Sunday, January 31, 2016

Global Trade Imbalanced and Destabilised by Dollar Domination

Why is it that America seems to be able to afford anything its Government wants to do?

The rest of us are never finished being told that we must become more efficient, tighten our belts, modernise and cut-back, because there’s no money.

If American industry were indeed so wonderful that the rest of the world is in serious debt to it, then perhaps this would be one explanation.

But the converse is the case — the US balance of payments is the most atrocious in the world. The rest of us must maintain a balance of payments between exports and imports or the IMF will intervene with their penal ‘Adjustments’.

But not America, they consistently maintain a huge deficit — the US is the biggest debtor country in the world! How on earth do they get away with this?

At the beginning of 2002 foreign holdings of US Treasury Bonds totalled just over $1.25 trillion.

A Treasury Bond is an IOU issued directly by the Federal Reserve Bank, usually to a foreign government and treated by the recipient as ‘Foreign Exchange Reserves’. Treasury Bonds are dollar denominated, and have replaced gold — the dollar being a reserve currency, that is, readily convertible to any other currency.

At current levels, foreign investors own 36.7% of outstanding marketable US Treasury securities. Foreign investors also held $745.6 billion of US government agency issues — which are also IOUs but are marketable securities, like ‘Gilts’ in the UK — making a total of around $2 trillion.

One might wonder therefore why America is the wealthiest country in the world when its Profit and Loss Account and Balance Sheet are in such condition.

Why for instance don’t the foreign creditors use their surplus dollars to buy up US industry and assets?

That’s because these dollar IOUs are held by the exporters’ Central Banks and they, as government agencies, are simply not able to use these to buy up assets.

This is why there is no point in an exporting country running a balance of payments surplus — exporting more than you import — because a net surplus means that you have exported real wealth in exchange for paper.

This is more readily understood if we reduce the process of earning foreign currency to its basic elements.

For instance, a Chinese exporter might sell a boatload of televisions to America. He is paid in dollars, which he pays into his bank.

As his business accounts are denominated in Yuans, the foreign exchange department of his bank, which also works in Yuans, sends the dollars to the Chinese Central Bank, which exchanges these for a credit in Yuans.

The exporter is now happy, his clearing bank is happy, no ‘new’ money has been created because the ‘new’ Yuans are balanced by the incoming dollar credit.

From an accountancy aspect the double entries are balanced and complete. America now has a boatload of televisions.

However, the US Central Bank (the Federal Reserve) which guarantees the US dollar, is now indebted to the Chinese Central Bank — in the sense that a dollar is a “promise to pay” to the value of.

Prior to 1971 when America was forced off the gold standard, the Chinese government would have asked the US government to transfer gold bullion to settle the debt, but post-1971 the US dollar was accepted as being ‘as good as gold’, and the best option in the circumstances to keep world trade moving.

Now, whilst businesses and individuals possessing dollars can buy US stocks and properties, other governments may not do so.

A government’s only option is to buy US Treasury Bonds with the dollars they have acquired, and to try to encourage their entrepreneurs and importers to start importing additional US goods and services to try and run down the government’s surplus dollars.

But this latter option is not so easy.

Let us imagine that a prospective Chinese entrepreneur visits the US to see what importing opportunities he can find.

He will find most US goods expensive because labour and other costs are much higher there.

It will be difficult to find anything which he can import profitably and sell in direct competition to Chinese home production.

He will, therefore, start looking at goods which are not yet produced in China but for which he believes there might be a demand.

His choice will be narrow — some high tech electronic software (which the US government may well embargo to China), and very many luxury items which most Chinese people couldn’t afford.

Items like sophisticated medical equipment and civil aircraft, yes, but they are already regularly exported to China.

He could seek opportunities in other countries but the problem is twofold.

Firstly, China is building up a major domestic economy and fast becoming independent of many imports and, secondly, the bulk of the population is too poor to qualify as a lucrative consumer market.

So, to summarise this situation: The USA is paying for its imports in dollars for which the exporter often has little use, other than to purchase Treasury Bonds, which are just pieces of paper promising a return of more dollars, at some future date.

