I feel like someone standing on a ship which is moving rapidly away from a distant shores. Let’s call this vanishing land, ‘Traditional Banking’. This was founded many thousands of years ago and was built up and up until the 20th Century. Then, it was gradually destroyed. I can see the smoking ruins. And here I am, on this ship propelled by the gnomes who are using the Goddess of Infinity to fix their messes. They must sail as fast as possible because trailing right behind us is the Goddess of Zero, the one who is making everything worthless. Only the Goddess of Infinity is doing this, too! And the gnomes think, if we sail away from the Lands of Traditional Banking faster and faster, we will outwit these two sisters from the Outer Darkness, the Cave of Wealth and Death.The Treasury gnome, Geithner, a man who I despise more and more as time passes, has released the latest scheme to enrich the gnomes using US taxpayer’s future earnings as the capital for the entire banking system. This is a tricky business MEANT to be an outright trick: Geithner and his fellow gnomes are assuring us, if they borrow trillions of dollars from us, they will then turn around and LEND us our money back, but at a higher interest and of course, high fees for the banking gnomes who are writhing in agony due to lack of millions of dollars for art auctions, expensive whores, globe trotting and buying up all our assets.
First, here is the Bloomberg version of this story:
The Obama administration unveiled its long-awaited plan to remove toxic assets from the books of the country’s banks, betting that it can revive the U.S. financial system without resorting to outright nationalization….
HAHAHA. NO, WE ARE NOT NATIONALIZING THE GNOME’S MONEY MACHINES! We are being SOLD to the gnomes so they can seize our collective government and future earnings to ‘capitalize’ their bankrupt banks! Then, we get to borrow from these criminals! How charming is this?
“The big question is what is the incentive for the banks to sell?” said Dino Kos, managing director at Portales Partners LLC in New York and former executive vice president at the New York Fed. “What is the incentive for a hedge fund to pay a price close to where the banks have it marked at?”…
There is no incentive. But if the US government hands us over, lock, stock and barrel, to the pirates of the Caribbean and the foreign and domesticated gnomes, why, they just might hold our loans…but ONLY if we pay 97% of the costs of default! Some loan! This is so childish. They get most of the potential profits while we are stuck with nearly all of the potential losses. Arrest Geithner.
Austan Goolsbee, a member of the White House Council of Economic Advisers, said in an interview with Bloomberg Television that “you will start to see this buying up the assets” shortly after private asset managers are chosen by May.
The lucky ducky gnomes of Goldman Sachs and JPirate Morgan are licking their chops! They can’t wait to play this latest variation of ‘Foxes In Henhouses.’
“This approach is superior to the alternatives of either hoping for banks to gradually work these assets off their books or of the government purchasing the assets directly,” the Treasury statement said. “Simply hoping for banks to work legacy assets off over time risks prolonging a financial crisis, as in the case of the Japanese experience.”…
Japan is SMARTER. The banking gnomes there are owned by the export market industrialists. This is why Japan has been capitalized very heavily for the last 15 years and now holds a trillion US dollars in their very fat FOREX reserves while the US has only $68 billion in our own reserves. We hold less than $23 billion in yen. And virtually no Japanese government debts. While the Japanese government, during their ‘depression’, bought over half a trillion in US government debt.
Comparing our perilous state with Japan is hysterical. Japan owns 87% of its debt. The US owns only 48% of our own debts. China holds more FOREX dollars and US government debts than any nation on earth, by far. Japan’s financial risk was so horrible, Toyota has utterly destroyed the US as world leader in car manufacturing, just to give my favorite, glaring example. As our industries collapse into bankruptcy, Japanese industries crush us in international trade. Until this year, of course, now they are having troubles. But troubles that can be solved ‘in house’ since Japan does NOT have to beg China or anyone for money.
Now, on to the actual press release. We are now in a mirror of the Soviet Union. It is backwards: the communists took over the banks while here, the banks are taking over our government. Which is now, going bankrupt since the bankers are criminals. I am putting in the entire press release so we can go over it, line by line. For this is a historic moment. We just destroyed the last visages of the Traditional Banking System and have replaced it with a Soviet Banking System which is where the people who control the government get to control all financial and economic systems. For the benefit of the people who control the Kremlin in Washington, DC.
