toxic assets rewarded their moral hazard, their propensity to take risks in hopes of greater profits for themselves while deflecting the responsibility for losses onto others. Buying long-term government debt from the banks further increased their liquidity. More importantly, it guaranteed a market for Treasury bonds -- which likely would not otherwise have found adequate buyers – keeping the government solvent, but artificially so.

As a result of Fed bond purchases, interest rates on government securities, which normally would have risen to attract more buyers, were kept artificially low. These low rates were expected to encourage lending by the banks and to restimulate the economy, while minimizing interest payments on the government's rapidly expanding debt. As we can now see, six years later, the economy has not responded. Banks found far fewer borrowers than expected to put that all money to work, and the debt burden has exploded.

Unable to offload their bloated balance sheets, banks invested much of their excess cash in new speculative bubbles, especially in the equity markets which have soared to all-time highs. Although the banks not only survived but prospered, and the government has so far been able to meet its obligations, this new wealth went mostly not to the general public but to the infamous 1 percent who were able, in one way or another, to participate in the speculative bubbles unleashed by the banks.

Defenders of QE and the Fed argue that this policy averted a much greater threat of financial collapse, and that in due course economic recovery will take advantage of all that pent-up money in the financial system. A growing economic pie, as so often in the past, they tell us, will more than make up for the increased debt burden necessitated by QE, and in the end benefit all.

Critics of QE and the Fed on the other hand argue that the system is inherently designed to concentrate wealth in few hands, that the primary motive of Fed policy is to bail out the big banks and their investors, not serve the public, and, above all, that an enormous amount of new debt is being created in the process, debt that will saddle future generations of taxpayers and which seems unlikely ever to be paid off.

A growing progressive movement proposes to take monetary policy away from the Fed and put it directly under government control, either through a system of national pubic banking, or through issuance of a government-issued currency, modeled on Civil War greenbacks. Rather than prop up big banks, as in 2008, the idea is to use the money-creating power of central government in various ways to bail out individuals and deserving enterprises.

For instance, all deposits could be guaranteed, even in insolvent banks, by extending FDIC as needed. Similarly, underwater mortgages, unpayable health-care bills, onerous student loans, and out-of-control liabilities could be paid off directly by a reformed Fed or a new public bank, relieving millions of citizens of crushing financial burdens. At the same time, vast government-funded infrastructure programs could pump even more money into the economy.

Similarly, Treasury bonds purchased by the Fed could be cancelled, as suggested by Congressman Alan Grayson and others. The money paid for those bonds would be put back into circulation, without any need to continue to service those obligations. These and similar approaches, it is claimed, would put trillions of dollars of assets directly into people's pockets. Social justice would be served and the economy would be reignited.

This progressive monetary agenda puts great faith in the ability of a centralized government to act in the public interest. It presupposes that the government is reasonably accountable to the public. Given the current corruption and dysfunction in Washington, however, it is doubtful that this faith is warranted. A government-run monetary system, without drastic political reform, would almost certainly reflect the interests of lobbyists, government contractors, and other special interests. It would almost certainly end up creating an elite, perhaps every bit as exclusive as the current crop of one per centers spawned by Wall Street.

Progressives might object that even an imperfect system of financial redistribution would be better than what we have now. But they have to show how that would be so, and recent attempts at financial "reform" on the national level, such as Dodd-Frank, have conspicuously failed to break the grip of the traditional "money power."

The deeper dilemma here is that the traditional and progressive approaches both presuppose that the creation in some form of top-down fiat money will stimulate the economy. The Fed would do it through the traditional banking system, with all its flaws; the progressive critics of the Fed would do it through direct action by big government, in spite of its lack of public accountability. Unfortunately, the common assumption they share -- that we can spend our way out of financial difficulty -- no longer obtains.

There are fewer economic opportunities not because of a lack of money, but because the global economy has bumped up against the limits of growth (resource scarcity plus increasing externalized costs like pollution, climate change, overpopulation, etc.). This isn't the place to argue for the limits of growth. A vast – and to this writer, persuasive -- literature on the subject has been developed since the 1970s.

Those limits – mostly dismissed by "growth" enthusiasts -- are the real problem. And it's a problem not only for the banking system and traditional lending, as well as for government spending, but for all of us. Tragically, it would remain a problem even if debt-free fiat money were funneled directly into the hands of certain consumers, or private investors, or into government sponsored infrastructure projects. Even if such policies leveled the economic playing field, which is unlikely, they would not address the larger ecological disaster before us.

