Tag Archives: Special Drawing Rights

A Global Currency: Peace or Pain?

Facebooktwittergoogle_pluslinkedinmail

For the last few years my wife and I have watched the PBS series, Downton Abbey. The final episode left us with a positive finale to the lives of many of its characters. I believe many have watched the series from remarks made over the last few years.

The series has taken us through a short but tumultuous period of British history. From the sinking of the Titanic in April 1912, WWI, the return from the war, and the roaring 20s, the attention to detail in this series has been superb in my opinion. Rather than a documentary on history with names, dates, and statistics, we have seen this period through the lives of the individual fictitious characters.

DowntonAbbeyCastle

One part that rings home from my own research on the financial side of history during this period, was that the US and Europe both disconnected from their history of backing their currencies with gold, and instead devalued their currencies by printing up massive amounts of debt in order to cover their expenses during World War I. You may remember statements by Lord Grantham in episodes how the rapid rise in wage costs had lead them to lay off workers from their estate. Did you know that land prices shot through the roof in the 1910s as the Federal Reserve went into action in 1914, pouring in billions (remember that was a big number for our debt at that time) into the US and global banking system.

While the world of WWI and the 1910s and ‘20s seems like ancient history today, the role of central banks and money have been at the heart of the modern global financial system over the last century. If one seeks to understand where history has brought us and is taking us, one must understand the role of money in the hands of the central banks, the most powerful financial players in our global financial system. One must also understand the history of the world’s only international monetary unit, something most individuals do not know even exist.

The following is a very short summary of various events that prove that a global currency is in fact a development that totally changes everyone’s long term plans. It will be written in the format of diary entries from the last 12 years of my life and our history.

So hang on!

The Modern History of Global Money

Spring 2004

My first understanding of the history of a global currency came from a book written by renown monetary historian and Austrian economist, Dr. Murray Rothbard, A History of Money and Banking in the United States: The Colonial Era To World War II (2002). Below is a look at historical events that took place in 1943 and 1944:

“In the postwar planning for economic affairs, the State Department was in charge of commercial and trade policies, while the Treasury conducted the planning in the areas of money and finance. In charge of the postwar international financial planning for the Treasury was the economist Harry Dexter White….

 

While the White Plan envisioned a substantial amount of inflation to provide greater currency liquidity, the British responded with a Keynes Plan that was far more inflationary.

 
The Keynes Plan, moreover, provided for a new international monetary unit, the ‘bancor’, which could be issued by the ICU (a new entity called the International Currency Union. It was never launched) in such large amounts as to provide almost unchecked room for inflation, even in a country with a large deficit in its balance of payments….

 
Despite extensive concessions, there was no ‘bancor’; the US dollar fixed at $35 per gold once was now firmly established as the key currency base of the world monetary order.”

Rothbard’s book was my first step in not only understanding the foundation of a move toward a global currency in 1943 & 1944, but in truly understanding the modern history of paper money.

MisesBanner

I would strongly encourage each of you to visit the Mises Institute’s website.

May 2006

After releasing my industry research paper on short selling, which contains interviews with world famous individuals, as I prepared for my 5th monthly issue to my investment research newsletter a very strong patriot and Christian woman called me from the Washington DC area named Joan Veon. Joan had been encouraged by a friend in 1990 to go to a world UN meeting since she was always researching and reading how material and policies developed at these major conferences was filtering down to educational and government policies around the world. She was always trying to educate her fellow Americans.

She also told me to start watching the developments in the only international monetary unit in our world today, the Special Drawing Rights established by the International Monetary Fund in 1969, just two years before the US government refused to redeem its paper currency for gold in international finance.

In April 2009 it was being introduced to the world as part of the “rescue” to the 2008 credit collapse.

