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Guest Post: The Original Dollar Crisis And How It Led To Today's Crisis - Part 1
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The Original Dollar Crisis And How It Led To Today's Crisis - Part 1, Submitted By John Law
To fully understand today's economic crisis and where we are heading, one must find the origin of this crisis -- the event or the culmination of events that put us down this path. The event leading us to the current crisis isn't the high unemployment -- currently 9.7% -- and avalanche of foreclosures or the bailout of all the major banks as a result of the housing boom and subsequent crash of the 2000s. It wasn't the preceeding tech bubble of the late 1990s and early 2000, or all the years of the Fed's easy monetary policy. Which lead to the high -- arguably understated -- inflation of the last three decades. No one of these events put us down this path. When one searches for the origins of the current crisis, they will find all of these events are rather the symptoms of the same illness -- the same illness that has steadily worsened and accelerated us down the path upon which we are now traveling. A path that leads us over a cliff into which we fall into the abyss.
The origins of today's crisis can be traced all the way back to the 1944 Bretton Woods agreement. In 1944, world leaders and economists met to form a new world monetary system for the post war era. With the Bretton Woods agreement, America became the reserve currency of the world, promising other nations they could redeem any dollars they had for gold. While the dollar's value was set in gold, the other countries' currency valuations were fixed to the dollar. The value of the dollar was set at FDR's 1934 revaluation of $35 per ounce of gold. Before FDR's revaluation, the dollar was stronger and was valued at $20.67 per ounce of gold.
However, this was not a true gold standard and it heavily favored the United States. In a true gold standard the currency is convertible by any one -- private citizen, foreign central bank etc. -- whereas under the Bretton Woods agreement, only foreign central banks could convert their dollars to gold. It favored the United States because the US could settle its foreign payments in dollars. Whereas other nations had to settle their foreign payments -- including any with the US -- in gold, so the US could simply print dollars and send them overseas and keep doing this until when/if foreign central banks started demanding gold for their dollars. Under a true gold standard, all foreign payments by any country would be settled in gold. Thus putting a limit on the number of dollars the Federal Reserve could print. Forcing balance of payments and trade responsibility, so as to the outflow of gold is not greater than the inflow of gold.
After World War II, it didn't take the US long to find itself in war again, this time in Korea. War broke out on June 25, 1950. The Korean War escalated the Cold War between the US and the Soviet Union; and as what would have been a civil war, turned into a proxy war between the two powers, with the US vowing to defeat communism at all costs. The war ended on July 27, 1953 with an armistice, but the stage was set for the further escalation of the Cold War and the international currency crisis that would engulf the world in the late 60s and in 1971, bring the collapse of the Bretton Woods agreement and the ensuing run on the dollar that pushed it to the brink of collapse and hyperinflation.
The three year Korean War set the stage for these events by the financial cost of the war and the actions -- which are still repeated this day -- taken to pay for the costs. Although the US had a trade surplus, it had a balance of payments deficit which was due mainly to government spending on overseas expenditures, including military and foreign aid to help rebuild Europe. The US Treasury issued new bonds which were then bought by The Federal Reserve with money printed out of thin air. By the year 1951, The Federal Reserve had more US Treasury bonds on its balance sheet than it had in gold reserves. By 1958 these dollars were being exchanged for gold by foreign central banks at an alarming rate. By the end of 1958 US gold reserves had fallen 9%.[1]
By October 1960, the outflow of gold from the United States was beginning to put upward pressure on the price of gold. Gold had just reached $40 per ounce in trading on The London Gold Exchange that October, while the official price was still at $35 per ounce. In an effort to suppress the price of gold, the US, Great Britain, Germany, France, and other western central banks, formed the London Gold Pool in 1961. If the price of gold neared $35.20, the group would dump gold onto the market in an effort to get gold back to the official $35 price and if the price fell below $35, the group would buy gold to bring the price of gold back to $35.
By 1965 the outflow of gold was accelerating even more as the balance of payments deficit grew ever larger. Large tax cuts proposed by President Kennedy and passed after his death by President Johnson in 1964 had taken effect. A massive full escalation of the Vietnam War had started, the space race with the Soviet Union was in full swing, and huge, new entitlement spending on President Johnson's Great Society also had taken effect. As a result of the massive increase in government outlays, in 1967 total US foreign liabilities had soared to $36 billion, while the US only had $12 billion in gold reserves -- only one third of total obligations.[2]
With the acceleration in the outflow of gold, the US increasingly attempted to forcefully control the outflow. In 1959 President Eisenhower made it illegal for Americans to buy gold overseas. Before his death, President Kennedy proposed The Equalization Tax, which was passed after his death in 1964. The act was a new tax on foreign currency deposits to prevent Americans from investing overseas. President Lyndon Johnson went as far as to discourage Americans from traveling. He stated "We may need to forgo the pleasures of Europe for a while." And also, "I am asking the American people to defer, for the next two years, all non-essential travel outside the western hemisphere." And as a Time magazine article from February 12, 1965 noted:[3]
"Martin, Douglas Dillon and Budget Director Kermit Gordon are lobbying for measures that would drastically affect the nation's foreign and domestic policies. Among the proposals that one or all three of them have forwarded: an exit tag of $50 or $100 per person to discourage tourism abroad, direct controls on U.S. investments abroad..."
Beginning in 1965, French President General Charles de Gaulle-- who by that time had made France an economic power house through austerity programs in which built up France's gold reserves after he returned to power in 1958-- started demanding a reform of the international monetary system, a move back to the gold standard. As this February 12, 1965 Time article explains:[3]
"Perhaps never before had a chief of state launched such an open assault on the monetary power of a friendly nation. Nor had anyone of such stature made so sweeping a criticism of the international monetary system since its founding in 1944. There was Charles de Gaulle last week proclaiming that the primacy of the dollar in international dealings was finished, calling for an eventual return to the gold standard —which the world's nations scrapped 50 years ago — and practically inviting other countries to follow France's lead and cash in their dollars for gold. It was a particularly nettling irritant just as the U.S. was deeply involved in making some hard decisions about its monetary policy."
Time also wrote in the article that "past attempts to close the payments gap have been mere palliatives — and that the problem has begun to undermine U.S. influence around the globe." And:[3]
"Just before De Gaulle spoke, Treasury Secretary Douglas Dillon made the first public admission that the U.S. payments deficit in 1964 moved higher than anyone had expected. It totaled about $3billion, all of which the U.S. is legally committed to exchange for U.S. gold on demand. The Federal Reserve announced that the U.S. gold supply declined last week by $100 million, to a 26-year low of 15.1 billion.
France converted $150 million into gold last month, plans another $150 million conversion soon. Following that lead, Spain has quietly exchanged $60 million of its dollar reserves for U.S. gold—the biggest such transaction of the Franco era. To free more gold to meet rising demand, a congressional committee last week approved President Johnson's proposal to eliminate the 25% gold backing now legally required for deposits held in the Federal Reserve System. But concern is growing in Washington that nations that have so far refrained from converting dollars out of consideration for the U.S. may cash them in for gold once the extra bullion becomes available—and thus send still more gold-laden truckloads rolling out of Fort Knox."
Unlike France, Great Britain’s economy was already a disaster and was getting worse. Britain’s external trade balance and general economic conditions were poor and was getting worse.[2] With foreign obligations growing and a shrinking industrial base, fears began to fester the Bretton Woods agreement would be broken at the Pound Sterling link. With fears of a Sterling crisis and a breakdown of the Bretton Woods agreement possible, causing France's Charles de Gaulle to push for an overhaul of the international monetary system, de Gaulle was the target of several CIA-linked assassination attempts between 1965-1966.[6] After these attempts failed, de Gaulle's government was then a target of destabilization which later succeeded in 1968.
