China wants new one-world currency … IMF to save the world?

TheDailyBell – Issue 236 • Tuesday, March 24, 2009

“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.” – Ayn Rand
China wants IMF to manage new one-world reserve currency

Getty Images

China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund. In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan (pictured left), the central bank’s governor, said the goal would be to create a 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”. Analysts said the proposal was an indication of Beijing’s fears that actions being taken to save the domestic US economy would have a negative impact on China. “This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,” said Qu Hongbin, chief China economist for HSBC. Although Mr. Zhou did not mention the US dollar, the essay gave a pointed critique of the current dollar-dominated monetary system. “The outbreak of the [current] crisis and its spillover to the entire world reflected the inherent vulnerabilities and systemic risks in the existing international monetary system,” Mr. Zhou wrote. – Financial Times

Dominant Social Theme: China, concerned, suggests alternatives.

Free-Market Analysis: Wow, out of left field. The International Monetary Fund is attracting encomiums from all over the place! Even China. China! Some big shot in China sees the same positive qualities in the IMF that the English Prime Minister and the French President see in that world-spanning organization. Incredible. What are the odds? And where does this man – whom few have heard of – Zhou Xiaochuan come from? And why would he be interested in the IMF? Well, let’s look a little deeper. …

Hm-mm. We are doing our research … He is certainly a most interesting and powerful banker – and comes from a powerful family. His father, a leading communist, was apparently mentor to China’s most powerful bureaucrat in the 1990s – Jiang Zemin. As for Ziaochuan himself, Wikipedia informs us that: In December 2002, he was appointed to his present position as governor of the People’s Bank of China. As leading banking authority, Zhou is in charge of clearing up some $865 billion bad loans in the Chinese banking system. Recently he has been under pressure from the finance ministers and central bankers of the G7 countries, to revalue the Renminbi and change its exchange rate-setting mechanism. Later on, in 2005 Zhou joined the influential Washington-based financial advisory body, the Group of Thirty.

Zhou, is apparently considered perhaps the most “academically capable” of the current Chinese leadership and has been called “China’s most able technocrat” (Wikipedia). His most famous motto: “If the market can solve the problem, let the market do it. I am just a referee. I am neither a sportsman nor a coach.” Additionally, Zhou is said to be known for hiring Chinese who have been trained overseas and have real Western market experience.

But from our point of view, perhaps Zhou’s most interesting feature as a Chinese leader is his participation in the Group of Thirty. The Group of Thirty, often abbreviated to G30, is an international body of leading financiers and academics which aims to deepen understanding of economic and financial issues and to examine consequences of decisions made in the public and private sectors related to these issues. … The group is noted for its advocacy of changes in global clearing and settlement. The group consists of thirty members and includes the heads of major private banks and central banks, as well as members from academia and international institutions. It holds two full meetings each year and also organizes seminars, symposia, and study groups. It is based in Washington, D.C. The Group of Thirty was founded in 1978 by Geoffrey Bell at the initiative of the Rockefeller Foundation, which also provided initial funding for the body. Its first chairman was Johannes Witteveen, the former managing director of the International Monetary Fund. Its current chairman of trustees is Paul Volcker. (Wikipedia)

Certainly we are familiar with some of these names, especially Paul Volcker, former chairman of the US Federal Reserve. “After leaving the Federal Reserve in 1987, he became chairman of the prominent New York investment banking firm, J. Rothschild, Wolfensohn & Co., a corporate advisory and investment firm in New York, run by James D. Wolfensohn, who was later to become president of the World Bank.” (Wikipedia) Volcker also headed the recent panel that investigated the United Nations scandal and is currently a senior economic advisor to Barrack Obama and head of the President’s Economic Recovery Advisory Board. Also, we note this: The Group of Thirty’s first chairman was Johannes Witteveen, the former managing director of the International Monetary Fund.

In a previous Daily Bell article, we pointed out how certain politicians were making the case for the International Monetary Fund to become a kind of global regulator – and even holder of reserve currency. British Prime Minister Gordon Brown has been a big IMF backer in this regard for some reason. And the IMF itself recently launched a scathing report that flagellated its own performance in the most recent crisis, but then slyly hinted that the reasons for its abysmal failures had to do with a lack of resources and a lack of power. With more of each, IMF leaders seemed to say, the IMF would do a great deal better.

And the tide keeps building. What about this just recently offered perspective…

The Kremlin published its priorities Monday for an upcoming meeting of the G20, calling for the creation of a supranational reserve currency to be issued by international institutions as part of a reform of the global financial system. The International Monetary Fund should investigate the possible creation of a new reserve currency, widening the list of reserve currencies or using its already existing Special Drawing Rights, or SDRs, as a “super-reserve currency accepted by the whole of the international community,” the Kremlin said in a statement issued on its web site. (Moscow Times)

Now comes leading Chinese technocrat Zhou Xiaochuan to add an Eastern perspective to the IMF’s gloss. One would like to think that Zhou arrived at his perspective entirely on his own, but certainly those in the West with whom Zhou interacts would seem to have various pro-IMF prejudices. The first Group of Thirty chairman (the group to which Zhou belongs) has direct links to the IMF. Another member of the Group of Thirty, Paul Volcker was in business with James D. Wolfensohn who became president of the IMF’s sister organization, The World Bank.

Conclusion: We were all set to believe that Zhou came to his conclusions by himself, from rigorous study of the way the world works. But now we are not so sure. And here is a question that gives us a bit of a headache: Where does all this enthusiasm for the IMF come from in the first place? So many important people want the IMF to step up and assume a bigger international role. Why? First Gordon Brown, then the Obama administration and even, incredibly, the Kremlin. And now China!

Is it because of the competence of the IMF? No, can’t be. The agency itself admits it is incompetent – and others say far worse things about it. And yet the calls for its enlargement continue. It seems almost like an orchestrated campaign, but a campaign that includes Europe, Russia and China? Who or what would have the resources and clout to put together such a campaign? And why would someone – anyone – want to do so. Impossible! And yet … it really is quite curious. As Alice would say, “curiouser and curiouser …”

IMF to clean up banks and tackle dire world crisis?

