Bretton Woods II - China Leads the Way

Expect China to Shape the Next Bretton Woods Pact: Philip Coggan

Illustration by Josh Cochran

By Philip Coggan Feb 2, 2012 4:00 PM PT 14 Comments

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When the world economy heads into crisis, the international currency system often breaks down. This occurs either because debtors can’t meet their obligations, or because creditors fear they are not being repaid in sound money. The first condition exists today in the euro zone; the second is likely to emerge in the China-U.S. relationship.

So how might these conditions change the system? Much discussion concerns whether the U.S. dollar will be replaced as the global reserve currency by the Chinese yuan or whether it will simply be one of a number of reserve currencies that includes the euro, yuan and yen.

The global reserve currency is the one that forms the largest proportion of the holdings of central banks. More broadly, it is also the currency most likely to be accepted by merchants worldwide. In my view, the debate about whether the dollar will be replaced by the yuan is a bit of a red herring because such a shift will not occur quickly.

As of 2010, about 60 percent of all foreign-exchange reserves were denominated in dollars, giving the U.S. currency a critical mass. Investors are still comfortable with holding it; despite the country’s fiscal problems, in times of crisis, the dollar is regarded as a haven. It will take a long while for international investors to become confident that a Communist-led government will always respect their rights.

China’s Enormous Economy

By 2020, if current trends are realized, China will become the world’s largest economy. The nation’s foreign-exchange reserves already give it significant power as a creditor nation. But even if foreigners wanted to hold yuan instead of dollars, there would be constraints on their doing so. And removing the constraints would probably cause the yuan to soar, something that the Chinese are keen to avoid.

So it seems unlikely that the next 10 years will see a yuan standard replacing a dollar standard. But might the present crisis conditions lead to some other sort of change? Might countries, for example, be driven to enter a new arrangement comparable to the 1944 Bretton Woods pact, in which the world’s major industrial states agreed to adhere to a global gold standard to stabilize international currencies?

At this juncture, an agreement on this scale would be very difficult. Bretton Woods was made possible because of the limited number of participants and the urgency of wartime. Much ofEurope was under Nazi occupation and could not take part; the Soviet Union had little intellectual input; and the developing world was consulted on a fairly cursory basis. The Americans were in charge, but listened to John Maynard Keynes out of respect for his intellect.

A modern agreement would have to get consensus from the U.S., China, the European Union,India, Brazil, and so on. This would be tricky. But perhaps there could be an arrangement less formal than Bretton Woods. In November 2010, Robert Zoellick, a former U.S. Treasury official who runs the World Bank, wrote of a concept in which countries would agree on structural reforms to boost growth, forswear currency intervention and build a “co- operative monetary system.” This system, he continued, “should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values.”

Some saw this mild suggestion as a call for a return to the gold standard, which, barring desperate circumstances, is unlikely. But before we dismiss all ideas for reform, we should remember that the world operates under what some call a Bretton Woods II regime, with the Americans buying Chinese goods and the Chinese supplying the finance. The implications of this process are everlasting U.S. trade deficits and an ever-greater investment by the Chinese people in U.S. government debt.

Dollar Connection

The system may have suited the Chinese until now because they were eager to find manufacturing jobs for their rural population. At some point, however, the Chinese may feel the need to do something else with their trillions of dollars in reserves. Already they are looking to diversify by acquiring natural resources in the developing world. They have also criticized the U.S. for its economic policy, calling on the Americans to limit their budget deficit.

Despite the strength of this rhetoric, the Chinese will not abandon the dollar outright. They already own so much in the way of U.S. government debt that any indication of their intention to sell would cause a plunge in bond prices. The fates of creditor and debtor are locked together. So the answer might be some kind of managed deal, with the Chinese agreeing to let their currency strengthen and to limit their current account surplus while the Americans agree to tackle their budget deficit. The currencies would trade in a range while the deficit would have a target.

Timothy Geithner, the U.S. Treasury secretary, hinted at such a solution in October 2010, suggesting a limit on current account surpluses of about 4 percent of gross domestic product. A Group of 20 meeting of finance ministers nodded mildly in the direction of this proposal. But nothing will happen overnight. Neither the Chinese nor the Americans will want to accept constraints on their behavior.

The Chinese will change tack if they believe such a shift is in their own interest. This might be because they face losses on their government-bond holdings, or because they wish to shift to a consumption-based, rather than an export-led, model to court domestic popularity.

To some, the idea that the U.S. would accept constraints on the independence of its economic policy might seem a fantasy. It is hard enough for a president to get his own plans through Congress, let alone get approval for a set of policies dictated from abroad. As a result, one would expect a new system to arise only as part of a further crisis.

Savers and Spenders

In a speech in October 2010, Mervyn King, the governor of the Bank of England, called for a “grand bargain” among the major players in the world economy. “The risk,” he said, “is that, unless agreement on a common path of adjustment is reached, conflicting policies will result in an undesirably low level of world output, with all countries worse off as a result.”