Economist and historian William Engdahl gives a more detailed account in his 1992 (republished 2004) book, "A Century of War: Anglo-American Oil Politics And The New World Order":
"After the war [World War II], under Bretton Woods, Britain, through her Sterling Bloc ties with colonies and former colonies, had been able to make the Pound Sterling a strong currency, which in many parts of the world was regarded the equal of the dollar as a stable reserve currency. Member countries in the British Commonwealth were required, among other "courtesies," to deposit their national gold and foreign exchange reserves in London and to maintain Sterling balances in City of London British banks. Britain's quota share in the IMF was second only to that of the United States. Therefore, the Pound was disproportionately important to the stability of the Bretton Woods dollar order in the 1960's, despite the clearly depleted condition of her economy.
During the 1960's England, like America, was a net exporter of financial funds to the rest of the world, despite the fact that her technologically stagnant industrial base created increasing trade deficits. Continental European economies, through growth of trade within the new Common Market and their productive advantages from strong investment in technology, grew vigorously.
Thus Britain's deficiencies and lack of new technological investment grew ever larger by comparison. The powerful financial interests of the City of London again preferred to focus single- mindedly on drawing the world's financial flows into London banks by maintaining the highest interest rates of any major industrial nation throughout the mid-1960's. Industry went into a slump, unable to borrow for needed technological innovations.
By 1967, the British position was alarming. Despite several large emergency borrowings from the IMF to help stabilize the Pound Sterling, British foreign debts continued to grow, rising another $2 billion, or some 20% in that year alone. In January, 1967, de Gaulle's principal economic adviser, Jacques Rueff, came to London to deliver a proposal for raising the official price of gold held by the leading industrial nations. The United States and Britain continuously refused to hear such arguments, which would have meant a de facto devaluation of their currencies.
Throughout 1967, the Bank of England's gold reserves declined. Foreign creditors, sensing the obviously imminent devaluation of the weakening Pound, scrambled to redeem paper for gold, which they calculated must rise in value. By June 1967, de Gaulle's government announced that France had withdrawn from the American-instigated "Gold Pool." In 1961, under U.S. pressure, the central banks of ten leading industrial countries had created the Group of Ten as it became known. In addition to the U.S., Britain, France, Germany, and Italy were added Holland, Belgium, Sweden, Canada, and Japan. The Group of Ten had agreed in 1961 to pool reserves into a special fund, the Gold Pool, to be administered in London by the Bank of England. Under the arrangement, a temporary remedy at best, as events revealed, the U.S. "central bank contributed only half the costs of continuing to maintain the world price of gold at the artificially low $35/ounce of 1934. The other nine, plus Switzerland, agreed to pay the second half of such "emergency" interventions, on the argument the situation would be temporary.
But the "emergency" had become chronic by 1967. Washington refused to bring its war spending deficits under control, and Sterling continued to weaken along with the collapsing British economy. De Gaulle withdrew from the Gold Pool, not wanting to lose additional French central bank gold reserves to the bottomless pit of interventions. The American and British financial press, led by the London Economist, began a heightened attack against French policy.
But de Gaulle made one tactical blunder in the process. On January 31, 1967, a new law came into effect in France which allowed unlimited convertibility for the French Franc. At the time, with French industrial growth among the strongest in Europe, and the Franc, backed by strong gold reserves, one of the strongest currencies, convertibility was seen as a confirmation of France's successful economic policy since de Gaulle took office in 1958. It was soon to become the Achilles heel which finished de Gaulle's France at the hands of Anglo-American financial interests.
French Prime Minister Georges Pompidou, in a public speech in February 1967, reaffirmed French adherence to a gold-backed monetary system as the only way to avoid international manipulations, adding that the "international monetary system is functioning poorly because it gives advantages to countries with a reserve currency (i.e., the United States): these countries can afford inflation without paying for it." In effect, the Johnson administration and the Federal Reserve simply printed dollars and sent them abroad in place of its gold.
The lines were more sharply drawn over the course of 1967. France's central bank, determined to exchange its dollar and Sterling reserves for gold, left the voluntary 1961 "gold pool" arrangement. Other central banks followed. The situation assumed near panic dimensions; some 80 tons of gold were sold on the London market toward the end of the year in an unheard-of period of five days, in a failed effort to stop the speculative attack. Fear grew that the entire Bretton Woods edifice was about to crack at the weakest link, the Pound Sterling.
By the second half of 1967, financial speculators were selling Pounds and buying dollars or other currencies which they then used to buy commercial gold in all possible markets from Frankfurt to Pretoria, sparking a steep rise in the market price of gold, in contrast to the$35/ounce official U.S. dollar price. The Sterling crisis indirectly focused attention on the growing vulnerability at the core of the international monetary system, the U.S. dollar itself.
By November 18, 1967, the British Labour government of Harold Wilson bowed to the inevitable, despite strong pressure from Washington, and announced a 14% devaluation of Sterling from $2.80 down to $2.40 per Pound, the first devaluation since 1949. The Sterling crisis abated, but the dollar crisis was only beginning.
Once Sterling was devalued, speculative pressures turned directly to the U.S. dollar at the end of 1967. International holders of dollars went to the New York Federal Reserve Gold Discount Window and demanded their rightful gold in exchange. The market price of gold began an even steeper rise as a result, despite efforts of the U.S. Federal Reserve to dump its gold reserves onto the market to stop the rise. Washington, under the sway of the powerful dollar-based New York banks, adamantly refused to budge from the $35/ounce official valuation of gold. But the withdrawal of France, one of the largest holders of gold, from the Group of Ten Gold Pool, had intensified Washington's problem. By the end of the year, Washington's official gold stock declined another $1 billion, to only $12 billion.
De Gaulle is toppled
The crisis gathered momentum into 1968, and between March 8 and March 15 of that year the Gold Pool in London had to provide nearly 1,000 tons to hold the gold price. The weighing-room floor, loaded with gold at the Bank of England, almost collapsed under the weight. U.S. Air Force planes had been commandeered to rush gold in from the U.S. reserve at Fort Knox. On March 15, the U.S. requested a two-week closing of the London gold market.
By April, 1968, a special meeting of the Group of Ten was convened, in Stockholm, at Washington's request. U.S. officials planned to unveil yet another scheme, the creation of a new "paper gold" substitute through the IMF, so-called Special Drawing Rights (SDRs), in an effort to postpone the day of reckoning still further.
At the Stockholm gathering, designed to set the stage for official I MF adoption of the Washington SDR scheme at the upcoming IMF meeting the following month, France defiantly blocked unanimous agreement, with France's Minister Michel Debre reasserting traditional French policy on a return to the original rules of Bretton Woods. De Gaulle's adviser Rueff had repeatedly proposed a "shock" devaluation of the U.S. dollar of 100% against gold, which would have been elegantly simple, would have doubled official U.S. gold reserves in dollar terms and would have been sufficient to allow the U.S. to convert the approximate $10 billion of foreign held dollars, while still maintaining the value of its gold reserves as before. This would have been far more rational and painless, in human terms, than what ensued from Washington's side. But tragically, it was not to result.
Within days of the French refusal to back Washington's SDR dollar bailout scheme, France itself was the target of the most serious political destabilization of the postwar period. Beginning with leftist students at the University of Strasbourg, soon all of France was brought to a chaotic halt as students rioted and struck across France. Coordinated with the political unrest (which, interestingly the French Communist Party attempted to calm down), U.S. and British investment houses started a panic run on the French Franc which gained momentum as it was touted loudly in Anglo-American financial media.
The May 1968 student riots in France were the result of the vested London and New York financial interests in the one G-10 nation which continued to defy their mandate. Taking advantage of the new French law allowing full currency convertibility, these financial houses began to cash in Francs for gold, draining French gold reserves by almost 30% by the end of 1968, and bringing a full- blown crisis in the Franc.
Sadly, the counterattack of the Anglo-Americans succeeded. Within a year, de Gaulle was out of office and France's voice severely weakened. One of his last meetings while still President in 1969, was with British Ambassador to France, Christopher Soames. Once again, the General told Soames, in a broad review of French postwar policy, that Europe must be independent and that her independent stance had been profoundly compromised by the "pro-American" sentiments of many European countries, most especially Britain.
