from The Daily Bell Posted originally September 30, 2010
CAPITAL CONTROLS EYED AS GLOBAL CURRENCY WARS ESCALATE… Stimulus leaking out of the West’s stagnant economies is flooding into emerging markets, playing havoc with their currencies and economies. Brazil, Mexico, Peru, Colombia, Korea, Taiwan, South Africa, Russia and even Poland are either intervening directly in the exchange markets to prevent their currencies rising too far, or examining what options they have to stem disruptive inflows. Peter Attard Montalto from Nomura said quantitative easing by the US Federal Reserve and other central banks is incubating serious conflict. “It is forcing money into emerging market bond funds, and to a lesser extent equity funds. There has truly been a wall of money entering many countries,” he said. – UK Telegraph
Dominant Social Theme: We’re doing everything we can here at the central bank. You’re simply going to have to trust us. It will all work out.
Free-Market Analysis: There is an argument made by some, especially in the alternative Internet media that the powers-that-be are trying to undermine the US dollar in order to set up a more globalized currency. But we think this perception may give policymakers a bit too much credit. True, there are IMF SDRs waiting in the wings, but making the jump from dollars to SDRs (and thence to bancors) is a risky proposition. Additional sub dominant social theme: “Things are terrible but we’ll come up with a new financial system next month. We’ve already worked it out.”
The point we want to make in this article is that the elite is not firmly in charge of the current economic environment but is rapidly losing control – with various attendant consequences. The unraveling of the system has not only been swift and shocking, its been playing out in real-time over the Internet, which is just about the last place you want a generalized discussion about fractionalized, fiat money and central banking. Why is that? Because every time central bankers propose a monetary fix, ten thousands blogs step up to analyze the preventive medicine and to explain once more how the system really works.
It is no coincidence, as we pointed out just yesterday, that the power elite has set up a banking system with quasi-religious overtones. Central banking is a fundamental dominant social theme for the elite. The power to print money from nothing is the power to play God. But the elite never expected a generalized discussion about how the system worked. The idea was to baffle people with incomprehensible terminology while impressing them with the grandeur and magnificence of the money plants themselves – the great Romanesque temples that have been built throughout the Western world to honor money power.
The whole idea, between the vocabulary and the architecture, was to make the edifice so impressive and incomprehensible that people would simply tune it out, believing it to be somehow “beyond them.” But the Internet itself has thoroughly undermined this ploy. Every movement central bankers make, every new scheme, is analyzed not by the mainstream media that can be counted on to present a sympathetic perspective but by a distinctly more hostile crowd with a broad Internet reach.
Of course those who run the current money system are still determined to do so in a way that supports its mystery and asserts its control. The Western system of commerce is foundering right now. By overprinting money for decades, the powers-that-be managed to distort Western economies so badly that price information is virtually useless. Combine this with bailouts, and you have a recipe for continued joblessness as the market itself cannot tell the difference between a going concern and a useless one.
The quickest way to ameliorate this problem would be to get paper money directly into the hands of individuals who would then make a series of micro-level purchasing and investment decisions. But the powers-that be WILL NOT tolerate this approach. That’s because if they circumvent the system as it is in order to generate the liquidity that Western economies need, they will lose control of the process. Again, the simplest route to regenerating economic animal spirits would be to send checks directly to individuals who then spend the money. This the elite will not do.
Instead, those who run the money system persist in using the command-and-control money mechanism that has been created over time. Central banks print money and urge money center banks to distribute it. Since price information is still distorted, banks are refusing to lend (even as consumers are still refusing to borrow.) People are scared to take on debt; banks are wary of making lending decisions because it is difficult to tell a good business from a bad one.
Because of this stubbornness – because central bankers are adamant that they will use the money disbursal system that they have set up over the years – money is not circulating in the larger economy. The solution, central bankers aver, is quantitative easing. This mumbo-jumbo phrase simply means that central bankers will start to purchase various financial assets held by large banks and securities firms.
