“If the dollar does indeed lose its role as leading international currency, the cost to the United States would probably extend beyond the simple loss of seigniorage, narrowly defined. We would lose the privilege of playing banker to the world, accepting short-term deposits at low interest rates in return for long-term investments at high average rates of return. When combined with other political developments, it might even spell the end of economic and political hegemony.”
– Economist Menzie Chinn, “Will the Dollar Remain the World’s Reserve Currency in Five Years?”, CounterPunch 2009
Barack Obama’s economic recovery has been a complete bust. Unemployment is high, the economy is barely growing, and inequality is greater than anytime on record. On top of that, inflation has dropped to 1.2 percent, private sector hiring continues to disappoint and, according to Gallup’s “Economic Confidence” survey, households and consumers remain “deeply negative”. More tellingly, the Federal Reserve’s emergency program dubbed QE– which was designed to mitigate the fallout from the 2008 stock market crash and subsequent recession–is still operating at full-throttle five years after Lehman Brothers defaulted. This is inexcusable. It’s an admission that US policymakers have no idea what they’re doing.
Why is it so hard to get the economy up and running? Everyone knows that spending generates growth, so if the private sector (consumers and businesses) can’t spend the public sector (the government) must spend. That’s how sluggish economies shake off recession, through growth.
Spend, spend, spend and spend some more. That’s how you grow your way out of a slump. There’s nothing new or original about this. This isn’t some cutting-edge, state-of-the-art theory. It’s settled science. Economics 101.
So is it any wonder why the rest of the world is losing confidence in the US? Is it any wonder why China and Japan have slashed their purchases of US debt? Get a load of this from Reuters:
“China and Japan led an exodus from U.S. Treasuries in June after the first signals the U.S. central bank was preparing to wind back its stimulus, with data showing they accounted for almost all of a record $40.8 billion of net foreign selling of Treasuries….
China, the largest foreign creditor, reduced its Treasury holdings to $1.2758 trillion, and Japan trimmed its holdings for a third straight month to $1.0834 trillion. Combined, they accounted for about $40 billion in net Treasury outflows.” (“China, Japan lead record outflow from Treasuries in June”, Reuters)
While things have improved since August, the selloff is both ominous and revealing. Foreign trading partners are losing confidence in US stewardship because of policymakers erratic behavior. Here’s how former Fed chairman Paul Volcker summed it up:
“We have lost a coherent successful governing model to be emulated by the rest of the world. Instead, we’re faced with broken financial markets, underperformance of our economy and a fractious political climate.”
Naturally, this loss of confidence is going to hurt the dollar vis a vis its position as the world’s reserve currency. But don’t kid yourself, China and Japan want to be the top-dog either. They’re fine with the way things are right now. The problem is, it’s looking more and more like the US is not up-to-the-task anymore given the irresponsible way it conducts its business. And we’re not talking about the government shutdown either, although that circus sideshow certainly lifted a few eyebrows in capitals around the world. Foreign leaders have come to expect these tedious outbursts from the lunatic fringe in Congress. But, the fact is, the government shutdown fiasco had very little effect on the bond market. The benchmark 10-year US Treasury shrugged off congress’s screwball antics with a wave of the hand. No big deal. Not so the talk of “tapering” by the Fed, which sent 10-year yields soaring more than 100 basis points to 3 percent in less that a month. Tapering put the fear of god in everyone. The sudden jolt to mortgage rates was enough to put the kibosh on new and existing homes sales putting a swift end to Bernanke’s dream of reflating the housing bubble. The rising long-term rates threatened to push the economy back into recession and wipe out five years of zero rates and pump priming in the blink of an eye. That’s why China and Co. started to jettison USTs. They figured if the Fed was going to scale back its asset purchases, rates would rise, and they’d be left with a whole shedload of US paper that would be worth less than what they paid for it. So they got out while the gettin’ was good.
So don’t believe the media’s fairytale that Bernanke postponed tapering because the economy still looked weak. That’s nonsense. It was the selloff in USTs that slammed on the brakes. The Fed actually wants to reduce its purchases because there are humongous bubbles emerging in financial assets everywhere. But how to do it without triggering another crash, that’s the question. The Fed has distorted prices across the board, which is why the main stock indices are climbing to new highs every day on the back of an economy that has less people in the workforce than it did 10 years ago. What a joke. And people wonder why foreign lenders are getting nervous?