The fundamental problem is the imbalance between the saving and the spending nations. In a sense, the situation resembles that of the late 1920s when the Americans and French owned a huge proportion of the world’s gold reserves; this time it is the Asian and OPEC countries that have too much squirreled away. What should naturally happen in such circumstances is for the exchange rates of the surplus nations to appreciate. But countries have been attempting to hold their currencies down, either by intervening in the markets or by imposing capital controls. All currencies, however, cannot fall; some must rise and risk deflation in the process.

Any target for exchange rates, or current-account surpluses, would have to be flexible. Fixed exchange rates require either subordination of monetary policy or capital controls to be effective. The Chinese, who already restrict investment, might favor capital controls, but it is hard to see the U.S., with its huge financial-services industry, agreeing to a worldwide restriction.

However, there is one factor that might persuade the U.S. government to change its mind: its debt burden. As has already been discussed, reducing debt via an austerity program is unpalatable, and outright default is almost unthinkable. But governments did manage to reduce their debt burdens after World War II, under the auspices of the Bretton Woods system.

Only with capital controls can government debt burdens be inflated away. Private savings can be more easily forced into public-sector debt.

How would a managed exchange-rate system work today? Even under Bretton Woods, after all, it eventually proved impossible to keep exchange rates pegged. But the system did work for a quarter of a century. And if an exchange-rate peg gives speculators a tempting target, the answer would be to curb the speculators. Again, if the Chinese set the rules, such a move would seem more likely. They regard Western governments as foolish for allowing their economic policies to be at the mercy of the markets.

If the U.K. set the terms of the gold standard, and the U.S. set those of Bretton Woods, then the terms of the next financial system are likely to be set by the world’s biggest creditor: China. And that system may look a lot different to the one we have become used to over the past 30 years.

(Philip Coggan is a columnist for the Economist. This is an excerpt from his book, “Paper Promises: Debt, Money and the New World Order,” to be published Feb. 7 by Perseus Books. The opinions expressed are his own.)

To contact the writer of this article: Philip Coggan at philipcoggan@economist.com

To contact the editor responsible for this article: Mary Duenwald at mduenwald@bloomberg.net

Proposal for American Prosperity: Localize Deposits, Starve the Beast #GIABO #Transition #Localize

If city, country, state, and Federal governments around the US move their primary banking and deposits out of the Big Four (JP Morgan, Wells Fargo, Bank of America, Citibank) and into small local banks, the economy would begin to recover immediately.

This will not happen so long as the cost of energy is a barrier to trade.  Therefore, local communities should begin to shop locally for everything, as much as possible, only going to long distance markets when there are no better alternatives.  Notice I didn't say CHEAPER.  This is not going to be about price.  We are not going to negotiate the future of the world with those who choose to hang on because their livelihood depends on the status quo.  Home buyers will get mortgages, car loans, safety deposit boxes, and investment accounts, all from locally owned small businesses, the kind that thrived before the days of mega corporations.  Home builders will source their materials locally, possibly substituting non-local goods with alternative materials, preferably reusing materials that have already been "spent".  Restaurants and grocery stores will shop from local farmers markets.  All of this action will circulate the money within a community, but not strip it out like a Walmart, Burger King, McDonalds, Home Depot, or Whole Foods.

Only those communities that cannot source food will "import" from outside their local area and soon they will find that intolerable as the price of oil climbs to all time highs and the cost of modern agriculture is no longer cheaper.  Many people may ignore these words now, but wait until oil spikes again, for whatever reason.  Then you will see.

Unemployment will plummet as local business hire local people.  Many may shift industries, getting training, learning on the job, or work in apprenticeships and internships.  City and State tax revenues will return as small and local business cannot threaten to leave town when their employees and ownership are local.  No longer will the big box mega corporations be able to starve cities and states of tax revenues because they "promise to bring jobs to the local economy".  No I am not talking about so many employees, I mean many many Americans would become self-employed and that means reducing our taxable Federal income.  This will allow us to STARVE the BEAST.  The Federal government will be forced to bank local just as we do because we will cut off its primary source of funding - the federal income tax, and we will do this just as legally as the big banks and their puppet Federal Reserve of NY have stripped our economy of virtually everything since 1913 (and their predecessors have done since before the American Revolution).

We should begin to release our own currencies based on the 100% deposits of the community banks which will lend out only up to the level of their risk tolerance but no more than 100% of deposits.  and we will barter just as humans have done for thousands of years and how the early settlers of North America did only 300 years ago, and how rural communities have done up until the last 30 years.

The "wealth" of our world will not solely depend on how many US dollars line our income statements and balance sheets.  We will accept these new currencies as legal tender and will operate an exchange where neighbors can trade for dollars, gold, silver, or even swap one item for another. 20% of the economy labeled as "underground" already functions much like this and they survive BECAUSE they are outside the system. Otherwise they would go broke too.