THIS IS NOT SOCIALISM. This is the exact opposite: the workers get nothing and the ruling elites get total control of all money.
Treasury Department Releases Details on Public Private Partnership Investment Program
Public-Private Investment Program
View White Paper and FAQs at http://financialstability.gov
The Financial Stability Plan – Progress So Far: Over the past six weeks, the Treasury Department has implemented a series of initiatives as part of its Financial Stability Plan that – alongside the American Recovery and Reinvestment Act – lay the foundations for economic recovery:
- Efforts to Improve Affordability for Responsible Homeowners: Treasury has implemented programs to allow families to save on their mortgage payments by refinancing, assist responsible homeowners in avoiding foreclosure through a loan modification plan, and, alongside the Federal Reserve, help bring mortgage interest rates down to near historic lows. This past month, the 30% increase in mortgage refinancing demonstrated that working families are benefiting from the savings due to these lower rates.
- The US banking system is dreadfully undercapitalized. To have a basis for lending, one first must have some capital, aka, savings. Banks get savings by offering a lower interest rate for people’s capital raised in the open markets. The savers, in turn, allow these bankers to use their capital to capitalize loans. These loans are then set at several hundred basis points higher than the savings. The differential is in the bank’s favor and covers the potential costs of defaulting on loans. If a bank ends up granting too many loans that go into default, it loses not only its profits, but also the savings which it is, in turn, borrowing from capital placed in its care. Then, the government steps in to insure banks against default so people won’t have runs on banks. This is the FDIC, which we will be talking about more, in this story.
- Consumer and Business Lending Initiative to Unlock Frozen Credit Markets:Treasury and the Federal Reserve are expanding the TALF in conjunction with the Federal Reserve to jumpstart the secondary markets that support consumer and business lending. Last week, Treasury announced its plans to purchase up to $15 billion in securities backed by Small Business Administration loans.
- All financial balloons are bad. The TALF program was launched very slyly: the Fed announced, they were opening this tiny, little window AS A TEST. The explanation for this thing was, banks would feel shame if they had to go to the Fed for help. But with this new window, they could go…with IMPUNITY and not worry about it since it was ‘harmless’. Of course, all the biggest Derivative Beast Banks announced, they didn’t need this window. But would use it AS A TEST just to see if it would ‘work’. Then, it grew as swiftly as the Derivatives Beast! Now, it is over $180 billion a pop! And why is this? IT IS FEEDING THE DERIVATIVES BEAST!
- Capital Assistance Program: Treasury has also launched a new capital program, including a forward-looking capital assessment undertaken by bank supervisors to ensure that banks have the capital they need in the event of a worse-than-expected recession. If banks are confident that they will have sufficient capital to weather a severe economic storm, they are more likely to lend now – making it less likely that a more serious downturn will occur.
- Another sign of a collapsing economic system. What is ‘forward-looking capital assessment’? Who is always handing over immense sums of money to someone who pays no interest? We are now in a ZIRP banking system where banks are giving savers who have capital, NOTHING AT ALL. So, in retaliation, savers are buying gold! To circumvent this, the banks will have perpetual money available that is SEIZED by the government…VIA TAXES. Our taxes are now funding the capital of this faux capitalist system! On top of our taxes being the basis of our manufacturing systems via the military. And we don’t have enough taxes. SO WE ARE BORROWING FROM ASIA!
