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Is the Dollar REALLY Losing Its Reserve Currency Status … If So, What Will REPLACE It?

George Washington's picture




 

Yes, The Dollar Is Losing Its Status as Reserve Currency

The average life expectancy for a fiat currency is less than 40 years.

But what about “reserve currencies”, like the U.S. dollar?

JP Morgan noted last year that “reserve currencies” have a limited shelf-life:http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/10/Reserve%20Currency%20Status.png

As the table shows, U.S. reserve status has already lasted as long as Portugal and the Netherland’s reigns.  It won’t happen tomorrow, or next week … but the end of the dollar’s rein is coming nonetheless, and China and many other countries are calling for a new reserve currency.

Remember, China is entering into more and more major deals with other countries to settle trades in Yuans, instead of dollars.  This includes the European Union (the world’s largest economy).

And China is quietly becoming a gold superpower, and China has long been rumored to be converting the Yuan to a gold-backed currency.

Why China Doesn’t Want the Yuan to Become the Reserve Currency

But a switch to a totally-different system – say, a gold-backed yuan – would cause enormous disruption and chaos. China – which has been a long-term planner for thousands of years – doesn’t want such a sudden change.

Moreover, housing the world’s reserve currency is a huge burden, as well as a privilege.  Venture Magazine notes:

The inherent burden of housing the world’s reserve currency is that the U.S. must continue to run a balance of payment deficit to meet the growing demand. However, it was this outstanding external debt that caused investors to lose confidence in the value of the reserve assets.

Michael Pettis – the well-known American economist teaching at  Peking University in Beijing – explains:

A world without the dollar would mean faster growth and less debt for the United States, though at the expense of slower growth for parts of the rest of the world, especially Asia.

 

***

 

When foreigners actively buy dollar assets they force down the value of their currency against the dollar. U.S. manufacturers are thus penalized by the overvalued dollar and so must reduce production and fire American workers. The only way to prevent unemployment from rising then is for the United States to increase domestic demand — and with it domestic employment — by running up public or private debt. But, of course, an increase in debt is the same as a reduction in savings. If a rise in foreign savings is passed on to the United States by foreign accumulation of dollar assets, in other words, U.S. savings must decline. There is no other possibility.

 

***

 

By definition, any increase in net foreign purchases of U.S. dollar assets must be accompanied by an equivalent increase in the U.S. current account deficit. This is a well-known accounting identity found in every macroeconomics textbook. So if foreign central banks increase their currency intervention by buying more dollars, their trade surpluses necessarily rise along with the U.S. trade deficit. But if foreign purchases of dollar assets really result in lower U.S. interest rates, then it should hold that the higher a country’s current account deficit, the lower its interest rate should be.

 

Why? Because of the balancing effect: The net amount of foreign purchases of U.S. government bonds and other U.S. dollar assets is exactly equal to the current account deficit. More net foreign purchases is exactly the same as a wider trade deficit (or, more technically, a wider current account deficit).

 

So do bigger trade deficits really mean lower interest rates? Clearly not. The opposite is in fact far more likely to be true. Countries with balanced trade or trade surpluses tend to enjoy lower interest rates on average than countries with large current account deficits — which are handicapped by slower growth and higher debt.

 

The United States, it turns out, does not need foreign purchases of government bonds to keep interest rates low any more than it needs a large trade deficit to keep interest rates low. Unless the United States were starved for capital, savings and investment would balance just as easily without a trade deficit as with one.

 

***

 

Only the U.S. economy and financial system are large enough, open enough, and flexible enough to accommodate large trade deficits. But that badge of honor comes at a real cost to the long-term growth of the domestic economy and its ability to manage debt levels.

For the reasons outlined by Pettis, China – which has the world’s 2nd biggest economy (or 1st … depending on the measure used)  – doesn’t want the burden of housing the world’s reserve currency.

As such, China is pushing for a basket of currencies to replace the dollar as reserve currency.