One other country openly daring to defy the powerful financial interests of London and New York at this time was the largest gold-producer in the west, the Republic of South Africa. During the early part of 1968, South Africa refused to sell its newly-mined gold for Pounds or dollars at the official price of $35/ounce. France and South Africa had been holding talks to form a new gold basis for reforming the Bretton Woods monetary order. This provoked a U.S.-led central bank boycott of South Africa, a move again repeated by the same interests almost exactly 20 years later, in the mid-1980's.
Despite the apparent decline of the French "threat," Washington and London's success was to prove a Pyrrhic victory."
The US Federal Reserve requested the London Gold Market be closed for two weeks on March 15, 1968. While the London Gold Market was closed, the Gold Pool was dismantled. Upon the London Gold Market's reopening, gold rose to $39 per ounce.[1] On the same day, western central banks, led by the US Treasury Secretary Robert Fowler, in what is known as the Washington Accord, announced the world's monetary reserves to be "sufficient" and no additional purchases or sales of gold by any central bank in any market was needed.[1] Letters were sent to some 95 central banks asking them not to buy gold.[1] Fowler hoped that by boycotting South Africa, monetary demand for gold would drop, thus forcing South Africa, producer of 77% of the non-Communist world's output of gold at the time[4], to dump its gold on markets in London and Switzerland and thus drive the price down to the official $35-per-ounce level.
The boycott had no effect at first. As the price of gold by July 1968 was over $40 per ounce and by mid-1969 was approaching $44[1]. South Africa was able to pay for its imports in several ways: In the three years prior to 1968, South Africa had run capital account surpluses; also, after the bear market bottom in 1966, South Africa saw huge foreign currency inflows from bullish investors. South Africa was even able to sell some of its gold to western central banks despite the US led boycott. The Bank of Portugal broke the central bank boycott and bought $145 million worth of gold in 1968 and another $120 million by mid 1969.[4] South Africa also sold gold to three Swiss banks, Credit Suisse, Union Bank and Swiss Bank Corp.(apparently these three wanted Zurich to challenge London's status as the leading gold market in the world)[4]
South Africa even offered to sell gold to the IMF--which IMF rules stated the fund must buy all gold offered to it, by its members. South Africa offered the IMF 1 million ounces of gold in May 1968, but the IMF deferred decision on the legality of gold purchases, with the US having 25% of the board votes.[1]
However, by mid 1969, South Africa was in desperate need of exporting its gold to pay for its imports. The Bull market in stocks that had started in 1966 had ended and investors were increasingly shunning South Africa, who in the 2Q of 1969 had its first capital account deficit since 1965. As a result, South Africa began dumping gold on the market in London. South Africa's reserves fell from $1.4 billion in May 1969 to $1.1 billion the following August. An estimated 20 tonnes of South African gold was hitting the market. This dumping of gold on the markets was a disaster for gold prices. Gold prices would fall from $43.50 to $35 by the end of that October and all the way down to $34.80 on January 16, 1970.[1]
This decline was short lived however. By the end of 1970 gold was back to $37.50 per ounce, as the economic situation in the US deteriorated. For the first time in the 20th century, the US had a trade deficit in 1970. This flood of new dollars to foreign countries would soon find their way back home in the form of gold demands; demand for gold the US could not cover. By 1971, total US gold reserves had fallen to just $10 billion, while foreign central banks held some $80 billion -- eight times the total of US gold reserves.[5]
With the Vietnam War still raging and now not only a balance of payments deficit, but now also a trade deficit and a major economic recession looming, the Federal Reserve, in the face of rising inflation and commodity prices in 1971, increased the money supply by 10%. Fearing massive inflation and no longer willing to prop up the dollar, inflation-leery West Germany -- Wiemar Germany hyperinflated in the early 1920s -- pulled its Deutsche Mark from the Bretton woods agreement. This move actually strengthened the German economy and also the Deutsche Marked as it appreciated some 7.5% vs. the dollar by August 1971.
The German withdrawal from the Bretton Woods agreement sparked panic and a currency crisis. By the end of June 1971, $22 billion in assets had left the US. Later, in July 1971, Switzerland redeemed $50 million for gold and one month later in August, pulled its Swiss Franc from the Bretton Woods agreement. At the same time, France redeemed $191 million for gold by sending a French battleship to New York to take delivery of the gold from the Federal Reserve and to bring back to France.[5] Then, in a shocking move on August 11, 1971, the British ambassador requested to redeem an astonishing $3 billion for gold -roughly one third of the total gold reserves of the US, at the time.[5] The same day, Congress released a report recommending a devaluation of the dollar in an effort to protect the dollar from "foreign price-gougers."
It was too little, too late. The dollar was in a full blown crisis and was on the brink of collapse and hyperinflation as faith had been lost. So, on August 15, 1971 President Richard Nixon, in an event that would come to known as the Nixon shock, unilaterally closed the US gold window and imposed a 90 day price and wage freeze along with a 10% surcharge tax on imports. For the first time ever, America was on a full fiat paper system.
This concludes part one. The Bretton Woods agreement put us on this path and infected us wth an illness, an illness in which today has grown to monstrous proportions and has us gasping for our last breaths. What is this illness and how did it contribute to America's first bankruptcy in 1971? How will it lead to the second and final currency crisis and bankruptcy of the US?
I am currently working on part two and hope to have it finished and published in the coming weeks. Part two will take us through the post Bretton Woods era, from the high inflation of the 70s and early 80s, to the Gordon Gekko era of greed in the mid-late 80s till today. The asset mania that engulfed the nation in the 90s and continues till this day and the dot com bubble in the late 90s. And all the other events, manias, wars etc. over the last 10 years.
---------------------------------------------------------------------------------
References:
[1] Mises Daily Tuesday March 31, 2009 "The Losing Battle to Fix Gold at $35, Part II"
http://mises.org/daily/3402
[2] William Engdahl "A Century Of War: Anglo-American Oil Politics and The New World Order" published 2004 p.120
[3] Time Magazine February 12, 1965 "Money: De Gaulle v. the Dollar" http://www.time.com/time/magazine/article/0,9171,840572-1,00.html
[4] Time Magazine Jul. 25, 1969 "Money: Where the Gold Has Gone"
http://www.time.com/time/magazine/article/0,9171,901146,00.html
[5] Asia Times October 2, 2008 "Gold, manipulation and domination"
http://www.atimes.com/atimes/China_Business/JJ02Cb03.html
[6] Chicago Tribune June 15, 1975 featured a front-page story which read in part:
“Congressional leaders have been told of CIA involvement in a plot by French dissidents to assassinate... De Gaulle... Sometime in the mid-1960s – probably in 1965 or 1966 – dissidents in the De Gaulle government are said to have made contact with the CIA to seek help in a plot to murder the French leader.... According to the CIA briefing officer, discussions were held on how best to eliminate De Gaulle, who by then had become a thorn in the side of the Johnson administration because of his ouster of American military bases from French soil and his demands that U.S. forces be withdrawn from the Indochina War"
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Original, bitchez
Bollocks! One thing caused the financial crisis: too much leverage!
The Romans had coins made from precious metals and the value was greater than the bullion value. So just having a gold standard will not prevent a socio-economic meltdown.
However not to say the current re-allocation of wealth and the further destruction of $USD purchasing power could have some nasty side effects....
The big red flags of this current "crisis" were in the mid 2000's when financial services were close to half of the S&P profits and the trade deficit was ballooning. Pushing paper around to inflate assets, while buying real things on credit from other countries is not a long term growth plan.
The US needs to produce real things and innovate if it wants growth. Porn distribution counts as a real thing.
Looking forward to part II. Thanks.
Thanks,
Same here...........I still think the FRA 1913, coupled w Woodrow Wilson/FDR, and LBJ's Great Society BS, were major catalysts in the ruination of our system, and have ultimately led us to this point.
Not only fiscally, but morals, and values, and the absolute beginning of the destruction of the American African family unit.