The Challenge of Legacy Assets: Despite these efforts, the financial system is still working against economic recovery.[HAHAHAHA] One major reason is the problem of “legacy assets” – both real estate loans held directly on the books of banks (“legacy loans”) and securities backed by loan portfolios (“legacy securities”). These assets create uncertainty around the balance sheets of these financial institutions, compromising their ability to raise capital and their willingness to increase lending. [Stop it! You are killing me, Bernanke!] ‘Assets’ that are not being honored instantly become ‘DEBITS’. The tranche mess where the wizards and gnomes mixed in bad with good loans is now turning all loans into bad loans. They obvious missed the ancient lesson of ‘one bad apple rots the good apples in the barrel’. Or how about, ‘Bad money drives out good money?’ I know they teach this in school! Bernanke and Geithner must have been sleeping through that course. ZZZZZZZ. They both woke up when the professor talked about how great zeros are.
- Origins of the Problem:The challenge posed by these legacy assets began with an initial shock due to the bursting of the housing bubble in 2007, which generated losses for investors and banks. Losses were compounded by the lax underwriting standards that had been used by some lenders and by the proliferation of complex securitization products, some of whose risks were not fully understood. No, the risks were totally obvious! This is why they created the Derivatives Beast! So they could be very, very risky but each of these gnomes would bail out the others via ‘counter party’ deals, all of which were capitalized with exactly nothing at all. The resulting need by investors and banks to reduce risk triggered a wide-scale deleveraging in these markets and led to fire sales. Who writes this tripe???? As defaults mounted, all the counter party deals were triggered and FAILED. No one had any money to pay for all this faux insurance. Case in point: the collapse of AIG! As prices declined, many traditional investors exited these markets, causing declines in market liquidity. They didn’t just exit: they DIED. Bankruptcies created a waterfall event of more and more bankruptcies. Anyone with real capital immediately hauled it out and bought gold. This is why gold was one of the very, very few things that didn’t collapse in value. It does vacillate! But unlike stocks and other assets, it hasn’t lost over 50% of its value, quite the contrary.
- Creation of a Negative Economic Cycle: As a result, a negative cycle has developed where declining asset prices have triggered further deleveraging, which has in turn led to further price declines. The excessive discounts embedded in some legacy asset prices are now straining the capital of U.S. financial institutions, limiting their ability to lend and increasing the cost of credit throughout the financial system. Thanks to these same people, we now have a ZIRP lending system like Japan! The cost of credit normally goes up due to people who have capital, demanding a much higher return on this wealth if they hand it over to crazy gnomes for use as capital being leveraged into lending. Since the gnomes gave out reckless loans during the Greenspan 1% regime, they are now unable to lend. DUH. So time for them to exit the world stage and we nationalize all the banks that are feeding the Derivatives Beast. The lack of clarity about the value of these legacy assets has also made it difficult for some financial institutions to raise new private capital on their own. WHAT LACK OF CLARITY??? It is now painfully obvious, clear as crystal on a sunny day, that the financial institutions have no ability to pay SAVERS anything at all. If they did, we would see higher and higher CD rates, not rates collapsing into the cellar.
The Public-Private Investment Program for Legacy Assets
To address the challenge of legacy assets, Treasury – in conjunction with the Federal Deposit Insurance Corporation and the Federal Reserve – is announcing the Public-Private Investment Program as part of its efforts to repair balance sheets throughout our financial system and ensure that credit is available to the households and businesses, large and small, that will help drive us toward recovery.
This is where Peter the Gnome sticks up Paul the Taxpayer and forces him to capitalize lending whereby Paul the Taxpayer gets to borrow his own money from the bankrupt Peter the Gnome and pay Peter the Gnome lots of money for the pleasure of being screwed. I see a cartoon here! Heh.
Three Basic Principles: Using $75 to $100 billion in TARP capital and capital from private investors, the Public-Private Investment Program will generate $500 billion in purchasing power to buy legacy assets – with the potential to expand to $1 trillion over time. HAHAHA. So, we will get $500 billion in ‘purchasing power’ [a goofy way of saying, this stick up will be used so we can go on a shopping spree so long as we pay the gnomes 100% for this!]—how pathetic. Why can’t the Treasury simply have a ‘$500 Billion Shop Until You Drop’ program which is directly owned by the taxpayers, themselves? No profits for outsiders, of course. The Public-Private Investment Program will be designed around three basic principles:
- Maximizing the Impact of Each Taxpayer Dollar: First, by using government financing in partnership with the FDIC and Federal Reserve and co-investment with private sector investors, substantial purchasing power will be created, making the most of taxpayer resources.