Indeed, China – as well as Russia, the U.N. and many other countries and agencies – have called for the “SDR” to become the new reserve currency.  SDR stands for “Special Drawing Rights”, and it is a basket of 4 currencies – the US dollar,  Euro, British pound, and Japanese yen – administered by the International Monetary Fund.

Jim Rickards – one of the leading authorities on currency, having briefed the CIA, Pentagon and Congress on currency issues – says:

China is not buying gold to create a new gold standard; rather it is aiming to make the Yuan more attractive, with the end result of being included in a basket of currencies, referred to as the Special Drawing Rate (SDR). He added that there is a move to make the SDR the new global reserve currency.

 

“Everybody knows that the U.S. dollar’s days are numbered but there is no really currency to take its place except for the SDR,” he said.

 

“What the world is trying to do is move to the SDR and China is fine with that.”

Rickards added that China’s goal of being in an SDR basket is the best of both worlds; the country can still have total control over its monetary policy and capital accounts but still influence global economics by being part of a basket of currencies.

 

“What the Chinese want is to have the Yuan in the SDR basket but not open up their capital account,” he said. “That is a backdoor way for the Yuan to be a de facto reserve currency without having to give up control.”

What’s Missing?

It is silly to exclude the Yuan from the basket of currencies.

Indeed, given that there are privileges and burdens of having the reserve currency, I would argue that – if we are going to move away from the dollar as sole reserve currency – all of the currencies of the world could be in the basket … in proportion to the size of their economies.   It is simple to look up the GDP of the world’s nations.

That way, each country would all share in the benefits and costs, in proportion to its size and strength.

(Obviously, some countries have such small or unstable economies that no one would want to settle in their currency.  To be realistic, they’d probably be dropped out of the basket.  But the ideal of including everyone is worth maintaining.)

Keynes and Other Economists Say We Should Use a Basket of Commodities

While having a basket of different things acting as the world’s reserve currency may sound like a new idea, John Maynard Keynes – creator of our modern “liberal” economics in the 1930s – promoted a basket of 30 commodities called the “Bancor” to replace the dollar as the world’s reserve currency.

The arguments for currency fixed on a basket of commodities – as opposed to currencies – was that it would stabilize the average prices of commodities, and with them the international medium of exchange and a store of value.

As China’s head central banker said in 2009, the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”. Likewise, China suggested pegging SDRs to commodities.

Economics Professor Leanne Ussher of Queens College in New York concludes that a reserve currency made up of a basket of 30 or so commodities would:

Reduce the disorderly swings in individual commodity prices … reduce supply constraints, stabilize costs of production, promote global effective demand from the periphery and balance growth between periphery and core countries.

Monetary expert Bernard Liataer – formerly with Belgium’s Central Bank – writes:

The idea of a commodity-based currency may seem to some a step backwards to a more primitive form of exchange. But in fact, from a practical point of view, commodity-secured money (for example, gold- and silver-based money) is the only type of money that can be said to have passed the test of history in market economics. The kind of unsecured currency (bank notes and treasury notes) presently used by practically all countries has been acceptable only for about half a century, and the judgment of history regarding its soundness still remains to be written.

 

With a commodity-based currency, a central bank could issue a New Currency backed by a basket of from three to a dozen different commodities for which there are existing international commodity markets. For instance, 100 New Currency could be worth 0.05 ounces of gold, plus 3 ounces of silver, plus 15 pounds of copper, plus 1 barrel of oil, plus 5 pounds of wool.

 

This New Currency would be convertible because each of its component commodities is immediately convertible. It also offers several kinds of flexibility. The central bank would agree to deliver commodities from this basket whose value in foreign currency equals the value of that particular basket. The bank would be free to substitute certain commodities of the basket for others as long as they were also part of the basket. The bank could keep and trade its commodity inventories wherever the international market was most convenient for its own purposes–Zurich for gold, London for copper, New York for silver, and so on. Because of arbitrage between all these places, it doesn’t really matter where the trades would be executed, as the final hard currency proceeds would be practically equivalent. Finally, since the commodities also have futures markets, it would be perfectly possible for the bank to settle any forward amounts in New Currency, while offsetting the risks in the futures market if it so desired.