The dollars the exporting country receives are only of value if used to purchase imports — either from the US or from some other nation which will accept them as payment, but this is not always practical. US citizens also suffer from such imports.

A similar surplus of dollars exists in OPEC countries.

Some years ago the Saudi Authorities suggested that they might apply their dollar reserves to buy up American corporations and properties.

The US Congress told them that this would be regarded as ‘a hostile act’ and we know what that means.

The Saudis were doing pretty well anyway and decided not to upset the oil barrel.

Other oil producers will be well advised to take note of recent events in Central Asia and the Middle East!

Much US debt is incurred by the huge expenditure on its military and diplomatic ‘presence’ in areas it wishes to influence.

It is perhaps not surprising therefore that sophisticated European nations have also built up virtually unusable dollar surpluses.

The UK is the second largest holder of US debt certificates at $150bn. China holds some $125bn and Japan is the biggest at $450bn.

As the world’s largest net importer, America gains much wealth from this arrangement.

Already powerful through its own successful domestic economy, it has become even more dominant by absorbing the economic strength of others.

It uses this power to continually compound its influence.

Power is exercised in two ways, first by military persuasion — no matter how good the argument for alternatives, like having a ‘neutral’ currency expressly to maintain a balance in international trade — if the result is seen as reducing America’s influence it will be regarded as ‘a hostile act’.

Secondly, financial pressure exerts much power. In short, if you owe the Bank $100,000 you have a problem. If you owe the Bank $2 trillion the whole world has a problem, which you can manipulate.

WHAT CAN BE DONE?
Economic theory is quite incapable of dealing with such matters. Any attempt to construct mathematical models upon such unquantifiable criteria creates nothing but confusion – which can be encouraged by the beneficiaries of the present system.

Unfortunately most politicians go with the flow and have neither the time nor inclination to question the status quo.

The solution could lie with an updated United Nations – although as long as it resides in New York and depends upon the US for its financing, it will remain a toothless dragon.

It could be re-evaluating the International Currency system first mooted by Keynes at Bretton Woods in 1948 — see Prosperity May 2003.

It could be trumpeting the stability this could introduce not only to genuine world trade, but to a United States facing a deepening identity crisis both inside and outside its borders.

The problem is not the American people who are as democratic in outlook as any people – and who suffer themselves from cheap imports.

The problem lies in the hi-jacking of their government by self-seeking individuals and groups bent upon using democracy as a euphemism for plutocracy — government by those who have most wealth.

The solution lies with the American people. They can choose to fight the rest of the world at terrible cost to us all, or they can lead with the statesmanship and probity defined by the Founding Fathers.

But they will have to listen to the other 95% of the world’s population, and they will need to use their vote.

The West Is Reduced To Looting Itself — Paul Craig Roberts

January 30, 2016 | Categories: Articles & Columns | Tags: |

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The West Is Reduced To Looting Itself

Paul Craig Roberts

Myself, Michael Hudson, John Perkins, and a few others have reported the multi-pronged looting of peoples by Western economic institutions, principally the big New York Banks with the aid of the International Monetary Fund (IMF).

Third World countries were and are looted by being inticed into development plans for electrification or some such purpose. The gullible and trusting governments are told that they can make their countries rich by taking out foreign loans to implement a Western-presented development plan, with the result being sufficient tax revenues from economic development to service the foreign loan.

Seldom, if ever, does this happen. What happens is that the plan results in the country becoming indebted to the limit and beyond of its foreign currency earnings. When the country is unable to service the development loan, the creditors send the IMF to tell the indebted government that the IMF will protect the government’s credit rating by lending it the money to pay its bank creditors. However, the conditions are that the government take necessary austerity measures so that the government can repay the IMF. These measures are to curtail public services and the government sector, reduce public pensions, and sell national resources to foreigners. The money saved by reduced social benefits and raised by selling off the country’s assets to foreigners serves to repay the IMF.

This is the way the West has historically looted Third World countries. If a country’s president is reluctant to enter into such a deal, he is simply paid bribes, as the Greek governments were, to go along with the looting of the country the president pretends to represent.