Getty Images

The world is in a dire economic crisis, but no recovery is possible until the financial sector is cleaned up, the head of the International Monetary Fund said on Monday. The crisis will push millions into poverty and unemployment, risking social unrest and even war, and urgent action is required, IMF Managing Director Dominique Strauss-Kahn (pictured left) said. “Bluntly the situation is dire,” he told a meeting on the crisis at the International Labour Organisation, a United Nations agency representing unions, employers and governments that studies labour issues. Strauss-Kahn was talking less than two weeks before a summit of the G20 leading nations on April 2 to tackle the crisis. As the crisis spills over into developing countries, millions of people will be pushed back into poverty and hardship, Strauss-Kahn said. “All this will affect dramatically unemployment and beyond unemployment for many countries it will be at the roots of social unrest, some threat to democracy, and may be for some cases it can also end in war,” he said. – Reuters

Dominant Social Theme: Another sterling analysis by the IMF.

Free-Market Analysis: Don’t get us wrong. We are impressed. The IMF has been way out in front on all of this. In fact, the Reuters article excerpted above, notes at its end, the following: The IMF’s experience of 122 banking crises around the world had taught it that economic recovery was impossible until banks were cleaned up, whether this was done quickly or slowly.

Now we didn’t realize that the IMF specialized in banking crises – we thought it specialized in COUNTRY crises and GOVERNMENT budget crises, but perhaps “banking crises” is just another term of art. Of course, why the IMF wants to be known as a specialist in banking crises is kinda strange – and why Reuters would just throw in that tidbit at the end of an article on the IMF is also a bit weird, but these things happen … serendipity, we guess.

While we are at, we want to express our admiration for IMF managing director Dominique Strauss-Kahn often known as DSK. We are not big fans of the IMF, but DSK’s recent agile stewardship of the IMF from a public relations standpoint is impressive to behold. He’s been all over the news lately and always seems to pro-offer the right kind of quote for the moment. We went to trusty Wikipedia again (well not so trusty but on top politicos it usually gets it right, or close-to-right) and found that DSK is a pretty big mover and shaker in French politics. Here’s a little bit on DSK:

DSK served as French Minister for Industry (1991-93). In 1991, he was nominated by Mitterrand to be Junior Minister for Industry and Foreign Trade in Édith Cresson’s social-democrat government. He kept his position in Pierre Bérégovoy’s government until the 1993 general elections. After the electoral defeat of 1993, Strauss-Kahn was appointed by former Prime Minister Michel Rocard chairman of the groupe des experts du PS (“Group of Experts of the Socialist Party”), created by Claude Allègre. The same year, he founded the law firm “DSK Consultants” and worked as a business lawyer. In 1994, Raymond Lévy, then director of Renault, invited him to join the Cercle de l’Industrie, a French industry lobby in Brussels, where he met the billionaire businessman Vincent Bolloré and top manager Louis Schweitzer; Strauss-Kahn served as secretary-general and later as vice-president. This lobbyist activity earned him criticism from the alter-globalization left.

We were interested in Vincent Bolloré, because we had heard the name before. He, too, is an impressive fellow. A French industrialist, corporate raider and businessman, he heads the family investment group Bolloré and is ranked 451st richest person in the world according to Forbes, with an estimated fortune of US$1.7 billion. He is married, with 4 children. Vincent Bolloré is from a well-off family from Brittany, and he graduated with a Bachelor of Laws (LLB) degree from Université Paris X Nanterre. Bolloré started his investment career as a bank trainee at investment bank Edmond de Rothschild. His personal investment career began when he took over the reins at his family-controlled conglomerate Bolloré, which deals in maritime freight and African trade, and paper manufacturing (cigarette and bible paper). The company he leads today employs 33,000 people around the world.

These two men move in impressive circles and it is no wonder that the IMF continues to have clout on the world stage given the kinds of corporate personnel behind it. Of course, as we have pointed out above, the IMF’s resources and allies apparently extend far beyond its immediate circle. And many of these allies seem to want the IMF to play a larger role in world affairs.

Conclusion: We are not surprised that the IMF is issuing warnings about the grimness of the world economic climate. It makes perfect sense if one believes that the IMF leadership is positioning itself for expanded power under the aegis of the Group of 20 that will meet in April. Certainly the stars have all aligned. It is an almost magical event – with Europe, Russia and now China all calling for the IMF to have more power and responsibility. The IMF itself has not shied away from increased duties. It has publicly declared it doesn’t have the resources to do a good job. Now, with this latest announcement, the IMF shows us that the world is indeed in dire straits. Must the IMF come to the rescue? Well, we’re not so sure. Maybe the G20 upcoming communiqué will help change our minds.

© Copyright 2008 2009 Appenzeller Business Press AG. All Rights Reserved. The Daily Bell is an informative compendium of independent economic views and analysis, which is published by Appenzeller Business Press AG. The information contained in the Daily Bell is for informational purposes only, is impersonal and not tailored to the investment needs of any particular person and should not be construed as financial or investment advice. Appenzeller Business Press AG does not accept any liability or responsibility for, nor does it verify the accurateness of the information being provided in the Daily Bell. Readers of the Daily Bell or any affiliated or linked sources or sites must accept the responsibility for performing their own due diligence before acting on any of the information provided within the report regardless of the source.

G. Edward Griffin discusses the Federal Reserve

TheDailyBell – Issue 234 • Sunday, March 22, 2009

“If, however, a government refrains from regulations and allows matters to take their course, essential commodities soon attain a level of price out of the reach of all but the rich, the worthlessness of the money becomes apparent, and the fraud upon the public can be concealed no longer.” – John Maynard Keynes

Special Guest Interview: G. Edward Griffin discusses the Federal Reserve, Bernanke’s bailouts, Obama’s stimulus plans and much more…

G. Edward Griffin/Reality Zone

Introduction: The editors of Appenzeller Business Press (ARBP) have been avid readers of Mr. Griffin’s tremendous literary contributions on free markets and personal liberty. Mr. Griffin is an American film producer, author and political lecturer.
The focus of today’s interview will be the relevance, perhaps even more so today than when it was first published, of G. Edward Griffin’s business bestseller, The Creature from Jekyll Island.

First released in 1994, The Creature from Jekyll Island is a no-holds-barred look into the inner workings of the Federal Reserve banking system, or cartel if you will. Mr. Griffin peels back the layers of obstruction to rational analysis and leads the reader on a wonderfully researched, although disturbing, journey from the very beginning, when the Fed was still in the planning stages, up to the present, where it is now struggling to survive.

