CFR take on US dollar

Discussion in 'Economics' started by Bitstream, May 11, 2007.

  1. Council on Foreign Relations on U.S. Dollar: “An Absurdity… Supported Only by Faith”
    Thursday, May 10, 2007

    The End of National Currency is the most astonishing thing that I have read since Zbigniew Brzezinski’s appearance before the Senate Foreign Relations Committee earlier this year.

    Foreign Affairs is the most important and influential journal of International Relations in the world. It is the mechanism by which the Council on Foreign Relations disseminates the game plan to people in polite circles. CFR’s positions on core issues represent the raw building blocks for most of the gibberish spewed by the corporate media and the maniac fascist policies of the “developed world.” Publications like the New York Times and the Wall Street Journal are dumbed down versions of Foreign Affairs that are published daily. Television news is the same thing, but dumbed down again. Foreign Affairs is also where politicians from several countries look to determine what’s safe to say, which policies are doable and what needs to be done. A degree in International Relations is largely a certification of a student’s ability to internalize CFR jargon and concepts.

    Got the picture?

    Now, what did the most important and influential journal of International Relations in the world just say about the U.S. Dollar and the global economy?

    In summary: The U.S. dollar is an “absurdity” and the only way to stave off a global disaster is for most countries to join one of three global currencies, based loosely on: the dollar, the euro and a pan Asian currency.

    I encourage everyone to read The End of National Currency in its entirety, but I’ll quote some of the more remarkable parts below:

    The dollar’s privileged status as today’s global money is not heaven-bestowed. The dollar is ultimately just another money supported only by faith that others will willingly accept it in the future in return for the same sort of valuable things it bought in the past. This puts a great burden on the institutions of the U.S. government to validate that faith. And those institutions, unfortunately, are failing to shoulder that burden. Reckless U.S. fiscal policy is undermining the dollar’s position even as the currency’s role as a global money is expanding.

    Four decades ago, the renowned French economist Jacques Rueff, writing just a few years before the collapse of the Bretton Woods dollar-based gold-exchange standard, argued that the system “attains such a degree of absurdity that no human brain having the power to reason can defend it.” The precariousness of the dollar’s position today is similar. The United States can run a chronic balance-of-payments deficit and never feel the effects. Dollars sent abroad immediately come home in the form of loans, as dollars are of no use abroad. “If I had an agreement with my tailor that whatever money I pay him he returns to me the very same day as a loan,” Rueff explained by way of analogy, “I would have no objection at all to ordering more suits from him.”

    With the U.S. current account deficit running at an enormous 6.6 percent of GDP (about $2 billion a day must be imported to sustain it), the United States is in the fortunate position of the suit buyer with a Chinese tailor who instantaneously returns his payments in the form of loans — generally, in the U.S. case, as purchases of U.S. Treasury bonds. The current account deficit is partially fueled by the budget deficit (a dollar more of the latter yields about 20-50 cents more of the former), which will soar in the next decade in the absence of reforms to curtail federal “entitlement” spending on medical care and retirement benefits for a longer-living population. The United States — and, indeed, its Chinese tailor — must therefore be concerned with the sustainability of what Rueff called an “absurdity.” In the absence of long-term fiscal prudence, the United States risks undermining the faith foreigners have placed in its management of the dollar — that is, their belief that the U.S. government can continue to sustain low inflation without having to resort to growth-crushing interest-rate hikes as a means of ensuring continued high capital inflows


    At the turn of the twentieth century — the height of the gold standard — Simmel commented, “Although money with no intrinsic value would be the best means of exchange in an ideal social order, until that point is reached the most satisfactory form of money may be that which is bound to a material substance.” Today, with money no longer bound to any material substance, it is worth asking whether the world even approximates the “ideal social order” that could sustain a fiat dollar as the foundation of the global financial system. There is no way effectively to insure against the unwinding of global imbalances should China, with over a trillion dollars of reserves, and other countries with dollar-rich central banks come to fear the unbearable lightness of their holdings.

    Ordo ab chao.

    The CFR created this mess to begin with. Its fingerprints are on every policy, politician and corporation involved with the funneling of wealth up to the top of the pyramid.

    Now what?

    What do we do now, as we find ourselves gazing into oblivion, into the chaos that They created?

    Seek order with fewer national currencies, my son. Trust us. We’ve gotten you this far. We have almost reached the promised land of a global federal government, with a single currency, with no dissent, no war, no crime, no hunger and no disease and…

    But before we can move to the single currency, we need to move to three:

    A future pan-Asian currency, managed according to the same principle of targeting low and stable inflation, would represent the most promising way for China to fully liberalize its financial and capital markets without fear of damaging renminbi speculation (the Chinese economy is only the size of California’s and Florida’s combined). Most of the world’s smaller and poorer countries would clearly be best off unilaterally adopting the dollar or the euro, which would enable their safe and rapid integration into global financial markets. Latin American countries should dollarize; eastern European countries and Turkey, euroize. Broadly speaking, this prescription follows from relative trade flows, but there are exceptions; Argentina, for example, does more eurozone than U.S. trade, but Argentines think and save in dollars.

    But wait, there’s one more thing:


    This following paragraph is so weird, I had to read it several times. I still don’t know what to make of it:

    So what about gold? A revived gold standard is out of the question. In the nineteenth century, governments spent less than ten percent of national income in a given year. Today, they routinely spend half or more, and so they would never subordinate spending to the stringent requirements of sustaining a commodity-based monetary system. But private gold banks already exist, allowing account holders to make international payments in the form of shares in actual gold bars. Although clearly a niche business at present, gold banking has grown dramatically in recent years, in tandem with the dollar’s decline. A new gold-based international monetary system surely sounds far-fetched. But so, in 1900, did a monetary system without gold. Modern technology makes a revival of gold money, through private gold banks, possible even without government support.