When this method of looting became exhausted, the West bought up agricultural lands and pushed a policy on Third World countries of abandoning food self-sufficiency and producing one or two crops for export earnings. This policy makes Third World populations dependent on food imports from the West. Typically the export earnings are drained off by corrupt governments or by foreign purchasers who pay little while the foreigners selling food charge much. Thus, self-sufficiency is transformed into indebtedness.

With the entire Third World now exploited to the limits possible, the West has turned to looting its own. Ireland has been looted, and the looting of Greece and Portugal is so severe that it has forced large numbers of young women into prostitution. But this doesn’t bother the Western conscience.

Previously, when a sovereign country found itself with more debt than could be serviced, creditors had to write down the debt to an amount that the country could service. In the 21st century, as I relate in my book, The Failure of Laissez Faire Capitalism, this traditional rule was abandoned.

The new rule is that the people of a country, even a country whose top offiials accepted bribes in order to indebt the country to foreigners, must have their pensions, employment, and social services slashed and valuable national resources such as municipal water systems, ports, the national lottery, and protected national lands, such as the protected Greek islands, sold to foreigners, who have the freedom to raise water prices, deny the Greek government the revenues from the national lottery, and sell the protected national heritage of Greece to real estate developers.

What has happened to Greece and Portugal is underway in Spain and Italy. The peoples are powerless because their governments do not represent them. Not only are their governments receiving bribes, the members of the governments are brainwashed that their countries must be in the European Union. Otherwise, they are bypassed by history. The oppressed and suffering peoples themselves are brainwashed in the same way. For example, in Greece the government elected to prevent the looting of Greece was powerless, because the Greek people are brainwashed that no matter the cost to them, they must be in the EU.

The combination of propaganda, financial power, stupidity and bribes means that there is no hope for European peoples.

The same is true in the United States, Canada, Australia, and the UK. In the US tens of millions of US citizens have quietly accepted the absence of any interest income on their savings for seven years. Instead of raising questions and protesting, Americans have accepted without thought the propaganda that their existence depends upon the success of a handful of artificially created mega-banks that are “too big to fail.” Millions of Americans are convinced that it is better for them to draw down their savings than for a corrupt bank to fail.

To keep Western peoples confused about the real threat that they face, the people are told that there are terrorists behind every tree, every passport, under every bed, and that all will be killed unless the government’s overarching power is unquestioned. So far this has worked perfectly, with one false flag after another reinforcing the faked terror attacks that serve to prevent any awareness that this a hoax for accumulating all income and wealth in a few hands.

Not content with their supremacy over “democratic peoples,” the One Percent has come forward with the Trans-Atlanta and Trans-Pacific partnerships. Allegedly these are “free trade deals” that will benefit everyone. In truth, these are carefully hidden, secret, deals that give private businesses control over the laws of sovereign governments.

For example, it has come to light that under the Trans-Atlantic partnership the National Health Service in the UK could be ruled in the private tribunals set up under the partnership as an impediment to private medical insurance and sued for damages by private firms and even forced into abolishment.

The corrupt UK government under Washington’s vassal David Cameron has blocked access to legal documents that show the impact of the Trans-Atlantic partnership on Britain’s National Health Service. http://www.globalresearch.ca/cameron-desperate-to-stop-scandal-as-secret-plans-to-sell-the-national-health-service-are-discovered/5504306

For any citizen of any Western country who is so stupid or brainwashed as not to have caught on, the entire thrust of “their” government’s policy is to turn every aspect of their lives over to grasping private interests.

In the UK the postal service was sold at a nominal price to politically connected private interests. In the US the Republicans, and perhaps the Democrats, intend to privatize Medicare and Social Security, just as they have privatized many aspects of the military and the prison system. Public functions are targets for private profit-making.

One of the reasons for the escalation in the cost of the US military budget is its privatization. The privatization of the US prison system has resulted in huge numbers of innocent people being sent to prison, where they are forced to work for Apple Computer, IT services, clothing companies that manufacture for the US military, and a large number of other private businesses. The prison laborers are paid as low as 69 cents per hour, below the Chinese wage.