Indeed. While the article is clear and interesting reading, to say that the current crises started with Bretton Woods in 1944 is not quite on target. The 'Federal Reserve Bank' was created intentionally to allow the ensuing events to occur. To believe that a gold standard was going to be allowed to exist for very long after the creation of a central bank which issues debt-money created from nothing, is a delusion.
Well said.
Agreed -- Why is there is no discussion on the failed structure of a debt-based monetary and credit system run by privately owned central banking system? A system who collects interest on all debt-money via the governments promise to collect taxes off the backs of citizens.
One might argue that a sovereign debt-free money system (even fiat paper based) where the government spends debt-free money into the economy would have lead us down a different and more palatable path. If the US Treasury can issue bonds they can issue money with no debt attached or owed to privately owned central banks.
All coins manufactured by the U.S. Mint today (see: Public Enterprise Fund) are "sold" to the FED at full face value. For example the mint produces dollar coins for under 0.20 and collects 80% "profit" from the FED who purchases these coins to circulate them trough the banking system. The US Mint take this "profit" (seigniorage) from the FED on behalf of the Treasury, transferring any net gains into the US general fund to literally pay down the US debt. (With coins we are talking peanuts here - I think it was $700m in 2009). The point is that the US Mint does not need congress appropriations to do issue this moeny, nor do they need the FED authorize credit -- The Mint does this under the US laws that allow a sovereign government to create it's own money.
In theory, if everyone tossed out their credit cards and and shorted paper money for dollar coins - THE FED WOULD OWE all of us.
So why not ALL credit and cash? Why just coins?
Screw the private FED. Pay them a fee for federal check clearing and set up state owned banks to underwrite loans, provide check clearing, and hold reserves (all at the state level) -- all state owned bank profits could go back into the state General Fund to pay for state projects and augment taxes. Even with new capital requirements for banks, using fractional reserve lending most states (even CA) could eventually become solvent and economically autonomous from the federal government.
So again, where is the the discussion pf monetary history of debt-based private bank money in this post? Why does everyone (mostly all Austrians and Keynesians) look at monetary history and reform through gold colored glasses?
The relation of all three of those events is to how much the English still own the Americans.
Once again the Americans are trailing the English as Cameron gets the "debt question" and is proposing policies to start the correction.
This is all a sham to true liberty. Our governments still continue to believe it is in the best interests of their own legitmacy to maintain the manipulation.
Let it all float.
Enter Saudi Arabia and the recycling petro-dollar
Outstanding work.
Excellent clear summary.
PDF form?
In animation
http://inpoints.blogspot.com/2010/06/rsa-animate-crises-of-capitalism.html
Every single mofo here should spend the 10 minutes to view this vid. Whatever your economic/political orientation; it provokes thought. That counts. Don't we all aspire to having our worldview challenged?
"The origins of today's crisis can be traced all the way back to the 1944 Bretton Woods agreement"
Hahahaha, sorry buddy this is not the origins of the crisis. It was the point of continuing the fraud that has been going on for 1000s of years with agreement with most nations of the world.
The origins of the crisis goes back 1000s of years. All you are doing is selling the lie the generation before you sold to you, and the generation before them sold them.
Let me see the origins of the crisis was in 1944, no this crisis is the same as the crisis from 1929-1944, a system that was built on the assumption of exponential growth to infinitity failed to expand.
You don't have have to write a freaking book to see the fraud, it's right there in the light, all you have to do is open your eyes.
I disagree with origins as well, but all in all it is a good summary from 1944 -> of the"fraud" as you put it.
The origins of the crisis is easily done in a few sentences.
People are greedy. The choose to lend and borrow with interest attached to their transaction a percentage rate, eventually system is unable to expand due to Math and finite ability to supply and DEMAND, system implodes. Game over.
If you want to do it in one sentence, here you go.
People constructed a system where they extract more than put in which eventually can not be sustain due to simple Math, then the unfunded liabilities get liquidated.
Immaterial details can be used to forecast closer trends but is not the origins of the crisis. This crisis is not a crisis at all, it was/is an inevitable result from using the equation.
Leveraged capitalism has a compounding and confounding interst in imploding.
In statistics, a confounding variable (also confounding factor, lurking variable, a confound, or confounder) is an extraneous variable in a statistical model that correlates (positively or negatively) with both the dependent variable and the independent variable. The methodologies of scientific studies therefore need to control for these factors to avoid a type 1 error; an erroneous 'false positive' conclusion that the dependent variables are in a causal relationship with the independent variable. Such a relation between two observed variables is termed a spurious relationship. Thus, confounding is a major threat to the validity of inferences made about cause and effect, i.e. internal validity, as the observed effects should be attributed to the independent variable rather than the confounder."
Sounds religious. Could you offer an alternative?
I guess I should have explained why I picked 1944. In part two I'll explain why I picked 1944 and not 1913 or earlier.
@mako
OK, I read your reply on the other thread. Thanks for that. Now my question is, what system do you propose that we follow to avoid these problems in the future? Are you looking for interest-free money and no reserve lending? Can you give us an idea of the better mousetrap?
It's choice. Sometimes we have no ideal choices.
This system is a system based on people taking more than they put in ie the miracle of compounding interest, the end result is going to be the same each and every time. Of course, this is the easiest system to implement which is the path of least resistance.
Any system without interest will not be ideal so it will be rejected by most since you will no longer be getting what you want and you will be lucky to get what you need.
It's a choice, but if you are going to pick the present choice, you can't bitch about the eventual outcome. Or you can bitch, I can laugh.
Any system based absent interest will lead to no or little growth but without the balloon payment at the end. My bet is greed will rule and humans will continue the fraud on themselves and blame everyone and everything but the reason why they are actually at this point.
This all looks familar because all this has already happened countless times. What is the difference between now and 1929? Nothing really but immaterial details. The system failed to expand, game over.
"Neo: Are you saying I have to choose whether Trinity lives or dies?
The Oracle: No. You've already made the choice, now you have to understand it."
"this will be the sixth time we have destroyed it, and we have become exceedingly efficient at it." - The Architect
Anyone ever read Stephen Zarlenga's "The Lost Science of Money"?
@DocLogo
No. Enlighten us. I'll try googling.
Have been reading your comments/summations and the various counterpoints to them. You nailed it this time. Damn you. You put the lie to the dream.
1933: UNITED STATES. For a year, a commission established by the U.S. Senate Committee on Banking, Housing and Urban Affairs has supposedly been investigating the causes of the Wall Street Crash.
Initially, the investigation" is little more than a whitewash. The first two commission counsels are fired and the third resigns in protest because there is no power to subpoena witnesses, which makes the whole exercise a bit of a farce.
But things take a remarkable turn when a remarkable man, New York City prosecutor, Ferdinand J. Pecora, accepts the position of Chief Counsel to the commission.
In February, Pecora begins a real investigation of what Franklin Roosevelt called "the ruthless manipulation of professional gamblers and the corporate system" which caused the Great Crash of 1929 and led to the Depression.
By the time Pecora begins calling the boys in the back room to account, forty percent of all U.S. banks have gone belly up taking the savings of nine million Americans with them. Millions of Americans have lost everything on stock market and "investment" scams. Homes, farms and businesses are being repossessed by the thousands. Seventeen million Americans are unemployed. And, through it all, through all the misery and hunger and despair, some people, already unimaginably wealthy, are getting richer and richer.
As the hearings unfold, America's leading financiers and industrialists, the "cream" of American society, the ruling class, are shown to have engaged, yet again, in an almost endless series of ruthless conspiracies against the people of the United States.
Charles Mitchell, President and Chairman of the Board of the Rockefellers' National City Bank (Citicorp) and a director of the American branch of the Nazi cartel, IG Farben, is the first Wall Street tycoon called to testify and his grilling by the courageous Pecora sets the tone for the rest of the hearings.
Pecora uncovers the fact that National City Bank is really little more than an enormous criminal conspiracy dedicated to swindling small investors out of their savings. For years, the bank has been, via a subsidiary, the world's leading shill for what, in the biz, are called "securities", a direct violation of U.S. law which forbids banks to trade in "securities".
