Bible Believers' Newsletter 355
"We focus on the present Truth – what Jesus is doing now. . ."
Christian greetings in the precious Name of our Lord Jesus Christ.
Again we welcome guest contributor, Joan Veon (T7W7G7@aol.com). A Registered Investment Advisor, our Sister tells how the Money Power has stealthily destroyed national sovereignty by its monopoly on central banking, fiat money, trade deregulation, and floating currency rates, whereby national authority now belongs to the International Banksters and speculators like Rothschild's George Soros who can hold nations and the world to ransom. Low bank rates sent those with funds to the "market" where today's banks have on-sold their risks. When the crash does come, it will be investors not banks that fall. Those who are not Christ's are on the fast train to serfdom. Joan explains 20th century US and international banking so we can see what has taken place, and understand what might be expected in the coming year.
Mayer Amschel Rothschild said: "Permit me to issue and control the money of a nation, and I care not who makes its laws. . ." Brother Branham warned the outcome will be a depression worse than the 30's, and advised us to "pay off our lingering debts," and have the Token on display. We are witnessing the fulfillment of Matthew 4:8-9.
This Newsletter serves those of like precious faith. Whosoever will receive the truth is welcome to feed their soul from the waters of the River of Life. Everything here presented should be confirmed personally in your own Bible.
Your brother in Christ
Does a return to the 70's mean the Death of the Dollar?
Joan M. Veon, CFP®
You have all heard the phrase, "global village" which was popularized when Hillary Clinton wrote a book using that phrase. Queen Elizabeth II even used the phrase in one of her annual Christmas speeches. What did these women tell us? We live in a small world and that it is global. If they were to define "global" they would tell you that the various political, economic, trade, legal and military/intelligence barriers between countries are no longer; and that the world is interconnected.
I have written an economic newsletter for the past nineteen years. It has greatly evolved from the first few which basically told you, "This is a stock" and "This is a bond." The newsletters have become more detailed and exhaustive as my understanding of the total global market has increased. In order to be properly positioned, we cannot afford to only have the basics about our own economy but must have the BIG global picture. This whole process is like building a home. When I built my home, I found out that the foundation is the most important part of building. If you want to brick a house or want to enlarge it after the foundation is poured, you cannot go back and add to what has already been set in place. In the same way, by understanding the economic and financial foundation of the global economy, we can then determine the best investments. While this newsletter is rather exhaustive, it will provide you with the background and flow of how our financial and economic foundation has evolved. Much of the content of this newsletter comes from previous newsletters. As I was trying to outline where today's investment trends are coming from, I wanted to format this newsletter in a way that would help you visualize the important changes to our economic structure. My goal is to try and simplify a very complex and sophisticated agenda that will provide you with insight into a world that is one.
What I have tried to do is show how the present global structure impacts our lives and how it has evolved. Great structural changes have taken place in both our economic system and our governmental system as well. As I tried to get my arms around where we are today in this evolutionary process, I was struck by the importance of the 1970's following the first structural change to our monetary system in 1910 when the Income Tax Act was passed and in 1913 when the Federal Reserve Act was passed. What occurred between 1910 and 1970 set the course for what took place between 1971 and 1973. What transpired between 1973 and 2004 set the course for future changes to our economic system and ultimately to the dollar. Since your fortune and mine is tied to our monetary system, we should be watching with great care the changes that are taking place and what people in high places are saying.
Over the years, as an investment professional, I have been truly amazed at the lack of understanding and study among investment professionals. Many of my colleagues are selling "product" without understanding if it is a good building block for the financial structure they are looking to help their clients build, given our changing world. The themes of the 1970's were: gold, a dollar in crisis, war and inflation. Interestingly enough, these same themes are being echoed today: gold, a dollar in crisis, war and inflation. Once we understand the evolving structure, we can "read" how we should invest, just as if we were reading a book. Because the dollar has lost over 70% of its value since 1973 I have entitled this newsletter "Does A Return to the 70's Mean the Death of the Dollar?"
Most recently I had the opportunity to interview a man who is a key architect of the global monetary system the world shifted to after Nixon cut gold's ties to the dollar in 1971. His name is Paul Volcker. At that time, he was a treasury undersecretary who was given the task of going around the world to find, forge, and develop a new way in which the world's financial system would operate in a post-gold world. Mr. Volcker then became the Federal Reserve Chairman and now has been working to forge and develop a global currency system. Our brief exchange:
Veon: Mr. Volcker in 1973 when we had the currency crises, you went around the world looking for a new mechanism, a new way for the world . . .
Veon: When you look at the world today, what do you see based on what you set up?
Volcker: I think we need a new mechanism . . . we didn't set anything up very successfully. It didn't culminate in a lasting agreement unfortunately. But I think the world financial system is not on a very stable basis.
Veon: What do you seewhat do you see for the future?
Volcker: For the long termbut it's a long ways off, if we are going to be successful in a globalized world, we should have an international currency.
Veon: Special Drawing Rights?
Volcker: No, nosomething more than that.
He turned his back and greeted a colleague, obviously not wanting to discuss it. So what does he mean when he says we need an international currency? The 1970's were a pivotal time in our nation's history and the part he played was instrumental in determining where we are today. In order to understand where we are going, we must understand the past.
In September 2000, I wrote a newsletter entitled, "A Return to the 70's?" In it I discussed the value of the dollar, the 30 year low price of gold, oil, and inflation. In 2000, America was actively fighting a war in Kosovo, our troops were stretched, and our military was using 30 year old Vietnam-era planes and transport equipment. Our trade deficit was at historic highs. As a result of the research I did and the conclusions I reached at that time, I started to position clients in gold, defense, and oil. You have all benefited very nicely.