Daily Bell: We’d like to begin by thanking you for taking the time out of your very busy schedule to grant Appenzeller Business Press and readers of TheDailyBell.com this exclusive interview.

G. Edward Griffin: Thanks for inviting me. I am honored to be invited to share my thoughts with your prestigious readership.

Daily Bell: For those of our readers unfamiliar with the fact that the US Federal Reserve is not a government agency, but a privately controlled corporation, how would you best describe this creature and how did it come into being?

G. Edward Griffin: Many people are shocked to discover that The Federal Reserve System is a cartel, no different than a banana cartel, a sugar cartel, or an oil cartel. It is a banking cartel composed of the largest and most powerful American banking institutions. This group wrote a cartel agreement in 1913 and then persuaded Congress to give it the status of law. In that way, the cartel can be sure that all the banks will conform to the agreement or be subject to criminal prosecution, a benefit that many cartels do not enjoy.

The first draft of the cartel agreement was prepared at a highly secret meeting held on Jekyll Island in November of 1910. The participants of that meeting represented the most powerful banks in the nation and also had financial roots to the largest banks of Europe as well. Those American institutions included the J.P. Morgan companies; the banking conglomerate of William Rockefeller; and Kuhn, Loeb and Company. The European connection included the Rothschild banks of England and France and the Warburg banking consortium of Germany and the Netherlands.

The irony in this is that the Federal Reserve Act was sold to the American public as a bill to control the banks when, in truth, it was drafted by the very banking interests it supposedly would control. The banking cartel decided to be its own regulator while making it appear that it was being regulated by Congress. That was the reason for the secrecy surrounding the Jekyll Island meeting. If the public had realized that the Federal Reserve Act was parented by the same industry it was supposed to control, there would have been great opposition to it, and it never would have been enacted into law.

Daily Bell: In your best selling book, The Creature from Jekyll Island, you refer to fractional reserve banking as the Mandrake Mechanism. It really isn’t much of a trick and certainly not a very funny one considering it’s a trick used to redistribute the wealth and savings of the majority to a few – leaving a path of destruction in its wake. How does this rather sick trick work?

G. Edward Griffin: I named this after a comic book character from the 1940s called Mandrake the Magician. Mandrake could wave his large, black cape and make anything appear out of thin air and, with another wave, make it disappear again. He was quite a guy and, when I finally came to understand how the Federal Reserve System creates money out of nothing and causes the money supply to shrink as well, I knew that it was The Mandrake Mechanism.

At first, the mechanism can appear to be very complicated – and, in fact, one has to be a diligent student to follow the twists and turns, the banking terminology, and the accounting concepts; but, when one stands back and observes the operation as a whole, the mechanism is simple. The problem most people have with understanding it is that they try to make sense out of it. They try to understand how it is fair and how everyone is benefitted by it. The fact is that it does not make sense insofar as fairness is concerned, and the administrators are benefitted far more than the participants. In fact, at the end of the game, the participants (meaning the general public) actually are plundered by it while the administrators are greatly enriched.

Here is how it works: The first step happens when the government needs to borrow more money than the public is willing to lend at the interest rate offered. At that point, the government turns to its partner, The Federal Reserve System, and goes through the motions of borrowing the shortfall. I say “goes through the motions” because the Fed has no money to loan. The government, however, gives it permission to create the money t needs out of thin air, a move that, if done by anyone else, would send them to prison for counterfeiting. The Fed can do it, however, because the government authorized it to do so when it passed the Federal Reserve Act. So the Fed creates whatever amount of money is needed and then gives it to the government, calling it a loan. In truth, the government essentially printed its own money but, instead of using printing presses, it used the banking system which entered numbers into an accounting ledger and called it checkbook money. The end result is the same except that the public doesn’t understand it (a great advantage to the politicians) and the banks earn interest on so-called loans of money it never had (a great advantage to the banks).

That’s just the starting point. When the government spends the money it receives from the Fed, it goes to individuals and corporations that immediately deposit it into their private banking accounts. This is where the action really becomes interesting. The banks (under the protection of the Federal Reserve Act) are allowed to create out of thin air up to ten times the amount of those deposits and then go through the appearance of lending it to their customers. Once again, I use the phrase “go through the appearance” to emphasize that most of the money they loan does not exist until borrowers request it. At that point, the money is created out of thin air and advanced to the borrower – at interest, of course. Think about that. Banks collect interest on nothing.

When the loans are paid back, the money disappears back into the vaults or ink wells, or computer chips from which it came. That’s the Mandrake Mechanism.

Daily Bell: The Federal Reserve states that one of its primary objectives is to protect us from inflation. It doesn’t sound like the guys running the Fed really care about doing that? In fact, it seems as if they are purposefully doing the exact opposite.

G. Edward Griffin: Remember, the Fed is a banking cartel. It was not created to serve the public or the nation or the economy or any of the other myths we are taught in school. All cartels have but one mission, and that is to serve the best interests of the members of the cartel. Period.

When Greenspan or Bernanke tell Congress that the Fed is trying to fight inflation or promote employment or help industry or help homeowners, don’t believe any of it. That is what they have to say to keep the gullible public asleep and content with the system. It wouldn’t go over well if they were to say, “Who cares about inflation? We are bankers, and our mission is to keep the banks afloat. Our mission is to get the stupid voters to cough up enough money through taxes and inflation to reimburse us for all those bad loans we have made – and to pay our exorbitant salaries. That’s our mission and, by God, don’t think for an instant we’re going to let anyone stand in our way.”

Daily Bell: Why do you suppose more media outlets don’t question such an obviously destructive monetary structure? Do you think there is a coordinated relationship between those in control of the mainstream media outlets and those in control of the Federal Reserve?

G. Edward Griffin: I think the answer is obvious just by studying performance. However, an examination of the people on the boards of directors and the companies they represent confirms that Media companies are controlled by the same financial matrix we are discussing. Any editor or reporter in a major media company knows instinctively that it would be career suicide to speak the whole truth about the Federal Reserve.

Daily Bell: So, is it safe to say that the general public is not supposed to know the truth about the Federal Reserve and the intentions of those who control it?