Mitchell tells the Committee that he "did not see it as a problem." Of course for National City Bank, it wasn't a problem. His very good friend, Andrew Mellon of Gulf Oil, Mellon Bank and Alcoa had been essentially running the country for the benefit of the ruling class via the presidencies of Harding, Coolidge and Hoover since 1921.
Mitchell is forced to admit to evading his personal income tax by way of imaginary interest payments on an imaginary loan of $2,800,000 from the National City Company. Mitchell was receiving about one and a half million dollars a year a time when the average industrial wage in the U.S. was about fifty cents an hour.
Mitchell is forced to confess that a series of unsecured and unpaid loans for millions of dollars was made to National City insiders to cover their stock market losses. The beneficiaries of this theft from the bank's small stockholders include Percy Rockefeller and Mitchell himself. Mitchell admits to conspiring with the U.S. puppet dictator of Cuba, Gerardo "The Butcher" Machado, to dump $31 million worth of useless Cuban sugar loans on the unsuspecting small stockholders of a National City affiliate.
Pecora uncovers the fact that, in 1927 and 1928, National City Bank dumped $90 million of worthless Peruvian government bonds on customers in the U.S. Pecora forces to Mitchell to concede that millions of dollars were made on insider trading and manipulations of Anaconda Copper subsidiaries by National City Bank insiders including Percy Rockefeller, James Stillman Jr., Mitchell himself and Anaconda President John D. Ryan. The bank and Anaconda conspired to defraud the public through massive manipulation of Anaconda stock, fueling a speculative mania which pushed the stock to record highs far beyond its true value.
Mitchell is forced to confess to a series of National City/Anaconda conspiracies which were the greatest frauds in the history of American banking up until the time of the hearings. It is revealed that Mitchell, Rockefeller and Ryan set up a "joint account" of nearly a million and a half shares of Anaconda stock, at no cost to themselves, which was repackaged and aggressively marketed to the public through a National City affiliate. The "joint account" was manipulated by Mitchell and Ryan who ran the share price up, from $40 in December 1928, to $128 in March of 1929. The trio then dumped their stock. This single scam netted Mitchell, Rockefeller and Ryan at least $150 million. By the time of hearings, Anaconda stock had collapsed to $4 a share.
Scheduled to follow Mitchell for a further uncovering of the Rockefeller-Mitchell-Ryan conspiracies is National City Bank director and Anaconda Copper chairman John D. Ryan. Conveniently, Ryan dies under mysterious circumstances three days before the hearings are scheduled to start and takes his secrets to the grave.
Percy Rockefeller, although apparently not too ill to engage in vast criminal conspiracies with Mitchell and Ryan, is allegedly "too ill" to appear before the Committee to answer Pecora's questions.
When asked by Pecora if he paid any income tax in 1930, J.P. Morgan Jr. replies, "I cannot remember." Neither could Morgan remember if he had paid any income tax in 1931 or 1932. In fact, of course, he had paid not one red cent. Question after question was answered with "I cannot remember." Pecora reveals that all of the Morgan family and their partners in their vast financial empire had paid a total of only $5000 in income taxes in the previous five years on hundreds of millions of dollars of income. And, it was all thanks to Treasury Secretary Andrew Mellon who had crafted U.S. income tax law so that the very wealthy, himself notably included, seldom paid any taxes at all.
During the Pecora Hearings, the financial gangsters who had brought ruin to so many came to be known as "banksters". One of the slickest banksters to be summoned before the hearings was Clarence Dillon (nee Lapowski) of the "financial house" of Dillon, Read, by the time of the hearings heavily involved in financing the rise of Adolf Hitler and the Nazis in Germany.
Nazi public relations specialist Ivy Lee is hired to "prepare" Dillon for his appearance before the Committee. Among Lee's other esteemed clients are Nazi fuel supplier, William Farish of Standard Oil and the Rockefellers' partner in crimes against humanity, IG Farben.
Clarence Dillon and his son C. Douglas had been directors of United States and International Securities, a massive speculative pyramid scam which swindled Americans out of hundreds of millions of dollars. Miraculously, Dillon, Read insiders cashed in their chips just before the Crash, walking away with $6,844,000 for stock which had cost them $24,110, a return of 28,000%. Ain't "free enterprise" wonderful?
Pecora uncovers the fact that Albert Wiggin, Chairman of the Board of the Rockefellers' Chase National Bank, had surreptitiously sold short 42,000 shares of Chase stock just prior to the Crash through a series of front companies. Other senior executives did the same thing, driving stock prices down and then making millions as share prices collapsed.
It goes without saying that no one named Rockefeller, Mitchell, Morgan, Wiggins, Dillon or even Lapowski ever goes to jail for their crimes and the pinstriped gangsters unmasked by Pecora were no exception. Only a single minion of the ruling class, Richard Whitney, a long time associate of the Morgans and president of the New York Stock Exchange at the time of the Crash, ends up behind bars. But his crime was very serious, stealing from the ruling class.
The misguided Whitney pilfered $800,000 from his father-in-law's estate and then also stole from the New York Stock Exchange Gratuity Fund and, gasp, from the New York Yacht Club, all in order to prop up his liquor business.
Stealing from your clubmates just isn't done, old boy, and Whitney is sentenced to ten years in the slammer for his breach of ruling class etiquette. Of course, he only does three years and is then given a nice little place in the country by his Wall Street buddies, where he lives a quiet and peaceful life until his death in 1974.
As the gangsters in pinstriped suits are called before the Pecora Committee one after the other, one of the biggest swindlers is noticeably absent. It's Joseph "Jittery Joe" Kennedy who, as newly appointed chairman of the SEC, seems to have to be immune to the attentions of the Pecora Committee in the same way he was immune to the draft in World War One.
The Pecora hearings lasted over a year and provoked outrage among Americans. The stupefying greed and criminality of the ruling class so clearly exposed by Pecora, led to the Crash of 1929 and plunged the U.S. and much of the world into the Great Depression, causing untold hardship and misery for hundreds of millions of people. But like so much of American history, the findings of the Pecora hearings and even the fact that they were held, are virtually unknown in the United States.
Following the Pecora hearings, a wave of regulatory legislation attempts to keep America's corporate criminals under control, although "short selling", one of the financial games most beloved of experienced Wall Street swindlers, was not outlawed. Almost all of the protective legislation would vanish or be diluted in the 1990s by William "Slick Willy" Clinton, leaving the savings of Americans once again completely at the mercy of financial racketeers with entirely predictable results.
DavidPierre, Thank you for that most excellent post. Good history lesson!
Getting a lesson in early finance history, the dark side of capitalism. Thank-you
1929-42: UNITED STATES/GERMANY. For half a century prior to 1929, Wall Street's most powerful law firm, Sullivan and Cromwell has provided, for a price, the legal smokescreens behind which a large proportion of the U.S. ruling class have done their dirty work.
Following the First World War, the "international finance specialists" of Sullivan und Cromwell are none other than Rockefeller cousins John Foster and Allen Dulles. Both are violently anti-Semitic and boycott their sister’s wedding because she is marrying, gasp, a Jew.
The Dulles brothers, both of whom had been involved in the drafting of the Treaty of Versailles which systematically bankrupted Germany after World War One, organize a shadowy financial network which funnels enormous amounts of American gold and capital to finance the rise of the Nazis in Germany.
The Dulles brothers set up numerous agreements for IG Farben, developers and manufacturers of Zyklon-B gas to be used in the extermination of Jews, Gypsies, Slavs, socialists, homosexuals and other “sub-humans”.
John Foster Dulles sits on the IG Farben board of directors which supports the Nazi party because it opposes genuine free enterprise and favors the establishment of slave labor camps to make industrial production “more efficient”. Farben will become a leading player in the Nazi atomic bomb project.
In addition to arranging financing of ventures inside Nazi Germany, the Dulles brothers organize a labyrinth of hundreds of corporations in the United States and Central and South America to provide fronts behind which Farben and other Nazi companies can operate secretly when war comes. Among them are the pharmaceutical and chemical companies Bayer, Agfa, Schering, Winthrop and Sterling.