It's the difference between the Titanic going down with first class passengers getting preferential access to the lifeboats vs. everyone on the ship getting equal access to those lifeboats. Our moral preference might be for equal access, but, in the absence of well established egalitarian procedures and customs, equal access is also like to mean chaos and pandemonium. In the meantime, no matter what, the ship is going down.

If the purchasing power now locked up in big bank financial statements would have been distributed among the general population, especially those most in need, they would have had a better shot, to be sure, at claiming their share of dwindling resources. And a better infrastructure – a smart grid, a modernized rail system, renewable energy, broadband for all, etc. – would have helped as well.

In the short run, all that would have meant a better economy and a real measure of social justice. But, in the absence of real prospects for renewed economic growth, it would also, in the longer run, arguably have exacerbated the larger crisis by piling further demands on an already stressed eco-system with finite resources. The inconvenient truth, the elephant in the room, is that we have plateaued as an economy, and are headed down, how far we do not know. The kind of financial system appropriate to a drastically different kind of life has yet to be contemplated either by defenders of the status quo, or most of their critics.

The Ecology of Money: Debt, Growth, and Sustainability

"Modern economics must 'grow' because money borrowed for investment can be repaid only by expanding production and consumption to meet the burden of usurious rates of interest. The roots of this dynamic between debt and growth lay in the financial revolution of the late seventeenth and early eighteenth centuries in Britain, which establish a new usurious monetary system.

"For the first time in history credit was made widely available, but only on condition of an exponentially increasing debt burden. To pay back debts, production had to increase correspondingly, leading to the industrial revolution, economic 'growth,' and modernity itself. Though private creditors grained a monopoly over the creation of credit, and were disproportionately enriched, the resulting economic growth for a time was great enough to benefit most debtors as well as creditors, ensuring widespread prosperity.

"That is no longer the case. With today's eco-crisis we have reached the limits of growth. We no longer have the natural resources to grow fast enough to pay our debts. This is the real root of our current financial crisis. If we are to live sustainably, our system of money and credit must be transformed. We need a non-usurious monetary system appropriate to a steady-state economy, with capital broadly distributed at non-usurious rates of interest. Such a system was developed by an early nineteenth-century American thinker, Edward Kellogg, and is explored here in depth. His work inspired the populist movement and remains more relevant than ever as a viable alternative to a financial system we can no longer afford." 

--  from the blurb on the back cover of The Ecology of Money

The Ecology of Money was published by Lexington Books in 2013 and is available at Amazon.com  

A Summary of the Argument of The Ecology of Money in 10 Points:

1. Our ecological crisis is a consequence of the productive effort we must make to meet the demands of our financial system. This crisis is upon us since we no longer have the natural resources to sustain this effort.  

2. The roots of this financial-economic dynamic lie in the financial revolution of the seventeenth and eighteenth centuries in Holland and England, where credit and finance as we know them were invented.

3. Unfortunately, this financial revolution as completed in England: a) privatized credit, giving bankers a legal monopoly over money creation through issuing loans; b) created a national debt and a central bank to backstop private lending; and c) allowed bankers to charge high (usurious) rates of interest on loans. The Bank of England became the symbol of this "English system," as Alexander Hamilton called it, which was subsequently exported to America and most of the modern world. American populists called it "the money power."

4. Once key sectors of the economy came to depend on money borrowed at usurious rates of interest, it became necessary to keep expanding economic output. The obligation to repay such debts is what forced modern economies into endless "growth." Traditional, steady-state, reciprocal, sustainable economies were displaced by economies relentlessly seeking out new markets, technologies, resources, and laborers, and the industrial revolution -- and what we call "modernity" -- was born.

5. More than two centuries of economic "growth" have given us the miracle of the modern world, with all its astounding wealth and technology. That miracle has also exhausted our planet, which now staggers under the cumulative effects of resource depletion, pollution, overpopulation, and climate change. Insofar as the limits to growth have been reached, we can no longer hope to repay our debts, as in the past, by growing our way out of the crisis. 

6. Our "too big to fail" financial system has succeeded in transferring much of this excessive debt onto taxpayers, postponing and likely intensifying the final reckoning. We are further burdened by a dysfunctional political system -- largely corrupted by the same financial interests -- which is less and less responsive to the urgency of reform, which may now be impossible. 

7. The now inter-woven ecological and financial crisis is likely to play itself out no matter what we do. If so, the survivors will need to adjust to a dramatic downsizing and a return to sustainable economic practices. If civilization survives, it will need a financial system compatible with a steady-state, non-growth economy. 