G. Edward Griffin: Your phrasing is significant. “The general public is not supposed to know …” My reply is: Who is doing the supposing? Of course, I understand the implication that the financial elite say the public is not supposed to know, and I agree. If the public understood, the scam would end. But, from my point of view, and from the view of members of Freedom Force International who are working to rebuild financial security and political freedom, the public definitely is supposed to know the truth. It is on this very point that the future of mankind is hinged.

Daily Bell: Do you think the liberating power of the Internet is something the banking elite is not prepared for and that the awareness spawning around the globe about their deceitful banking practices has them scrambling for solutions?

G. Edward Griffin: There is no doubt that the ruling elite do not like the Internet’s present ability to bypass the controlled media and reach the people directly. However, I do not think it is correct to say they are not prepared. They have known almost from its inception that the Internet will need to be controlled by them if they are to keep the masses dumbed down. That is why we constantly have been conditioned to accept Internet content regulation supposedly as a means of preventing terrorism, crime, child pornography, drug traffic, and just about anything else that the public dreads. The real objective is control for its own sake. They already have this censorship of the Internet in China and numerous other Asian countries. The next step in this evolution is to put the UN in ultimate control of the Internet. If we allow this type of control to be established, the Internet will no longer be a tool of enlightenment but one of suppression.

Daily Bell: Dr. Ron Paul, the popular free-market Congressman from Texas, has suggested that if the US does not make changes now, albeit painful ones, towards an honest money system that the country faces an inflationary financial crisis that makes the inflationary period of the Carter era look like a warm up act. Do you agree with that and that rampant inflation will undoubtedly revisit America’s shores as a result of all of these bailouts and stimulus programs?

G. Edward Griffin: Yes I do. The collectivists who run the Fed and dominate our government do not believe in free-market solutions to any problem, least of all, those of such magnitude as money and banking. They know only one trick: inflate the money supply. So, as long as collectivists dominate our power centers, I see no way to avoid inflation. However, I must add that we need to look at more than the money issue. The freedom issue is just as important, if not more so. While inflation ramps up and while the government is pushing more and more newly created money into the system, parallel to that we are witnessing a tremendous loss of personal freedom. If the government funds a bank, eventually the government will own the bank. If the government funds a manufacturing company, eventually the government will own the company. If the government funds a homeowner’s mortgage, eventually the government will own the house. If the government funds a person’s food, shelter, health care, transportation, and education, eventually the government will own that person.
My biggest concern is that, in the name of purchasing financial security, people are paying with their freedom – and they’re not getting security either.

Daily Bell: We’ve heard it argued that 40% of the world’s wealth has been wiped out in the deleveraging phase of this economic collapse and that inflation is unlikely to happen as a result. How do you answer those folks?

G. Edward Griffin: We need to define terms. Fiat money (the kind without precious-metal backing) is not wealth. It can be called wealth or capital or whatever you want to call it; but, true wealth is measured in terms of tangible assets with intrinsic value, which means they have characteristics that give them value even if they were not used as money. Gold or silver as money, therefore, has the advantage of being money and wealth at the same time.

Money with only the promise and threat of governments to back them up is not wealth. This means that the 40% of the economy that has disappeared never existed as wealth in the first place. It was only fools wealth. People who had all those digits in their banking accounts thought they were wealthy when they were not. True, during the boom cycle, they could have spent those digits for houses, cars, boats, and airplanes (or gold) and could have acquired wealth in that fashion. Those things did not disappear in the last 6 months. The only things that disappeared were digits in a computer, which represented fiat money.

If you had $1 million in gold a year ago, you would have had $1 million in wealth a year ago and about the same amount today. However, if you had $1 million in fiat money a year ago, you would have had no wealth a year ago and the same amount today: zero. Only when you possess tangible assets do you have wealth. That’s one of the beauties of a gold or silver-backed currency. When you hold that type of currency you actually do have wealth. Unless we are talking about assets that are subject to destruction (such as timber that can be destroyed by fire) wealth never just disappears.

Regardless of this definition, I feel that deflation will continue for a little while longer as most of the fiat bubbles are wiped out and prices return to a fair-market balance between price and value but, what will follow will be a new, even larger bubble based on the incredible amounts of fiat money now being pumped into the system. As long as collectivists are running the show, we will have inflation and will continue to build totalitarian governments everywhere.

Daily Bell: How about the pundits who tell us that General Motors, AIG, Citigroup and others are too big to fail? Do you agree with that?

G. Edward Griffin: This may begin to sound like a broken record, but as long as collectivists are in charge of governments and monetary systems, we will continue down exactly the same track we have been following. That means the corporations will be maintained at the expense of taxpayers. Are they too big to fail? Of course not. That is merely a slogan to end the debate. However, I might rephrase the statement. Corporations, with their present influence over Congressmen, are too corrupt to fail.
Daily Bell: What about the over-leveraged American home-owners who can no longer afford to make their mortgage payments? Shouldn’t US taxpayers be expected to help them out? Don’t people have a right to own their own home?

G. Edward Griffin: It would take more time to adequately answer that question than we have; so, at the risk of sounding too harsh and inconsiderate of my fellow humans, I must give the short answer. The proper function of government is to protect the lives, liberty, and property of its citizens. Nothing more. Acts of charity are very important but must be kept away from government. Otherwise every scheme and scam would be perpetuated through under the guise of helping some unfortunate individual or class of citizens. The class of citizens called taxpayers should not be expected to help the class of citizens called homebuyers with distressed mortgages. People do not have a right to force me or anyone else through taxation to give them a home.

If anyone finds that to be uncharitable, I urge them to examine the more complete defense of this point of view as posted to the Freedom Force web site: Freedom Force International – Welcome.

Daily Bell: It seems safe to say that you do not think any of the current bailout and stimulus solutions being offered by Bernanke, Geithner or Obama have any hope of stabilizing the banking industry and that they are they simply ignoring the problem and pouring more fuel on a burning victim?

G. Edward Griffin: I like your analogy of pouring more fuel on a burning victim. That’s it exactly.

Daily Bell: Would you agree that the only way to get out of this current crisis and to prevent future ones is to abolish the central banking cartel and privatize the issuance of currency? And further to that point, do you think an Honest Money system, one anchored by gold or silver, or both, would be the best way to anchor confidence in the US dollar?