SDR_IMF

April 2009

“I think a New World Order is emerging and with it, the foundations of a
new and progressive era of international cooperation. We have resolved,
that from today, we will together manage the process of globalization, to
secure responsibility from all and fairness to all, and we have agreed that
in doing so, we will build a more sustainable and more open, and a fairer
global society.” – Gordon Brown, member of the Fabian Socialist Party and Prime Minister of the UK in 2009, comments made to at a G20 Conference in London on April 2, 2009. An actual film of his remarks is linked.

World Leaders Agree On Global Response, Accord in London Quadruples Funding of IMF, but Delays Decisions on Many Divisive Issues, WSJ, April 3 ‘09

“The summit of many of the world’s leading economies in London
announced a tripling of the lending power of the International
Monetary Fund to around $750 billion.

They also unveiled a $250 billion expansion in the IMF’s reserve
currency — the special drawing right — to boost liquidity in the global financial system….”

As you can see above, the IMF’s expansion of the ONLY international monetary unit known as the Special Drawing Rights was rapidly expanded in 2009 for the first time in its 40 years of existence.

March 2011

In the spring of 2011 I posted the two research papers to my website showing an expanding  role of the Special Drawing Rights in global banking and financial markets. Clearly this international monetary unit was not going away nor merely a topic for academic eggheads.

 
Reserve Accumulation and International Monetary Stability, 4/13/10
Enhancing International Monetary Stability – A Role for the SDR?, 1/7/11                           International Monetary Fund. — posted on March 23 ’11

“From SDR to bancor – A limitation of the SDR (Special Drawing Rights) as discussed previously is that it is not a currency….A more ambitious reform option would be to build on the previous ideas and develop, over time, a global currency. Called, for example, bancor in honor of Keynes, such a currency could be used as a medium of exchange– an ‘outside money’ in contrast to the SDR which remains ‘inside money’.” [see pp 26 – 27 from the April  10 IMF report listed above.]

May 2014

Now we leap to the spring and summer of 2014, to examine the slow move POLITICALLY away from the US dollar as the most widely used currency in the world and frankly, at the very foundation of the substantial improvement of the American way of life since WWII.

 
During the spring of 2014, I started seeing our various European Allies signing major financial agreements to do business directly between the euro and pound with the Chinese renminbi. These were first in history events. These were nations that had been our allies since WWII. Now they were setting up agreements to do business directly between their currency and China’s currency, which would further reduce the need for the US dollar in global trade.

Bundesbank, PboC Sign Accord To Make Frankfurt Yuan Hub, Bloomberg, 3/28/14

 
Bank of England and People’s Bank of China Agree on London Yuan Clearing Hub, International Business Times, 4/1/14

2015, May and December

In 2015, China established the Asia Infrastructure Investment Bank, which some saw as a direct attempt to go head to head with the World Bank established by the West in the 1940s. Once again, European nation’s joined the AIIB in spite of pressure from the US.

Why Europe Defies the US to Join A China-Led Bank, DW, 3/18/15

“Despite US pressure to stay out, Europe’s four-largest economies, Germany, France, Britain and Italy, are set to join a China-led regional bank, seen as a potential rival to the US-based World Bank.”

China Officially Launches New Development Bank AIIB, DW, 1/17/16

“China, the world’s second largest economy, has officially launched a development bank that could complement or rival the US-backed World Bank. Regardless, it highlights China’s growing economic clout.”

Finally, we finished 2015 with another first in history, when the IMF approved inclusion of China’s renminbi currency as part of the Special Drawing Right. This is now no longer a possibility. It is now a fact.

 
The Renminbi Joins the IMFs SDR Basket. Now What?, The Diplomat, 12/1/15

“This is a big moment for China, but its economy still has challenges that it needs to address.”

So as we continue to watch history, unless the citizens of various nation states protest this continued rise in the only global monetary unit, it would appear that when we may find ourselves at the bottom of this current major bust like the spring of 2009, with the high probability that this global money will expand its global reach yet again.

 
While I see this as a direct threat to the financial sovereignty of each individual nation, the lack of understanding or discussion about this development since 2009 does not bode well for an informed public to reject this threat.

