Ancient Monetary System Mechanics…

"New"__The Main Event – The U.S. Debt Crisis

S___, the solution was offered by Plato some 2400 years ago__Nobody has eyes or ears__Yet...!!!

"--- The citizen of the ideal state will require a currency for the purpose of every day expenses; This is practically indispensable for workers of all kinds and for such purposes as the payment of wages to wage earners. To meet these requirements, the citizen will possess a currency which will pass for value among themselves, but will not be accepted outside their own boundaries. But a stock of some currency common to the Hellenic world generally i.e., of international currency, will at all times be kept by the state for military expenditures or official missions abroad such as embassies and for any other necessary purposes of state. If a private citizen has occasion to go abroad, he will make his application to the government and go; and upon his return if he has any foreign currency left over in his possession, he will hand it over to the state receiving in exchange the equivalent in local currency." Plato

I and hundreds of heterodox economists have followed on in Plato's footsteps, as did Benjamin Franklin, in offering similar systems' models__Not our fault, if the world is too dumb to listen... It seems the world can't hear intelligence__only inanity and insanity...

"--- We need a fixed value monetary system. At the present time, we have none. Under floating exchanges, America is simply a powerful ship on an ocean, with no rudder. Old gold, silver, and other known standards will no longer work. They will not work due to the massive increases in communication's speed, the varied endowments of nations' natural resources, and encrypted international speculative opportunities. Therefore, we need a new system. INTERNAL EXCHANGE CLEARING is such a system. It is an entirely new fixed value enhancing - [production standard] - monetary system, to benefit all humankind."

You can argue any of the thousands of other models, to the ends of the Earth__The only one that works, is the one that offers a clearing system of currency mechanics, to eliminate inter-nation manipulation__Which the above systems mentioned__Do...

"---There's a wolf in the system... He was born of your laws. He roams from Maine to California - Alaska to Florida - Hawaii to D.C., and Chicago to New York... He is a hungry wolf. He tears into your hind quarters, clear to the bone, with a vicious set of teeth. He is simply after your wallet. He is the [international] speculation wolf, and he operates legally under your floating exchange law system, to rip the very soul from your nation. He will succeed unless you try to understand how he feeds............"

"If we set a [production] standard of value (to control inflation and exchange rates) in one fifth of the entire economy, we can make real unlimited use of the printing press –– while liquidating all state debts."

This last one really makes you choke, don't it S____. A high enough constructive intellect can understand it__though...

S____, just to show you a major fallacy in your thinking, I'll take this example statement of yours...

China is purposely buying up dollars to manipulate their currency low. They are simply central banking every Treasury Dollar they buy from us, even though the value is slightly decreasing, but not by much, as China is controlling the band within its own trade-weighted advantage point. This mechanical trick actually puts extra pressure on China's own internal poorer classes, as the money's not added to its real internal economy, from the Treasury purchases, as doing so would raise the value of China's currency, which China is fighting to its last breath, to keep from happening. The total cost benefit analysis to greater China's position is net positive, by being able to buy cheap commodities, metals, etc., from many nations pegged to China's currency, thus keeping these costs low, while exporting finished products to the high currency nations, which China is Purposely creating, by this Treasury Manipulation Market, a manipulated low currency export status__While the Rich nations all suffer, by exporting jobs and Treasury values to China__Due exactly to China's Manipulation Policies__It's called Mercantilism, and is the oldest unfair trading practice in all of economic history... All you have to do to see who's guilty of currency manipulation practices is look at the global figures for massive balance of payments surplusses__And you'll find China leads the pack. Years ago, the gold and silver standards re-balanced the balance of nations' payments, by forcing nations to give up gold and or silver if they didn't. No nation wanted to then lose its currency base, so re-balance they did__But, with the present's free-for-all fiat-system, there's no means of punishment, in the international system, to force the older style re-balancings of out of balance, balance of payments__Thus we got this giant fiat-system of collapsing imbalancing of currency systems__The only cure of which is New Clearing System Laws Between Nations To Re-Balance The National-Fiat-Frauds...