How do I know this will work?  Because it worked before. Jackson killed the Second Bank of the United States (and soon thereafter paid off the national debt for the ONLY time in history) by moving the deposits of the US Federal Government to the state banks.

The Second Bank of the United States thrived from the tax revenue that the federal government regularly deposited just as the Federal Reserve Banks do now, both owned and controlled to a large extent by foreigners. Seeing his opportunity to starve the beast,  Jackson struck at this vital source of funds by signing an executive order instructing his Secretary of the Treasury Taney to deposit federal tax revenues in state banks.  In September 1833, Secretary of the Treasury Roger B. Taney transferred the government of  Pennsylvania’s deposits from the Second Bank to the Bank of Girard in Philadelphia, the locally controlled Bank of Stephen Girard, which had bought the assets of the First Bank of the United States when its charter was not renewed in 1811.  This is how the London Connection bank went bankrupt.  We stripped the leech off of our balls and it shriveled up and died.  This is what we should do now to return control of our nation to our elected officials and bureaucrats.  We will deal with their corruption and incompetence later.

Why should we as individuals and families make the decision to do this? Because we now know the truth about American history, the manipulation and control that has been exercised on us by the London Connection since before our Independence.  We are aware of their plans to manipulate us into the throngs of war.  You can hear their appeasers now, suggesting we sanction Iran and send troops into Syria.  Many see this as a left right paradigm, I see it as a patriot-traitor paradigm.  Those that persist in driving us to war around the world ostensibly to protect our national interests (oil and commerce), liberate (the markets), and defend our national security (by maintaining military troops and bases around the world) are the traitors.  They are committing treason against the spirit of the Constitution, even if they have changed our laws to fit their needs.

This London Connection, of international bankers have stripped us of our wealth and profited from our complacency.  The greatest obstacle to those who hope to reform America is complacency by those who argue that they shouldn't complain, they have it well.  So that’s the attitude you are going to take? That you will not help out fellow Americans? You will describe them as lazy? Simply because you ere able to achive success? And you say that you never got a helping hand? I challenge you to find a single industry that has not benefited from the socialist welfare that you so abhor!  

We are awake.  We are a legion of citizens that will no longer be victims of their games.  We are Americans, Citizens of the Free World.

#GIABO, #StarveTheBeast, #EndtheFed #Localize #Transition

Bankers and Federal Reserve Support Obama in 2012

The Fed is Engineering Obama’s Re-Election Campaign

The Federal Reserve is Engineering Obama’s Re-Election Campaign

 by Gary Dorsch, Editor, Global Money Trends

Mitt Romney has just rolled up back to back victories in the Nevada and Florida primaries, and his path to the Republican nomination looks to be inevitable. Republicans are mostly basing their voting decisions upon opinion polls showing Romney has the best chance of defeating President Barack Obama in the Nov 6^th presidential election. According to the latest Gallup poll, both Obama and Romney have equal support of 48% of the US-electorate, and if correct, more than a billion dollars worth of campaign and PAC ads will swamp the media outlets, in order to try an influence the decisions of less than 5% of undecided voters.

In his standard stump speech Romney charges Obama with recklessly spending billions of tax payer dollars and is peddling for votes to support his re-election. “Over the past three years Barack Obama has been replacing our merit-based society with an entitlement society,” Romney tells his supporters. Indeed, direct government payments to individuals shot up by almost $600-billion, a +32% increase, since the start of the Obama administration in 2009.

A record 49% of Americans live in a household where someone receives at least one type of government subsidy, such as Medicare, food stamps, hosing subsidies, unemployment insurance, school lunch, veterans’ benefits, etc. And 63% of all federal spending this year will consist of checks written to individuals for which the government receives currently no services, the White House estimates. That’s up from 46% in 1975 and 18% in 1940. At the same time, about half of Americans pay no federal income tax at all.

While the Republicans rail against the burgeoning welfare society, they also support corporate welfare for the Wall Street banking Oligarchs, support $53-billion in tax breaks for the oil industry, and tens of billions in subsidies for America’s Agricultural farm factories. Americans are facing tough times. Millions are still out of work. Wages remain stagnant, while health care costs, tuition, and other household cost continue to rise. Many homeowners owe more for their houses than they are worth. Yet the income of the wealthiest 1% of Americans has risen dramatically over the last decade, and now equal 25% of the entire national income. Still, the federal government lavishes the top-1% with billions of dollars in giveaways and tax breaks. Meanwhile 50% of US-workers earned less than $26,364 last year, reflecting a growing income gap between America’s rich and poor.