A Sad, but Curious Mind

 

 

Facebooktwittergoogle_pluslinkedinmail

Bridging the Great Monetary Divide

Facebooktwittergoogle_pluslinkedinmail

Top1Percent_McCracken_JournalofEconomics

[The chart above is found on page 9 of Mat McCracken’s piece, The Imminent Financial Reckoning, linked at the end of my August post. The chart was originally released in the Quarterly Journal of Economics.]

Do you notice that the only time in the last century when the top 1% earned more as a percentage of the total nation than they did in 2012 was in 1928?

We all know what happened shortly thereafter, when the U.S. experienced the collapse of its stock market and financial institutions and the Dow plunged from its 1929 high of 380.33 (9/3) to its 1929 low of 198.69 (11/13) in less than 3 months. As the history books make clear for anyone studying this period, this 181.64 point drop (48%) was the beginning of the Great Depression. *

 
Eventually, tens of millions of lives would be changed by this global deflationary depression, the Dow continuing to collapse until its 1932 low of 41.22 (7/8), producing an 89% loss.

But I believe my fellow Americans not only were challenged with the extreme financial and economic conditions, but could see no way out of their current condition without the rapid expansion of the powers of the state. In other words, in the 1930s, the idea of “big government and big debt are needed in a crisis” took root. People started looking more to the state than each other and the Divine.

Now let’s jump forward to lessons we could have been learning these last few years, yet in a world of hurry, hurry, more, more, the idea of a massive expansion of debt and the powers of central banks in our markets seems to have gone unnoticed by the majority of the public. It is if we can not change it, why learn about it or consider the serious of all of these red flags popping up everywhere.

Yet anyone watching current events and history can see that these topics are not going away. There will be consequences.

In 2015, the income and wealth disparity has become a major topic again, due to the tens of trillions in debt that central banks around the world have poured into the global financial system in an attempt to “inflate our way out” of the problems created from the collapse of the last debt fueled bubble collapse in 2008. The issue is not a Democrat or Republican one, since it impacts all Americans, and frankly, the entire global economy.

Ted Cruz Says Top 1 Percent Earn More of National Income Than Any Year Since 1928, Politifact, Jan 30 ‘15

“…Cruz drew his comparison to 1928 from a report by the Pew Research Center citing research by Emmanuel Saez, a University of California, Berkeley economics professor who studies wealth and income inequality.

Saez helps steer the World Top Incomes Database, sponsored by the Paris School of Economics, a research center and conglomerate of French universities.”

And the problem is not merely income disparity, but wealth disparity as well. Once again, I am not promoting or seeking a big government/big bank/big debt solution, since this theme has gone on for decades and the problem only continues to worsen during every subsequent boom.

I believe the answers lie at the local and individual level, and a reboot like the year of Jubilee that the Jews were given in Deuteronomy 25 over 3,000 years ago.

I do not see this as a solution today, since the public at large, even the church, seem to start discussions of global finance at the big bank (central banks)/big government level, so that when the next “crisis is an opportunity” comes, the public should continue to seek answers from the state which has become our “god”.

“But don’t we need more government and central banking assistance?”

Let’s stop and look at the amount of wealth in the world today, backed by historic levels of debt.

A new report on the concentration of wealth was released last week by the Swiss Bank, Credit Suisse. The report states that of $250 trillion in global assets (backed by more than $200 trillion in global debt), the top 1% own 50%, and the bottom 50% own less than 1%.

To say there is no money to solve massive humanitarian needs without more government and more debt is totally insane from looking at these numbers. In my opinion, it comes from redefining human life as a greater investment than material gains, once again, something I do not see changing until another collapse into the tens of trillions in global asset values.

Consider the charts below and comments, pulled from the recent article, Top 1 Percent Own More Than Half of 1 Percent of Wealth (Global Research, Oct 14, 2015). The flood of debt worldwide from central banks since 2008 has done nothing to change these dangerous societal trends.