 

This flexibility results in a currency with very desirable characteristics. First of all, the reserves that the country could rely on–actual reserves plus production capacity–are much larger than its current stock of hard currencies and gold. The New Currency would be automatically convertible without the need for new international agreements. Since the necessary international commodity exchanges already exist, the system could be started unilaterally, without any negotiations. Because of the diversification offered by the basket of several commodities, the currency would be much more stable than any of its components–more stable, really, than any other convertible currency in today’s market.

3 Choices for a More Stable Money System

The 2 choices for reserve currency discussed above are using a (1) basket of currencies or (2) basket of commodities.

A third choice – which may be the best – is to use a mixture.

For example, we could have 50% currencies and 50% commodities.

That would give us some of the desirable characteristics (like stability) of a commodity basket, but not immediately move away from the fiat money systems which are now status quo for the current system.

Any of these 3 choices would give us far more stability and prosperity than we have today … without the chaos and misery – especially for Americans and perhaps Chinese – that switching to a Yuan-only reserve currency would bring.

Notes:  You might assume that public banking advocates would be for a currency-only basket. But Bernard Lietaer was one of leading public banking advocate Ellen Brown’s main teachers, and he is pushing for a basket made up solely of commodities.   (But public banking advocates might argue for adding currencies to the basket currencies to allow for some elasticity in the money supply.)

Gold standard advocates would obviously prefer commodities to currencies.  A basket of commodities might not have the simplicity of a gold standard, but it would accomplish a lot of the same goals.

As an American who wants stability and prosperity for my country, I think a basket would be the best option for a healthy future for the U.S.  And as someone who wants good things for the rest of the world, I believe that a basket would help to share political influence more widely.

BONUS:

Bill to Curb NSA Spying Introduced Today

 

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Wed, 10/30/2013 - 17:58 | 4106626 LongSilverJohn
LongSilverJohn's picture

"Gold is money. Everything else is credit."

Wed, 10/30/2013 - 17:56 | 4106617 LongSilverJohn
LongSilverJohn's picture

Just use Goldmoney.com. No need for national currencies, really. Goldmoney is a pay-pal like system on top of actual gold reserves. So when you transfer a gram of gold, that's what you get: a gram of gold.

No more bullshit attempts to layer on some sort of abstract currency on top of any commodities, including gold. All that does is end up with an ETF-like system that is soon perverted by creating more electronic units than are backed my metal (or wool, or whatever).

We just don't need no mo' fucking currency, SDRs or other bullshit.

 

Wed, 10/30/2013 - 17:24 | 4106505 lairdminor
lairdminor's picture

A basket of (currencies) (commodities) (both) could work, provided that the ratio of the constituent components was fixed. Unfortunately, whoever is in charge of maintaining the basket will be under enormous temptation (and/or political pressure) to change the mix, just as the US does with its calculation of the CPI. In theory the idea is fine. In practice, not so much. That's why a single commodity (gold) is far superior; no one can manipulate it for political purposes.

Wed, 10/30/2013 - 18:22 | 4106673 George Washington
George Washington's picture

Good point!

Wed, 10/30/2013 - 15:38 | 4105979 Stuck on Zero
Stuck on Zero's picture

A labor based currency is the only fair currency.  It gives more power to the people and removes power from the elite.

 

Wed, 10/30/2013 - 16:49 | 4106373 hootowl
hootowl's picture

Whose labor, when, where?  How are disparate costs of living, taxes, transportation, food,  etc.  to be factored in?

How should we factor in the costs of hanging and beheading local and national politicians and banksters?

 

Starve The Beast.

Wed, 10/30/2013 - 16:46 | 4106363 failsafe
failsafe's picture

Please give a few details re: defense of labor currency
Also could it be exploited (theoretically) even if difficult and if so how

Wed, 10/30/2013 - 15:51 | 4106028 bluskyes
bluskyes's picture

based on what unit?

Wed, 10/30/2013 - 15:27 | 4105931 GFORCE
GFORCE's picture

The dollar will be replaced by a digital one world currency!!