8. The outlines of such a system actually exist: they were developed by a nineteenth-century American financial theorist, Edward Kellogg. He proposed a decentralized system of public banking, where citizens could borrow on good collateral at a non-usurious rate of interest fixed by law at one percent. Kellogg's system, which inspired American populists, is a model for financing a future sustainable economy.

9. To say that we can no longer tolerate exponential growth as we have known it is not to say that human ingenuity has no future, that profound innovations in human life are no longer possible, or that the vast store of scientific and technical knowledge born of the industrial revolution cannot be adapted to new circumstances. A sustainable, steady-state economy is not necessarily a static or primitive economy, though likely it will be a far more modest and prudent one.

10. Our immediate prospects, however, remain daunting. Human history has long swung between extremes -- boom and bust, feast and famine, peace and war, the rise and fall of civilizations -- and we have no reason to believe our era is exempt from that ancient dynamic. We are a resilient species, and the silver lining of any crisis has always been the opportunity to learn from our mistakes, an opportunity perhaps not otherwise possible. Let's make the best of it.

Bank accounting and Money creation - The Rabbit in the hat BOOK

The Rabbit in the hat – bank accounting and money creation, wants to be a book that puts order in the topic, perhaps the first exclusively dedicated to the subject, at least in Italian. However, it is the first text to have a comprehensive analysis of all aspects of the creation of bank money, from accounting to legal ones, and the individual movements of money on the bank balance sheet in order to reconstruct, accurately, each accounting entry that allows banks not only to create their own means of payment to be used in the economy, but also to keep it in order to take advantage of monopoly situations.

The rabbit in the hat, in the title, wants precisely describe a sort of magician's trick, with which the banking system is able to produce an asset out of nothing without any business cycle. The money creation process is described in the preliminary analysis, in all the elements, from the contiguity between legal and bank money, to the accounting standards, reported and commented in a long chapter, passing by the inter-bank payments and clearing houses, where the trick of the magician acts before to put back the bank money in the balance sheet without destroying it. Attention is also given to "off balance sheet operations", a place outside the rules, where transit some monetary volumes largest of those shown in the financial statements, and to the reserves in liabilities, where the banks' owners can collect their shares.

A book that wants to be analytical but also help with the solution proposed by the various monetary reform movements.

Daniele Pace is a writer and independent researcher, has always been involved in the theme staunch supporter of the legal means of money.

In 2012 he published "The Utopian Money" by offering a future vision of free money from the debt and the Central Powers. He then wrote the comic book "Dialogues with Auriti" in 2014, for a disclosure in the simplest form on the theory of the ownership of money.

In 2015 it is the publication of "The Fruiterer Conspiracy", logical and critical analysis of the Quantitative Theory of Money that would, from about 3 centuries, inflation linked to the money supply, without any empirical evidence.

In Italy is a speaker at many conferences, as well as having the informational space in the web TV Salvo5puntozero.