Undoubtedly, there will be plenty of mudslinging fired from both sides, with political spin artists trying to brainwash the public’s view of the state of the economy. “This president’s misguided policies have made these tough times last longer,” Romney said to his Nevada supporters on Feb 5^th. “If elected president, my priority will be worrying about your job, not saving my own,” he added. For his part, Obama toldthе Democratic Caucus on January 27^th that their votes for the $787-billion economic stimulus package prevented a second Great Depression, and enabled the progress made ѕіnсе the financial crisis of 2008 and 2009.“Over thе last 22-months we’ve seen 3-million jobs сrеаtеd, - and more new factory jobs ѕіnсе thе 1990′s. A lot οf thаt is because of tough decisions уου took,” said Obama.

Mitt Romney is now starting to aim most of his fire on President Obama, instead of attacking his Republican rivals. However, Romney’s strategies for winning the presidency are bumping up against a huge roadblock, - Obama’s top campaign manager, - the Federal Reserve. The highly secretive Fed is actively rigging the markets in order to help Mr Obama get re-elected, and the fruits of the Fed’s labor is just beginning to sprout in the political arena. The Fed has engineered an improbable recovery rally in the stock market that has lifted the Dow Jones Industrials to its highest closing level since May 2008, - back to the time before Lehman Brothers collapsed. The Nasdaq Composite Index, dominated by technology stocks, has rebounded to the 2905-level, its highest close in 11-years, led by Apple Inc.

Despite all of the turmoil in the stock markets over the past five-years, when retail investors withdrew $465-billion of their savings out of stock mutual funds, Fed chief Ben “Bubbles” Bernanke proved that the Fed could rig the stock market, - and engineer an economic recovery by printing vast quantities of money, and keeping interest rates locked at historically low levels. Behind the scenes, the Fed funneled trillions in loans to Wall Street bankers, arranged currency swaps with other central banks, and through in agents, intervened directly in the futures markets, in order to keep the stock market’s recovery rally intact.

One of the Fed’s favorite tools that's used to pump-up the stock market is “open mouth” operations, in order to influence trader behavior and market psychology. The Fed broadcasts a constant barrage of hints to the financial media, that it could unleash another tsunami of “quantitative easing” (QE), at a moments’ notice. By flooding the markets with ultra-cheap liquidity, the Fed whets the appetite of risk takers, and starts an orgy of speculation in the markets and creates asset bubbles. In turn, a steadily rising stock market is boosting the odds of Obama’s winning a second term. Mirroring the steady climb of the Dow Jones Industrials, online bettors at Inntrade.com, now give Obama a 57% chance of getting re-elected.

That’s up from 46.5% odds of winning on October 4^th, when the Dow was plunging in a downward spiral to the 10,500-level. Thanks to massive intervention in the futures market, the Fed put a brutal squeeze on short sellers, and engineered a stunning +375-point rally in the Dow Industrials in the final 45-minutes of trading on October 4^th. The Fed turned back the threat of a Bear market, and in hindsight, ignited the third leg up for the Bull market that began in March 2009. The Fed has proved its ability to manhandle the Treasury bond and stock markets, and few traders are willing to fight the Bernanke Fed these days.

Incumbent presidents are always hard to beat. The powers of the presidency go a long way. Not since 1971 and early in the 1972 election year, when Nixon pressured Arthur Burns, then the Fed chairman, to expand the money supply with the aim of reducing unemployment, and boosting the economy in order to insure Nixon’s re-election, have traders seen such massive political pressure on the Fed to intervene in the markets in order to help a president to get re-elected. Nixon imposed wage and price controls to constrain inflation, and won the election in a landslide.

Underneath the surface, the Fed was steadily increasing the high octane MZM Money supply, throughout the turbulent days of 2011. The size of the MZM Money supply has increased by $1-trillion from a year ago, to a record $10.75-trillion today. At the same time, Bernanke has gone far beyond the markets wildest imaginations, by pledging to keep borrowing costs for banks and hedge funds locked at zero-percent for the next three years. The Fed said that it aims to continue with its ultra-easy money policy until the US-jobless rate falls towards 6-percent from 8.3% today, and is willing to tolerate a higher inflation rate, until it acheives its objective.

Only one US-president since World War II -- Ronald Reagan -- has been re-elected with a jobless rate above 6-percent. Reagan won a second term in 1984 with an unemployment rate of 7.2% on Election Day. Reagan won in a landslide since the jobless rate had fallen almost 3% in the previous 18-months, and a sizeable majority of US-voters thought the economy was moving in the right direction. By contrast, under Mr Obama the unemployment rate has dropped by 1.7% in the last 26 months – from a high of 10% in 2009. The Fed aims to keep the ultra-easy conditions in place that would enable the jobless rate to tumble to 7% by Election Day, even at the expense of faster inflation, to help Obama win a second term.

It’s starting to look as if the US-economy is on a steady, if unspectacular, upward trend. Considering how beaten down the economy has been, - it’s possible that Obama might find himself in the sweet spot of a virtuous cycle of a business recovery, in the months ahead. Republicans will claim that Obama’s policies deserve none of the credit. “Mr. President, we welcome any good news on the jobs front,” Romney said. “But it is thanks to the innovation of the America people and the private sector and not to you, Mr. President,” he added.