Wed, 10/30/2013 - 15:07 | 4105838 orangegeek
orangegeek's picture

The US Dollar is not as much a currency as it is a closed system.

 

http://bullandbearmash.com/about/usd/

 

The only ones who will change this are the ones who built it.

Wed, 10/30/2013 - 14:45 | 4105750 joego1
joego1's picture

China is just one of Amerika's financial bag holders. They are at the end of the ponzi scheme. I'ts getting to the point where the petro dollar is losing it's luster regardless.

Wed, 10/30/2013 - 11:58 | 4104951 failsafe
failsafe's picture

Certain people etc. are irreplaceable and it's better to just  have nothing... Zh'rs obnoxiousness, no kidding, half the reason Am addicted to this site, also irreplaceable certain people I know , and bollocks ... An excellent vulgarity like shit or fuck, just no substitute. So i gotta draw the line at bollocks (ballocks) a perfect vulgarity for claptrap or bullshit getting nancified lol like go fiddle dee dee yourself   

Wed, 10/30/2013 - 10:44 | 4104659 rex-lacrymarum
rex-lacrymarum's picture

Money must be freed from state control. The market will then decide on what to use as money (hint: it already made that decision before the State usurped money). 

Wed, 10/30/2013 - 18:23 | 4106675 George Washington
George Washington's picture

Good point.

Wed, 10/30/2013 - 08:30 | 4104211 Quinvarius
Quinvarius's picture

Reserve currencies get to be reserve currencies due to stability and value.  What they do with that trust later on should not be confused with how they earned it.  The status is not a gift or an award or a creation.  It is not even required to have a reserve currency.  People will globally use the best form of money as their reserve naturally.  The people that get the reserve status are the people with currency that is worth something and is stable.  It always relates back to gold and silver as the only commodities with monetary properties.  The trusted valuable commodity backing the currency has to be a durable transferrable financial asset.  That is why a basket of commodities will never work.  You can't keep a vault full of corn.  Gold and silver are just easier and perfect for the role.  They will win by default every time.

Wed, 10/30/2013 - 14:53 | 4105780 czardas
czardas's picture

I have seen the "basketful of currencies" in real life.  After the revolution (I was born there) nobody would take rubles but did take the mark, franc, lira, dollar and pound.   The franc and lira dropped out, then the pound, then the mark.  Eventually the dollar became the Russian currency!  LOL  Markets converge around efficient solutions, reward winners and punish losers. I'm wary of doubting the dollar's global status due to all the financial infrastructure in place and its familiarity.   Most Hondurans, Laotians or Kenyans could care less about the Fed, deficit or bond rates. 

The use of the dollar parallels the use of English in global business communication.  When folks begin speaking Mandarin I'll get worried. 

Wed, 10/30/2013 - 10:26 | 4104557 Element
Element's picture

No doubting your point on speed and convenience being the ace, though I suspect the business as usual FIRE-sector jigg is just about permanently up. Does anyone think a FIRE-sector like that has any future, in the aftermath, or ever again? I don't.

So that leaves actual trade.

Speed and convenience is just as true of paper and digits, as well, and is why they are used, but it won't stop them going out of favor at that point, will it?

However, I suspect that real-economies, burned to a cinder by paper, and sans the FIRE-sector economic snuff-machine, may desire to and also be able to, operate on the basis of trading and settlements, based on real-reserves of their trading partner. And such reserves don't even have to be in a vault or warehouse, they can be in the ground, or 25% of next season's wheat harvest as backing, for a real settlement. What's traded can also act as a reserve for future trade.

They only need to be deliverable, in an agreed quality and quantity.

Gold deliverability is highly questionable, ask Germany (and 1971), and its exchange rate also. Will it be any better at that point?

But actual materials, that can be delivered, may look mighty attractive to the once-bitten-twice-shy, as a reserve backing in trade, following the paper collapse. So I would not rule it out so adamantly quin.

Wed, 10/30/2013 - 07:59 | 4104141 Skin666
Skin666's picture

Competing currencies is the future.

 

Gold, silver, crypto...