Table of Contents

PREFACE

FIRST PART

PRELIMINARY ANALYSY

Introduction

The existence of bank money and the data

1. Monetary base and bank money

1.1 The definition of money and monetary aggregates

1.2 The difference between the monetary base and bank money

1.3 The bank money between "sight debt" and deposit

2. The bank deposit and the Italian Civil Code

3. The Bank Balance sheets

4. Accounting definitions in the International Standards

4.1 The double entry accounting

4.2 The audit and control of the balance sheet

4.3 Useful definitions in international accounting standards

4.4 Money and accounting recognition. Because the bank does not

     destroy the money

4.5 Accounting definitions and creation of deposit money. Because

     the bank can create money

4.6 Accounting definitions. Conclusions

5. Money creation and credit

5.1 The money multiplier and the recognition criteria

5.2 The potential of the monetary deposit multiplier

6. The restrictions to the monetary creation

6.1 The liquidity reserve requirements (LRR)

6.2 The liquidity risk

7. Inter-bank payments

7.1 The establishment of the modern clearing house

7.2 The national clearing system

7.3 TARGET 2

7.4 The PM and HAM accounts

7.5 The Intraday credit

7.6 E-MID

7.7 Conclusions

SECOND PART

RABBIT IN THE HAT

8. The rabbit in the hat

8.1. A medieval practice: the fairs and the first clearing

8.2. The clearing house and bank balance sheet

9. The accounting entries from the creation to the repayment

    of the loan

9.1.1. The customer α asks € 100 loan to the bank A

9.1.2. Α the customer pays € 100 to a supplier, customer β of

     the bank B

9.1.3. The netting at the end of the day: Bank A pays € 100 to

     the bank B

9.1.4. The netting at end of the day: The bank B receives € 100

     from Bank A

9.1.5 The customer α returned the € 100 loan to the bank in cash

9.1.6 The customer α returned the € 100 loan to the bank A

     via current account

9.2. The dynamism of interbank payment flows

9.2.1 Adjustment of budgetary imbalances

9.2.2 The balance equity with funding from the loan

9.2.3 The off-balance sheet

10. The Reserves

11. Simplified framework

12. Taxes, failures and solutions

12.1 The banks pay taxes?

12.2 Banks can fail?

12.3 The solutions

13. Conclusions

To buy the paperback click below    To buy the PDF book click below

                                  

The Citadel Is Breached: Congress Taps the Fed for Infrastructure Funding

January 16, 2016 by Ellen Brown

In a landmark infrastructure bill passed in December, Congress finally penetrated the Fed’s “independence” by tapping its reserves and bank dividends for infrastructure funding.

The bill was a start. But some experts, including Congressional candidate Tim Canova, say Congress should go further and authorize funds to be issued for infrastructure directly.

For at least a decade, think tanks, commissions and other stakeholders have fought to get Congress to address the staggering backlog of maintenance, upkeep and improvements required to bring the nation’s infrastructure into the 21^st century. Countries with less in the way of assets have overtaken the US in innovation and efficiency, while our dysfunctional Congress has battled endlessly over the fiscal cliff, tax reform, entitlement reform, and deficit reduction.

Both houses and both political parties agree that something must be done, but they have been unable to agree on where to find the funds. Republicans aren’t willing to raise taxes on the rich, and Democrats aren’t willing to cut social services for the poor.

In December 2015, however, a compromise was finally reached. On December 4, the last day the Department of Transportation was authorized to cut checks for highway and transit projects, President Obama signed a 1,300-page $305-billion transportation infrastructure bill that renewed existing highway and transit programs. According to America’s civil engineers, the sum was not nearly enough for all the work that needs to be done. But the bill was nevertheless considered a landmark achievement, because Congress has not been able to agree on how to fund a long-term highway and transit bill since 2005.

That was one of its landmark achievements. Less publicized was where Congress would get the money: largely from the Federal Reserve and Wall Street megabanks. The deal was summarized in a December 1^st Bloomberg article titled “Highway Bill Compromise Would Take Money from US Banks”:

The highway measure would be financed in part by a one-time use of Federal Reserve surplus funds and by a reduction in the 6 percent dividend that national banks receive from the Fed. . . . Banks with $10 billion or less in assets would be exempt from the cut.

The Fed’s surplus capital comes from the 12 reserve banks. The highway bill would allow for a one-time draw of $19 billion from the surplus, which totaled $29.3 billion as of Nov. 25. . . .

Banks vigorously fought the dividend cut, which was estimated to generate about $17 billion over 10 years for the highway trust fund.

According to Zachary Warmbrodt, writing in Politico in November, the Fed registered “strong concerns about using the resources of the Federal Reserve to finance fiscal spending.” But former Federal Reserve Chairman Ben Bernanke, who is now at the Brookings Institute, acknowledged in a blog post that the Fed could operate with little or no capital. His objection was that it is “not good optics or good precedent” to raid an independent central bank. It doesn’t look good.

Rep. Peter DeFazio (D-Oregon), ranking member on the House Transportation Committee, retorted, “For the Federal Reserve to be saying this impinges upon their integrity, etc., etc. — you know, it’s absurd. This is a body that creates money out of nothing.”

DeFazio also said, “[I]f the Fed can bail out the banks and give them preferred interest rates, they can do something for the greater economy and for average Americans. So it was their time to help out a little bit.”

An Idea Whose Time Has Come

It may be their time indeed. For over a century, populists and money reformers have petitioned Congress to solve its funding problems by exercising the sovereign power of government to issue money directly, through either the Federal Reserve or the Treasury.

In the 1860s, Abraham Lincoln issued debt-free US Notes or “greenbacks” to finance much of the Civil War, as well as the transcontinental railroad and the land-grant college system. In the 1890s, populists attempted unsuccessfully to revive this form of infrastructure funding. In the Great Depression, Congress authorized the issuance of several billion dollars of US Notes in the Thomas Amendment to the 1933 Agricultural Adjustment Act. In 1999, Illinois Rep. Ray LaHood introduced the State and Local Government Economic Empowerment Act (H. R. 1452), which would have authorized the US Treasury to issue interest-free loans of US Notes to state and local governments for infrastructure investment.