However, presidents tend to get the blame for everything bad that happens on their watch and receive credit for everything good. Obama’s chances for re-election are starting to look much better, after Labor department apparatchiks reported that US-employers added 243,000 workers to their payrolls in January, the biggest gain in nine months. The US-economy has created about a half-million jobs in the past two months, government bureaucrats says, and the unemployment rate dropped to 8.3% in January from 8.5% in December. Already, 2012 is looking like a winner for automakers -- just one month into the year.

Another hopeful sign for the US-economy’s future, - sales of new cars and trucks rose +11% to in January to 913,287, thanks tolow borrowing costs and better loan availability. The sales pace accelerated to its highest level since the Cash for Clunkers program in August 2009.Chrysler had its best January in four years. If sales stay at January’s pace, they would reach 14.2-million, up from 12.8-million in 2011. While that’s below the 2000 peak of 17.3-million, it’s better than the 10.4-million trough hit in 2009. One reason car sales are improving is that buyers need to replace aging vehicles. The average age of a vehicle in the US is a record 10.8-years, nearly two years older than a decade ago. The bad news is that US-motorists are paying an average $31,300 for a new car, compared with $28,000 five years ago.

Historical observation reveals that the direction of the stock market has a notable influence over consumer confidence and spending levels. In particular, the top-20% of wealthiest Americans account for 40% of the spending in the US-economy, so the Fed hopes that by inflating the value of the stock market, wealthier Americans would decide to spend more. It’s the Fed’s version of “trickle down” economics, otherwise known as the “wealth effect.”

Yet when measured in “hard money” terms, or in comparison to the price of Gold, it becomes clear that much of the Dow’s “miracle rally” during the Obama administration was nothing more than a “monetary illusion,” inflated by the Fed’s hallucinogenic QE scheme. When seen thru the prism of Gold, 1-share of the Dow Industrials can only buy 7.4-ounces of Gold today. That’s slightly less than the exchange rate that prevailed at the bottom of the stock market’s slide in March 2009. Compared to the price of Gold, the Dow Jones Industrials is currently trading at its lowest level since 1992, - a 20-year low. In other words, without the Fed’s massive money printing operations, the stock market would be in a shambles today, and Obama’s chances at re-election would’ve been worse than Jimmy Carter’s in late 1980.

Just as the Dow’s historic rally is a mirage in hard money terms, the decline in the jobless rate to 8.3% is also deceptive. The fall in the headline unemployment rate has tumbled because the size of America’s workforce is shrinking – 4.8-million workers have simply given-up looking for a job over the past 31-months, and are no longer counted as unemployed. If these workers were counted as unemployed, the jobless rate would be at 11%. Nearly 24-million Americans remain unemployed, underemployed, or have just stopped looking for work. Long-term unemployment remains at record levels. If all these segments of the labor force are considered, the so-called U-6 jobless rate is at 15.1%, or equal to 1-in-6 American workers.

Still, the Fed figures that if it continues to pump-up the value of the stock market, eventually good tidings for the US’s asset based economy would follow. On Sept 21^st, 2011, the Fed devised a brand new scheme to inflate the stock market’s value. The Fed said it would switch $400-billion of its portfolio into long-term Treasury bonds, in order to lock down long-term interest rates at historic low levels. The Fed telegraphed the move to Wall Street for weeks, dubbed “Operation Twist.” Since then, the Fed has locked the 10-year Treasury note yield below 2%, which is less than the 2.05% dividend yield that’s offered by the S&P-500 Index, and making the stock market look more attractive.

The Fed has been able to lock long-term bond yields at historic lows, even at a time, when the CBO reports that annual spending over the Obama era has climbed to a projected $3.6-trillion this fiscal year from $3-trillion in fiscal 2008, up more than 20%. The government’s share of spending in the US-economy has increased to 24%, up from an average of about 20% of GDP. This doesn’t include the $2-trillion tab for Obama Care. Under the Obama administration, the federal debt has mushroomed by about $5-trillion in a mere four years.

Since the Fed unveiled “Operation Twist,” the Dow Jones Industrials has soared +1,700-points higher, yet long-term Treasury yields remain “repressed” by the central bank. Typically, in a free and open marketplace, Treasury bond yields would’ve climbed sharply higher, alongside a booming stock market. Instead, the Fed has kept Treasury yields locked at artificially low levels. The massive degree of heavy handed intervention in the marketplace, and the manipulation of interest rates, the stock market, and currency exchange rates, is reminiscent of the Japanese capital and currency markets, and has also become the hallmark of the Bernanke Fed and the Obama administration.

However, according to the latest Gallup poll, the Fed’s intervention tactics are boosting Mr Obama’s ratings in the opinion polls. Gallup says 46% of American voters now approve of Mr. Obama’s performance in the White House. That’s up from 38% on October 4^th, when the Fed rescued the stock market from the claws of the grizzly Bear. Historically, the best predictor of a president’s re-election chances is the approval rating. Since World War II, every president with an approval rating of at least 50% has won re-election. Every president with a rating clearly below 47% has lost. The most important driver of voter sentiment is the health of the labor market, and the number of net new jobs that are created.