- I remember jerks like Bernanke and Geithner when I was a kid. ‘You put in $1 and I will put up 1¢ and we will share the profits equally,’ is the sort of trick these kids of cruel kids loved to play. Why should I put up 99% of the costs? And what if the brat runs off to the Cayman Islands with the profits?
- Shared Risk and Profits With Private Sector Participants: Second, the Public-Private Investment Program ensures that private sector participants invest alongside the taxpayer, with the private sector investors standing to lose their entire investment in a downside scenario and the taxpayer sharing in profitable returns.
- The playground gnome whines, ‘Hey, I lost my penny!’ While you lose a dollar. Of course, the gnomes fixed the laws so that if they do lose their pennies, we still pay in the form of them being allowed to dodge paying taxes. Again, note that the capital for this system is OUR FUTURE TAXES. So if they want a deal where they put down a few pennies to our many dollars, then I say, tax all of their profits 90%. Teach these creeps a lesson!
- Private Sector Price Discovery: Third, to reduce the likelihood that the government will overpay for these assets, private sector investors competing with one another will establish the price of the loans and securities purchased under the program.
- HAHAHAHA. So, we will learn the real price when a room full of starving gnomes who have had no sex in the last year, start bidding against EACH OTHER using OUR MONEY and a few pennies of their own??? HAHAHA. Good grief. Someone, please arrest all of these guys. I say, we have an auction, selling the rights to the future Coliseum Games of Banking Gnomes versus Hungry Lions! Make lots of money.
The Merits of This Approach: This approach is superior to the alternatives of either hoping for banks to gradually work these assets off their books or of the government purchasing the assets directly. Simply hoping for banks to work legacy assets off over time risks prolonging a financial crisis, as in the case of the Japanese experience. But if the government acts alone in directly purchasing legacy assets, taxpayers will take on all the risk of such purchases – along with the additional risk that taxpayers will overpay if government employees are setting the price for those assets.
Actually, the fear is, if the US government nationalizes everything, if there is any future profits, it will go to the US taxpayers. The gnomes will have NO INCOMES. This is PURE HELL. They need immense incomes so they can have sex.
Two Components for Two Types of Assets: The Public-Private Investment Program has two parts, addressing both the legacy loans and legacy securities clogging the balance sheets of financial firms:
- Legacy Loans:The overhang of troubled legacy loans stuck on bank balance sheets has made it difficult for banks to access private markets for new capital and limited their ability to lend.
- These reverse-legacies are not assets but debits. And a sign, the system is overloaded with debts. Which means, we have to cease lending until we get recapitalized with CAPITAL, not future taxes. All systems that try the ‘future taxes’ game ends in hyperinflation.
- Legacy Securities: Secondary markets have become highly illiquid, and are trading at prices below where they would be in normally functioning markets. These securities are held by banks as well as insurance companies, pension funds, mutual funds, and funds held in individual retirement accounts.
- Restoring securities is tricky. First of all, NO ZIRP SYSTEM protects them! They are protected by systems whereby they are ahead of inflation. When a government is capitalizing any system, they want it to be at ZIRP like Japan, no matter how much inflation there is. It used to be, one could put money in a bank in simple savings, and prosper. But ever since the government destroyed the gold links to our currency, this has become increasingly worthless. Now, we just hope to get slightly ahead of inflation. You can bet, the time lag between the present 0% interest rates and the shooting upwards of inflation will be extended as much as possible by the government and the banking gnomes so they can steal more money.
By cementing us into the ZIRP system, by handing out 30 year loans that are tremendously lower than our entire history of inflation in the past means, we can NEVER raise rates. We MUST have no inflation at all! A 3% inflation rate will kill us. So, we will ape Japan: crush wages so people can’t buy things. Which defeats the entire purpose for this ‘rescue’: no one who is a taxpayer will be buying much of anything. Gold is bouncing around between $920-$1,000 an ounce this last quarter. Oil is now going up and up.