It's not difficult to understand it S____... It just takes looking at it, at the Balance of Payments Reality Position... China is simply hoarding, just the same as someone stuffing their bank account in their private mattress, so the rest of the economy has no access to the funds__which clearly subtracts from the Global Economies__Which is exactly what all Massive Balance of Payments Surplusses are truly doing__These nations are robbing the Global Economies Blind__And most all political and economic pinheads are too blind to see it is nothing more than a Massive Global Currency War__Taking Place__Now__Everywhere...!!!

Comparative Advantage and Supply and Demand have turned to Outright Comparative Dis-Advantage, Through Massively Imbalanced Currency Manipulation Mechanics... So, you better start looking at the real figures, say at the I.M.F., B.I.S. and C.H.I.P.S....

Europe Begins Its Endgame. Watch and Learn, for Europe’s Problems Are the World’s...

Author: Fabius Maximus  Link...

Summary: The endgame for Europe (in its current form) probably has started. Like birth, nobody knows what comes next. Will the process be easy or difficult? Fast or slow? Produce an angel or monster? Here we make some guesses. Pay attention, as Europe’s travails mirror those to come for the world.
Contents

1. The present: rising stress
2. What comes next?
3. The lesson Europe offers to the world
4. For more information

(1) The present: rising stress
In a troubled marriage the first mention of divorce can spark its dissolution, as the partners protect themselves by grabbing assets and consulting attorneys. Something similar afflicts the Eurozone. The G-20 conference was advertised as the last chance to save the Eurozone. After it passed with no strong action, Greece’s PM proposed a referendum — in response to which Germany’s PM threatened to eject Greece from the EMU.
Now they have taken the next step, making contingency plans. “French and Germans explore idea of smaller euro zone” (Reuters). “Merkel’s Party May Adopt Euro-Exit Clause in Platform, CDU’s Barthle Says” (Bloomberg). Italian bond yields have spiked up in response to the increased risk of default. Next will come capital flight from the PIIGS to safer lands. Such things will destabilize Europe. If continued the current structure will collapse, forcing either unification or fragmentation. Most experts bet on the latter, although anything is possible.

(2) What comes next?

The news media describe the European crisis — like they do almost everything — as a morality tale. Strong northern Europeans sell their fine manufactured goods to their swarthy southern neighbors (loaning them the money to do so). We consume these tales like children. In fact all these nations did well until they joined the EMU. Only after 2000 did the debt for goods trade develop, the inevitable result of a monetary regime designed for Germany wrecking the competitiveness of the southern members of the EMU.
The outcome might disappoint those in the audience hoping for a victory of goodies over baddies. The likely fragmentation of Europe might mean devaluation and default by some of the PIIGS. Freed of their excessive debt burdens and mad German-imposed austerity programs, competitiveness restored by their new (and devalued vs. the Euro) currencies, their economies might recover. That assumes that they manage the process well, using the turmoil as an opportunity to make vital reforms.
What of the heroes of the north, liberated from their weak and feckless southern cousins? Their exports will fall due to the lost southern markets. Their currency (perhaps a super-DeutschMark) might rise in value — like the Japanese Yen and Swiss Franc — to levels making their exports uncompetitive in much of the world (a too-strong currency is an anvil tied to a nation). Their banks will require massive government support, as some of the PIIGS default (in some fashion) on their bonds.
Economics, like medicine and engineering, is a practical science – not a morality.
(3) The lesson Europe offers to the world
The G-20 Summit statement of November 2008 (in the midst of a global collapse) nicely described the problem within Europe and of the world:

Major underlying factors to the current situation were, among others, inconsistent and insufficiently coordinated macroeconomic policies, inadequate structural reforms, which led to unsustainable global macroeconomic outcomes. These developments, together, contributed to excesses and ultimately resulted in severe market disruptions.