G. Edward Griffin: I definitely think the banking cartel called the Federal Reserve System should be abolished, but I will take that one step further. Some critics of the Fed are calling for its abolishment as a private institution but that it be empowered to continue performing its function as an agency of the government. They want to take this power away from those big, bad bankers and give it to those nice, trustworthy politicians. That is such a foolish concept. The problem is not who creates money out of nothing but that anyone does it. The politicians and bankers have a tight partnership. It would continue exactly the same whether operated as is or under the theoretical supervision of the Treasury. Does anyone really think that any of the last ten Secretaries of the Treasury would change anything?

So, I am for the abolishment of the Fed, not a change in appearance.

Privatizing the currency is another issue. I do not advocate this nor do I oppose it. I believe what I preach, and I preach freedom-of-choice so long as government does not give competitive advantage one way or the other and so long as all players are required to honor their contracts. Under those conditions, it would be appropriate for the government to issue its own gold or silver-backed currency provided there is no legal-tender law to force citizens to accept it. If the currency is sound, people will accept it without coercion of law. If it is not sound and there is public dissatisfaction with it, privately-issued currencies would spring up and, if they were solidly backed by gold or silver, people would use them in preference to government money. If we just remove the element of coercion, the best money eventually would become the nation’s money.

Daily Bell: What are your thoughts on gold backed money versus a bimetallic standard of both gold and silver. Which do you prefer and why?

G. Edward Griffin: Anyone interested in this question probably already is familiar with the history of money, particularly in the United States, where both gold and silver were simultaneously used for backing government currency. This was awkward, as one can imagine but, as long as the free-market value of gold and silver were left alone, the ratio between the two metals remained amazingly constant for long periods of time, and the system worked without hardship to anyone. Then, as the ratios between the metals began to change, the system began to break down leading to a defacto single standard.

My preference would be a single-metal standard. Should it be gold or silver? My preference would be gold, but I must add that, if the public wants silver, that would be fine with me. The important thing is that one or the other must be settled on if we ever hope to return to sound money.

Daily Bell: As an aside, the press coverage of the recent Madoff scandal was focused on the issue of Wall Street greed – most media coverage anyway. But in its essence, isn’t the Madoff Ponzi scheme similar to the Federal Reserve’s scheme? Don’t they both rely on an increasing base of demand for their obligations in order for the house of cards to stay erect?

G. Edward Griffin: That is a common view among critics of the FED. In fact, I carried a cartoon to that effect in our weekly Internet news service called Unfiltered News. (A free subscription is available: Free subscription. The current edition can be viewed here: Reality Zone Home Page.) While it is true that the Fed constantly expands the money supply and its customer base of interest-paying customers, that is not an intrinsic characteristic. Theoretically, the system could stop expanding or actually contract to some extent and still operate as it has. The Fed could plunder the public at a constant rate without accelerating if it chose to do so. A Ponzi Scheme has no choice. It must expand or collapse. Technically, therefore, the Ponzi analogy is not entirely accurate. In practice, however, it is very accurate.

Daily Bell: Ok, so we’ve established that the mainstream media and the elite who control both it and the Federal Reserve are continuing down a road that’s been traveled before. One, as most Germans and Austrians will tell you, doesn’t end very nicely. So what can anyone do about it?

G. Edward Griffin: Nothing!

OK, have I shocked you? What I mean is that, so long as collectivists continue to control our government and our monetary system, there is nothing we can do, because they hold the power to make change, which is the same power to prevent change. It is an exercise in futility to talk about what should be done when those who have the ability to do it are determined not to do it. It may be useful for those of us who are trying to mobilize public awareness to discuss and analyze the necessary components of reform, but we know well that the powers in Washington will, not only ignore our arguments, but will do everything possible to silence our voices.

The reason we formed Freedom Force International was to address this very issue. If, in addition to seeking an understanding of the problem and in addition to drafting a workable solution to the problem, we also unite to recapture control of the power centers of society (including but not limited to political parties) only then will we acquire the power to bring about reform. We have a slogan in freedom Force that sums it up: Don’t fight City Hall. Become City Hall.

Daily Bell: Your suggestion that people accept personal responsibility for their future and to employ human action to protect their family’s future is one we certainly endorse. Should people who own gold be concerned we may once again see a 1933 style confiscation? After all, Barack Obama is being compared to FDR?

G. Edward Griffin: That is a real possibility. The power elite will stop at nothing to perpetuate and expand their control over all of us. Our only defense is to work together, to unite, to develop a strategy, and then work like crazy to become City Hall.

Daily Bell: We are very concerned to see America moving further and further away from a freedom-loving nation to one that is rapidly looking more and more like a police state. Where does it all end?

G. Edward Griffin: One thing is certain. It will not stay as it is. It is constantly moving. Right now, the movement is in the wrong direction. We are headed directly for totalitarianism. Unless something changes, that is where we are going to be. I’ll say it again, that is what motivates us in Freedom Force. This is no idle philosophical discussion. Our lives and those of our children are on the line right now.

Daily Bell: Tell us a little bit more about Freedom Force International, the non-profit organization you referenced earlier in this interview. When did you launch Freedom Force and how is it making a difference today?

G. Edward Griffin: Freedom Force International was founded on December 12, 2002. I launched the organization with the vision that, someday, our members all around the world would become leaders in their respective countries on behalf of sound money and personal freedom. We have a long way to go, of course, but we are under way. Already we have members in over sixty countries.

Our members are not mere complainers. They have a plan to do something about it. They also share a common belief in The Creed of Freedom, which is a statement of principles that guide them in their mission to build a better world.

We are determined to influence the political direction of the world by becoming influential in the power centers of our respective countries. The most obvious of those are political parties, but we also know the importance of the media and the educational system. Most power centers are comprised of large numbers of people who follow small numbers of people. It is the mission of Freedom Force members to become influential within the small groups that lead.

Another mission of Freedom Force is to provide an ideological umbrella under which many patriotic groups can unite toward a common goal. By unite, I do not mean one organization but many organizations, each with their special purpose, style, and leadership, but united under the ideological principles expressed in The Creed of Freedom. It’s very important to know what you are for as well as what you are against.

Freedom Force already has become a significant movement. Anyone who really wants to make a difference on behalf of sound money and personal freedom will want to become part of this international brotherhood.

Daily Bell: Where can one go if they wish to find out more about Freedom Force International and to consider adding their voice to this growing movement of liberty minded people?