Again, we can see that no matter how simple the real solution is (printing money and mailing the money to individuals), central bankers will not consider it. If jamming money into the banking system does not re-stimulate the economy, then central bankers will buy sour financial instruments directly from the same banks and financial firms and try to inject money into the economy by these means. But under no circumstances, no matter how bad the economy is, no matter how simple the solution, central bankers WILL NOT print money and send it to individual consumers.
The result of this absolute unwillingness to do the one thing that would likely re-energize the system most quickly is that distortions, stresses and strains on the system, keep getting worse. “Pushing on a string” by continually trying to shove money into people’s pockets through the current monetary distribution chain will work eventually – but it may take another decade of rising joblessness and “austerity” to do the trick.
What this means is that the elite is willing to sacrifice Western economies and to put up with the threat of social unrest and even the dissolution of the European Union because the powers-that-be WILL NOT supply consumers directly with capital. To do so would be an admission that money is indeed printed from nothing and that the banking system as it currently constructed is nothing but an elaborate charade.
And so the Western banking elite will likely print another trillion or two. The result, as we see from the article excerpted at the beginning of this analysis, will be to further distort not only Western economies, but major emerging economies around the world. Not only that, but the tremendous amounts of dollars (in particular) that the US Fed is printing, are finding their way increasingly into commodities, and especially into gold and silver. This is gradually causing other problems for the system as gold and silver are “real money” and not nearly as amenable to various kinds of central bank manipulations.
The “wall of money” being printed by the EU and the Fed in particular is forcing emerging economies to take various kinds of distortive actions of their own if they hope to keep their own currencies from rising against the dollar and the euro. Basically, Western economies are forcing the world’s economies into a “race to the bottom.” Whoever can debase their currency the fastest wins the race. This is a recipe for inflation and even hyperinflation. Another reason, in fact, why gold and silver continue to rise in price relative to the dollar in particular.
All of this is occurring because the powers-that-be WILL NOT print money and put it directly in the hands of people who would spend it (either with or without interest). To do so would be to repudiate the money-distribution mechanism that has been built up over 200 years. It would mean ripping away the curtain that hides the great OZ from view. It would mean admitting that the banking system itself is unnecessary, an impressive hoax.
There is something sad about this. The elite is willing to tolerate many more years of continued hopelessness and joblessness because it will not compromise the system it has set up. Gold and silver can rise by hundreds and thousands of dollars, but still the elite will continue to try to jam money through the proverbial eye of the needle. Economies around the world will continually distort as a result of central banks’ overprinting of money but still the powers that be will continue with the insanity of the current system of monetary distribution rather than take actions that would admit that the current system of monetary distribution is nonsensical.
Either the monetary elite is willing to show people the truth about the money system, or it will continue to ruinously distort economies around the world. It may even get to the point where they have virtually destroyed the current system because they WILL NOT distribute money directly to individuals. This is why we have entitled this article “Elite Between Rock and Hard Place“. Either the elite reveals the money system for what it is, which the Internet is doing anyway, or it continues down the road of ruin until the very processes that it has created over time begin to disintegrate.
We are proponents of free-banking here at the Bell; we would like to see a private gold and silver standard. The current system is a manipulative disaster. But given that it exists and that the powers-that-be are actively trying to save it, we have in the above article proposed the easiest and simplest way to jump-start current fiat economies. Print money and sent it consumers either as a gift or as low-cost loans that are repayable in 50 or 100 years time or that may be forgiven altogether. That would likely do the trick (though no doubt it would cause other problems such as immediate price inflation).
Conclusion: We don’t think the elite planned this. It has only occurred to it over time how limited the options are. The fractional, fiat money system itself is entirely irresponsible and ruinous. But if the elite does take steps to inject money more directly into the economy, the Internet would magnify the move and describe the reality of the system even more aggressively than it is doing now. The elite probably has no choice but to proceed down the road as it has before, printing money and disbursing it via banks and financial firms – that probably will not efficiently circulate the money. The elite is thus willing to tolerate the virtual breakdown of the system rather than to reveal what lies at its heart. These are not the actions of a confident few but rather the manipulations of desperation. The powers-that-be are apparently willing to destroy the system they have created rather than reveal it.