    Woh. Hold on a second.

    On the one hand, “A revived gold standard is out of the question,” but on the other hand, “private gold banks already exist, allowing account holders to make international payments in the form of shares in actual gold bars. Although clearly a niche business at present, gold banking has grown dramatically in recent years, in tandem with the dollar’s decline. A new gold-based international monetary system surely sounds far-fetched. But so, in 1900, did a monetary system without gold. Modern technology makes a revival of gold money, through private gold banks, possible even without government support.”

    So, we’re going to have a few “absurd” fiat currencies and private gold banks that will be used to make international payments in the form of shares of actual gold bars? Did the CFR just transmit a veiled and obscure tipoff to the wealthy people who read their rag?

    Or is it something else…

    I don’t know what to make of it. That paragraph is such a non sequitur in the article that it practically slaps you right out of your chair as you read the thing. Steil points out that rape and plunder (Globalization) can’t happen with currencies that are tied to things. So… Why mention private gold banks that can facilitate international payments?

    It gets weirder. This article was published within days of the U.S. Government’s shut down of eGold, the oldest private electronic gold bank. On the same day that the indictments came out against eGold, Brinks, a U.S. firm that provides bullion vaulting services, dropped BullionVault as a client. BullionVault allows individuals to easily and efficiently move their fiat currencies into physical gold, but it does not allow payments to other parties. [I am a satisfied client of BullionVault, by the way.]

    Are factions of the Elite in open conflict? Do some of them want access to these gold services, while others, mainly U.S. dollar interested parties inside the U.S., view those same services as a threat? Is Steil warning governments to shut down these services, lest individuals abandon their “absurd” fiat currencies?

    I don’t know what’s going on here, but I’d really like to find out.
  2. The New World Order.
  3. y, total scum.
  4. "The Party seeks power entirely for its own sake… We are different from all the oligarchies of the past, in that we know what we are doing. All the others, even those who resembled ourselves, were cowards and hypocrites. The German Nazis and the Russian Communists came very close to us in their methods, but they never had the courage to recognize their own motives. They pretended, perhaps they even believed, that they had seized power unwillingly and for a limited time, and that just round the corner there lay a paradise where human beings would be free and equal. We are not like that. We know that no one ever seizes power with the intention of relinquishing it. Power is not a means, it is an end. One does not establish a dictatorship in order to safeguard a revolution; one makes the revolution in order to establish the dictatorship. The object of persecution is persecution. The object of torture is torture. The object of power is power."
  5. This is why we need the Libertarian Party to succeed in this country.

    It's the only hope. And we have to make sure they run candidates who are immune from avarice and greed, but dedicated to the national welfare, by freeing the individuals from burdensome regulations and restrictions, and by keeping us self-sufficient for our food, water, energy and technology needs..

    The two party duopoly is dooming us.
  6. Thanks for the heads up. I hadn’t taken off the wrapper on this latest issue of Foreign Affairs – it got me to do so. I read the Steil article after your post. I was amused that it discusses the “Golden Age” of gold-backed currency with almost a nostalgic, wistful tone, while admitting that “It is only since 1971, when President Richard Nixon formally untethered the dollar from gold, that monies flowing around the globe have ceased to be claims on anything real.” But a few sentences later: “Monetary nationalism is simply incompatible with globalization.”

    And what here about the dig on Bernanke in the last paragraph: “As for the United states, it needs to perpetuate the sound money policies of former Federal Reserve Chairs Paul Volcker and Alan Greenspan…”

    I am no fan of conspiracies, but clearly there are those more “in the know” than others. CFR higher-ups probably do fall into that category. And frankly, with them holding the world economy together with “full faith and credit”, I can accept that (so long as I will benefit, thanks.)

    By the way, nothing published in this journal is ‘unimportant’. I do try to read it often. For example, China issue published in Sep/Oct 2005. SSEC up, oh, 230% since then. And the ‘rise of India’ issue published in July/Aug 2006. BSE up, oh, 43% since then. (with a rather nice reversal too). So even if you don’t agree with what is said, certainly enough people do take notice.

    I will hazard a guess from my reading of the article. I can’t imagine the CFR espousing gold for any great purpose as much gold, geographically, lies outside of CFR-supporting interests. That’s destabilizing to current interests. You wouldn’t want the great nation state of Uzbekistan to become one of the wealthiest countries in the world, would you? (go read Zbigniew Brzezinski’s 1998 book “The Grand Chessboard” for some fun thoughts on that area of the world). Also, gold is inherently deflationary and would not support an expanding world (although might do very well in a static one – we’re certainly not there yet, but might be so in about 50-100 years c.f. another CFR article by Philip Longman).

    I think his tone of voice serves as a cautionary tone to the major currency governments, particularly the United States, to remind them that “alternatives exist.” Therefore, those alternatives must be shut down, wouldn’t you agree? Just my read.

    So, the plan is to Dollarize Latin America, Euro-ize Europe and Asia Minor & Russia, maybe eventually North Africa too. It’s harder to plan for Asia – do you choose the Yuan/Renmibi, Yen, Aussie, or Rupee? Are you sure that you want to choose China as your partner? Might need a different paradigm there.

    With that said, fellow smarty-pants, if we are to dollarize Latin America:
    1). What does that mean for the USD? (probably not much)
    2). What assets will appreciate in dollar terms and which will depreciate?
    3). What is the way to profit?


    Certainly, an interesting article.

  7. I wonder if anyone but me noticed just how badly gold got SLAMMED on 5/10.

    Do you think the article was written by someone short gold in order to get the Fed and the PPT to slam it?

    That's my theory.