A secret agreement is arranged by Sullivan und Cromwell under which the Rockefellers’ Standard Oil will collect royalty payments on thousands of patents for IG Farben, even if the U.S. goes to war with Germany.
A massive investment in Nazi Germany is made by the U.S. ruling class while the United States itself languishes in the Great Depression and tens of millions of Americans are unemployed and losing their homes, farms and businesses to the banks owned by the Rockefellers and their clubmates.
After the Nazis seize power in Germany with arms and financing supplied by the Rockefellers, the Harrimans, the Duponts and other members of the U.S. ruling class, with the help of their minions such as the Bush family, the Nazis begin their "Aryanization" program under which Jews are forced to sell their business assets for a small percentage of their true value to "Aryans".
Many American corporations are quick to cash in their markers with the Nazis by sticking their snouts in the "Aryanization" trough, none more avidly so than the Ford Motor Company under one the world's most rabid anti-Semites, Henry Ford.
Yes, thank you very much for this enlightening and depressing history!!
Three years ago I thought that I could not become more cynical about the US political financial system but, alas, I keep leaning about the shit regularly perpatrated, e.g., your reply and to learn in the post that De Gualle was targetted by the CIA. And then there was the US General Smedley, I believe, who declared he realized that his Army career had been nothing but acting as an enforcer of US interests in Central America, supported WWI veterns who were demanding war related compensation
(and were attacked by Army forces in DC), who was approached by the principal lawyer of a major us financial firm TO SEE IF HE COULD BE INDUCED TO LEAD A COUP AGAINST ROOSEVELT, probably financed by Smith and Wessen and others, who declined. He testified before Congress, his testimony found accurate in spite of derision by the press but the committee's report ommitted names. All of this in a book published in the 40's ... someone please remind me of the authors name and its title.
This is one of the more enlightening, albeit soul destroying, things I have read. I wil research it, although my already fragile sanity will take yet another hit. One cannot overestimate the depravity of avariciousness.
1934: UNITED STATES. Leading U.S. financiers and industrialists, to a large extent the same group which is financing the rise to power of Adolf Hitler and the Nazis, organize a coup against President Franklin Roosevelt whose New Deal and failure to fully support Nazism are repugnant to the U.S. ruling class.
Among the conspirators are:
Prescott Bush, grandfather of George W. Bush;
Irenee Dupont ultra right wing industrialist, eugenics proponent and founder of the fascist American Liberty League;
Grayson Murphy, director of Goodyear, Bethlehem Steel and J.P. Morgan banks;
William Doyle, former state commander of the American Legion;
John Davis, former Democratic presidential candidate and lawyer for J.P. Morgan;
Al Smith, former New York governor and co-director of Dupont’s American Liberty League;
John J. Raskob, high ranking Dupont officer and former chairman of the Democratic party;
Robert Clark, multi-millionaire Wall Street banker and stockbroker;
Gerald MacGuire, an associate of Clark’s and former Commander of the Connecticut American Legion.
The coup plotters attempt to recruit U.S. Marine Corps Major General Smedley Butler, a popular hero, to stage a fascist overthrow of the Roosevelt government.
Butler is offered three million dollars to assemble an army of half a million American Legion members to carry out the coup. Remington Arms will supply all the weapons needed.
The coup is short-circuited when Butler tells Roosevelt about it. Fearful of arresting and prosecuting the U.S. ruling class for treason, the White House leaks the news to the press, leading to a congressional investigation.
Later in the year, Butler testifies before the McCormack-Dickstein Committee and tells it that the plot called for businessmen and generals to run the country as a fascist state. Even though the Committee is ultimately able to confirm everything Butler says and he begs them to call the Duponts and Morgans to account, they refuse.
A whitewashed report, carefully omitting the names of the plotters, is issued by the Committee and the story is almost entirely suppressed by U.S. mass media.
That shining beacon of truth, Time Magazine, openly ridicules Butler.
It will be forty years before the long-suppressed full report of the McCormack-Dickstein Committee, complete with the names of the plotters and confirming everything Butler said, is uncovered only to be suppressed once more by the ever-vigilant U.S. mass media.
Fair enough. Then would you please submit a guest post that details your assertion?
Most excellent. Merci.
Excellent and respected.
Nice job. Am looking forward to Part 2, in particular some detail into the actions of 1978-1982 that really arrested the dollar's demise for 25 years. Obviously a certain Mr. V is a key player, but I'm curious what other factors you dig up. Hint: A certain Mr. L's fraudulent tax curve and the ensuing sovereign debt bender...
I would love to see a debunking of "Mr. L's" tax curve. I actually find Mr. K's flawed thinking far more culpable. But if you can change my mind?
No wonder the US created such a fearsome military complex
Their monetary policies suck ass
It was a good ponzi while it lasted.
Foreign idiots would deliver us real stuff in return for our president tickets. It was a fine hustle.
The military-industrial complex was created on the back of the economy, not the other way around.
They knew it was a Ponzi Scheme and they knew they would have to harass, bully, steal and kill to keep it going. Unfortunately for them there is a Lord and he's gonna have the last say.
And it ain't going to be pretty.
Galatians 6:7: "Be not deceived. God is not mocked. For as you sow, so shall you reap".
Usury has always been an abomination and an affront to God. You cannot create something out of nothing, it is fiction, a lie.
God nothwithstanding, paying someone future money in exchange for present money is not as bad as, say, creating credit out of thin air and charging someone to use it. Fractional lending and money printing are way worse than compounding interest.
And as for 'creating something out of nothing'. If I take a pile of money, buy some raw materials, build a machine or something else people want, and sell it for a 'profit', I have just created value out of 'nothing'. The value is not the profit, the value is the thing I made. The stuff in the world is now more valuable than it was before, due to the addition of my work. Assuming a constant money supply, the cost of things will go down as improvements are developed over time.
That means the amount of capital that must be borrowed for projects, over time, will also go down. The value of money goes up. The amount of interest lenders will be able to charge in such a system becomes minimal.
(It also means economic growth will be much slower, and more sustainable, than we have seen over the past 100 years.)
So yes, you can 'create something out of nothing', but the 'nothing' in this case is the application of productive work over time. It is not some magical creation of new dollars...the only way that can happen is via money printing and fractional reserve lending. Which, as we have seen, over time creates an inflationary effect and steals purchasing power from the users of money. The only way the dollar hasn't totally zeroed out yet is probably due to the (historically) deflationary effects of increased production. But now that that's in the past...the only way to counter the influx of new money is to subtract the surplus of credit. It's a balancing act that will fail one way or the other.
If you believe in a zero-sum game, where the transformation of raw materials into something more in-demand does not actually add value to the world, then it would be true that 'you cannot create something out of nothing'. But I presume to guess that your god would prefer his creations to add value to the world.
I believe that's what I said. (Keep reading, and also notice the word 'nothing' was in quotes.)
You know I agree with you on tons of things FB and don't want to attack you or anything but compound interest is to easy to get out of hand. In a normal situation its not a pay back for risk. If someone borrows money from you blows it there is no risk reward. You are screwed by the dishonest and rewarded by the honest. This is the lynchpin of economics that nobody ever finds. The rich are equalized to the poor in this way. In other words. A poor person is much more likely to be honest and less risky. But a rich person is much more likely to be nailed to a wall if they cheat because they have assets you can go after. This way the banks get enriched by everyone. The poor are bound by their honor and the rich are bound by their wealth. It's a win win for the banks. The rich steal from the poor the banks steal from everyone but their hands are clean with the poor for a while.
Fractional reserving is where it goes horribly wrong though. It allows the mega rich to "pretend" they have assets when they create the money. See this is where it gets really shell gamey. Like the bank bailout. They got 700 billion but they took 100 billion and fractionally reserved it to 1 trillion. Paid back the 600 billion pretty quickly but can't pay back the last 100 billion because they don't have it. It went to cover losses. Unless those fractional loans pay off they won't ever have it. But they won't ever pay off because it went to other banks.