 

Easy

Wed, 10/30/2013 - 07:52 | 4104135 no more banksters
no more banksters's picture

"After WWII, there has been an attempt for market regulation through the Bretton Woods Conference, but in 1971, Nixon ended the direct convertibility of the US dollar to gold, opening the door for the total dominance of neoliberalism and the big banks."

http://failedevolution.blogspot.gr/2013/10/new-deal-vs-obamacare-one-rea...

Wed, 10/30/2013 - 15:57 | 4106068 bluskyes
bluskyes's picture

That is when the US dollar was switched from a gold standard to a plutonium standard.

Wed, 10/30/2013 - 14:58 | 4105812 czardas
czardas's picture

We attempted and succeeding in substituting the dollar for gold in the sense that all things are valued in dollar as their true worth.   The scheme could work for awhile and will work for some time due to sheer power of inertia.  No nation is seriously considering not using the dollar even if the rare trade is valued in yuan (for which a dollar conversion is necessary to obtain value - lol)

Wed, 10/30/2013 - 07:16 | 4104084 Coldfire
Coldfire's picture

All this hand wringing over the "reserve currency". As if one were required. Economic anarchy means freedom. Freedom!

Wed, 10/30/2013 - 06:02 | 4104008 Rogue Economist
Rogue Economist's picture

A world without the dollar would mean faster growth and less debt for the United States, though at the expense of slower growth for parts of the rest of the world, especially Asia.

 

This is total fucking nonsense.  Changing the currency regime won't create growth.  Growth is dependent on cheap available energy to waste.  The Chinese have few local energy resources, and without debt fueling their mercantilist economy and customers lacking credit to buy from it, the Chinese have a lot of NOTHING available here.

The Chinese are TOAST.

Chinese Toast

RE

 

Wed, 10/30/2013 - 15:01 | 4105818 czardas
czardas's picture

It's a Catch-22.  If they didn't reduce the population, they would be ruined.  But the draconian measures guaranteed a massive loss of population in the future and an aging society to boot.  China may still pull it off - not grow at 10% annually but retain the capital needed for its population through massive savings. 

Wed, 10/30/2013 - 09:12 | 4104340 Element
Element's picture

Your China is Toast link is an EPIC read ... very interesting.

https://www.youtube.com/watch?v=IDoR5GSNQpk

 

Wed, 10/30/2013 - 07:13 | 4103989 NuYawkFrankie
NuYawkFrankie's picture

Re Is USD Losing Its Reserve Currency Status?

 Yes.

But that's only a symptom of a much larger and intractable malaise: the unmistakable & official Death and Burial of the 'Old USA', if not the collapse of the USSA itself.

When the Berlin Wall came down in Nov 1989 - heralding the collapse  the  Soviet Union - I gave the USSA 25 years (Nov 2014) before it too followed suit due to the unmitigated hubris, corruption, meddling, grift, overbearing arrogance & overarching criminality of its self-appointed 'elites' that now had the opportunity to go hyperbolic as the self-proclaimed Indispensible Nation... Sole Superpower.... blah, blah,blah...

If I even so much as hinted at this in 'polite company', people thought I'd just escaped the Funny Farm and needed help.

Well here we are with just one year to go until Nov 2014 - and,guess what, we seem to be right on track. Dont believe me? Go ask DHS what those 2+billion rounds of ammo are for - and, while you're at it, go ask the NSA how your score stacks up in the NDAA Threat-Matrix.

I somehow doubt that the aforementioned 'polite company' is laughing quite so hard now - or, if they are, it's a shifty-eyed, very nervous kind of laugh.. accompanied by much involuntary facial twitching.

Be Seeing You.