G. Edward Griffin: The web site is Freedom Force International – Welcome. There is a lot of information there, but it is not expected that anyone will read it all at one sitting, although that sometimes happens. It is structured so that the most important information appears first with sub categories available for drilling down into many areas of interest. Freedom Force is the answer.

Daily Bell: One final question, Jim Rogers, Peter Schiff and many other outspoken free-market thinkers have suggested gold could rise to $2,000 per ounce or even much higher. Do you think this is likely to happen as more and more people awaken to the truth about our current monetary system and as inflation rears its ugly head? Do you have your own prediction?

G. Edward Griffin: I think $2000 per ounce is very realistic in view of the run-away money creation machine we have been discussing. However, I must remind newcomers to this topic that purchasing gold and silver should be viewed primarily as insurance, not investment. Even if the price of gold should rise to astronomical levels, the price of everything else also will be rising at about the same rate. If the price of a loaf of bread becomes twice what it is today, then the price of gold at twice what it is today will not seem to be particularly shocking. The value of holding precious metals in time of inflation is not that you will increase your purchasing power but that you will not lose purchasing power. You will hold your own while those who do not own gold or silver or other tangible assets will have their savings wiped out.

Daily Bell: Thank you so much for taking the time to share you wisdom with us. We wish you all the best in your future endeavors.

G. Edward Griffin: Thank you for the opportunity. I hope this will be of value to your readers.
This interview was conducted by Scott Smith.

Meet Scott Smith: Before his recent retirement, American-born Scott Smith spent nearly 30 years as a member of the Swiss investment banking community. He spent most of his long career at legendary investment banking giant Credit Suisse, where he was an executive working in the foreign exchange and derivatives departments.
Over the course of his career, Scott became privy to the closely guarded, somewhat regimented, wealth building and asset-protection strategies that have made the Swiss among the wealthiest people in the world – wealthier than Americans, according to the World Bank.

In addition to writing special reports, such as this Swiss Perspective, Scott is also a contributing editor to TheDailyBell.com and the editor of a membership based investment newsletter called Swiss Confidential.

A second look at the Federal Reserve: The Creature from Jekyll Island, by G. Edward Griffin

Where does money come from? Where does it go? Who makes it? The money magician’s secrets are unveiled. Here is a close look at their mirrors and smoke machines, the pulleys, cogs, and wheels that create the grand illusion called money. A boring subject? Just wait. You’ll be hooked in five minutes. It reads like a detective story – which it really is, but it’s all true. This book is about the most blatant scam of history. It’s all here: the cause of wars, boom-bust cycles, inflation, depression, prosperity. Your world view will definitely change. Putting it quite simply, this may be the most important book on world affairs you will ever read. 608 pages.

“A superb analysis. Be prepared for one heck of a journey through time and mind.” – Ron Paul, Member of Congress, House Banking Committee, 2008 Presidential candidate.

“Scary. It’s the story of the world banking system. Enough said.” – Willie Nelson, Musician/Author

“A gripping adventure into the secret world of the international banking cartel.” – Mark Thornton, Asst. Professor of Economics, Auburn University, Coordinator of Academic Affairs, Ludwig von Mises Institute

“This is a murder mystery about the financial ‘murder’ of the middle class.” – Robert Kiyosaki, author of Rich Dad, Poor Dad

“A train-load of heavy history, written in such a relaxed and easy style that it captivated me. I hated to put it down.” – Dan Smoot, Publisher/Editor, Dan Smoot Report

“As a career banker and president of a bank consulting firm, I thought I had a good understanding of the Federal Reserve, but this book changed the way I view our entire monetary system.” – Marilyn MacGruder Barnwall, Grand Junction, Colorado

“I have just finished reading this for the FOURTH time!!!! Each time only adds another gloss of patina to the truth.” – David J. Nitsche, ex banker (25 year career), Bridgeton, New Jersey

To order a copy of The Creature from Jekyll Island, also available in German, Japanese and Vietnamese, please click here now – www.RealityZone.com.

The Escalator of Life Is Going Down

We’re riding on the escalator of life
We’re shopping in the human mall
We’re dancing on the escalator of life
Won’t be happy ’til we have it all
We want it all

Escalator of life – up and down
Escalator of life – round and round
There’s 111 choices
Don’t listen to those little voices
I don’t let the guilty feeling shake me
You can have your cake and eat it baby

–Robert Hazard Escalator of Life

Americans have been on the escalator of life for the last 30 years. The escalator has been going up for the vast majority of that time. Since Ronald Reagan was President, the escalator has been moving upwards with only a few momentary breakdowns. We wanted it all. We believed it was our right to have it all. Americans did whatever it took to have it all. That meant an explosion of household debt promoted by bankers, the Federal Reserve, politicians, the media, and Presidents. We were dancing on the escalator of life for decades but our shoelace got caught in the escalator last year and severed our foot. We are bleeding to death as the escalator heads relentlessly downward. There are millions of Americans who have a guilty feeling about how they have lived their lives. They had their cake and tried to eat it too. Americans are now repenting by dramatically reducing their spending. The U.S, government is desperately attempting to convince Americans to get back on the escalator.

The financial system has stopped functioning because no one trusts anyone else. The rules are changed by the Treasury and Federal Reserve on a daily basis. It seems like every company in America has converted into a bank so it can acquire a slice of the taxpayer funded pie called TARP. The government has been using all the tools at their disposal to dig the country out of this hole. If they dig too far, the stimulus could blow up in a torrent of inflation.

Which Assets Are Toxic?

In the last nine years U.S. financial institutions became extremely creative with their financial “products”. They were encouraged by Federal Reserve Chairman Alan Greenspan who was sure that any regulation other than self-regulation would be counterproductive. In the bully pulpit was our first Harvard MBA President George Bush, proclaiming the benefits of free market capitalism while not being able to pronounce or spell derivative, let alone understand them.

Watching over the creative bankers was the eagle eyed SEC, which had just received accolades for the Enron and WorldCom scandals. This trusting bunch of morons, hoping to one day get cushy jobs on Wall Street, decided that the investment bankers should be allowed to leverage their assets 30 to 1, rather than the overly restrictive 12 to 1 that had been in place for decades. Their models, created by overly confident MBAs, assured them that nothing could go wrong.
The final piece of the puzzle was obtaining a AAA rating for these new “products” from the staid old rating agencies Moody’s and S&P. These two companies had a very predictable boring revenue stream. Their CEOs wanted a little excitement in their lives, and maybe, just maybe, big bonuses and stock options. They decided to jump head first into rating the new indecipherable products. They also had their cock sure MBAs creating models which assured them that all was well. Surprisingly, after being paid billions in fees, the rating agencies provided AAA ratings across the board to all of the new investment products.