Law professor Timothy Canova plans to reintroduce this funding model if elected to represent Florida’s 23^rd Congressional district, where he is now running against the controversial Debbie Wasserman Schultz, current chair of the Democratic National Convention. Prof. Canova wrote in a December 2012 article:

. . . Wall Street bankers and mainstream economists will argue that greenbacks and other such proposals would be inflationary, depreciate the dollar, tank the bond market, and bring an end to Western civilization. Yet, we’ve seen four years of the Federal Reserve—now on its third quantitative-easing program—experimenting with its own type of greenback program, creating new money out of thin air in the form of credits in Federal Reserve Notes to purchase trillions of dollars of bonds from big banks and hedge funds. While the value of the dollar has not collapsed and the bond market remains strong, neither have those newly created trillions trickled down to Main Street and the struggling middle classes. The most significant effect of the Fed’s programs has been to prop up banks, bond prices, and the stock market, with hardly any benefit to Main Street.

In a January 2015 op-ed in the UK Guardian titled “European Central Bank’s QE Is a Missed Opportunity,” Tony Pugh concurred, stating of the US and European QE programs:

Quantitative easing, as practised by the Bank of England and the US Federal Reserve, merely flooded the financial sector with money to the benefit of bondholders. This did not create a so-called wealth affect, with a trickle-down to the real producing economy.

. . . If the EU were bold enough, it could fund infrastructure or renewables projects directly through the electronic creation of money, without having to borrow. Our government has that authority, but lacks the political will. The [Confederation of British Industry] has calculated that every £1 of such expenditure would increase GDP by £2.80 through the money multiplier. The Bank of England’s QE programme of £375bn was a wasted opportunity.

According to IMF director Christine Lagarde, writing in The Economist in November 2015:

IMF research shows that, in advanced economies, an increase in investment spending worth one percentage point of GDP raises the overall level of output by about 0.4% in the same year and by 1.5% four years after the spending increase.

In a December 2015 paper titled “Recovery in the Eurozone: Using Money Creation to Stimulate the Real Economy”, Frank van Lerven expanded on this research, writing:

For the Eurozone, statistical analysis of income and consumption patterns suggests that €100 billion of newly created money distributed to citizens would lead to an increase in GDP of around €232 billion. Using IMF fiscal multipliers, our empirical analysis further suggests that using the money to fund a €100 billion increase in public investment would reduce unemployment by approximately one million, and could be between 2.5 to 12 times more effective at stimulating GDP than current QE.

The Hyperinflation Myth

The invariable objection to exercising the government’s sovereign money-creating power is that it would lead to hyperinflation, but these figures belie that assumption. If adding €100 billion for infrastructure increases GDP by €232 billion, prices should actually go down rather than up, since the supply of goods and services (GDP) would have increased more than twice as fast as demand (money). Conventional theory says that prices go up when too much money is chasing too few goods, and in this case the reverse would be true.

In a November 2015 editorial, the Washington Post admonished Congress for blurring the line between fiscal and monetary policy, warning, “Many a banana republic . . . has come to grief using its central bank to facilitate government deficit spending.” But according to Prof. Michael Hudson, who has studied hyperinflations extensively, that is not why banana republics have gotten into trouble for “printing money.” He observes:

The reality is that nearly all hyperinflations stem from a collapse of foreign exchange as a result of having to pay debt service. That was what caused Germany’s hyperinflation in the 1920s, not domestic German spending. It is what caused the Argentinean and other Latin American hyperinflations in the 1980s, and Chile’s hyperinflation earlier.

Promising Possibilities

Any encroachment on the Fed’s turf is viewed by Wall Street and the mainstream media with alarm. But to people struggling with mounting bills and crumbling infrastructure, the development has promising potential. The portal to the central bank’s stream of riches has been forced open, if just a crack. The trickle could one day become a flow, a mighty river of liquidity powering the engines of productivity of a vibrant economy.

For that to happen, however, we need an enlightened citizenry and congressional leaders willing to take up the charge; and that is what makes Prof. Tim Canova’s run for Congress an exciting development.

__________________

Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling Web of Debt. Her latest book, The Public Bank Solution, explores successful public banking models historically and globally. Her 300+ blog articles are at EllenBrown.com. Listen to “It’s Our Money with Ellen Brown” on PRN.FM.