Wed, 10/30/2013 - 04:39 | 4103979 Ghordius
Ghordius's picture

""The inherent burden of housing the world’s reserve currency is that the U.S. must continue to run a balance of payment deficit to meet the growing demand. However, it was this outstanding external debt that caused investors to lose confidence in the value of the reserve assets."

that would be the fabled Triffin Dilemma

well, GW, let me write something about that, here: it's BOGUS. pure propaganda. old propaganda, nevertheless propaganda

first, this burden of having the reserve fiat currency is as much a burden as having a near-unlimited credit card

second, this burden had to be set up, first. by promising that this fiat would be exchangeble with gold, and then reneging that promise

third, there was never a monetary reason to create a huge outstanding external debt by running a huge balance of payment deficit. the reasons were political

fourth, the very demand for treasuries outside of the US was political, too. this applies for the Gulf states, who would have preferred gold yet were satisfied by fungible funds that allowed them to buy Western assets, particularly stocks as much as for China that wanted to build up a huge export economy

the very definition on wikipedia gives you a hint: "...is the conflict of economic interests that arises between short-term domestic and long-term international objectives when..."

what are those long-term international objectives? what are those short-term domestic objectives? as Tyler might say, both "central planning"

all in all, by not keeping a balanced budget Uncle Sam was capable of financing the biggest military the world has ever seen. this allowed to keep a huge chunk of the planet as clients

clients for security, clients for Wall Street, clients for products and services delivered by US Multinationals, from Walt Disney to Coca Cola to weapons

it is a business, and it can be very profitable. built around the reserve currency, military security and Wall Street. well suited to the quintessential post-war US Corporation model, with it's size and return-on-scale strenghts. well suited to the financing capabilities of Wall Street

look at Iraq: the security complex profited. the oil complex profited. the bane of Iraq switching to euros was annihilated. profits from oil sales are recycled into Wall Street assets

this business model does work. as long as costs are kept in check and the clients are satisfied. and their satisfaction is expressed in holding treasuries

of course if costs are not kept in check, mainly because some parts of the machine become too greedy... then clients grumble

Iraq was too expensive. the security complex got greedy and asked for a huge Home Defense machinery, which has no external clients

membership to the "Uncle Sam's friends club" is becoming too expensive, it's services too unreliable, America's focus too domestic, Wall Street too greedy

remember the near-unlimited credit card? it's financed by the clients. Uncle Sam somehow forgot this little detail

 

the question around a possible downfall of the USD and what might replace it hinges on what happens with this business model

it's NOT monetary. it's politics

Wed, 10/30/2013 - 10:45 | 4104662 George Washington
George Washington's picture

Great comment!

Wed, 10/30/2013 - 05:46 | 4104003 falak pema
falak pema's picture

Perfect Analysis. When Nixon chose to revoke BW it was an eminently political decision and he chose to sacrifice monetary discipline WORLDWIDE to win as Hegemon of Pax Americana. 

We pay today that political choice. Keynes's aborted brainchild (He wanted Bancor basket not USD to hinge on gold) died that day in 1971. To even use Keynes's name today in the current paradigm is an historical travesty.

And Friedman and floating rates won the race to inflation, and what ensued in mega debt petrodollar recycling under TBTF aegis of City of London. Maggie's own back yard was born. 

Reaganomics never left that train only adding WS shenanigans to it in FIRE asset bubbling under eltist supply side mantra.

Its ironic that Fama whose thesis was efficient markets should now side with the FED and say these markets are STILL efficient.

Wed, 10/30/2013 - 04:55 | 4103985 Element
Element's picture

Very good summary and overview of the present system.

btw, when real things are exchanged for fiat, it's both

Wed, 10/30/2013 - 03:21 | 4103927 Element
Element's picture

Can't help thinking the natural resources of Earth, like soil and water and clean air, should be at the core of such a global currency-backing basket, and economy ratings. Thus growth is replaced with a measure of the sustainment and health of the natural resources, and currency float a measure of the potential energy flows for human activity and life.

We might be less likely to debase it so fast, or be so obsessed with growth numbers, and dollars for dah crooks and banks, if that were so.

I know, I sound like a closet greenie ... still ... why not? On a finite planet, does it not have to be arranged approximately in that way?

Frankly one of the main problems we face is accomodating the environment and restraining commercial enterpises, always ruling the roost in Govt's policy-making desasters. I'm damned sure taxing and trading carbon and taxing other things, or even taxing per-sec, is not a way forwards.