The Wall Street geniuses peddled MBSs, CDSs, and CDOs, to pension plans, cities, states, foreign banks, foreign villages, and anyone else who wanted to get in on the easy money. With AAA ratings, no one bothered to conduct due diligence and understand what could go wrong. The amount of derivatives outstanding rocketed from $40 trillion in 2000 to $684 trillion in 2008. It has been reported that 80% of all Credit Default Swaps outstanding in 2008 were speculative. There was no hedging going on. Wall Street had become a Las Vegas casino. Credit default swaps totaling $440 billion were written by AIG. These were pure speculative bets and the American taxpayer is still paying off. The bill is up to $160 billion so far. The executives at AIG must have exceeded their loss goals, because the American taxpayer is paying $165 million in retention bonuses to executives of the unit that nearly collapsed the worldwide financial system. Why would anyone want to retain these executives? If these people were asked, “How do you sleep at night?” they would respond, “On a big pile of cash”.

The economy, juiced by low interest rates, mortgage brokers handing out loans like candy, investment banks packaging thousands of worthless subprime loans into AAA products, auto companies putting deadbeats in Cadillac Escalades with no money down, and consumers sucking $3 trillion of equity from their ever increasing home values, appeared unstoppable. Home values doubled in five years. The Dow Jones reached 14,000 in October 2007, Treasury Secretary Hank Paulson was touting the fundamentally sound American economy, and Federal Reserve Chairman Ben Bernanke said there might be a minor blip from slight weakness in the housing market. As the economy was sailing along at seventy miles per hour, it hit something in the middle of the road. A Bear Stearns hedge fund blew up. The Wall Street gurus and government bureaucrats assured the public that all was well.

Congress, the Treasury, the Federal Reserve, and two Presidents have tried to convince Americans that the financial system is no longer infected with toxic germs. They have committed $11.6 trillion of your tax dollars to try and make the system kissable again. It hasn’t worked. They can pour another $11 trillion into the system, and probably will, but the trust in gone. The American public will no longer trust anything they are told by Wall Street, the Treasury, the Federal Reserve or Congress. We’ve been lied to, fleeced of our retirement savings, and now told to foot the bill for the criminals on Wall Street for the good of the country. Enough is enough. The ruling elite from government and big business urgently want Americans to regain confidence and return to borrowing and spending. They again missed the train. Saving, frugality and living within your means are back. This will destroy entire industries built upon a foundation of overspending and debt. Too bad. Good old fashioned American individuality and love of liberty will revive the country, not TARP, TALF and whatever other programs the government tries to peddle.

Source: Barry Ritholtz

We know what has happened in the last eighteen months. We still don’t know what toxic assets still remain in the system we don’t know about. The banks’ balance sheets are a black box, they have billions in off-balance sheet “assets”, and the commercial real estate market is just starting to collapse. The ever optimistic cheerleaders on CNBC would rather extrapolate four up days in a row into a new bull market, than examine the facts staring them in the face. No wonder Jon Stewart had such an easy time obliterating Jim Cramer and the whole network. Banks were handing out construction and land development loans between 2004 and 2007 at twice the rate of residential mortgage loans. With Americans losing jobs at a record pace, corporate bankruptcies soaring, and retailers bearing the brunt of consumer deleveraging, commercial real estate loans will begin to go bad late in 2009 and through 2010.

Bad mortgage loans have been the primary driver of the financial crisis so far. The nice little pie chart that follows shows that residential mortgages make up only 26 percent of bank loan portfolios. Commercial, non-residential real estate and construction loans total 40 percent of bank loan portfolios. These loans will provide the next leg down in this death spiral. Anyone who can’t see this coming is just not looking.

The credit card losses are confined to a few major players. Citicorp (C), Bank of America (BAC), American Express (AXP) and Capital One (COF) will face the music when the credit card debt bubble bursts all over their faces. U.S. credit card defaults rose in February to their highest level in at least 20 years. AmEx, the largest U.S. charge card operator by sales volume, said its net charge-off rate, debts companies believe they will never be able to collect — rose to 8.70 percent in February from 8.30 percent in January. Citigroup’s default rate soared to 9.33 percent in February, from 6.95 percent a month earlier. Analysts estimate credit card charge-offs could climb to between 9 and 10 percent this year from 6 to 7 percent at the end of 2008. In that scenario, such losses could total $70 billion to $75 billion in 2009. Meredith Whitney estimates that Americans’ credit card lines will be cut by $2.7 trillion, or 50 percent, by the end of 2010. The pain has only just begun. Prepare to bailout more banks with your tax dollars.

Even though we know that adjustable rate mortgages were a major cause of the financial crisis, the storm has not passed. Just because the problem is obvious, doesn’t mean it is not a problem. The chart from T2 Partners produced about one year ago shows that we are now in a lull for adjustable rate mortgage resets. There will be another crescendo of resets in 2010 and 2011. When banks ask for more taxpayer money to sure up their balance sheets in 2010, Timmy Geithner will be wearing his best “shoulda guessed” face when he gets the call from Citicorp.

After a year of frantic juvenile attempts to revitalize our financial system with your tax dollars, the government has accomplished nothing but driving our National Debt to obscene levels exceeding $11 trillion, on its way to $15 trillion by the end of Obama’s 1st term. All of the stimulus, TALFs, TARPs, TAFs, nationalizations, guarantees and printing of dollars will eventually explode in the faces of our leaders in one toxic geyser. The events of the last week show how warped the world gets when government owns private businesses. The U.S. owns AIG. The CEO, placed there by the U.S., pays out $165 million in bonuses to executives who nearly brought down the worldwide financial system. Government officials are outraged and appalled going on every TV show they can find to register their disgust. They are so used to sitting on the sidelines and criticizing the coach, they don’t even realize they are the coach.

Last week, another government owned company, Freddie Mac, reported a quarterly loss of $24 billion and demanded another $30 billion of taxpayer money. I didn’t hear Barney Frank on CNBC outraged at those results. As the government socializes the losses of corporations and Ben Bernanke attempts to create inflation, the deterioration and ultimate collapse of our economic system is pretty much a lock. Only the timing is uncertain.