Source: http://ellenbrown.com/2016/01/16/the-citadel-is-breached-congress-taps-the-fed-for-infrastructure-funding/

Bank of Canada Lawsuit

By: 

Joyce Nelson

One of the most important legal cases in Canadian history is slowly inching its way towards trial.  Launched in 2011 by the Toronto-based Committee on Monetary and Economic Reform (COMER), the lawsuit would require the publicly-owned Bank of Canada to return to its pre-1974 mandate and practice of lending interest-free money to federal, provincial, and municipal governments for infrastructure and healthcare spending.

Renowned constitutional lawyer Rocco Galati has taken on the case for COMER, and he considers it his most important case to date.  

On October 14, a Federal Court judge cleared away yet another legal roadblock thrown in the lawsuit’s path. The federal government has tried to quash the case as frivolous and “hypothetical,” but the courts keep allowing it to proceed. As Galati maintains, “The case is on solid legal and constitutional grounds.”    

When asked after the October procedural hearing why Canadians should care about the case, Galati quickly responded: “Because they’re paying $30 or $40 billion a year in useless interest. Since ’74, more than a trillion to fraudsters, that’s why they should care.” (COMER says the figures are closer to $60 billion per year, and $2 trillion since 1974.)
 

The Fraudsters
Created during the Great Depression, the Bank of Canada funded a wide range of public infrastructure projects from 1938 to 1974, without our governments incurring private debt. Projects like the Trans-Canada highway system, the St. Lawrence Seaway, universities, and hospitals were all funded by interest-free loans from the Bank of Canada.

But in 1974, the Liberal government of Pierre Trudeau was quietly seduced into joining the Bank for International Settlements (BIS) – the powerful private Swiss bank which oversees (private) central banks across the planet. The BIS insisted on a crucial change in Canada.

According to The Tyee (April 17, 2015), in 1974 the BIS’s new Basel Committee – supposedly in order to establish global financial “stability” – encouraged governments “to borrow from private lenders and end the practice of borrowing interest-free from their own central banks. The rationale was thin from the start. Central bank borrowing was and is no more inflationary than borrowing through the private banks. The only difference was that private banks were given the legal right to fleece Canadians.”

And that’s exactly what “the fraudsters” did. After 1974, the Bank of Canada stopped lending to federal and provincial governments and forced them to borrow from private and foreign lenders at compound interest rates – resulting in huge deficits and debts ever since. Just paying off the accumulated compound interest – called “servicing the debt” – is a significant part of every provincial and federal budget. In Ontario, for example, debt-servicing charges amounted to some $11.4 billion for 2015.  

What is key to the COMER lawsuit is that the Bank of Canada is still a public central bank (the only one left among G7 countries). Their lawsuit seeks to “restore the use of the Bank of Canada to its original purpose, by exercising its public statutory duty and responsibility. That purpose includes making interest free loans to the municipal, provincial, and federal governments for ‘human capital’ expenditures (education, health, other social services) and/or infrastructure expenditures.”
 

Deliberate Obfuscation
In February 2015, Rocco Galati stated publicly: “I have a firm basis to believe that the [federal] government has requested or ordered the mainstream media not to cover this [COMER] case.” Subsequently, the Toronto Star and the CBC both gave the lawsuit some coverage last spring and there was good coverage in alternative media. But given the importance of infrastructure-spending in the recent federal election campaign, it’s amazing (and sad) that the COMER lawsuit was so ignored, even by the political parties – especially the NDP.

With the Harper government touting its ten-year, $14 billion Building Canada Fund, and the Liberal Party of Justin Trudeau promising to double that amount of funding by running three years of deficits, the NDP led by Tom Mulcair pledged to balance the budget. The NDP could have explained and championed the COMER lawsuit and even possibly utilized it to somehow justify the balanced-budget promise – a platform plank that likely cost it the election.

In August, Justin Trudeau spoke vaguely about financing infrastructure spending with a new bank. As a COMER litigant wrote in their newsletter, “During the recent federal election, Trudeau floated an interesting plank about creating an infrastructure bank. My first response was ‘You already have one. The Bank of Canada.’  My second question was, ‘Public or private?’ Again we see both the colossal ignorance and deliberate obfuscation of money issues in this country by our leadership.”

A Liberal Party Backgrounder explained, “We will establish the Canada Infrastructure Bank (CIB) to provide low-cost financing to build new infrastructure projects. This new CIB will work in partnership with other orders of governments and Canada’s financial community, so that the federal government can use its strong credit rating and lending authority to make it easier – and more affordable – for municipalities to finance the broad range of infrastructure projects their communities need … Canada has become a global leader in infrastructure financing and we will work with the private sector and pools of capital that choose for themselves to invest in Canadian infrastructure projects.”