Wed, 10/30/2013 - 02:14 | 4103899 Amagnonx
Amagnonx's picture

The world has a problem with peak corruption - and central banking is at the center of it.  The first move is to prosecute the entire central banking system for fraud, locate and expropriate all the assets which has been stolen by this system over the last 100 years and return them to the people, and then burn the institutions to the ground - including the IMF, BIS and World Bank.

 

It does not matter what kind of 'solution' is implemented by the global criminals, it doesn't matter how virtuous it might appear on the surface - it will be both initially corrupt, and become even more corrupt immediately.  Nations free of his system can settle international trade in a clearing house, using any number of commodities - but gold is probably the stand out candidate.

 

If governments got out of the business of money, which they have no right to be involved in (excepting of course to enforce laws against fraud), then fair and honest money would naturally evolve to solve these problems.  The monopoly power of govt has been co-opted by the money powers to force people to use their method of global enslavement - prosecute them, destroy them - and crush the industries of warfare, welfare, finance and legal obfuscation.

 

The solution to fair an honest money cannot be resolved by those who have corrupted the very meaning of money.

 

As I have mentioned a few times lately, it appears that Hungary is kicking out the IMF and is issueing its own currency debt free.  If you want an interim solution it is this - repudiate all odious debt, both public and private (all private debt issued by the banking system should be considered odious) - then nationalize the entire banking system and prosecute them.  Switch temporarily to a fixed supply of debt free currency issued by govt and remove legal tender laws.  The govt can then either sell banking infrastructure to states (run as public institutions), or re-sell all the banking infrastructure to the private sector.

Wed, 10/30/2013 - 15:19 | 4105891 czardas
czardas's picture

The trouble, of course, is that nationalization is never followed by liberalization - just the oppposite.  Once the State has expropriated wealth it will not let go.  It does not sell to the "private sector" or relinquish control to states.  Instead, it sets up cronies, family and allies as the new owners, allowing corruption to continue merrily on its way.  This is such a common pattern as to not even be considered noteworthy.  Your proposed system works only in a culture with a history of property and individual rights - not those based on tribe, religion, or ethnic allegiance.  Historically, the vast majority of African and Asia has at one time nationalized assets with the result being an expansion of the public (not private) sector. It's simply redirecting payments to a new set of thugs.

Wed, 10/30/2013 - 14:32 | 4105688 Miztli Raiser
Miztli Raiser's picture

Yes you are right.

The same thing did Hitler in Germany. He nationalized the central bank, issued money free of debt and defied those banking jewish families that enslaved German People. That's why the tale of the hollocaust was invented, so you people would not know such things.

Now that jewish bankers have destroyed american economy just as they did in Germany from 1919-1924.. what's next?

Are American People going to another world war to save the zionist parasite banking system?

Wed, 10/30/2013 - 07:06 | 4104064 SilverSavant
SilverSavant's picture

Wow Amagnonx!  This is great wordsmithing.   You are changing the world with what you say. Thank you for taking the time to share your thoughts.

Wed, 10/30/2013 - 07:22 | 4104092 overmedicatedun...
overmedicatedundersexed's picture

1.parasite CBanks bleed until the host dies, 2.the CBanks must keep the host alive, lately they are doing a poor job of #2, the anemic hosts must kill the parasite to regain health, for the CBanks too much health in a host causes the death of the parasite. (large wealthy middle class)..so the main job for J Yellin as was with Ben and Greenspan, restrain the health of the host.

Wed, 10/30/2013 - 01:52 | 4103889 NIHILIST CIPHER
NIHILIST CIPHER's picture

When US loses reserve currency and oil no longer purchased in USD would we not have a tidal wave of those dollars rush back in a hyperinflationary rush? GW you said we no longer need foreign purchase of of US bonds to have low interest rates.Is that because the FR is the main purchaser of bonds and the wizard that declares ZIRP and poof low interest rates? Do we keep living in Disneyland where we are now trying to legislate not reporting the national debt as though it no longer exists?

Wed, 10/30/2013 - 01:30 | 4103871 Bobportlandor
Bobportlandor's picture

I vote for Barter Goods and Services in exchange for others G&S. If one country wishes to give credit so be it.