What China wants from the United States is simple. They want proof that the US hasn’t lost its mind. That’s all. “Just show us that you still know how to fix the economy and run the system.” Is that too much to ask?
Unfortunately, Washington doesn’t think it needs to answer to anyone. We’re Numero Uno, le grand fromage. “What we say goes!”
Okay. But the only thing that’s going is the US’s reputation, it’s economic dominance, it’s behemoth debt market, and its reserve currency status. Not because the world is rebelling, but because the US is imploding. “Stupid” is a disease that has spread to every part of the body politic. The country is run by crackpots who implement counterproductive policies that weaken demand, boost unemployment, shrink growth leave the rest of the world scratching their heads in bewilderment. This is from Bloomberg:
“While government debt was a haven as the U.S. endured the worst recession in seven decades, primary dealers such as Barclays Plc (BARC) and Goldman Sachs Group Inc. say the gains this month show the Fed’s $85 billion of monthly bond purchases are masking the risk of owning fixed-income securities as the recovery in America takes hold.
“Treasuries are just not worth the risk,” Thomas Higgins, the Boston-based global macro strategist at Standish Mellon Asset Management Co., which oversees $167 billion of fixed-income investments, said in a telephone interview on Oct. 23.” (Bloomberg)
Not worth the risk, indeed, which is why the dollar is getting pummeled mercilessly at the same time. This is from Reuters:
“The dollar fell towards a nine-month low against a basket of currencies on Monday, with more investors selling on growing confidence the Federal Reserve will keep policy accommodative….
Most expect the central bank to delay withdrawing stimulus until March 2014…. The longer the Fed keeps policy accommodative, the more U.S. yields stay anchored, making the dollar less attractive to hold.” (Reuters)
So the dollar isn’t looking too hot either, is it, which is why China and Japan have started to reconsider their holdings. This is from Businessweek:
“U.S. government debt has already lost some of its appeal among foreign investors. They were net sellers of Treasuries for five-straight months ended August, disposing of $133 billion in that span, last week’s Treasury data showed.
The streak is the longest since 2001 as China, the largest overseas U.S. creditor, reduced its holdings to $1.268 trillion, the least since February….With the economy recovering from the depths of that recession, Treasuries may be more vulnerable to a selloff this time.” (“Treasuries Risk Shown as Fed Distorts Correlation to Stocks”, Businessweek)
Of course, there’s going to be a selloff. Why wouldn’t there be? And probably a panic too to boot.
Look, it’s simple: If the biggest buyer of US Treasuries (The Fed) signals that its either going to scale back its purchases or reduce its stockpile of USTs, then what’s going to happen?
Well, the supply of USTs will increase which will lower prices on US debt and push up rates. Supply and demand, right?
So, if the other participants in the market (aka China and Japan) think the Fed is about to taper, they’re going to try to sell before other investors race for the exits.
The question is: What’s that going to do to the dollar?
And the answer is: The dollar going to get hammered.
The US gov going to have to borrow at higher rates which could tip the economy back into recession. Also, the US could lose the ”exorbitant privilege” of exchanging colored pieces of paper for valuable goods and services produced by human sweat and toil. Isn’t that what’s really at stake?
Of course, it is. The entire imperial system is balanced on a flimsy piece of worn scrip with a dead president’s face on it. All that could change in the blink of an eye if people lose faith in US stewardship of the system.
But, what exactly would the US have to do for foreign countries to ditch the dollar? Here’s how economist and author Menzie Chinn answered that question in an interview in CounterPunch in 2009:
“If the US administration were to pursue highly irresponsible policies, such as massive deficit spending for many years so as to push output above full employment levels, or if the Fed were to delay too long an ending to quantitative easing, then the dollar could lose its position.” (“Will the Dollar Remain the World’s Reserve Currency in Five Years?” An Interview With Economist Menzie Chinn, Counterpunch)
Funny how Chinn anticipated the problems with winding down QE way back in 2009, isn’t it? His comments sound downright prophetic given Wall Street’s strong reaction.
But we keep hearing that China is stuck with the US and has to keep buying Treasuries or its currency will rise and kill its exports. Is that true or will China eventually split with the dollar?