But the Fed still has substantial work to do in order to insure Obama’s re-election: among the all-important independent voters likely to determine the outcome of the upcoming election, 47% approve of the way Obama is handling his job, and 50% disapprove. Many traders figure that if Obama is running neck and neck with Romney in the polls, the Fed could decide to take the politically risky gambit of unleashing QE-3, - printing anywhere from $600-billion to $1-trillion, and in turn, inflate the Dow Industrials to record highs above the 14,000-level.

If correct, there could be serious side-effects that could derail Obama’s re-election campaign. For instance, unleashing QE-3 could lift the price of North Sea Brent crude oil towards $150 per barrel, and jolt retail gasoline prices toward $5 /gallon. QE-3 could also lift the price of Gold above $2,000 /oz and trigger a broad based binge of speculation in the commodities markets, for grains, livestock, and base metals. That could usher in a whole new wave of consumer price inflation that would erode the purchasing power of US-wage earners.

Japan’s finance chief, Jun Azumi, said on Feb 2^nd, that if the Fed unleashes QE-3, he would exert maximum pressure on the Bank of Japan (BoJ) to consider easing policy further, in order to prevent the US-dollar from falling below 75-yen, and to protect its export-reliant economy. “Yen buying has strengthened, led by short-term and speculative moves on the back of expectations for low interest rates in the US until 2014. I would like the BoJ to take account of economic conditions and various factors in deciding policy, including quantitative easing,” Azumi declared. Thus, if the Fed unleashes QE-3, the BoJ could provide traders with a double bonus, - QE-4 in Tokyo, and a whole new wave of yen carry trade speculation.

  

Saudi Arabia, the central banker of crude oil, is doing its part to counter the effects of QE in the Western world and Japan, by lifting its oil output to about 9.8-million barrels per day, up about 1.5-million bpd from a year ago. Riyadh is keeping the oil flowing at near record levels, even while Libya’s output of 1.5-million of high-grade light crude is gradually re-entering the marketplace. Still, the crude oil market is bubbly these days, with North Sea Brent trading above $115 /barrel, and gaining some upward momentum. Expectations of further rounds of QE in England, Japan, the US, and “Backdoor” QE in the Euro-zone are buoying the crude oil and Gold markets at historically high prices. 

Suddenly, the financial media is swamped with speculation about a possible Israeli airstrike on Iran’s nuclear facilities in the months ahead, which if correct, could lift crude oil prices towards $200 per barrel, and wreck the fragile recovery in the US-economy. But it appears as though Israel’s public statements about a possible military strike against Iran's nuclear sites are a bluff designed to spur Europe and the US into adopting tougher economic sanctions on Iran in the months ahead. After all, if Israel was actually preparing to launch a military strike against Iran, it would not be broadcasting such an operation so openly. Israel’s attacks on nuclear sites in Iraq in 1981 and Syria in 2007 were launched in utmost secrecy.

Thus, traders in the Dow Jones Industrials reckon that the odds of an Israeli airstrike are very low. Instead, the US is expected to placate the Israelis by ratcheting up economic sanctions on Iran’s central bank, its oil industry, and oil shipping companies, in order to bring about a hasty collapse of the Iranian economy. The key question is whether Iran would deliver the first strike against Israel or US-bases in the Persian Gulf, if it thought its economy was crumbling and tough sanctions were threatening to topple the Ayatollah’s regime. In any event, the tension in the Middle East is a convenient excuse for oil traders to keep the price of North Sea Brent pegged near record highs, and in turn, helps to buoy the price of Gold.

Whatever the hurdles, traders have the utmost degree of confidence that the Bernanke Fed will always devise a new rescue scheme, and place a safety net under the stock market, if necessary, when risky bets go sour. Traders also believe the US-stock market is entering the sweet spot of the presidential election cycle, and it’s very hard to bet against it. There is a strong historical tendency for the market to trend higher over the course of the second half of the presidential cycle. Thus, with the Fed working round the clock for team Obama, and the size of the entitlement society reaching majority proportions, Mr Romney is seen as the long-shot candidate to win the presidency in November.

Romney’s Road to the White House seems like a episode of Mission Impossible - His mission, is to enable the American electorate to see through the Fed’s smoke screens, and the Labor department’s fuzzy math. If Romney is able to beat the heavy odds that are poised against him, it would signal the end of Bernanke's tenure at the Fed, and the unwinding of Bubble-mainia in the markets.

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This article is just the Tip of the Iceberg of what’s available in the Global Money Trends newsletter.