In the three years since nothing has been done to solve these problems, either in Europe or the world. Now events force Europe to take action. Events will similarly force global action, eventually.
(a) The madness of the “everybody must save” policy goals, and the lack of necessary global policy coordination
From “Europe is choking on imbalances, will the global system be next?, George Magnus, 9 November 2011

{about deflationary policies}:

• European countries give top priority to deficit adjustment through more austerity – witness current deliberations in Italy and France.
• The US debt ceiling crisis resulted in deficit cutting proposals now reaching a critical deadline at the end of November.
• And many emerging countries, including China, have continued to restrain nominal and real exchange rate adjustments, while pursuing restrictive economic policies to contain inflationary pressures.

The asymmetry of policy adjustment is only ‘sustainable’ in the sense that for as long as it continues, the outcomes will be negative for growth, financial stability and trade and capital movements. This is the result of advanced nations looking to deleverage and raise savings, while key emerging nations pursue economic models based around high levels of savings.
The creation of the G20 in 2008 was a notable milestone in bringing together most of the world’s biggest creditors and debtors. But apart from the coordinated 2008/09 response to the financial crisis, much of which had been pre-determined nationally, its subsequent record doesn’t amount to much of consequence. The recent Cannes Summit showed all too clearly, in spookily reminiscent tones of the London Economic Conference of 1933, that the G20 lacks the leadership to draw up an agree and implement an agenda to unwind imbalances. The financial crisis has sapped the US ability to lead, left China’s unwillingness untouched, and further undermined the capacity of Europe on both counts.

(b) The madness of vendor financing
The current structure of Europe cracks under the slowly rising stress of vendor financing: export-based prosperity for some, debt-financed consumption by others. Unless reformed, this can only end badly. The global economy has similar imbalances. In 2010 the trade surpluses of China, Russia, and East Asia (China being half the total) were almost equal to the US trade deficit of $560 billion. OPEC, Germany, and Japan accumulated another $518 billion surplus. These numbers continue year by year, accumulating stress that will eventually break the current global financial order.
We should watch and learn from Europe’s experience in the months to come. We, and the rest of the world, may follow them sooner than we expect.
(4) For More Information
Articles about Europe:
(1) “Endgame Approaching“, Tim Duy (Asst Prof Economics, U OR), 9 November 2011
(2) “Why Italy’s Days in the Eurozone May Be Numbered“, Nouriel Roubini, Roubini Global Economics, 10 November
(3) “Is This the End of the Faith-Based European Monetary Union?“, L. Randall Wray (Prof Economics, U Missouri-Kansas City), Roubini Global Economics, 10 November 2011
(4) “Europe’s Next Nightmare“, Dani Rodrik (Prof Political Economy, Harvard), 9 November 2011 — Opening:
“As if the economic ramifications of a full-blown Greek default were not terrifying enough, the political consequences could be far worse. A chaotic eurozone breakup would cause irreparable damage to the European integration project, the central pillar of Europe’s political stability since World War II. It would destabilize not only the highly-indebted European periphery, but also core countries like France and Germany, which have been the architects of that project.”
Other posts about the crisis of Europe:

1. The post-WWII geopolitical regime is dying. Chapter One , 21 November 2007 — Why the current geopolitical order is unstable, describing the policy choices that brought us here.
2. Can the European Monetary Union survive the next recession?, 11 July 2008
3. The periphery of Europe – a flashpoint to the global economy, 8 February 2010
4. A great speech by the PM of Greece. How soon until an American President says similar words?, 3 March 2010
5. Governments cannot go bankrupt, 2 April 2010
6. Our government’s finances are broken. How do we compare with our peers?, 8 April 2010
7. The EU does Kabuki for Greece. Is it the next domino to fall?, 14 April 2010
8. About the Euro crisis: the experts are wrong; the German people are right., 7 May 2010
9. Former Central Bank Head Karl Otto Pöhl says bailout plan is all about ‘rescuing banks and rich Greeks’, 20 May 2010
10. The Fate of Europe, nearing the point of decision, 13 September 2011
11. Europe drifts towards the brink of a cataclysm, 26 September 2011
12. Delusions about easy fixes for Europe, dreaming during the calm before the storm, 30 September 2011
13. Every day the new world emerges, yet we see it not. Like today, as Europe begs China for loans, 15 September 2011
14. Is Europe primed for chaos, as it was in July 1914?, 7 October 2011
15. We see the outlines of the next cure for Europe. Will it work?, 14 October 2011
16. Today Europe’s leaders took another step towards the edge of the cliff, 27 October 2011
17. Where to from here, Europe? Some experts share their views., 8 November 2011
18. Status report on Europe’s slow re-birth (first, the current system must die), 10 November 2011

Today Europe’s Leaders Took Another Step Towards the Edge of the Cliff...

by Fabius Maximus...

(Also:) Europe’s Plan to End the Debt Crisis Can’t and Won’t Work – Part 1

Author: Satyajit Das  LINK... (China-Euro connection, at end of article...)

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Summary: The conference of Europe’s leaders concluded with little results, a failure judged by the expectations they had set. They don’t have time for many more such failures as conditions worsen, the financial contagion spreads across Europe, and their credibility diminishes. Here we conduct a post-mortem on the Summit.

Today the leaders of Europe concluded their 14th meeting during the 21-month-long crisis, their last opportunity to produce specific proposals for the G-20 meeting at Cannes on November 3-5. They failed to agree upon specific and substantial measures to contain the growing economic stress — now reaching Italy (which has the world’s 3rd largest government debt) – and treat Greece’s problems (now the most afflicted sick man of Europe). The few measures they did agree upon are of dubious effect, much like the austerity programs they have prescribed for the PIIGS (now pushing most of them into long-term contractions).

Does anyone give much weight to their expressions of resolve and large promises for future action? While they talk, the rot spreads.

Contents

1. The announcements from the Summit
2. The effect of these agreements
3. China to the rescue!
4. What about those lazy profligate Greeks?
5. Other articles on the FM website about Europe’s crisis

(1) The announcements from the Summit

The European Council has resolved to do great things in the future, but today made few or no actual decisions. Details for future actions to come in November.

• Statement of EU Heads of State or Government
• Remarks by Herman Van Rompuy, President of the European Council, after the meeting of EU Heads of State or Government

Reuters provided additional information on the pitifully meager accomplishments of the meeting (the emphasis is mine):

The euro zone aims to leverage its 440 billion euro bailout fund, the EFSF, “several fold” but finance ministers will only agree the details of how that will be done in November, according to a draft statement to be issued after a summit on Wednesday. The statement, obtained by Reuters, says two options are being considered to leverage the fund, one involving it issuing risk insurance and the other built around it taking part in a special purpose investment vehicle. Both models could be deployed simultaneously, the draft statement said.
The Eurogroup of finance ministers will be asked to finalize the terms and conditions for how the EFSF will operate under the leverage schemes in November, the statement said.
In addition, it said the EFSF’s resources could be further enhanced, possibly via cooperation with the International Monetary Fund.
The draft statement also called on Spain to do more to bring its budget into line, while praising it for the steps taken so far. A paragraph on Italy, which is under pressure to do more on pension and other reforms, was left blank but is expected to be added later.

(2) The effect of these agreements

(a) Probably not much more money for Greece, other than the existing programs. Perhaps aid for its banks, and to rollover its government debt.

(b) A large write-down of privately held Greek government debt (which is aprox 200B euro of its 350B debt), two or perhaps even three times the 21% reduction in its net present value agreed upon on July 21st. This would reduce Greek government debt to a still-fantastic 140-150% of GDP (depending on the terms; see this report for details). But Greek banks and pension plans hold much of the this debt. Update: they agreed to 50% cut; see Reuters.