This is the same situation with gold. The inflation is caused by enormous velocity. The enormous velocity comes from leverage on gold. Your dollars are worth 1/20th what they used to be worth because for every ounce of gold out there you have 20 times more dollars flittering about buying and selling. I'll guess and say 10 percent of the people have cashed in their dollars for gold but most of them aren't rich. If that takes 5 percent of the available gold out of the system then leverage goes up to 105 percent. So even guessing I can refine my guess. I'll figure we have 10 percent inflation in most important commodities right now if you throw out housing. From that I can derive that not 5 percent of the gold got cashed out but more like 10 percent. And the gold that remains pooled and fractioned is working at not 100:1 leverage but 110:1 leverage. But gold has doubled from 2008 to now. Now if price of gold has doubled then it didn't really create an extra leverage percentage. Let's assume it remained static and say that 10 percent loss of gold from the pool to private hands causes a doubling. When it reaches 2480 we know 10 percent more cashed out. Do that 8 more times and we have 634,880 dollar an ounce gold. If you compare m3 today to m1 in 1913 or around bretton woods I bet you it's pretty close to 500:1. The exponential shoot up in gold price from following this simple formula will somehow someway match up to the exponential curve of m1 versus m3. Created out of thin air M1 might mess with the formula a bit and when we had bank runs during the crash a ton of M1 was created and shipped to banks. People are trying to use it as wealth storage still today as many people are still hovering in cash. Throw in a huge event like thousands of deaths around the gulf of mexico and that M1 will get into the system somehow someway and the inflation game is on.
Four,
While I agree with most of your post, the pary about Usery, is not quite true.
Usery(as you quoted by GOD) was prohibited only between members the Jewish race.
They were free to collect interest on all others.
Gentiles........
Unfortunately your God seems to be on vacation and/or has have no interest in justice. 1000 virgins in the afterlife or threats of reaping what we sew ... it's all the same hustle of death insurance policies, superstituous actions to control whats hard to control.
You both forgot to preface your statements with "I believe". Of course, I usually know better than to chide a seamstress.
I think you have to go back to the Federal Reserve Act at the very least and maybe even the Coinage Act of 1873 to find the starting point. The more I dig the more I realize that none of what's going on today is even remotely new.
I think you have to go back to the War of Northern Aggression, which is when the Feral Government got completely out of control.
Bingo.
Now you're both getting somewhere.
This will lead you to the story of Salmon P. Chase and the "Legal Tender" cases.
His story is very close to the bottom of this rabbit hole.
"War of Northern Agression". Perfectly timed, perfectly put!
It is clearly the north eastern elite that usurped control in the lead up to the War of Northern Agression! The only way to get that power back to the states will be another civil war.
Wait for it, bitches.
Ah, the war of Northern Aggression . . . now you are speaking my language! Interesting to compare Confederates States Constitution with US Constitution. True, it did protect slavery, but there were other major changes in the Confederate Constitution:
State legislatures could impeach federal judges.
Granted President the line item veto (to control pork)
Banned Protectionism in trade
Banned Congress from spending money to stimulate commerce (concern over public/private collusion between big gov. and big business.
Required post office to be self sufficient
Put specific and strict limits on what congress could spend money on.
All bills and laws from congress must cover only one subject. (No long, complicated bills)
Term limits
No Recess Appointments
President can fire any bureaucrat
Congress has no role in amending constitution.
Interesting that a lot of these issues we are still dealing with today.
And so the kings of the earth slept with Babylon, the great whore, and fornicated with her day and night becoming intoxicated on her wines and charms until one day, judgement was passed down. She used to say she would never be a widow, she would never mourn, she would reign supreme for evermore, but you will know I am the Lord when I lay my vengeance upon thee.
What do you suggest we do for money, shells, stone circles?
Any more ridiculous than paper derived from wood and leaves which you can't even wipe your ass with?
Simple. Currency fully redeemable in precious metals. It worked fairly well for thousands of years.
Oh,...and I almost forgot. You just need one other iron law:
"'Tis Death to Counterfeit"
Plain and simple.
" It worked fairly well for thousands of years."
That's my point, we don't move logs on wagons and barter for eggs anymore.
Don't get me wrong, I'd pull the lever on the gallows to watch Bernake, Timmay et al swing.
What does one (metal currency) have to do with the other (wagons and bartered eggs)? Just because something is old, doesn't mean it's not relevant.
There are more goods, that move at at a much faster pace.
Just what precious metals would back the paper?
Of course it has to be scarce, but is too scarce to cover enough paper for today's needs?
How would a conversion take place? And, at what speed and with how much ease?
What happens with Nations that refuse to back their currency with metals?
No one has explained to me how this would all work out.
Those are technical questions and are solvable, indeed I would be very surprised if the answers aren't already available with a little research.
Dunno about the nations that insist on keeping up the fiat paper charade. Somehow I don't think they would fare as well.
Try the excellent Nathan Lewis, e.g.,
http://www.newworldeconomics.com/archives/2010/022810.html
He explains that, actually, you don't need any gold to have a gold standard. You simply peg your currency to the gold price, just as many countries now peg their currencies to a fixed rate against the dollar. All that stuff about there not being enough gold in the world is nonsense.
Actually, I'm fairly sure that somewhere logs are moved on wagons and eggs are used for barter every day in this country and all over the world and it all works out just fine.
The reason it works is because there is no fraud involved.
We will never have a stable, widespread prosperity based on a system of institutionalized theft and counterfeiting.
To say that there are technical issues, that YOU can't seem to figure out the answer to at this very moment, doesn't really cut it.
If I said to you, "Please come up with a technical way to calculate the exact amount and proportion of all basic foodstuffs that need to be imported into NYC on a daily basis to keep everybody fed and have minimum waste," I imagine you would be unable to do so. Would that mean that it was technically insolvable? But yet, somehow it happens every day, without anybody "planning" it.
Give people a basic, ethical system of sound money and all problems will be solved with time. They always have been.
It's the dollar that causes all that crisis. The time to colapse is near.
Great post +100
Will await your next segment!
Wow. Fascinating stuff. Thanks for the historical background.
But... if not a dollar crisis then it would have been another systemic crisis. The very foundation of all of this is grow-or-die capitalism. People are just deluding themselves when they think that there's some system feature/function that can/could have been tweaked to have avoided/or to avoid this situation. They are feeling good about identifying the "problem," when in fact doing so allows us to escape looking in the mirror and seeing that we're all part of the failure.
Excellent work ... much appreciated.
Very good article. I do disagree with the conclusion that the Bretton Woods agreement "infected us with an illness". It seems that our desire to spend more money than we had was the illness. Again, great article and great history lesson.
+1
Bretton Woods -> Fiat was the tool to facilitate our spending spree.
The defect in your thought "our"
AKA "The Ballad of A≠A".
It is the central source of our undoing.
Great article.
It is amazing how the American public has been brainwashed into thinking, Dollars good, gold bad. We have abandoned precious metals as money for a mere eyeblink of history. What rational being would not come to the conclusion that we will go back.
Side note, I was born the year the US started making our pocket change out of base metals.
It's time for Americans to realize how life is in a Soviet Socialistic State.
Socialism is good.
Nice work, Tyler...Thanks..
Of course, earlier civilizations were implementing similar exchanges of Gold for 'money', in this case autographed pieces of tree bark..
The 'ChessGame' continues..
Be safe all...
This was a fascinating historical analysis of the (inevitable) breakdown of the post-WWII Bretton Woods monetary system. Thank you for your fine work, John Law.
While reading it, however, I could not help but think of analogies between the short-sighted and doomed attempts by the US government and central banksters to save the flawed and dying BW System in the 1960s and early 1970s, with current and equally short-sighted (and I would assert, equally doomed) efforts to save the purely fiat post-BW dollar-centric monetary system of today.
You know, I have no doubt that the Chinese emperors with their paper "flying money" of the 13th century also thought that they, too, had created a "modern" and "sophisticated" and improved and lasting monetary system, and had banished gold from the monetary world for good. As I am sure the original John Law believed in early 18th century France as well. Ah, the arrogance of sociopaths and financial criminals!