Vatican Sells Trillions in Gold, Pays Down Global Debt

BREAKING:

Reports are coming in from the Vatican detailing its actions in recent days.  As the world economy began a tailspin from it seemed unrecoverable and civil unrest threatened governments around the world, from Greece, to Romania, to the United Kingdom and the United States, Pope Benedict XVI, fearing a third world war, decided to do the unimaginable, he sold the Vatican's gold bullion collected since World War I.

"With this papal announcement, I hereby declare the world's national debts to be paid in full. No go in peace my children. And blessed are those who don't forget who their daddy is." announced Pope Benedict XVI.

For many years, thousands of people have speculated about the vast wealth of the Catholic Church. No one outside the Church actually knew how much wealth the Church actually had.  Now we see that they are willing to sell 20,000 tons of gold with a market value of just over $1.5 trillion dollars.  The real question is, will they have to pay taxes on the sale? Where will the transaction take place? Which nations will get their debt paid down? And how much is left?

"Pope Benedict XVI, or Harry as they call him around the Vatican, has put some action behind his words" stated a stunned Italian citizen outside the Vatican.  "It's about time" stated a former trader and stock broker Max Keiser. "For hundreds of years the Vatican and the Catholic Church has been practicing crony capitalism by getting government exemptions from taxes, all the while investing in the private markets."

Meanwhile the gold futures market plummeted as the supply of gold on the market soared with the sale of 20,000 tons of gold bullion.  You could practically hear the gold bugs around the world scream with agony as their investment made over the last 4 or 5 years dropped in value.

Now the US remains the largest holder of gold with its collection at Fort Knox, although it has been contested exactly how much gold is still owned by the US Treasury and not in the hands of the Federal Reserve.

This is clearly a day that will go down in history as some say that the Catholic Church, by its gracious gift to the world, has saved humanity from greater despair.

The Vatican Billions

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Origin of the Current Colossal Wealth of the Catholic Church

The following is an excerpt from chapter 26 of "The Vatican Billions" by Avro Manhattan.

The current spectacular accumulation of wealth by the Catholic Church is a comparatively recent phenomenon. It really was initiated when the See of Peter was deprived of the Papal States by the Italians in 1870. These states included Rome itself and comprised almost one third of the Italian peninsula.

It was then that she began the accumulation of riches according to the success formula of the modern industrial and financial world. The main foundation stones however, were laid by Pope Benedict XV (1914-22) during and after the First World War (1914-18).

He originated today's Vatican policy that church and papal investments should not be limited by political or religious considerations, but instead should be handled purely on the basis of sound, good, concrete and profitable business.

The Vatican at that time had not the liquid resources which it received a decade later from Fascist Italy, but it had sufficient millions to invest in the world markets. Benedict XV, to prove that he meant business when he promulgated the new policy, promptly invested most of the Vatican's money.

Where? Shades of the crusading pontiffs! In Turkish Empire Securities! It was the beginning of a road which was to bring the Catholic Church into the ranks of the top billionaire corporations of the twentieth century.

By 1929, the time of the Lateran Treaty, the Vatican's State treasure had become an official fund. In that same year Mussolini turned over 1,750 million lire (the equivalent at that time of 100 million dollars) to the Vatican as a final settlement of the Roman question.

Pope Pius XI, no less a good businessman than Benedict, invested most of this vast sum in America immediately after the market collapse. The move was a profitable one, for, following the great depression of the thirties, the Church reaped colossal profits when the U.S. economy recovered.

But, while investing largely in the U.S., the Vatican was sufficiently astute to invest a good portion of the Lateran compensation in Italy itself. The results, by any standards, have been staggering. It is estimated that the Holy See presently owns between 10 and 15 per cent of all the stocks and shares registered on the Italian Stock Exchange.

The matter-of-fact British periodical, 'The Economist' put it: "It could theoretically throw the Italian economy into confusion if it decided to unload all its shares suddenly and dump them on the market."

This was confirmed a few years later by the Italian finance minister when, in February 1968, he declared that the Vatican owned shares worth approximately 100 billion lire.

The wealth of the Church, besides becoming an increasing moral embarrassment, had also become a financial dilemma. The Church found herself top-heavy with wealth, not only because of the laborious collection of money derived from thousands of religious, ecclesiastic and lay organisations, but equally because of the skill of top financial brains which, since the Second World War had invested the Vatican's billions in most parts of the world with dexterity second to none. Their skill, with the help of the global intelligence at their disposal, had truly turned the Vatican millions into billions.

Special Investment Office Created

The accumulation of such colossal riches made the haphazard methods of the past obsolete, indeed, dangerous. The pope was compelled to set up a special Prefecture for Economic Affairs.

The Prefecture, directed mostly by American, French, German and other brains, has to operate mainly outside Italy, since the investments were spread over a global field. The celebrated Jewish house of the Rothschilds - who, incidentally had been lending money to the Vatican since 1831 - came once more to the fore with the buying, selling and amalgamating of millions of shares and other investments on behalf of the Vatican.

