Tag Archives: New monetary system

My 100th Post!! – America’s Superiority Complex May Have Precipitated the Next Great Depression

EurAmerica has created a banking bubble that will be very difficult to unwind. We allowed the bubble to evolve because we have never relented from our grander perception of the European civilization in the community of civilizations. As such, after mercantilism resulted in the slave trade, industrialization ended in colonialism, and Bretton Woods preceded post-colonial national indenturement via the IMF and the World Bank, it seems EurAmerica boxed ourselves into an aggrandized monetary corner.

America singularly fell into the superiority trap when we assumed that our obsessive post war desire for a military to overwhelm all other militaries was desired of us by the rest of the world as well. At the end of WWII, America found herself having to fund our re-establishment of our international commerce by rebuilding the rest of the world including vanquished and allies alike. As we built our communist protectorate, it seemed infeasible that we could collect payments from other nations to both pay for our policing powers and for the Marshall plan, for earlier post war reparations beget Weimar Germany and WWII.

Yet America had most of the gold and the world had not yet let go of the concept of gold backed currency so all other nations needed gold backed dollars post war. It seemed only natural for a superior minded America then to charge other nations a fee through a debasement of our dollar. As a logical next step, when America desired to fund our Great Society and Vietnam, it was easy for our superior government to rationalize borrowing through additional money creation.

This exuberance and arrogance of easy money printing finally gave way to a misguided concept held by America’s central bank that perhaps the world’s first worldwide dollar reserve currency could actually be inflated to curb the $50 trillion dollar credit default swap bubble that dwarfed the worlds $15 trillion dollars of trading currency by comparison. We have now seen that this superior thinking was just folly.

America lost sight that money is just a place holder for people’s commitment to create real value in the future to offset the creation of money today. By our superior actions, we now risk causing even the first world reserve currency to hyperinflate. If by chance, the world is able to sustain stability of this current superior monetary system a bit longer even with a weakened Yen, a weakened Euro, and a weakened Dollar, the Yuan will likely emerge to complement the global mix.

Asia has already developed into a center of commerce within itself and the Yuan will easily surpass the dollar there. China has been wildly accumulating gold as a precursor to that eventuality. She recognizes that her strategy of keeping the value of the Yuan low to ease interest rates in America has run its course and that at a point, a strengthened Yuan will benefit hegemonic relationships more than continued reliance on exports to an overly debt ridden America. Therefore, the Yuan may soon take its position center stage in a sharing of reserve currency status with the other global currencies.

However, if something like a Greece default thrusts EurAmerica and thus the rest of the World into the Greatest Depression, our credit will be ruined for the foreseeable future. This mountain of credit default swaps will collapse, the current structure of banking and insurance industries will be awash. An accounting of which individual financial companies will continue to remain solvent will take time. Hard assets in America will quickly revert to true or even severely depressed values. A new American currency may evolve.

Asia will return to strength much more quickly than EurAmerica, and we may emerge in a more hegemonic subservience to Asia. A return to bilateral trading contracts backed by gold stores may be inevitable. The exponential growth of debt derived money creation will be reset to a slower slope of escalation. Nations will once again separate money and credit formation functions from investment banking, perhaps creating a non-profit incentive for central and commercial banks to curb the escalation of debt required to feed interest payments.

China’s concept of money creation will endear itself to the world with the idea that money is created by the commitments of emerging countries, not the supply of hegemonic capital. The promise of the emerging nation creates money, and that promise is solidified by the emerging nation’s ability to create laws, infrastructure, and education to support it. Without causing nations to be indentured solely to the needs of the empire, China may emerge from the Greatest Depression spawning a new monetary system that grows healthier worldwide communities in which money is truly a unit of commitment to future value created and not a political tool to indenture the world to a perceived EurAmerican superiority.

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Filed under American Governance, American Politics, Federal Budget, Federal Reservre, U.S. Monetary Policy, U.S. Tax Policy

Can the Coming World Depression Learn anything From the Great Blackout of 1965?

Does the 1871 interaction between Europe and America predict a great monetary blackout from which the world may need to borrow from the electric industry’s grid model to recover? 1871 suggests that because of some trigger, like perhaps Greece defaults on the world’s CDSs that are lined up like dominos stretching ten times around the world anxious for someone to ignorantly tilt the first one over, America will draw the rest of the world into depression.

In 1871, Europe drew America into a long depression from which America recovered first after four years, our longest down cycle, but we went on to prosper until our capitalist model once again created a housing and stock bubble that popped at the end of the 20’s. Europe, however, took 20 years to recover from the 1871 depression.

This time, it may be the entire world that goes down and stays down for the Greatest Depression. Unlike 1871, national economies may not be able to recover, if we attempt as a globally connected economic system to recover together. Somewhere in the world, a country will have to have a strong enough economic engine to restart an isolated region of the world in trade. That region will be the basis of a new money system. I expect that country, with its newfound infrastructure, commodity partners and internal demand, will be China.

East of the Mississippi River, all power plants in North America are connected to one electric grid. Amazingly, all their turbines spin in unison at 60 cycles per second give or take. As power needs come online, electricity is drawn from the grid affecting the spinning momentum of every turbine connected. One day in the fall of 1965, all of New York, New England, and Eastern Canada suddenly plunged into darkness when the entire electric grid system in the region quit. For over 24 hours, subways stopped, refrigerators thawed, and clocks remained still.

After six days of looking for the cause of the region’s blackout, the Federal Power Commission investigators found that one small faulty relay at the Sir Adam Beck Station no. 2 in Ontario, Canada (a fault of the size of a potential Greece default on a CDS obligation compared to the size of all CDS obligations if you will) caused a key transmission line to disconnect from the grid. This small failure triggered a domino effect of line overloads that quickly raced down the main trunk lines of the grid disconnecting more plants from cities and weakening the entire system with each subsequent break. As town after town went dark throughout the region, within 15 minutes the entire CANUSE area went into the dark ages.

Because so large a region was affected, the entire Northeastern grid had to disconnect into manageable grid pockets that could be restarted by individual power plants coming online. Then, gradually, pocket by pocket was re-synced to the rest of the grid after stabilizing individual pocket electricity demands. Without disconnecting into pockets, any attempt to feed the entire system would have sucked the life out of any plant trying to restart. Shortly after attempting to revive the grid, millions of homes demanding electricity would have absorbed any power it tried to create (similarly to how the whole world is sponging the comparatively minuscule effect of QE2).

If our monetary grid goes down, as it seems it may, any attempts to revive the world by barely functioning regional centers of commerce will draw them down similarly to sucking the life out of a single power plant on a massive electric grid. The monetary grid will have to disconnect. Individual financial and economic centers will have to attempt to revive pockets of commerce that function separately and little by little reconnect through safe trades supported by a new monetary system.

It took America four years under the then existing monetary system to recover after the start of the Long Depression of 1871. How long will it take China to recover with a new system? How soon will the Asian market adapt? How soon as a major commodity supplier to China will Australia reconnect to the Asian monetary grid?

They called the grid malfunction the Great Blackout of ’65. How will we restart the monetary grid after the Great Monetary Blackout of 2012? The world should get ahead of this very possible Great Monetary Blackout with a “Preparatory Bretton Woods” similarly to how the free world met even as WWII was being waged toward its inevitable military blackout.

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Filed under Foreign Policy, U.S. Monetary Policy, U.S. Tax Policy