It’s those “pools of capital” – including Wall Street titans like Goldman Sachs – that are set to profit handsomely from Canada’s new infrastructure lending and spending spree.  

In a cynical move, the Liberal Backgrounder doesn’t mention the interest-free loans of the past, but it does cite their results in order to tout the Liberal Party’s “transformative investment plan” for Canada: “A large part of Canada’s 20th century prosperity was made possible by nation-building projects – projects that without leadership from the government of Canada would not have been possible … the St. Lawrence Seaway served as a foundation for prosperity in Quebec and Ontario; the TransCanada Highway links Canadians from coast to coast; and our electricity projects, pipelines, airports and canals have made it possible to develop our natural resources, power our cities, and connect with each other and the world.”
 

Pools of Capital
Enthused about Justin Trudeau’s victory and his infrastructure campaign platform, Paul Krugman wrote in the New York Times (October 23, 2015), “We’re living in a world awash with savings that the private sector doesn’t want to invest and is eager to lend to governments at very low interest rates.  It’s obviously a good idea to borrow at those low, low rates … . Let’s hope then, that Mr. Trudeau stays with the program. He has an opportunity to show the world what truly responsible fiscal policy looks like.”

Of course, borrowing from the Bank of Canada at NO interest rates would be even more fiscally responsible, and would keep policy decisions out of the hands of foreign lenders.

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Joyce Nelson is an award-winning freelance writer/researcher and the author of five books.

- See more at: http://www.watershedsentinel.ca/content/bank-canada-lawsuit#sthash.Czq0ihKy.T9hKFvjh.dpuf

Russia’s Dollar Exit Takes Major New Step

For some time both China and the Russian Federation have understood, as do other nations, that the role of the US dollar as the world’s major reserve currency is their economic Achilles Heel. So long as Washington and Wall Street control the dollar, and so long as the bulk of world trade requires dollars for settlement, central banks like those of Russia and China are forced to stockpile dollars in the form of “safe” US Treasury debt, as currency reserves to protect their economies from the kind of currency war Russia experienced in late 2014 when the aptly-named US Treasury Office of Terrorism and Financial Intelligence and Wall Street dumped rubles amid a US-Saudi deal to collapse world oil prices. Now Russia and China are quietly heading for the dollar exit door.

Russia’s state budget strongly depends on oil export dollar profits. Ironically, because of the role of the dollar, the central banks of China, Russia, Brazil and other countries diametrically opposed to US foreign policy, are forced to buy US Treasury debt in dollars, de facto financing the wars of Washington that aim to damage them.

That’s quietly changing. In 2014 Russia and China signed two mammoth 30-year contracts for Russian gas to China. The contracts specified that the exchange would be done in Renminbi and Russian rubles, not in dollars. That was the beginning of an accelerating process of de-dollarization that is underway today.

Renminbi in Russian Reserves

On November 27, Russia’s Central Bank announced that it was including the Chinese Renminbi into the central bank’s official reserves for the first time. As of December 31, 2014, official Central Bank of Russia reserves consisted of 44% US dollars, and 42% Euros with the British Pound slightly more than 9%. The decision to include Renminbi or Yuan into Russia’s official reserves will increase the use of the yuan in Russian financial markets, to the detriment of the dollar.

The yuan first began to be traded as a currency, even though it is not yet fully convertible into other currencies, in the Moscow Exchange in 2010. Since then the volume of yuan-ruble trades has grown enormously. In August, 2015 Russian currency traders and companies bought a record 18 billion yuan, about $3 billion, representing a 400% increase from a year earlier.

The Golden Ruble is coming

But the actions of Russia and China to replace the dollar as mediating currency in their mutual trade, a trade whose volume has grown significantly since US and EU sanctions in March 2014, are not the end of it.

Gold is about to make a dramatic return to the world monetary stage for the first time since Washington unilaterally ripped up the Bretton Woods Treaty in August, 1971. At that point, advised by David Rockefeller’s personal emissary in the Treasury, Paul Volcker, Niixon announced Waahinton was refusing to honor its treaty obligations to redeem the dollars held abroad for US central bank gold.

Since that time, rumors have persisted that, in fact, the gold chambers of Fort Knox are bare, a fact that, were it to be verified, would spell curtains for the dollar as reserve currency.

Washington adamantly holds to the story line that the Federal Reserve sits on 8133 tons of gold reserves. If true, that would far exceed the second-largest, Germany, whose official gold holdings are listed by the IMF at 3381 tons.