Menzie Chinn again:
“It is true that each Asian central bank stands to lose considerably, in the value of its current holdings, if dollar sales precipitate a dollar crash. But we agree with Barry Eichengreen that each individual participant will realize that it stands to lose more if it holds pat than if it joins the run, when it comes to that. Thus if the United States is relying on the economic interests of other countries, it cannot count on being bailed out indefinitely.” (Counterpunch)
Well, that sounds a bit worrisome. But maybe China won’t notice that we’re governed by morons who’ve forgotten how to fix the economy or generate demand for their products. Any chance of that?
No chance at all, in fact, China already has already started its transition away from the dollar. Here’s the scoop from former chief economist for Morgan Stanley Asia, Stephen S. Roach:
“China has made a conscious strategic decision to alter its growth strategy. Its 12th Five-Year Plan, enacted in March 2011, lays out a broad framework for a more balanced growth model that relies increasingly on domestic private consumption. These plans are about to be put into action….
Rebalancing is China’s only option…..With rebalancing will come a decline in China’s surplus saving, much slower accumulation of foreign-exchange reserves, and a concomitant reduction in its seemingly voracious demand for dollar-denominated assets. Curtailing purchases of US Treasuries is a perfectly logical outgrowth of this process…..
For China, this is not a power race. It should be seen as more of a conscious strategy to do what is right for China as it confronts its own daunting growth and development imperatives in the coming years.” (“China gets a wake-up call from US”, Stephen S. Roach, Project Syndicate via bangkokpost.com)
In other words, “No hard feelings, Uncle Sam. We just don’t need your fishwrap currency anymore.”
No matter how you cut it, the dollar is going to be facing stiff headwinds in the days ahead. If Roach’s analysis is correct, we can expect a gradual move away from the buck leading to a persistent erosion of US economic and political power.
The end of dollar hegemony means America’s “unipolar moment” may be drawing to a close.
MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.
http://www.counterpunch.org/2013/11/01/does-the-dollar-have-a-future/
The US Fiat Dollar Ponzi Scheme: Digital Money Used to Purchase Toxic Assets from the “Too Big To Fail” Global Banks
"The US Federal Reserve Does Not Print Money" Says Dr. Lacy Hunt
In the Hoisington Quarterly Review and Outlook (First Quarter 2013), Dr. Lacy Hunt wrote and we quote:
“The Federal Reserve is printing money. No statement could be less truthful. The Federal Reserve (FED) is not, and has not been, ‘printing money’ as defined as an acceleration in M2 or money supply. Just check the facts. For the first quarter of 2013 the FED purchased $277.5 billion in securities (net) as their security portfolio expanded from $2.660 trillion to $2.937 trillion. A review of post-war economic history would lead to a logical assumption that the money supply (M2) would respond upward to this massive infusion of reserves into the banking system. The reality is just the opposite. The last week of December, 2012 showed M2 at $10.505 trillion, but at the end of March, 2013 it totalled only $10.450 trillion which was an unexpected decline of $55 billion. Printing money? No.”
Please read the words which I have highlighted in bold and underlined.
Any novice in economics and monetary policy will have no difficulty in identifying the flaw in Dr. Lacy Hunt’s contention as he has equated the printing of money (digital or otherwise) with the acceleration in M2 or money supply.
The acceleration in M2 is a consequence of the FED printing money in certain circumstances. We will address this issue in a moment. But, to say that because there was not a corresponding acceleration in M2, therefore was no money printing by the FED, is to put it kindly, drawing on the wrong conclusions.
But, first let us point out a critical fact which Dr. Lacy Hunt has not denied and this is the fact that the FED has expanded the monetary base from $840 billion to $2.93 trillion.
How did the FED increase the monetary base from a mere $840 billion to $2.93 trillion? The answer is simple. By a click of the computer mouse, thereby digitally creating virtual money which enabled the FED to embark on its various bail-out schemes following the financial tsunami of 2008 and thereafter the massive quantitative easing (QE) programs.
The digital money was employed in two specific areas – firstly to purchase toxic assets from the insolvent Too Big To Fail Global Banks and secondly to finance the US government debts by purchasing US treasuries.
Purchase of Toxic Assets from Banks
Why did the FED print money to buy toxic assets?