The Legacy Loans Program: To cleanse bank balance sheets of troubled legacy loans and reduce the overhang of uncertainty associated with these assets, the Federal Deposit Insurance Corporation and Treasury are launching a program to attract private [PIRATE] capital to purchase eligible legacy loans from participating banks through the provision of FDIC debt guarantees and Treasury equity co-investment. What the hell? Again, they don’t say, the Treasury will carry 97%+ of the risk! Treasury currently anticipates that approximately half of the TARP resources for legacy assets will be devoted to the Legacy Loans Program, but our approach will allow for flexibility to allocate resources where we see the greatest impact. The gnomes are nervous. They don’t want any controls at all. They want ‘flexibility’ for looting purposes.
- Involving Private Investors to Set Prices: A broad array of investors are expected to participate in the Legacy Loans Program. [HAHAHA….How do we spell ‘Gollum Sachs’?] The participation of individual investors, pension plans, insurance companies and other long-term investors is particularly encouraged. The Legacy Loans Program will facilitate the creation of individual Public-Private Investment Funds which will purchase asset pools on a discrete basis. The program will boost private demand for distressed assets that are currently held by banks and facilitate market-priced sales of troubled assets.
- Using FDIC Expertise to Provide Oversight: The FDIC will provide oversight for the formation, funding, and operation of these new funds that will purchase assets from banks. What oversight? Like the SEC?
- Joint Financing from Treasury, Private Capital and FDIC: Treasury and private capital will provide equity financing and the FDIC will provide a guarantee for debt financing issued by the Public-Private Investment Funds to fund asset purchases. The Treasury will manage its investment on behalf of taxpayers to ensure the public interest is protected. The Treasury intends to provide 50 percent of the equity capital for each fund, but private [PIRATE] managers will retain control of asset management subject to rigorous oversight from the FDIC. WHAT THE HELL? So, now they are claiming we taxpayers will be paying 50% while having 0% of the control??? And the ‘oversight’ will be who? Want to bet, a bunch of pirates and gnomes will volunteer for this just like they always volunteer to run the Treasury? And why trust these pirates? They screwed everything up, royally, already!
- The Process for Purchasing Assets Through The Legacy Loans Program:Purchasing assets in the Legacy Loans Program will occur through the following process:
- Banks Identify the Assets They Wish to Sell: To start the process, banks will decide which assets – usually a pool of loans – they would like to sell. The FDIC will conduct an analysis to determine the amount of funding it is willing to guarantee. Leverage will not exceed a 6-to-1 debt-to-equity ratio. Assets eligible for purchase will be determined by the participating banks, their primary regulators, the FDIC and Treasury. Financial institutions of all sizes will be eligible to sell assets. Time to get rid of the trash.
- Pools Are Auctioned Off to the Highest Bidder: The FDIC will conduct an auction for these pools of loans. The highest bidder will have access to the Public-Private Investment Program to fund 50 percent of the equity requirement of their purchase. Bidding wars waged with other people’s money always go bad.
- Financing Is Provided Through FDIC Guarantee: If the seller accepts the purchase price, the buyer would receive financing by issuing debt guaranteed by the FDIC. The FDIC-guaranteed debt would be collateralized by the purchased assets and the FDIC would receive a fee in return for its guarantee. Taxpayers take all the risks.
- Private Sector Partners Manage the Assets:Once the assets have been sold, private fund managers will control and manage the assets until final liquidation, subject to strict FDIC oversight. Strict oversight is an oxymoron. There is none and the gnomes spend immense amounts of money, corrupting the political system so they have minimal oversight.
NOTE THAT THIS GRAPH SAYS, THE US TAXPAYERS WILL USE OUR CAPITAL TO LEVERAGE THIS MESS TO OVER A TRILLION DOLLARS. And as usual, this trillion will become mega-trillions. None of this makes sense, by the way. The FDIC will leverage it up to 6:1. So this means, every dollar we hand over to the gnomes, they can turn it into into six dollars in loans? So, the top box has this expanding by doubling it. While, below, they talk about making it six times bigger. This is rather confusing, to say the least. And I bet, they know this. They are really talking about six trillion here, I am guessing.