Wealth

USMillionaires.World

Whether the publication is seen as a supporter of socialism or capitalism, both discuss the same Credit Suisse data and see a problem.

The Top 1% Now Owns Half The World’s Wealth, Fortune, Oct 14, 2015

“Credit Suisse says wealth inequality was actually falling before the financial crisis but has increased every year since 2008. The U.S. created 903 new millionaires between the 2014 and 2015 report, while median wealth has stagnated. Globally the number of millionaires fell, though the strength of the U.S. dollar is cited as the biggest contributing factor to that statistic.”

Going Global Or Local: Could We See Both In the Period Ahead?

David Rothkopf, a global insider and CFR member, released the book, Superclass: The Global Power Elite and the World They Are Making, in 2008. According to Rothkopf, to be super rich in the world today takes a global view, and one that rises above such things like national sovereignty and country loyalty.

“ They will feel more affinity to their fellow global conversationalists thatn to those of their countrymen who are not yet part of the global conversation.” – Walter Wriston, former CEO of Citibank in his book, The Twilight of Sovereignty (pg 11)

 

“Their loyalties – if the term is not itself anachronistic in this context – are international rather than regional, national or local. They have more in common with their counterparts in Brussels or Hong Kong than with the masses of Americans not yet plugged into the network of global communications.” – Christopher Leach in his book, The Revolt of the Elites (pg 11)

As the bust phase in financial history sets in, the world will change for everyone, whether super rich, rich, middle class, or poor. If we are going to keep our civility and “love thy neighbor as thyself” is to be a part of our society, we must know our neighbors and demonstrate true compassion for people of all backgrounds and cultures around us, and that may mean doing things outside of our comfort zones.

For me personally, these ideas, written during the 1st century and taken from the pages of the New Testament, inspire me to consider human life as more important than material gains in the period ahead. It also reminds me how there are examples from that period that are highly relevant to our world today. I hope they touch your heart, no matter where your faith lies.

“ Greater love has no man than this, that one down his life for his friends” – John 15:13

 

“…and they began selling their property and possessions and were sharing them with all, as anyone might have need. Day by day continuing with one mind in the temple, and breaking bread from house to house, they were taking their meals together with gladness and sincerity of heart, praising God and having favor with all the people.” – Acts 2:45-47

 

“Now, brethren, we wish to make known to you the grace of God which has been given in the churches of Macedonia, that in a great ordeal of affliction their abundance of joy and their deep poverty overflowed in the wealth of their liberality. For I testify that according to their ability, and beyond their ability, they gave of their own accord, begging us with much urging for the favor of participation in the support of the saints…

 

For if the readiness is present, it is acceptable according to what a person has, not according to what he does not have. For this is not for the ease of others and for your affliction, but by way of equality at this present time your abundance being a supply for their need, so that their abundance also may become a supply for your need, that there may be equality; as it is written, “HE WHO gathered MUCH DID NOT HAVE TOO MUCH, AND HE WHO gathered LITTLE HAD NO LACK. (Exodus 16:18) II Corinthians 8:1-4; 12-15

A Curious Mind, Desirous of A Compassionate Heart

  • Check out the history of all closing prices in the Dow Jones Industrial Average from October 7, 1896 to the present at Measuring Worth.com.
  • Another source is the 2012 study, Pulling Apart, which examines income disparity across states between 1917 and 2011. The research was assembled by the Economic Policy Institute and the Center on Budget and Policy Priorities. (Once again, I believe the only sustainable solutions are ones that return power to the states and local communities, not an expansion of powers at the global level. A debt based money can only continue to lead to even greater crises in the years ahead, not less. The Special Drawing Rights, the international monetary unit backed by the International Monetary Fund, was expanded 8 fold in 2009 in response to the 2008 crisis. Clearly world financial leaders are expecting a massive change at the currency level as a “solution” to the next major crisis. This is why local community solutions will become very important in the period ahead.)

Facebooktwittergoogle_pluslinkedinmail