The banks were all insolvent, even till to-date. The toxic assets of banks in ordinary circumstances (“Old Normal”) would have to be written off, if marked-to -market. They were all junk assets and ought to be treated as such. But, the FED and other central banks and with the connivance of the Bank of International Settlements (BIS) agreed to allow the global banks to treat these toxic assets in the balance sheets as still performing assets. It was a fraud, but this fraud could not be maintained for long so a way out was devised. The FED came to the rescue and purchased these toxic assets by printing money digitally. It was shifting toxic assets from one balance sheet to another – from the global banks’ balance sheet to that of the FED!
But, there is a catch! In time, the global banks must re-purchase these toxic assets when they are able to do so (when the global economy has recovered). No one really knows when that would happen.
But, you can take it from me, that there will be no such re-purchase because these assets are all junk and there are not even worth a dime on the dollar. To that extent and in this sense, one can say that the FED is actually insolvent at the present moment as the value of its assets is junk. But, this Ponzi scheme is continuing because the FED can print money (digitally or otherwise) as long as confidence in the US$ remains.
In fractional reserve banking, when the FED purchases assets from the bank, it will create “bank reserves” which will enable the banks to “create money” by an agreed multiplier (usually by ten times).
In the present financial/banking environment, there is a huge problem. All the customers’ deposits with the banks have been depleted in reckles speculation in the tech bubble in early part of this century followed by the sub-prime housing bubble, the stock market bubble, the derivative casino bubble etc. If all the banks’ customers were to demand their deposits, these global banks would not be able to repay their customers and this would result in a bank-run.
By law and banking regulations, banks in such circumstances must increase their share capital and reserves in order that they be allowed to continue the banking business. But, the banks’ shareholders don’t have the trillions to re-capitalise the banks. The banks following the crisis have no reserves because prior to the crisis, the BIS and the FED decreed that banks need not have reserves. This is very significant, because a critical pillar of fractional reserve banking was dispensed with completely. As explained earlier, a bank’s ability to create money is founded on the amount of reserves it has with the central bank. It can only create “ten times” (the multiplier) of the reserves e.g. if the reserves is $100 million, the bank can create $1 billion in its books and lend out the same to customers. This, in economic jargon is the velocity of money, the acceleration of the money supply and it hinges on the reserve requirement established by the BIS.
So, what we have at the present moment is that all the global banks are staring at a black hole. They are insolvent because they have not re-capitalised under the present banking regulations sufficient enough to cover all their liabilities. Additionally, they don’t have sufficient reserves to trigger the multiplier and “create money” under the fractional reserve banking system.
So, part of the huge money printing by the FED went to “create” or “supply” reserves to the bank so as to cover-up the fact that the said global banks prior to the FED’s intervention had zero reserves.
Even now, with the FED’s intervention and as a result, there are now the so-called “surplus reserves” (a misnomer because there is no such surplus as these reserves are merely supplied to comply with BIS’s new requirements) and as such the banks have not been able to “create” their own monies under the fractional reserve banking system.
This is because the banks cannot embark on a massive “money creation” based on the agreed multiplier of these reserves, as these reserves have been created in anticipation of bank runs, and not to allow the banks to create more money. At a conservative estimate, customers’ deposits exceed statutory reserves by more than ten times. There is no way that banks can repay all the deposits. The present system and circumstance is that it is a giant Ponzi scheme.
And the FED, Bank of England, other central banks and the BIS know this too well and no amount of “reserves” created by printing money digitally would be able to resolve this issue as the horrendous consequence would be massive devaluation of the various fiat currencies engaged in such an exercise. In that event, we will have inflation and then hyperinflation.
Hence, and as a digression to the issue at hand, the powers that be and the financial elites have decided to do away with the illusion that customers’ deposits are secured and instead can be confiscated to maintain the solvency of the banks. I have written an article recently, No Bank Deposit Will Be Spared From Confiscation posted to my website on 24th April, 2013, that in law and in fact, all bank deposits are deemed unsecured loans to banks which the banks can use it in any way, even to speculate and the only obligation of the bank is to repay the deposits on demand and if and when the bank has sufficient funds, failing which the depositor is just another unsecured creditor in the long queue in a bank’s liquidation.
Coming back to the issue at hand.
When banks cannot lend money (since they cannot “create money” based on the current so-called “surplus reserves”, a misnomer), they can no longer earn exorbitant profits, the FED yet again comes to the rescue. The FED agreed to pay interest on such reserves.
In Joe-Six-Packs language, this is a FREEBIE TO THE BANKS.