Sample Investment Under the Legacy Loans Program
Step 1: If a bank has a pool of residential mortgages with $100 face value that it is seeking to divest, the bank would approach the FDIC.
Good grief! OK: we buy $84 worth of apples. Uncle Sam pays $72, A consortium of private bankers who took over the Treasury pay $6 and a bunch of crazy, hungry gnomes cough up $6. And then, who controls this fund?
THE CRAZY GNOMES! And where does their own $6 come from? HAHAHA. The TALF program run by the Federal Reserve. The magic window into the Cave of Wealth and Death! The gnomes get to hang onto this as long as it feeds them and gives them enough loot to go visit expensive whores. And the understaffed FDIC will overlook them, if they can find these piratical gnomes! Who have this habit of living in other countries! And not paying any taxes.
The Legacy Securities Program: The goal of this program is to restart the market for legacy securities, allowing banks and other financial institutions to free up capital and stimulate the extension of new credit. The resulting process of price discovery will also reduce the uncertainty surrounding the financial institutions holding these securities, potentially enabling them to raise new private capital. The Legacy Securities Program consists of two related parts designed to draw private capital into these markets by providing debt financing from the Federal Reserve under the Term Asset-Backed Securities Loan Facility (TALF) and through matching private capital raised for dedicated funds targeting legacy securities.
- Expanding TALF to Legacy Securities to Bring Private Investors Back into the Market: The Treasury and the Federal Reserve are today announcing their plans to create a lending program that will address the broken markets for securities tied to residential and commercial real estate and consumer credit. The intention is to incorporate this program into the previously announced Term Asset-Backed Securities Facility (TALF).
- Providing Investors Greater Confidence to Purchase Legacy Assets:As with securitizations backed by new originations of consumer and business credit already included in the TALF, we expect that the provision of leverage through this program will give investors greater confidence to purchase these assets, thus increasing market liquidity.
- Funding Purchase of Legacy Securities: Through this new program, non-recourse loans will be made available to investors to fund purchases of legacy securitization assets. Eligible assets are expected to include certain non-agency residential mortgage backed securities (RMBS) that were originally rated AAA and outstanding commercial mortgage-backed securities (CMBS) and asset-backed securities (ABS) that are rated AAA.
- Working with Market Participants: Borrowers will need to meet eligibility criteria. Haircuts will be determined at a later date [aka, NEVER] and will reflect the riskiness of the assets provided as collateral. Lending rates, minimum loan sizes, and loan durations have not been determined. In other words, these are open-ended loans to a bunch of people who handed out open-ended loans in the first place, and went off the financial cliff! These and other terms of the programs will be informed by discussions with market participants. OH MY GODDESS! HOW INSANE IS THIS??? The ‘participants’ here are the damn gnomes, themselves! And we will get to learn the details when it is too late to stop them from handing out immense bonuses, for example. However, the Federal Reserve is working to ensure that the duration of these loans takes into account the duration of the underlying assets. All together now: And we are supposed to trust Bernanke and his idiot crew?
Reform the International Monetary System
The outbreak of the current crisis and its spillover in the world confronted us with the long existing but still unanswered question��i.e., what kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth, which was one of the purposes for establishing the IMF? There were various institutional arrangements in an attempt to find a solution, including the Silver Standard, the Gold Standard, the Gold Exchange Standard and the Bretton Woods system. The above issue, however, as the ongoing financial crisis demonstrates, is far from being solved, and has become even more severe due to the inherent weaknesses of the current international monetary system.
American and British financial geniuses like to diss gold. But note how seriously the Chines are taking it. This review is missing in US documents these days!
Theoretically, an international reserve currency should first be anchored to a stable benchmark [LIKE GOLD!} and issued according to a clear set of rules, therefore to ensure orderly supply; second, its supply should be flexible enough to allow timely adjustment according to the changing demand; third, such adjustments should be disconnected from economic conditions and sovereign interests of any single country.