Do We Need To Change The Rules of the Road?
Americans, from the country’s founding, have always cherished liberty over dependency. Personal responsibility and self reliance had forever been the hallmarks of the American population. Since 1913 when the Federal Reserve was created and the Federal income tax was implemented, Americans have been slowly and insidiously made dependent upon the government and criminal bankers running this country. Government has taxed and borrowed to implement policies and programs that make people more dependent on them and increased government’s control over our lives. Bankers have marketed debt as the way for Americans to live the good life. Americans have become serfs, ever indebted to the lords of the manor in Washington DC and on Wall Street. Until Americans decide to choose liberty and freedom over relying on government to solve all our problems, the country will continue on its path to socialism and bankruptcy.

Since the start of this financial crisis, government bureaucrats, Congressmen, Federal Reserve chairmen and have tried to hide the debris of our economic system in the woods. Nothing has worked. Bad mortgage loans, bad car loans, bad commercial loans, and bad credit card debt cannot be hidden. They must be written off. Letting banks pretend it isn’t bad debt has just led to more uncertainty in the markets. The smoke and mirrors that Treasury and the Federal Reserve have used to fool the public into trusting the banking system have not worked. Now they want to change the rules of the road.

All attempts to change the rules have backfired. The SEC outlawed short selling to stop the stock market from going down. The market accelerated downward, with no possibility for short covering to stop the fall. Hank Paulson forced banks to take billions of taxpayer dollars whether they wanted it or not. This was supposed to bring confidence in the system back. It didn’t. The government took over AIG, Fannie Mae (FNM), and Freddie Mac (FRE), deciding they could run them better than the existing horrible managements. These moves have already cost the American taxpayer a quarter trillion dollars. With many more billions to be poured down these rat holes.

The financial system is gridlocked. Four lanes have suddenly converged into two lanes and the drivers are angry. The AIGs of the world went from selling plain vanilla insurance to making bets with every major bank in the world along with guaranteeing risky bets by these same banks. Fannie Mae and Freddie Mac went from providing liquidity to the mortgage markets so that average Americans could buy a house to a Democratic Party tool used to provide mortgage loans to poor Democratic constituents so they could win more votes in the next election. Investment banks went from investing in productive business ventures to creating fake credit instruments designed solely to generate monstrous fees and bonuses for executives.
The rating agencies Moody’s and S&P went from the boring business of rating corporate bonds and generating 10 percent annual growth to giving AAA ratings to indecipherable derivative products that were then sold to pension plans and schools. Mortgage brokers went from helping match worthy borrowers with the best mortgage to criminals pushing no doc stated income adjustable rate mortgages on people who could never possibly afford a home. Consumers went from utilizing credit for just home purchases with 20% down to utilizing credit for multiple home purchases with nothing down, utilizing credit for car purchases with nothing down, and utilizing credit to buy every electronic gadget, kitchen appliance, and other toys flaunted by neighbors. The rules of the road were changed during rush hour causing chaos and confusion. Until honesty, integrity, and morality are again restored to our financial and governmental systems, gridlock and distrust will reign.

Where’s My Net Worth, Dude?

Americans are wondering where their net worth went. They can’t find it anywhere. It dissipated into thin air. It never really existed. Does that make you feel better? American households lost $11.2 trillion of net worth in 2008, and net worth is now below 2004 levels. The 17.9% drop in net worth during 2008 is mind boggling and will have a drastic impact on the future trajectory of household consumption and saving. Nearly 25% of the loss in net worth was from real estate, and equities and mutual fund shares made up 50% of the loss.

The dramatic rise in net worth coincided with the biggest debt bubble in history. Home ownership reached an all-time high of 68% in 2005. Stock ownership is still in the 50% range, so the downturn in housing values is affecting many more people than the 2000-2001 dot.com collapse. As you can see, home values fall but the debt remains the same. With at least another year of falling home prices, the number of people underwater on their home mortgages will reach 25 million, or one-third of all the houses in the United States. You won’t hear Mustard Seed Kudlow or Mad Money Cramer telling you this.

President Obama and Democrats in Congress passed a $787 billion pork filled calamity that will contribute to an explosion of our financial system. Very little of this socialist’s dream will help the U.S. economy in 2009. Vast sums will be allocated to unnecessary make work projects throughout the country. Picture thousands of Ralphs taking their time on construction projects while six guys stand around watching one guy using a jackhammer. Every construction project in the country will be a union job. This means 40% more expensive and a 40% longer timeline. When the majority of this stimulus hits in 2010 and 2011, along with Bernanke’s humongous printing of dollars we will hear a rumble before inflation erupts across the globe.

Oh The Humanity!

The American economy hit debris in the road years ago. Instead of pulling over and taking care of the problems before they became a crisis, our leaders ignored the problems. Government overspending, ignoring $56 trillion of unfunded liabilities, funding over-expenditures with money borrowed from foreigners, not addressing crumbling infrastructure, not creating a cohesive energy policy, and over-reaching in empire building were the fuel that led to our economy bursting into flames before our very eyes. President Obama and his minions in Congress scream, “Oh the humanity”, and take your hard earned money and redistribute it to the fools who created the tragedy.

It’s My Life
Tomorrow’s getting harder make no mistake
Luck ain’t even lucky
Got to make your own breaks

It’s my life
And it’s now or never
I ain’t gonna live forever
I just want to live while I’m alive
(It’s my life)
My heart is like an open highway
Like Frankie said
I did it my way
I just want to live while I’m alive
‘Cause it’s my life

Better stand tall when they’re calling you out
Don’t bend, don’t break, baby, don’t back down

–It’s My Life Bon Jovi

The American people are at a crossroads. It’s our lives, not the governments. The country is headed on a path toward government running everything in our lives. Now is the time to stand tall. Barack Obama, Ben Bernanke, and Nancy Pelosi can not make us spend money we don’t have. We can force the painful restructuring of our economy on our politician leaders. They can stimulate, print, and urge you to spend, but we don’t have to listen. We can throw them out of office in 2012. If the new set of clueless morons doesn’t do what is right, we can throw them out too. We must heed the warning of Founding Father Thomas Jefferson.A government big enough to give you everything you want, is strong enough to take everything you have.

James Quinn, TheBurningPlatform.com