>>>de Gaulle was the target of several CIA-linked assassination attempts between 1965-1966<<< All because he wanted a gold backed currency. It explains what happened to Kennedy when he wanted to start using silver backed dollars.
No con, scam, crime is too big when you are dealing with the Fed and the US government.
I really liked the part where France sent a battleship to NY City to pick up the gold they were owed.
Actually it was the French Army that wanted to assasinate De Gaulle during the Algerian civil war. The CIA may or may not have been contacted, but Mr. Law should provide more evidence before making these kinds of accusations.
It was reported in the Chicago Tribune. There were over 30 serious assassination attempts against de Gaulle. Not to even mention the ones that never got past the planning stage. De Gaulle was a very hated man in America. It wasn't just over monetary policy, but over Algeria and NATO. This was mentioned in another book, Killing Hope.
http://books.google.com/books?id=-IbQvd13uToC&lpg=PA151&ots=cGxaMgAn9H&d...
Well done.
Great article. Thanks Tyer for providing this.
Very informitive. Thanks for the research.
So despite slightly differing explanations the underlying cause was America's spending habits. Who knew guns and butter were that expensive? When you break it down. It wasn't about the French, the English or anyone else. It was about us, America paving our own road to hell. Its one thing for a country to be caught up in a maelstrom, quite another when its of your own making.
Bingo Barnaby, but careful where you say this. I've tried to gently express this and it's really backfired. Many to whom I speak will tell me that the US is very benevolent. The usual example cited is that the US has given aid to so many countries all over the world.
Thx Tyler,
Nice article, I always wondered about the debates my father had in my youth about the de Gaulle, as my father was a fan of the Gaulles ideas, independency from USA.
I would like to suggest a book: Frozen Desire by James Buchan, th meaning of money. It will give some more historical insight in the matter(it is also about John Law, who helped France to go bankrupt and forced the french to sell Missippi.
Thx again
The banking crisis was due to insolvent over-leveraged banks, BHCs and GSEs, exposed to non-symmetric derivative price discovery on an depreciating asset class (real estate), driven up through speculation, generous fees, government guarentees, and easy credit without regulation. The ability to issue complex derivatives (leverage) to seemingly offset risk, created massive systemic banking risk. It was this systemic linkage, enabled by Greenspan, which perpetuated the crisis.
Overall I view the FED as the creator of the financial crisis. Both Greenspan and Bernanke are directly to blame. They were complacent, and did not try and address the banking system risks.
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On the subject of fiat currencies, lets talk about gold and the USD.
We hear a lot of discussion about the potential gains when priced in USD. However, we should look at these statements carefully before embracing the comparison. Because the reality of the situation is both Gold and USD float in value, sometimes linked and sometimes not.
In a perfect world we would have a constant worth benchmark of some sort passed down through the ages, called for example, Constantium, to compare both Gold and USD dollars against to see how readily both are accepted at any point in time. Unfortunately, we do not have Constantium. So we are forced to price gold in dollars. But if you look closely at what the price of USD may represent in a hyper-inflation, or during a currency crisis, gold retains relative stability, but the real worth of gold at that point, cannot be adequately priced in USD.
Let me explain.
At some point during dollar debasement, the price of USD relative to Gold will be so volatile that Gold may be worth $2800 per ounce one day, and the next $3000 per ounce. What is clear is that you do not want to be doing commerce in USD. Obviously, you do not want to be holding USD. But, more importantly, a value placed on Gold at lets say $5000, could be the last gasp of a debased currency. At this point your Gold may be worth $5000 per ounce but you would never exchange it for USD, because the USD is no longer a viable medium of exchange.
So what is Gold,
A hedge against inflation?
The only true currency?
A good material for dental work?
It is only what it can bring in terms of exchange.
To me Gold provides a way to move between fiat currencies. That is, purchase in one and sell in another. But this type of approach requires a global strategy for maintaining worth. Because when Gold reaches $5000 per ounce, it may be prudent to reside outside the United States.
Mark Beck
I would love to see an audited, gold backed ETF denominated in ounces or grams and priced real time in all major currencies on all major international exchanges. That way, my investment would be completely fungible into whatever currency I want to exchange it for (or use it as E-money) anywhere in the world.
So what about GoldMoney? They offer all that, from what I know and havent seen any reason not to beleve it.
Nice article, thanks.
Germany will bail from the Euro just like it bailed from Bretton Woods. This will kick off the most severe phase of the currency crisis, 2010-2012 version. History does not repeat itself, but it often rhymes.
Brilliant!
You blame leftist communists students for bringing down the noble DeGaul government
But the same Communist threat in eastern Asia
The Invasion of now free S. Korea and The Invasion of S. Vietnam you cite as US envolvement in another war.
You don't mention the Soviet arms race --which was - also met and won by good ole American inflation.
And no, the US and Soviet are not equal bullies one just as bad as the other.
The frogs are not the center of anything except self delusion.
How long did Hitler take to occupy Paris -- 3 weeks?
And why is there a France today?
Good ole American inflation ---- in 1944
Tsk,Tsk
Doelarr fallin'. When will Asia dump it? I would do it now, if I were they, before the new moon.
It seems a lot of you are discounting the Bretton Woods Accord as not as significant as the Federal Reserve System in the US. While I agree the Federal Reserve is pure evil and a banking cartel, the banking cartel was probably not capable of creating fiat money in 1944. In fact, creating a fiat currency was probably not the intention of Bretton Woods. Through all the political maneuvering, the intention was to resurrect international trade. Henry Hazlitt pointed out before, during, and after that the system was doomed to failure (and that the current system is doomed to failure).
But back to the real question: could the federal reserve have created a fiat currency in 1944? If not, then the Bretton Woods Accord was pivotal in the creation of fiat money.
To this point, I say no -- the federal reserve could not have created a fiat money in 1944. While all of Europe was broke and devastated post war, all countries to that point had readopted a gold standard or gold exchange standard after their previous confiscatory wars. The US would not have been able to get the other various centrals banks to agree to such a system (one could argue that the idea was passed around and rejected in the many monetary conferences in the 1930s and was soundly rejected). Even the US could not dictate currency. You have to actually get people to agree to use the currency.
The Bretton Woods system was a necessary intermediary step to fiat currency. Fractional reserve banking is it's own evil beast, but can be contained with the constant threat of payment in specie.
Economic bankruptcy follows moral bankruptcy.
you all just keep up your cock watchin' just keep your eyes off mine for a change. for a 100 million years we've had oil--for tens of thousands we've had human civilization and a "gold standard." when asked how it was possible that he, John D Rockefeller, controlled 10% of the entire American economy he replied "because God wanted me to." Because he thought he had some "great moral purpose"--of course not. He meant "because nobody had any idea how valuable this stuff was--INCLUDING HIMSELF." This is the lie you all wrap your flaming out lies around when you come barrelling on this site to exclaim some type of "exclusion from being part of the annointed class." You think any of these upstate new yorkers (and I'm not talking Poghkeepsie here) had any clue about how "rich" they were going to become? They were freekin' accountants for crise sakes! what they needed was "stable money" because once they understood the value of the commodity they understood immediately "we don't need no freekin' bankers no more." amazingly so it is today--but still the "cock-watchin" persists. must be some kind of "human" thing. on the other hand there is outright theft by the government and its oh so high minded "officials."
whew... long article.
well, what i do know is the dollar was likely devalued another two cents by the time i got through reading part one here.
in the interest of preserving the value of what's left of the contents of my wallet, i won't take to reading part two.
For those who liked the info about the Pecora Commission, I reviewed his book last year:
http://www.nakedcapitalism.com/2009/07/guest-post-review-of-ferdinand-pecoras.html
Thank You for the History lesson and (other) insights.
This is one of the main reasons I enjoy (and support) this site.
Is this the John Law from safehaven.com?
Certainly a lot of details like that to take into consideration. Thanks windows vps | cheap vps | cheap hosting | forex vps