This is, of course, a direct poke in the USA’s eye. We used the dollar for our sovereign powers like the ability to raise whatever money we wish for wars.
The acceptance of credit-based national currencies as major international reserve currencies, as is the case in the current system, is a rare special case in history. [HAHAHA! Correct!] The crisis called again for creative reform of the existing international monetary system towards an international reserve currency with a stable value, rule-based issuance and manageable supply, so as to achieve the objective of safeguarding global economic and financial stability.
I. The outbreak of the crisis and its spillover to the entire world reflected the inherent vulnerabilities and systemic risks in the existing international monetary system.
Issuing countries of reserve currencies are constantly confronted with the dilemma between achieving their domestic monetary policy goals and meeting other countries’ demand for reserve currencies. On the one hand��the monetary authorities can not simply focus on domestic goals without carrying out their international responsibilities��on the other hand��they cannot pursue different domestic and international objectives at the same time. They may either fail to adequately meet the demand of a growing global economy for liquidity as they tries to ease inflation pressures at home, or create excess liquidity in the global markets by overly stimulating domestic demand. The Triniffin Dilemma, i.e., the issuing countries of reserve currencies can not maintain the value of the reserve currencies while providing liquidity to the world, still exists.
When a national currency is used in pricing primary commodities, trade settlements and is adopted as a reserve currency globally, efforts of the monetary authority issuing such a currency to address its economic imbalances by adjusting exchange rate would be made in vain, as its currency serves as a benchmark for many other currencies. While benefiting from a widely accepted reserve currency, the globalization also suffers from the flaws of such a system. The frequency and increasing intensity of financial crises following the collapse of the Bretton Woods system suggests the costs of such a system to the world may have exceeded its benefits. The price is becoming increasingly higher, not only for the users, but also for the issuers of the reserve currencies. Although crisis may not necessarily be an intended result of the issuing authorities, it is an inevitable outcome of the institutional flaws.
II. The desirable goal of reforming the international monetary system, therefore, is to create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies.
1. Though the super-sovereign reserve currency has long since been proposed, yet no substantive progress has been achieved to date. Back to the 1940s, Keynes had already proposed to introduce an international currency unit named “Bancor”, based on the value of 30 representative commodities. Unfortunately, the proposal was not accepted. The collapse of the Bretton Woods system, which was based on the White approach, indicates that the Keynesian approach may be more farsighted. The IMF also created the SDR in 1969, when the defects of the Bretton Woods system initially emerged, to mitigate the inherent risks sovereign reserve currencies caused. Yet, the role of the SDR has not been put into full play due to limitations on its allocation and the scope of its uses. However, it serves as the light in the tunnel for the reform of the international monetary system.
2. A super-sovereign reserve currency not only eliminates the inherent risks of credit-based sovereign currency, but also makes it possible to manage global liquidity.
This is a direct strike at the USA fiat currency system. The Chinese know that this ‘super-sovereign’ banking system will be run by countries with SOVEREIGN WEALTH FUNDS. Not the US. Two years ago, the US and UK both tried to convince the Chinese, SWFs were stupid. Now, the dragon strikes back.
A super-sovereign reserve currency managed by a global institution could be used to both create and control—CONTROL by the SWF powers!—the global liquidity. And when a country’s currency is no longer used as the yardstick for global trade and as the benchmark for other currencies, the exchange rate policy of the country would be far more effective in adjusting economic imbalances.
In other words, the US can’t export our inflation anymore.
This will significantly reduce the risks of a future crisis and enhance crisis management capability.
III. The reform should be guided by a grand vision and start with specific deliverables. It should be a gradual process that yields win-win results for all
Except for the US, of course.
The reestablishment of a new and widely accepted reserve currency with a stable valuation benchmark may take a long time.
Time for a prediction! What is this ‘stable valuation’ object the Chinese are hinting? HAHAHA. We know what it is! It is ancient. It was used until very recently when the UK and then, the US decided to kill it: GOLD!