In 2014 a bizarre event transpired which fed the doubts about US official gold statistics. In 2012 the German Government asked the Federal Reserve to return German central bank gold “held in custody” for the Bundesbank by the Fed. Shocking the world, the US central bank refused to give Germany her gold back, using the flimsy excuse that the Federal Reserve “could not differentiate German gold bars from US ones…” Perhaps we are to believe the auditors of US Federal Reserve gold were laid off in the US budget cuts?

In the ensuing scandal, in 2013 the US repatriated a measly 5 tons of German gold to Frankfurt and announced it would need until 2020 to complete the requested 300 tons repatriation. Other European central banks began demanding their gold from the Fed, as distrust of the US central bank grew.

Into this dynamic the central bank of Russia has been adding to its official gold reserves in dramatic fashion in recent years. Since the growing hostility with Washington the pace has become far more rapid. From January 2013, Russia’s official gold has expanded by 129% to 1352 tons as of September 30, 2015. In 2000 at the end of the decade of US-backed plunder of the Russian Federation during the dark Yeltsin years of the 1990s Russia’s gold reserves stood at 343 tons.

The vaults of the Russian Central Bank, which at the time of the fall of the Soviet Union in 1991 held some 2,000 tons of official gold, had been stripped during the controversial tenure of Gosbank head, Viktor Gerashchenko, who told a startled Duma that he could not account for the whereabouts of the Russian gold.

Today is a different era to be sure. Russia has far and away replaced South Africa as the world’s third largest gold mining country in terms of annual tons mined. China has become number one.

Western media has made much of the fact that since US-led financial sanctions, Russian central bank reserves of dollars have fallen significantly. What they do not report is that at the same time the central bank in Russia has been buying gold, lots of gold. Russia’s total reserves in US dollars have fallen recently under sanctions by some $140 billion since 2014 parallel with the 50% collapse in dollar oil prices, but holdings of gold are up by 30% since 2014 as noted. Russia now holds as many ounces of gold as the gold exchange-traded funds (ETFs) do. In June alone, it added the equivalent of 12% of global annual gold mine production according to seekingalpha.com.

Were the Russian government to adopt the very sensible proposal of Russian economist and Putin adviser, Sergei Glazyev, namely that the Central Bank of Russia buy every single ounce of Russian mined gold at a guaranteed attractive ruble price to increase state gold holdings, that would even more avoid the Central Bank having to buy the gold on international markets for dollars.

A Bankrupt Hegemon

At the close of the 1980’s as they viewed a major US banking crisis coupled with the clear decline in the postwar role of the United States as the world’s industrial leading nation, as US multinationals out-sourced to low-wage countries like Mexico and later China, Europeans began to conceive of a new currency to replace the dollar as reserve and creation of a United States of Europe to rival US hegemony. The European response was creation of the Maastricht Treaty at the moment of the reunification of Germany in the beginning of the 1990’s. The European Central Bank and later the Euro, a severely flawed top-down construction, was the result. A suspiciously successful bet in billions by New York hedge fund speculator George Soros in 1992 against the Bank of England and the parity of the Pound, managed to knock the UK and the City of London out of the emerging EU alternative to the dollar. It was easy pickings for some of the same hedge funds to tear the Euro at the seams in 2010 by attacking its Achilles Heel, Greece, followed by Portugal, Ireland, Italy, Spain. Since then the EU, which is bound to Washington as well via the chains of NATO, has posed little threat to American hegemony.

However, increasingly since 2010, as Washington attempted to impose the Pentagon’s Full Spectrum Dominance on the world in the form of the so-called Arab Spring manipulated regime changes from Tunisia to Egypt to Libya and now, with poor results, in Syria, China and Russia have both been pushed into each others’ arms. A Russian-Chinese alternative to the dollar in the form of a gold-backed ruble and gold-backed renminbi or yuan, could start a snowball exit from the US dollar, and with it, a severe decline in America’s ability to use the reserve dollar role to finance her wars with other peoples’ money. That could just give the interests in favor of a world at peace a huge advantage over that warring lost hegemon, the United States.

F. William Engdahl is strategic risk consultant and lecturer, he holds a degree in politics from Princeton University and is a best-selling author on oil and geopolitics, exclusively for the online magazine “New Eastern Outlook”.

Source: http://journal-neo.org/2015/12/05/russias-dollar-exit-takes-major-new-step/
First appeared:http://journal-neo.org/2015/12/05/russias-dollar-exit-takes-major-new-step/