 

Wed, 10/30/2013 - 00:36 | 4103822 devo
devo's picture

I don't want a basket of fiat or a basket of commodities (let's face it, I am not taking delivery of oil, wheat, or pigs in a 1br apartment). Gimme gold.

Wed, 10/30/2013 - 04:42 | 4103984 Element
Element's picture

You may not find buyers at the asking price. Then you may have to consider the possibility that habitations are really not investment products, they're just places to live acceptably. And that's also valuable. Or else you accept a big discount and loss. But I'm betting you'll be glad you kept it, and have renters who pay you in bacon and milk, when the chips are down.

Wed, 10/30/2013 - 00:17 | 4103806 jackinrichmond
jackinrichmond's picture

is a world reserve currency still needed ?  

can it not be replaced by currency swap agreements with trade imbalances settled with gold/silver/oil/etc ?

Tue, 10/29/2013 - 23:58 | 4103777 Schmuck Raker
Schmuck Raker's picture

Twinkies! They don't just grow on trees, you know.

Wed, 10/30/2013 - 01:28 | 4103707 lasvegaspersona
lasvegaspersona's picture

Many good points.

The world is heading to a gold settlement system.

Fiat will continue but all the big boys will have gold, marked to market, on the balance sheet (like the ECB already has) and there will be periodic settlement or if a country is unable to settle in gold then a punitive correction to the value of the currency.

In that way all currencies are equal, no penalty to exporters that is not compensated by  cheaper oil costs in that currency.

The USA has had a negative trade balance for 38 years. This insanity will end.

Jacques Rueff said it would be viewed with astonishment and scandal. It is time for those.

Wed, 10/30/2013 - 15:23 | 4105910 czardas
czardas's picture

If the world is headed toward a gold settlement systems (something I see as extremely unlikely for ideological if not practical reasons) then the price of gold will have to skyrocket unless debt is substantially reduced.  I fear that your system would devolve into a convoluted mess of rules, fights, court battles, etc over a million legal points. 

Tue, 10/29/2013 - 22:39 | 4103617 rsnoble
rsnoble's picture

Dollar--fucking junk, pound--fucking junk, euro--fucking junk, yen--fucking junk.

So we're going to save the world with a basketfull of fucking junk.  It's just another episode of keeping the lords of the universe in charge while fucking us at every turn.

I'm sorry but if you already have a basket full of shit and you add more shit to it you still have a basket full of shit.  "But this is new, fresh shit!"

Tue, 10/29/2013 - 23:10 | 4103706 George Washington
George Washington's picture

Well said, and this is an instant classic:

"I'm sorry but if you already have a basket full of shit and you add
more shit to it you still have a basket full of shit.  "But this is new,
fresh shit!""

Wed, 10/30/2013 - 17:00 | 4106423 DaveyJones
DaveyJones's picture

so it's worse than compost

which has a critical mass

Tue, 10/29/2013 - 22:43 | 4103635 Constitutional ...
Constitutional Republic's picture

rsnoble,

Damn right. The USA was founded as a self-sufficient place, welcoming all who would contribute, and believing trade with all, befriend all, but don't get involved in foreign entanglements - and make certain to reject the City of London's bondage, fiat currency, high taxation without true representation, the very base of the old world and its monarchies/tyrants.

Tue, 10/29/2013 - 22:33 | 4103605 Constitutional ...
Constitutional Republic's picture

Fuck it all. The USA should end the Fed, and let other countries pursue their yoke and chain central bank control if they so wish.

The bastids hate the USA, no matter whether it assists their welfare states and wars or not. 

Self-determination was a laudable concept at the end of WWI. Bankers don't like that. It upsets their plot for global dominance, the new feudalism. Same as the old feudalism, but with a smiley face. Bollix to it.

Wed, 10/30/2013 - 01:20 | 4103863 NuYawkFrankie
NuYawkFrankie's picture

re Bollix to it

Or - as Nancy Pelosi might say - 'Botox to it'.

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