The creation of an international currency unit, based on the Keynesian proposal, is a bold initiative that requires extraordinary political vision and courage. In the short run, the international community, particularly the IMF, should at least recognize and face up to the risks resulting from the existing system, conduct regular monitoring and assessment and issue timely early warnings.
Special consideration should be given to give the SDR a greater role. The SDR has the features and potential to act as a super-sovereign reserve currency. Moreover, an increase in SDR allocation would help the Fund address its resources problem and the difficulties in the voice and representation reform.Therefore, efforts should be made to push forward a SDR allocation. This will require political cooperation among member countries. Specifically, the Fourth Amendment to the Articles of Agreement and relevant resolution on SDR allocation proposed in 1997 should be approved as soon as possible so that members joined the Fund after 1981 could also share the benefits of the SDR. On the basis of this, considerations could be given to further increase SDR allocation.
The scope of using SDR should be broadened, so as to enable it to fully satisfy the member countries’ demand for a reserve currency.
l Set up a settlement system between the SDR and other currencies. Therefore, the SDR, which is now only used between governments and international institutions, could become a widely accepted means of payment in international trade and financial transactions.
This is key! GOLD was used for mostly ‘international trade and financial transactions.’ It was the means for having a ‘ruler’ that can measure relative value, easily, over time and space.
l Actively promote the use of the SDR in international trade, commodities pricing, investment andcorporate book-keeping. This will help enhance the role of the SDR, and will effectively reduce the fluctuation of prices of assets denominated in national currencies and related risks.
l Create financial assets denominated in the SDR to increase its appeal. The introduction of SDR-denominated securities, which is being studied by the IMF, will be a good start.
l Further improve the valuation and allocation of the SDR. The basket of currencies forming the basis for SDR valuation should be expanded to include currencies of all major economies, and the GDP may also be included as a weight. The allocation of the SDR can be shifted from a purely calculation-based system to one backed by real assets, such as a reserve pool, to further boost market confidence in its value.
��. Entrusting part of the member countries’ reserve to the centralized management of the IMF will not only enhance the international community’s ability to address the crisis and maintain the stability of the international monetary and financial system, but also significantly strengthen the role of the SDR.
1. Compared with separate management of reserves by individual countries, the centralized management of part of the global reserve by a trustworthy international institution with a reasonable return to encourage participation will be more effective in deterring speculation and stabilizing financial markets. The participating countries can also save some reserve for domestic development and economic growth. With its universal membership, its unique mandate of maintaining monetary and financial stability, and as an international “supervisor” on the macroeconomic policies of its member countries, the IMF, equipped with its expertise, is endowed with a natural advantage to act as the manager of its member countries’ reserves.
Here it is, again! LIBRA. ‘Maintaining monetary and financial STABILITY,’ is the key! Not, ‘aggressive growth and constant inflation’ type of faux growth.
2. The centralized management of its member countries’ reserves by the Fund will be an effective measure to promote a greater role of the SDR as a reserve currency. To achieve this, the IMF can set up an open-ended SDR-denominated fund based on the market practice, allowing subscription and redemption in the existing reserve currencies by various investors as desired. This arrangement will not only promote the development of SDR-denominated assets, but also partially makes the management of the liquidity in the form of the existing reserve currencies possible. It can even lay a foundation for increasing SDR allocation to gradually replace existing reserve currencies with the SDR.
Submit Date:2009-3-23 17:39:00
In other words, Putin’s shots across the prow of the US fiat reserve currency system has hit our ship. The Chinese are decamping. I will analyze this later because I am tired. Too much weird stuff today. The IMF will be used by the Chinese as a Trojan Horse to take over the global banking system. Why is that?
Simple! THEY HAVE LOTS OF CAPITAL. And lots of ‘assets’ which is banking gnome talk for ‘holding lots and lots of debts’! We are very much doomed, as far as our days as the world’s only recognized international trade currency is concerned. This is the final financial blow to our empire.
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