The FED prints money out of thin air digitally to purchase toxic assets (which prevents the banks from writing off such assets and declaring massive losses and the inevitable liquidation) and apply this “new digitally printed money” as reserves which gives an illusion of solvency of such banks so as to prevent bank runs. Adding insult to injury and to con the public further, the FED pays interest on monies in which it created itself and then given to the banks to generate profits for doing nothing at all so as to improve the balance sheets of the bankrupt banks.
Yet, the powers that be refuse to bail out the unemployed, the families that have been foreclosed, students up to their eyeballs in debt, and in compounding their poverty, remove the life-lines that may offer some hope such as reducing unemployment benefits and food stamps! Adding insult to injury, the Too Big To Fail Banks can borrow from the FED at near zero interest rates and then lend out to reap profits.
Is Dr. Lacy Hunt mistaken or what when he says that the FED does not print money?
PRINTING MONEY TO PURCHASE TREASURIES
The FED also prints money to lend to the US government. It does so by purchasing treasuries. Without this money printing, the US government would not be able to continue with its imperial war agenda.
If the FED did not print money, the US government would be bankrupt immediately, the economy would collapse and all imperial wars (proxy or otherwise) would come to a grinding halt.
Who says that there is no acceleration of the money supply?
Dr. Lacy Hunt misses the point totally when he chose to ignore the fact that printed monies did not and were not funnelled through the system in the “normal” way. In the “New Normal”, the printed monies have been diverted and “supplied” in a roundabout way thereby creating an illusion that there was no multiplier effect as a result of the expansion of the FED’s monetary base. How very naïve and misleading for Dr. Lacy Hunt to assert that the FED does not print money!.
The fact that the multiplier effect under the fractional reserve banking system (the “Old Nornal”) did not correspond to the percentage increase in the monetary base is NOT AND CANNOT BE THE FOUNDATION OF THE ASSERTION THAT THE FED DID NOT PRINT MONEY.
To put the nail in the coffin of Dr. Lacy Hunt’s argument, let me quote him (with my comments in bold):
However, empirical evidence is clear that high powered money is not causing an increase in M2. (I have pointed out above that it went to reserves and treasuries under the “New Normal” for the reasons stated and as such, little or no money was created by banks and the multiplier did not take off as expected. But, that was not the objective of the FED which was to save the fiat money system and the TBTF global banks. It is a leap of imagination and denial to say that as such, there was no money printing. There was money printing, but the acceleration (multiplier effect) did not materialise as it would had under the “Old Normal”.)
Why? A bank’s conversion of reserves into money is called the money multiplier. At the end of 2007, the money multiplier was 9.0. This meant that the monetary base of $825 billion was multiplied nine times to create the level of M2 that stood at $7.4 trillion. (Yes, Dr. Lacy Hunt, this is because it was under the “Old Normal” when the banks were in a position to create money out of thin air under the fractional reserve banking system. This was before the crisis. What is it so difficult for Dr. Lacy hunt to understand this simple issue? As explained above, under the “New Normal” the multiplier effect went to reserves and treasuries.)
At the end of March 2013, the monetary base had exploded to $2.09 trillion… (This is because of FED’s digital money printing and as Dr. Lacy Hunt has admitted, the monetary base “exploded”. It can only “explode” because of unrestrained money printing which expanded the monetary base. Why does Dr. Lacy Hunt try to confuse the issue of expansion of monetary base with the multiplier effect under the fractional reserve banking system?)
… but the money multiplier had collapsed to only 3.6 creating an M2 balance of $10.4 trillion. (Does not Dr.Lacy Hunt’s admission and observation prove my point that under the “New Normal”, the multiplier effect went to reserves and treasuries as opposed to the “Old Normal” where it would be channelled to the fractional reserve banking system whereby banks can then “create money out of thin air” by book entry in proportion to their reserves. Under the “New Normal”, even though reserves are at record high, banks were not allowed to utilise the multiplier because the banks failed to comply with the requirements of banking reserves under the BIS guidelines which must be complied with by year 2019. Therefore, FED’s printing money is to enable the TBTF banks to comply with the new BIS guidelines. Dr. Lacy Hunt should not pretend that he does not know this fact. Dr. Lacy Hunt is dishonest when asserting that the FED does not print money.)