Vatican financial operations can trespass into semi-illegality at times because of their diversity and secrecy. Scandal erupted in the eighties to the astonishment of millions of Catholics and the chagrin of many who genuinely thought the Vatican was engaged only in charitable operations.

By and large, however, its investments are well looked after by those financial experts whose experience is second to none! The Vatican's traditional financial dealers are a mostly non-Catholic fraternity of Protestants, agnostics, non-Christians, Jews and even atheists.

Its traditional financial transactions have been handled for years by the great banking concerns of J. P. Morgan in New York (mostly for American investments), Hambros of London for British investments, and the Swiss Credit Bank of Zurich for European investments - without mentioning the Vatican's own concerns such as Banco di Roma, Banco Commerciale, Banco Santo Spirito.

Now, it must never be forgotten that all the above form only the "liquid" financial assets of the Holy See. We have entirely excluded the solid properties, real estate, land, industrial and commercial concerns owned and controlled by the Catholic Church in Italy, Spain, Germany, Great Britain, and North, Central and South America. To estimate the actual current values of the Churches tremendous possessions and real estate properties is an impossibility.

It must be remembered that the Vatican - or rather, the Catholic Church - owns thousands upon thousands of churches, cathedrals, monasteries, nunneries and sundry edifices throughout the Western world.

What is the value of the land upon which all these buildings stand, in current money? What is the value of the actual buildings themselves? If one should give modest prices for the humble parish churches and parish halls, what prices would an estate agent give, for instance, for St. Patrick's Cathedral in New York, Notre Dame in Paris, and St. Peter's in Rome, to mention only a few?

The claim that such property is not owned by the Catholic Church is like saying that a Communist dictatorship does not own anything because all the property is owned by the people.

When the Catholic Church sells a piece of land or buys one, the bishop as a rule signs the deed, which means his See becomes the owner or receives the money. Whether the transaction is localised to the diocese, or deputised from the national hierarchy or from the Vatican, is basically irrelevant since ultimately it concerns the property of the Catholic Church.

Government Collected Millions for Vatican

In some countries, not only does the Church evade taxation, but the state itself collects taxation on her behalf. This absurdity has been one of the most extraordinary peculiarities of Germany, which "compels" German citizens to pay a "Kirchensteuer" (Church Tax).

It was first inspired by the Weimar Constitution of 1919, and confirmed by the pact between Hitler and the Vatican in their concordat of 1933. The Kirchensteuer was made constitutional in 1949, after the Second World War. The Catholic government - that is the Christian Democrats - not only enforced the church taxation upon an unwilling populace, it put the state machinery at the disposal of the church. Thus the Government collected the tax, enforced its payment, and then handed over the money thus collected to the Church.

Before the Second World War, the German citizens used to pay an average of two or three marks a year. By 1972, the figure rose to between fifty-five and sixty marks.

In Germany, therefore, the Vatican, besides enjoying outstanding financial benefits from its skilful penetration of the giant industrial concerns (as it did in Italy and in the United States), had its coffers replenished with additional millions from the Kirchensteuer, to the tune of some 350 million dollars a year. The scheme being the result of the political Catholicism which dominated the life of post-war Germany for so long.

World's Biggest Stock Broker

The Catholic Church, therefore, once all her assets have been put together, is the most formidable stockbroker in the world. The 'Wall Street Journal' said that the Vatican's financial deals in the U.S. alone were so big that very often it sold or bought gold in lots of a million or more dollars at one time.

Therefore, the Vatican was, and still is, the most redoubtable wealth accumulator and property owner in existence. No one knows for certain how much the Catholic Church was, or is worth in terms of dollars and other currencies, not even the pope himself.

That is the true situation borne out by a Vatican official who, when asked to make a guess at the Vatican's wealth today, replied very tellingly, "Only God knows."

by Avro Manhattan

Source: 'Battle Cry', September/October 1986

Debt money and energy connection

OPEC, China, Japan etc earn dollars for oil sales and exports. They deposit those dollars in banks around the world, banks that are owners of the central banks in each nation. If they pull their deposits from the US banks, our banks would collapse as insolvent. If Saudi Arabia decided to sell its oil for euros instead of dollars, the dollar and us banks would crash. We start wars with countries that attempt to move off the US dollar. We don't just want their oil, we want control of their central banks too.

Would it be a case of self fulfilling prophesy if Americans in search of a hedge against the dollar depreciation, bought gold and other currencies, outside the accounts of American banks, which caused a liquidity crisis, which caused a collapse of the banks?

http://nicholsongold.com/page/2/

Is this what happened to the Weimar Republic and the US after WW1?

Did the US central banks lend money to counter the decline in Germany and provide Germany with a means to repay its war loans to the private banks? 

What was the debt to GDP ratio of the Weimar Republic as imports were restricted, exports were restricted, and the central bank printed money, and borrowed from the Federal Reserve?

http://globaleconomicanalysis.blogspot.com/2009/01/brink-of-debt-disaster.html