Monday, November 8, 2010

‘Either we need a new medium of exchange, or we completely redesign the global settlement system’

The rest of the world goes West when America prints more money

America is now isolated and the rest of the world is furious. The widespread use of capital controls and even a lurch into 1930s-style protectionism are both far more likely than just a few days ago. The Federal Reserve's words may have been anodyne. "We will adjust the programme as needed to best foster maximum employment and price stability," said the US central bank's Open Market Committee. But by announcing another round of "quantitative easing", America is rightfully incurring the wrath not only of the emerging giants of the East, but the eurozone too.

Posted by hpwatcher @ 07:36 AM (1293 views)
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9 thoughts on “‘Either we need a new medium of exchange, or we completely redesign the global settlement system’

  • Interesting comment, highlights the transfer of industry – and wealth creation – to Asia – now too late to halt:-

    “Quantative easing can’t fix the problem…

    1) Ignore Wall Street and London’s square mile and look at the real world. The Both the US and the UK have offshored far too much of their former productive base. Too many people now don’t have a job in the wealth creating part of the system. For a while there was enough residual wealth circulating to allow people to work in the wealth servicing part of the economy. But running current account deficits year after year has gradually transferred wealth out of these countries.

    US QE does nothing to address this problem. By creating a cash bubble in the hope of inflating asset prices they might temporarily inflate the wealth servicing part of the US economy. But this won’t create long-term jobs and wealth.

    2) We have allowed the banks to become vampires sucking the blood out of the system. The repeal of Glass-Stiegal in the US was a really bad move! Now the banks gamble with depositors money to make their profit. And look at the billions spent on bankers’ bonuses instead of returned to the clients. Look at the controversy surrounding flash trading. Look at the RICO case for manipulating the silver market. Look at the robo-signing scandal in the US mortgage market. Are the banks too big to fail (TBTF) or are they too big to be f*****d with (TBTFW)?

    Fund managers are in the party too – 2% of assets as an annual charge sounds innocuous enough – except if you assume say 3% constant growth then to earn an equivalent fee based on growth you would need to charge 69% of growth per annum. And remember with a fee based on asset value – they still win even if the fund declines in value. Time for some Darwinism here – lets base fund-management-fees on growth to weed out the underperformers.

    And as wealth got more and more concentrated, work in the wealth servicing side of the economy also concentrated in fewer hands.

    3) European socialism. The UK and the rest of Europe chased unbalanced economies. Too many people surviving on long-term benefits. Paid for by taxing the productive members of society. Forget all the politically correct nonsense about the deprived. Its just not an economically sustainable model. Government spend exceeds tax intake even without the effects of the bank bail-outs.

    4) Fiat currency. Until the 1970’s the dollar was gold-backed. The problem came when the Fed printed more dollars than it had gold for and dollar holders wanted to swap them for gold… So the US came off the gold standard in a hurry and the dollar only had value because the government said so. Now with QE magicking more money than ever out of nowhere, how will the US continue to pay for all those imports it craves?

    What can replace the dollar as the international reserve currency? The Euro? I don’t think so (PIIGS). The pound? The Russian Ruble? RMB? There is no replacement lurking in the wings. How about a new world currency? Ah but that would also need a new world government. Somehting like the EU but writ 100 times bigger.

    So either we need a new medium of exchange, or we completely redesign the global settlement system, or we have to go back to gold.

    Meanwhile that flood of QE just keeps making the problem bigger and bigger.”

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  • The raping of America continues.

    Stop wars, problem solved, move on and prosper.

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  • The Telegraph has identified a “Hinge Point” in its article.

    Whether this will become a “Tipping Point” in economic history is debateable. Just how much QE can the US get away with and how far will they push it?

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  • The Telegraph has identified a “Hinge Point” in its article.

    Whether this will become a “Tipping Point” in economic history is debateable. Just how much QE can the US get away with and how far will they push it?

    Reply
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  • The Telegraph has identified a “Hinge Point” in its article.

    Whether this will become a “Tipping Point” in economic history is debateable. Just how much QE can the US get away with and how far will they push it?

    Reply
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  • Hey, I didn’t send 3 times…!

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  • hpw @1 – A fair summary, but regarding point 3) – there’s a lot more to government waste than just the welfare system and regarding your point that a new global reserve system requires a world government or a return to gold ignores developments currently taking place and possibilities being discussed. These include Chinese advisors recommending that the country switch its reserves into forms of oil (and perhaps gold – I’ll grant you that) and a BRIC-centred currency bloc that would minimize use of the dollar and reverse the policy of open and unprotected capital markets, giving rise to the fragmentation of such markets and possibly managed exchange rates and capital controls. Then there are those IMF ‘special drawing rights’…..

    Which US exports will increase if the dollar is undermined through more QE? Just weapons to counter some contrived threat.

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  • the number cruncher says:

    In my humble opinion the dollar is backed by oil, secured at the end of a barrel of a gun (or hellfire missile fired from a drone to be more precise)

    Oil is the new gold and America has secured more oil to allow it to inflate the dollar. When its currency has expanded to encompass its newly secured oil in central Asia and Iraq, it will then enact its plans for Iran and re-secure Venezuelan oil, first by stealth and if that fails military force. America has two ruling elite’s who back different political parties, the ruling elite who favour the democrats tend to use diplomacy and cunning for world domination while the Republican’s backers favour brute force and totalitarian full spectrum dominance. I have yet to detect a major change in foreign policy from Obama, as he seams to be continuing the plans of Bush(the dumber)

    We all talk as if America is on the wane but in my mind it is transforming into a militaristic monster. Britain’s foreign policy used to be about holding the balance of power in Europe, and not allowing any one nation to gain dominance, it is now about finding a balance to America. America has converted its whole manufacturing base to military technology and outsource domestic needs to India and China, as a deliberate policy. Britain’s real enemy is America and will be for 200 years and our covert policy must be to balance its power, while on the surface appearing to be its closest ally.

    The great game is afoot, perhaps the dashing ‘flashman’ can elaborate as he navigates the murky world of geo-polotics and espionage.

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  • the number cruncher says:

    Further to my musings on resource backed currency

    The UK and America could be thought of as the same entity in some respects as or financial systems are very similar and backed by many trans-Atlantic elites. The currency of the UK and America is backed not by Gold or just oil but by all the natural resources that has been monopolised by that country.

    All of the commercial contracts of our companies that own resources of other countries backed by our security forces and threat of CIA/MI6 covert action or failing that full scale overt military action.

    To the goldbugs – once gold was a very useful measure of currency, but in today’s world it is far more complex and the rights to earn economic rent on the worlds resources is the real backing of any currency.

    My real fear is that if we expand our currencies that will entail the expansion of our commercial and military dominance to try and secure the natural assets to keep our currencies from collapse, and lead us to take necessary risks, like what happened in Iraq and is about to happen in Iran.

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