In the short-term this will weaken the banks; only large-scale aid will keep them alive. Long-term this threatens the solvency of Greece’s pension system. Unless accompanied by substantial aid, the net relief might be small.

(c) Europe’s banks will need to raise substantial amounts of new capital from private sources. This might prove difficult to do until Europe’s leaders agree upon long-term and large-scale reforms to stabilize Europe’s government finances and (most important) the internal trade imbalances which have caused these problems.

(d) Most importantly, Europe’s leaders appear to have abandoned (at least for now) their attempts to address the causes of Europe’s problems. The announcement concern only band-aids. They neither fix Greece nor prevent the contagion to continue spreading — as it has for the past 21 months. How the heat has spread to Italy, and even French sovereign yields are rising.

Conclusion: Europe’s leaders are playing Russian Roulette, Each failed conference, each inadequate solution is like pulling the trigger. Each attempt burns time and credibility. Eventually they’ll get a loaded chamber, with the bang initiating the disorderly circumstances they fear. But perhaps only such turmoil will generate the political will to take decisive measures — but it will increase the cost of the measures and making success more difficult.

(3) China to the rescue!

Despite the evident failure of the Summit, excitement spread from a rumor that China would make large loans to Europe, perhaps through the IMF. It’s a mark of the West’s desperation that we greet this foolish story — which has made several appearances this year — with such enthusiasm.

(a) China announced back in January they they would buy EFSF bonds (which are AAA). Both Japan and China have already done so.

(b) The latest rumor originated in China Daily (see here via AFP):

China and other emerging powers have agreed to help eurozone countries facing a debt crisis by taking part in a bailout fund, the China Daily said Wednesday, citing a source close to EU decision makers. The state-owned English language newspaper said leading emerging economies would help to finance the rescue fund through the International Monetary Fund, which would boost their voting rights in the Washington-based lender.The agreement may be written into the final document at a second emergency summit of European leaders, due to begin later Wednesday, the unidentified source told the newspaper.

Reuters published a denial a few hours later: “China diplomat: nothing concrete on investing in EFSF vehicle“.

(c) Europe runs a current-account surplus, and so does not need foreign funds to bailout Greece. If China’s loans are in addition to existing flows, they will depress the RMB (the yuan) vs. the Euro — boosting the competitiveness of China’s exports vs. manufacturers in Europe. Why then seek the funds? Europe’s leaders probably want China’s funds because they do not want to take on the risk themselves of lending to the PIIGS. That of course will not excite China. For more about this see BRICs to the rescue, Michael Pettis (Finance Professor at Peking U; bio here), 6 October 2011.

(d) The previous rumors are discussed in Every day the new world emerges, yet we see it not. Like today, as Europe begs China for loans, including what China will ask in exchange for doing this favor to Europe.

(4) What about those lazy profligate Greeks?

To keep Americans dumb and happy, foreign news must be repackaged as simple morality plays. As has been done with Greece’s problems. In fact they result from stupidity of Greed borrowers and German/French lenders — both locked into a system which depresses Greece’s competitiveness vs. Germany. For a look at the internal dynamics of Greece see The Myth of Greek Profligacy & the Faith Based Economics of the ‘Troika’, “Marshall Auerback and Rob Parenteau, Naked Capitalism, 24 October 2011 — Excerpt:

Rather, the heart of the problem is in the antiquated revenue system that supports that state, which results in a budget shortfall consistently about 10% of GDP. The top 20% of the income distribution in Greece pay virtually no taxes at all, the product of a corrupt bargain reached during the days of the junta between the military and Greece’s wealthiest plutocrats. No wonder there is a fiscal crisis!
So it’s not a problem of Greek profligates, or an overly generous welfare state, both of which suggest that the standard IMF style remedies being proposed here are bound to fail, as they are doing right now. In fact, given the non-stop austerity being imposed on Athens (which simply has the effect of deflating the economy further and thereby reducing the ability of the Greeks to hit the fiscal targets imposed on them), the Greeks really are getting close to the point where they may well default and shift the problem back to those imposing the austerity. This surely can’t be much worse than the slow execution they are facing today.
In reality, the Greeks have one of the lowest per capita incomes in Europe (€21,100), much lower than the Eurozone 12 (€27,600) or the German level (€29,400). Further, the Greek social safety nets might seem very generous by US standards but are truly modest compared to the rest of the Europe.
… Furthermore, if one looks at total social spending of select Eurozone countries as a per cent of GDP through 2005 (based on OECD statistics), Greece’s spending lagged behind that of all euro countries except for Ireland, and was below the OECD average. Note also that in spite of all the commentary on early retirement in Greece, its spending on old age programs was in line with the spending in Germany and France.
In fact, Greece has one of the most unequal distributions of income in Europe, and a very high level of poverty, as the following table shows (source: OECD and Papadimitriou, Wray and Nersisyan). The evidence is not consistent with the picture presented in the media of an overly generous welfare state.
… The country, however, is truly stuck: they can’t devalue, they can’t pay their own way because they do not have a sovereign currency, and nobody will voluntarily finance them. So they must exit and devalue or drop their domestic prices. The massive default, though inevitable, is just a step along the way.
To make the problem worse, export earnings also seem to face their own structural cap that is consistently exceeded by import spending, which means that the debt that finances the government shortfall is increasingly held abroad. The debt is issued under Greek law, but now it is payable in Euros which Greece, as a user of euros, can’t create, given the surrender of its currency and consequent fiscal sovereignty. In this sense, ironically, the fiscal crisis is a consequence of Greece’s success, after a long preparation, in joining the European Union, and hence giving up its own currency, as Professor Perry Mehrling has noted.
The point is that, if this analysis of the source of the problem is correct, then standard IMF austerity policy is unlikely to do much to help. And, as the increasingly intensifying riots on the streets are vividly demonstrating, the patient might not willingly accept the medicine. Despite attempts to turn the country into an economic colony of the EU, Greece is still, after all, a democracy and if one is to judge from the growing unrest in the country, it is far from clear whether Greece (or any other euro zone member for that matter) is really willing to cut spending and raise taxes rates to any degree which will satisfy the Fiscal Austerians dominating economic policy in the euro zone today without at the same time provoking an ungovernable failed state, right in the middle of the euro zone.

(5) Other articles on the FM website about Europe’s crisis

1. The post-WWII geopolitical regime is dying. Chapter One , 21 November 2007 — Why the current geopolitical order is unstable, describing the policy choices that brought us here.
2. Can the European Monetary Union survive the next recession?, 11 July 2008
3. The periphery of Europe – a flashpoint to the global economy, 8 February 2010
4. A great speech by the PM of Greece. How soon until an American President says similar words?, 3 March 2010
5. Governments cannot go bankrupt, 2 April 2010
6. Our government’s finances are broken. How do we compare with our peers?, 8 April 2010
7. The EU does Kabuki for Greece. Is it the next domino to fall?, 14 April 2010
8. About the Euro crisis: the experts are wrong; the German people are right., 7 May 2010
9. Former Central Bank Head Karl Otto Pöhl says bailout plan is all about ‘rescuing banks and rich Greeks’, 20 May 2010
10. The Fate of Europe, nearing the point of decision, 13 September 2011
11. Europe drifts towards the brink of a cataclysm, 26 September 2011
12. Delusions about easy fixes for Europe, dreaming during the calm before the storm, 30 September 2011
13. Every day the new world emerges, yet we see it not. Like today, as Europe begs China for loans, 15 September 2011
14. Is Europe primed for chaos, as it was in July 1914?, 7 October 2011
15. We see the outlines of the next cure for Europe. Will it work?, 14 October 2011