Finally:
The Central Bank has very little control over the movement of the money multiplier; the actions of banks and their customers primarily control this variable. (Such ignorance is appalling. Under the fractional reserve banking system, the amount of reserves determines the amount that can be multiplied. So, when the FED and any other central banks determine the amount of reserves, it in fact determines the velocity of money that can be created by the banks. The money multiplier is a consequence of the amount of reserves. If the reserves of bank A is $100 million, the multiplier effect for bank A is that it can loan $1 billion. If the reserves of bank B is $1 billion, then the multiplier effect for bank B is that it can loan $1 trillion. Under the “Old Normal” the amount of reserves required under banking regulations is a proportion of the amount of customers’ deposits. This is so basic.)
The article by Dr. Lacy Hunt and the assertion that the FED does not print money serves only one purpose – to mislead and to create an illusion as to the true nature of the banking system under the “New Normal”.
If the FED did not print money as asserted by Dr. Lacy Hunt, which resulted in the managed devaluation of the US$ toilet paper money, why would other countries engage in competitive devaluation and QE? The central banks are all acting in concert to save the TBTF banks and the fiat money system as the priority because that IS THE REAL ECONOMY to be saved as far as the powers that be are concerned. Main Street is secondary. If the fiat money system fails, the Main Street collapse is the inevitable consequence.
It is not the other way round, Dr. Lacy Hunt. Saving Main Street will not save the fiat money system. The fiat money system is the Ponzi scheme that has enabled the US and other developed countries to live beyond their means. It is a debt-based system and the fiat money is the fuel that keeps the system running. Without this fuel, everything comes to a standstill. However, the system is inherently self-destructive because a point would be reached whereby too much fuel (fiat money printing) would clog the engine.
Dr. Lacy Hunt, please fill your car engine with engine oil till it overflows. Then try to start your car.
Have a nice and enjoyable drive! When the fumes come gushing out of the exhaust, the fire brigade may be summoned by a bystander. Be prepared for a civil suit for negligence or worse.
NOTES & REFERENCE
For further information on the financial scam by BIS and Basel III, refer to my article “BISTRO – Bank of International Settlements Total Rip Off” dated 30th September, 2010 and the implications of BASEL III Accords on banking capital ratios and reserves.
Please go to my website – www.futurefastforward.com at Folder financial analysis via: http://www.futurefastforward.com/malaysia-updates/4292-by-matthias-chang
http://www.globalresearch.ca/the-us-fiat-dollar-ponzi-scheme-digital-money-used-to-purchase-toxic-assets-from-the-too-big-to-fail-global-banks/5336990
The Entire Fiat Money System is Bankrupt: Demise of the Global US Fiat Dollar Reserve Currency
Major issues or trends do not change on a daily or even monthly basis. A trend may take a few years to run its course and unless there is a major factor that may affect the trend, there is hardly any need to comment any further on the trend or outcomes.
The events unraveling post Bernanke’s decision not to taper QE is most significant because it confirms our analysis that the banking crisis has not been resolved in any significant way after five years of money printing and massive asset inflation. The fiat money system has but one outcome – total collapse. It will also mean the demise of the global US dollar reserve currency.
There are no solutions at hand.
Bernanke is totally discredited and his continued tenure as Chair of the FED would only accelerate the realisation that the FED and all central banks have failed. Hence, the need to change the “leadership” at the FED, but the same policies would be followed with some cosmetic changes to hoodwink the ignorant masses. It is analogous to the transition from the second Bush presidency to that of Obama and all the theatrics of “change” propaganda. In fact, Obama is Bush 2 on steroids! Yellen will be Bernanke on steroids. Why are we so certain of this outcome at Future Fast-Forward?
Our reasons are as follows:
Prior to the Global Financial Tsunami of 2008, I had written several articles exposing the global Too Big To Fail (TBTF) banks as financial rapists and predators and they would cause untold havoc to the financial system.
Post the crisis, I had also warned that these global TBTF banks are all insolvent and the toxic assets on their balance sheets would exceed US$20 trillion at the minimum. The entire fiat money system is bankrupt. Printing toilet paper money by the trillions does not make the system solvent. It is a clear admission that the system is totally broken.
The banking Humpty-Dumpty has fallen from the wall and shattered into a thousand pieces! The confirmation for this is the fact that all central banks led by the FED have only one aim – to create massive asset inflation. How can a stock market of a bankrupt nation be at an all-time high?
