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Architecture For A New World Financial System

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"The present Great Financial Crisis is far from over. In fact, it is getting worse. It can be described as a debt crisis or, at its roots, a belated gold crisis. The landmark year was 1971, when the United States defaulted on its international gold obligations. Now there have been many defaults in history, but the one forty years ago was unique in that it exiled gold from the international monetary system; thereby gold has been prevented from discharging its natural function as the ultimate extinguisher of debt ever since.

When you pay a debt of $100 by writing a cheque on your bank account, the debt is not extinguished, it is merely transferred to your bank. If you pay it by handing over a $100 Federal Reserve note, the debt is not extinguished either but is transferred to the Federal Reserve bank that has issued the note. Ultimately the U.S. Treasury is responsible for all the liabilities of the Federal Reserve. Under these monetary arrangements the total dollar debt outstanding can only grow, never contract, even if there is a net reduction of debt in the economy. All debt presumed to have been extinguished will ultimately show up as an increase in the indebtedness of the U.S. government. No matter how you look at it, the desire to retire debt is frustrated by the lack of an ultimate extinguisher in the system. The consequences are frightening.

Let’s draw a biological, nonetheless valid and convincing analogy by looking at the human metabolism. The elimination of toxic waste from the human body is of paramount importance. Bowel movement and passing water are the two main forms of excretion. If either of these processes is blocked permanently, death becomes inevitable. It is no different with the economy, albeit death may be longer in coming. The economy uses credit all the time, and some of it will turn out to be toxic even in the best of circumstances. If there is no way to eliminate this toxic waste from the system, that is to say, if there is no ultimate extinguisher of debt, then death is near. In the world economy, gold is the main agent of detoxification.

The tragedy is that the captains of the world economy refuse to realize that runaway debt is the logical consequence of their having exiled gold from the international monetary system in 1971. They try to cure the bad effects of too much debt, or the presence of toxic debt in the system by introducing more of it. They have no idea how total debt could be decisively reduced and toxic debt safely eliminated.

"They are playing a very dangerous game with the welfare of the people. When credit collapse finally comes, production disappears, employment shrinks, law and order break down. We are running into an unprecedented crisis with our eyes blindfolded. Wishful thinking will not coax out “green shoots”.

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  • 433 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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