This is America today. Corrupt police. Corrupt prosecutors. Corrupt judges. But maximum profits for US Capitalism from prison labor. Free market economists glorified private prisons, alleging that they would be more efficient. And indeed they are efficient in providing the profits of slave labor for capitalists.

Here is a news report on UK Prime Minister Cameron denying information about the effect of the Trans-Atlantic partnership on Britains’ National Health.
http://www.theguardian.com/business/2016/jan/26/anger-government-blocks-ttip-legal-documents-nhs-health-service

The UK Guardian, which often has to prostitute itself in order to maintain a bit of independence, describes the anger that the British people feel toward the government’s secrecy about an issue so fundamental to the well being of the British people. Yet, the British continue to vote for political parties that have betrayed the British people.

All over Europe, the corrupt Washington-contolled governments have distracted people from their sellout by “their” governments by focusing their attention on immigrants, whose presence is a consequence of the European governments representing Washington’s interests and not the interest of their own peoples.

Somthing dire has happened to the intelligence and awareness of Western peoples who seem no longer capable of comprehending the machinations of “their” governments.

Accountable government in the West is history. Nothing but failure and collapse awaits Western civilization.

Saturday, January 30, 2016

HOW THIRD WORLD DEBT IS CREATED AND HOW IT CAN BE CANCELLED

HOW THIRD WORLD DEBT IS CREATED
AND HOW IT CAN BE CANCELLED

HOW THIRD WORLD DEBT IS CREATED
The financial position of even the wealthiest nations is one of acute financial pressure, with massive private and national debt, and budgetary difficulty dominating the economy. How can the wealthy nations, from a position of such perpetual monetary shortage and insolvency, lend money to the developing nations? The answer is that they do not.
The money advanced to Third World nations is not money loaned from the wealthy nations. These sums consist almost entirely of monies that have been created, via the commercial banking mechanism, specifically for the purpose of the loan concerned. In other words, the same debt-based, banking process used to supply money to national economies is also employed for the creation and supply of funds to debtor nations.
Thus, these monies are not owed by debtor countries to the developed nations, but to private, commercial banks.
The World Bank
Holding only a nominal reserve contributed by the wealthy members, the World Bank raises large quantities of money by drawing up bonds and selling these to commercial banks on the money markets of the world. Thus, the World Bank does not itself create the money it advances to Third World nations, but sells bonds to commercial banks which, in purchasing these bonds, create money for the purpose. The World Bank therefore functions along the lines of a country's national debt. Just as with the government bonds of a country's national debt, when a commercial bank makes a purchase of World Bank money-bonds, the commercial bank creates additional bank credit.
In essence, the World Bank acts as broker for commercial banks, who are the actual money-creation agents and who hold World Bank bonds in lieu of monies they create in parallel with debts registered against Third World nations. Although these loans may be denominated in pounds, dollars or Francs, such loans advanced under the World Bank have no connection with respective national economies, and in no sense represent monies loaned by these nations, nor debts owed to them by developing nations.
The debts are owed to private, commercial banks (via the World Bank) in respect of money they have created through the purchase of debt bonds.
International Monetary Fund
The IMF presents itself as a financial pool -- an international reserve of money, built up with contributions, known as quotas, from subscribing nations, that is, most nations of the world. However, credit creation accompanies almost every aspect of IMF funding.
a) 25% of each nation's IMF quota is paid in the form of gold, the remainder in the nation's own currency. The 25% gold quota is the only component of IMF lending capacity that does not, in some way, constitute additional money created in parallel with debt.
b) The 75% of a nation's quota payable in national currency is invariably funded by the government concerned through the sale of bonds, thus adding to that nation's national debt. Therefore the IMF, whilst not itself creating credit, places monetary demands on member countries for quotas that can only be funded via each country's national deficit. This involves the sale of government bonds to commercial banks, leading to money creation by those banks. This source of revenue forms the main fund of IMF monies available to developing nations.
c) Since the monetary demands on the IMF are constantly increasing, due to rising demand for Third World loans, the quota demands by the IMF have reached the point where (so-called) creditor nations such as America and Britain are reluctant to undertake yet more bond issues and further national debt to supply these funds. Therefore, in recent years, the IMF has begun to circumvent the restrictions of its overall quota. By co-operating directly with commercial banks to organise more substantial loans than it can fund from its own quota resources, the IMF administers 'loan packages' made up in part from its own quotas and in part from commercial sources. For example, of the $56 billion loan advanced under the IMF to South Korea in the wake of the Asian crisis, only $20 billion was contributed by the Fund; the remaining $36 billion was arranged by direct co-operation with international commercial banks, who created money for the purpose.