The FED and central banks the world over are not interested in resolving the unemployment problem because record unemployment would not collapse the fiat money system. It may trigger massive social unrest but that can be put down by a militarised police force, supported by a battle-hardened military as is happening in the US.
In the circumstances, we need to ask the US$ Trillion question – Why are all the central banks focusing on asset inflation via creation of money out of thin air?
The answer: THE FIAT MONEY SYSTEM IS THE ECONOMY, STUPID!
It used to be that the Petro-dollar was the linchpin of the global economy. However, when the derivatives market took off and became a US$800 Trillion global casino, the US$ toilet paper became the currency in global financial trading and speculation.
All the TBTF banks were leveraged to their eyeballs and the collaterals were hypothecated and re-hypothecated so many times over, it became an inverted pyramid joke.
The collaterals were bundled up into CDOs etc. rated AAA by corrupt rating agencies and traded. We need not repeat this old story. The point we are making here is that not only are the collaterals junks but they are supporting a mountain of debts in the trillions. Therefore, when collaterals are impaired the TBTF banks are in a hole from which they cannot get out. The FED and other central banks have no choice but to bail out the TBTF banks if a systemic failure is to be avoided. If all the junk collaterals were to be off-loaded at once in the full glare of public scrutiny, there would be a run on all the banks. So, what was required was a stealth rescue effort. The TBTF banks were allowed to unload the junk collaterals bit by bit by the various schemes of the FED culminating in the US$85 billion a month purchases of treasury bonds and mortgages by the FED.
Additionally, newly “minted” collaterals were used to replace the junks so as to clean up the balance sheets of the TBTF banks. I have stated earlier that the minimum amount of toxic assets needed to be mopped up is US$20 trillion. After five years, the FED has just scratched the surface. It is debatable how many US$ Trillions the FED has actually pumped into the system directly and indirectly. How much and how long more can the FED continue to pump US$ toilet paper into the system without creating a massive loss of confidence in the dollar? When the balance sheet of the FED reaches US$7 Trillion or maybe US$10 Trillion? It is anybody’s guess.
For sure, there will be a point when another US$100 Billion is created on top of the stash of US$ toilet papers which will tip the scale and collapse the entire system. It is a catch-22 for the FED. If it stops creating fiat money out of thin air, the fiat money system would collapse immediately. If it continues with more money creation, it merely postpones the inevitable and more devastating end-game. This is the price we all have to pay for allowing the fiat money system to hold sway for so long.
The world was conned into accepting the biggest Ponzi scheme in the history of banking and finance – the US$ Global Reserve Currency Ponzi Scheme.
This scheme was created on a sand castle of debt, specifically US Treasury Bonds. The world does not need a Global Reserve Currency. Global trade can be conducted in any currency in accordance to the needs and resources of a country.
Why should there be a special privilege given to only one country to have its currency as the sole reserve currency for purposes of trade? It makes no sense as it is the result of US imperialist policies under the pretext of the Cold War. The con was based on the propaganda that the US$ should be the preferred currency and the US Treasury Bond is the “safest asset” to have in the event of an outbreak of war between the Western Imperialist camp and the Soviet bloc. We were told this arrangement was necessary if we are to enjoy the protection of the mighty US superpower!
Yet, when the Soviet bloc collapsed no one questioned the need to perpetuate the system.
Another spin was propagated. The US was the linchpin in the new era of globalisation as the US market was the biggest consumer / export market. Everyone was caught in this web of deceit. The US market was a market built on a mountain of debt. Adding insult to injury, the US consumers paid for the goods produced by millions breaking their backs with US$ toilet paper money!
Some so-called currency experts have asserted that no other currency can replace the US$ toilet paper as the global reserve currency because no other country has a bond market like the US bond market, dominated by the US treasury bonds. What an idiotic statement!
If a country is not in debt, there is no need for any bonds to be issued. A bond is an I.O.U. A bond is a mere paper pledge to repay a debt.
And anyone who says and continues to perpetuate the myth that a US debt is a better debt and is more secure is ignorant and misinformed!
Why would anyone want to work and produce goods which are sold and paid in US$ toilet paper and then use the surplus US$ toilet paper to lend to the US government who repays the debt by merely printing more US$ toilet paper?
So, do you still think the world needs a US$ toilet paper money as a reserve currency?
http://www.globalresearch.ca/the-entire-fiat-money-system-is-bankrupt-demise-of-the-global-us-fiat-dollar-reserve-currency/5356491