d) The total funds of the IMF were substantially increased and its function and status as a money-creation agency clarified when, in 1979, the IMF instituted Special Drawing Rights (SDRs). These SDRs were created, and intended to serve, as an additional international currency. Although these SDRs are 'credited' to each nation's account with the IMF, if a nation borrows these SDRs (defined in dollars) it must repay this amount, or pay interest on the loan. Whilst SDRs are described as amounts 'credited' to a nation, no money or credit of any kind is put into nations' accounts. SDRs are actually a credit-facility just like a bank overdraft -- if they are borrowed, they must be repaid. Thus, the IMF is now creating and issuing money in the form of a new international currency, created in parallel with debt, under a system essentially the same as that of a bank -- the IMF 'reserve' being the original pool of quota funds.
In summary, of the $2,200 billion currently outstanding as Third World, or developing country debt, the vast majority represents money created by commercial banks in parallel with debt. In no sense do the loans advanced by the World Bank and IMF constitute monies owed to the 'creditor nations' of the World Bank and IMF. The World Bank co-operates directly with commercial banks in the creation and supply of money in parallel with debt. The IMF also negotiates directly with commercial banks to arrange combined IMF/commercial 'loan packages'.
As for those sums loaned by the IMF from the total quotas supplied by member nations, these sums also do not constitute monies owed to 'creditor' nations. The monies subscribed as quotas were initially created by commercial banks through the agency of national debts. Therefore both the contributing nation and the borrowing Third World nation carry a burden of debt associated with these sums. Both quotas and loans are owed, ultimately, to commercial banks. [Above extracted from "The Invalidity of Third World Debt", 1998, pp.14-17]
HOW TO CANCEL THIRD WORLD DEBT
Following extracted from "Goodbye America: Globalisation, debt and the dollar empire":
Whenever Third World debt cancellation is discussed, it is automatically assumed that somebody, somewhere has to suffer a loss. Either banks must cover the losses, taxes must be raised or Western governments must foot the bill. In fact, Third World debts could be cancelled with little or no cost to anyone. Indeed, cancellation would be not only the simplest process imaginable, but to the general advantage of the world economy. All that is involved is a bit of creative accountancy -- something at which the West has shown itself highly adept when its suited its political purpose.
To appreciate this, it is essential to recall that the dominant form of money in the modern economy, bank credit, is entirely numerical. It is an abstract entity with no physical existence whatsoever, created in parallel with debt. Debt cancellation is therefore largely a matter of numerical accountancy. This is emphasised by the fact that only one factor prevents the immediate cancellation of all Third World debts -- the accountancy rules of commercial banks.
Third World debt bonds form part of the assets of commercial banks, and all banks are obliged to maintain parity between their assets and liabilities (deposits).
If commercial banks cancel or write off Third World debt bonds, their total assets fall. Under the rules of banking, the banks are then obliged to restore their level of assets to the point where they equal their liabilities, usually by transferring an equivalent sum from their reserves. In other words, when debts are cancelled, normally banks suffer the loss.
There are two options for overcoming this accountancy blockage. They involve acknowledging that debt-cancellation is both desirable and possible, and adapting bank accountancy accordingly.
The first option is to remove the obligation on banks to maintain parity between assets and liabilities, or, to be more precise, to allow banks to hold reduced levels of assets equivalent to the Third World debt bonds they cancel. Thus, if a commercial bank held $10 billion worth of developing country debt bonds, after cancellation it would be permitted in perpetuity to have a $10 billion dollar deficit in its assets. This is a simple matter of record-keeping.
The second option, and in accountancy terms probably the more satisfactory (although it amounts to the same policy), is to cancel the debt bonds, yet permit banks to retain them for purposes of accountancy. The debts would be cancelled so far as the developing nations were concerned, but still valid for the purposes of a bank’s accounts. The bonds would then be held as permanent, non-negotiable assets, at face value [pp.135-136] … The cancellation of international debts, or their conversion to national debts [see pp.140-143], is the sine qua non if Third World nations are to discover a path away from poverty and decline and towards more socially and culturally benign futures. The acknowledged need is for Third World countries to develop their agricultural and industrial infrastructure for their own domestic consumption and direct less effort towards export-led growth. To the extent that international debts remain, the export imperative remains.
The Third World cannot be said to be in material debt to the industrialised nations.The developing nations are in financial debt to international banks. But whilst not actually in material debt to the industrialised nations, because these bank debts are denominated in dollars, they are forced to behave as if they were in debt to the West, seeking a perpetual export surplus [p.145].

Michael Rowbotham is the author of Goodbye America! Globalisation, Debt and the Dollar Empire and The Grip of Death: a study of modern money, debt slavery and destructive economics, both available from the SovereigntyBookstore.

Wednesday, January 27, 2016

[8/23, 3:20 PM] Garg Ravi: prices ,
do not go up .
axiom no 5.
only
the purchasing power of currency goes down .

Currency ,- eg rupee / Dollar ..as a measure of price ,
is like ruler made of compressible rubber .
if I measure height of my house using today s ruler ,
the height maybe is 10 feet ( ten lakhs )
after an year , the people group G , who profit in financial sector due speculation in asset price increases ,
these G people steal away purchasing power from rest of society without any real contribution ,
Also more loan money starts floating around on the economy due legal greed based activities of group G .
Thus the purchasing power of each rupees drops , same as saying the rubber ruler becomes shorter ,
to novices , it serms that house has become 12 feet high ,
when actually the new ruler is now equal to old say ten inches only .
Imp .
In current system , buying power is being stolen away every year at rate between ten to thirty percent , thus the prices seem higher in currency terms .
So what to do ?
yes it is cause for concern .
if I need rs 20 k for my groceries this month ,
in 2025 ,I ll need rs 80 k per mo.
in 2035, I'll need rs 320k per month for same bag of groceries .
Solution...
1... let us join the group G who legally steals purchasing power , with nominal work or risk , from other sections of society .
2....ha ha there is no other plan B ha ha .( become a Govt. employee with inflation based pension ... eg eco faculty in IiM s here there - just make sure that you do not teach real economics !)
[8/23, 3:36 PM] Garg Ravi: Dear Anup , Jayaram ,et al ,

Pl schedule Skype talks with me , with permission to record them ,all to be shown to you first , and then to be loaded onto YouTube TV etc after your express permission .
In these Skype sessions of length 2 to say 10 to 30 mins . you may ask me to back up and explain , whatever .
In trying to explain and justify eco concepts to you , we shall be able to demonstrate the future problems of inflation in India due , increase in Exports or due increased FDI . Also , a few ideas for a different path for the world , and for you and me to create income rapidly , ( other than through YouTube lectures ).
ravigarg1@yahoo

Wednesday, January 20, 2016

http://www.safehaven.com/author/304/ty-andros

Author: Ty Andros

Mr. Andros began his commodity career in the early 1980's and became a managed futures specialist beginning in 1985. Mr. Andros duties include marketing, sales, and portfolio selection and monitoring, customer relations and all aspects required in building a successful managed futures and alternative investment brokerage service. Mr. Andros attended the University of San Diego, and the University of Miami, majoring in Marketing, Economics and Business Administration. He began his career as a broker in 1983, and has worked his way to the creation of TraderView of which he is the CEO. Mr. Andros is active in Economic analysis and brings this information and analysis to his clients on a regular basis. Ty prides himself on his personal preparation for the markets as they unfold.