In June, 2004, the front cover of The Economist read, "Back to the 1970s? Inflation returns worldwide." In addition, we are also hearing phrases on television about "the 70's." Exactly what does that phrase refer to? What does it mean? What will happen to our savings if the high inflation of the 70's returns? Since that time, the US has become the world's largest debtor and our dollar has depreciated about 70%.
The 70's were as pivotal a decade in our financial and economic history as the Great Depression. The 70's are defined by war in the Middle East, an oil embargo, Nixon cutting the gold ties to the dollar, and inflation. Today we have war in the Middle East, the threat of scarce oil, the largest government deficits in history, a historically lower dollar, and inflation. As we begin the 21st century, we need to define the past so that we can understand the present and prepare for the future.
It is my goal that you will understand the unprecedented financial evolution that has occurred over the last 34 years. This has led to the de-coupling of ALL the financial moorings the economic system once had. When Nixon separated gold from the dollar, for the first time in history the world monetary system was no longer backed by a tangible asset but by "thin air" or paper. The dollar started to drop against all major currencies. By the end of the 70's, the price of gold shot up to $800 oz., America went from a trade surplus to a deficit. We started to import oil for the first time, and as a result of American involvement with Israel during the Yom Kippur War, Arab countries boycotted the US, causing the price of oil to rise to $50 bbl. At the same time, America was winding down the war in Vietnam.
Today, we have the same situation: the dollar dropped to new lows. On December 17 US$1.00 would buy only 0.74 euro and 104.00 yen the price of gold has risen from a 30 year low of $230 to $449 oz. (between November 17 and 26, gold rose $13 oz.). Our trade and current account deficits currently comprise 10% of GDP, and we are more dependent on foreign oil which is at the same price peak it was 34 years ago. Lastly, we are waging war in Iraq, occupying Afghanistan, and considering taking out Iran.
In 1970 most corporations were multinationalin other words, America was their home base which allowed us to manufacture everything we needed for warsomething we cannot do any longer. Today there is a new class of corporations, the powerful transnational corporation (TNC). They are transnational because they have no sovereignty to any particular country since not only do they have many manufacturing bases around the world, they have more than one corporate headquarters. Because of their economic power, they now command governments to do their bidding since they possess the ability to create jobs and generate wealth.
The bottom line is: the middle class is being pitted against their power. This is seen not only in the outsourcing of manufacturing jobs to China and white-collar jobs to India, but in the tax laws being passed that clearly favor corporations with greater benefits while shifting the burden of tax on to the middle class.
Lastly, the barriers between nation-states have been torn down: the economic in 1944, the political in 1945, trade in 1994, the legal in 1998, and military and intelligence in 2001. The reality is that we live in an interdependent worlda global world where the nation-states are ONE. While many presidents from JFK to George Bush and key US officials have said the world is interdependent, Treasury Secretary John Snow telegraphed a further structural change in February, 2004 when he said, "All countries are interdependent. The market is central to global growth." What Snow signaled was the fact that markets now determine the value of a nation's currency and not the country. This concept is referred to as "Market-Based Democracy." THIS MOVE COMPRISES THE SECOND PHASE OF THE NEW GLOBAL ECONOMIC INFRASTRUCTURE OF FLOATING CURRENCIES.
In 1973 Nixon took the dollar off the gold standard and our currency has floated against the other currencies of the world in accordance with government oversight. Now, 31 years later, the dollar has been de-linked from government oversight and its value has been shifted to the market. I will assume this is the second phase of a three part process that will lead to an international currency, and eventually a cashless society.
In order to understand where we are going, we must look at the past in order to see where we are today so we can plan for the future.
1. The Federal Reserve 1913
When America was founded, there were great and serious debates over who should control the monetary system of our new country. While President Washington was chosen by unanimous vote, he appointed a number of constitutional advisers. Secretary of State Thomas Jefferson believed in the capacity of the common people for self-government. Secretary of the Treasury Alexander Hamilton, an aristocrat by birth and breeding and connected to the Tory element of the Revolution, believed our monetary system should be set up like that of England's with a private corporationcentral bank (Bank of England). Washington accepted the views of Hamilton and signed a bill into law creating our first central bank (The Coming Battle, M. W. Walbert, 1899, republished 1997, p. 3).
When Congress refused to renew the Bank's charter in 1811, the War of 1812 started, and in 1816 Congress re-charted the bank. "From 1816 to 1828, it was the sole arbiter of the financial affairs of the nation, both public and private. Its power in politics was immense, and it swayed elections as well" (Walbert, p. 11). When Andrew Jackson was elected President in 1828 he announced in his first message that he would not renew its charter. He ended up vetoing the law Congress passed to re-charter the Bank. Jackson pointed out that the bank's stock, valued at $8 million, was held by foreignerschiefly in Britain. His concern was that a majority of shares of its stock might fall into alien hands, which if we were involved in a war, could use its influence against the United States (Walbert, p. 17).
Needless to say, the move to re-establish control over the economy of the United States did not abate. Between 1840 and 1913, there was much done to try to re-establish a private corporation that would control our monetary system.
In 1913, the question of a central bank came up again. The people involved in this effort included some of the wealthiest people in America: Senator Nelson Aldrich (grandfather of David Rockefeller); Jacob Schiff and Paul Warburg of Kuhn, Loeb and Company, an international banking house; Piatt Andrew, Assistant Secretary of the Treasury; Henry P. Davidson, Senior Partner of J.P. Morgan & Company; Charles D. Norton, and Frank Vanderlip, President of National City Bank which is CitiGroup today. The passage of the Federal Reserve Act of 1913 was done through chicanery. Those in the Senate who favored the Act did not go home while those that were against it went home for Christmas. In a special session convened with quorum, the Act passed at 11:45 p.m. on December 24, 1913.
With the passage of the Federal Reserve Act, our monetary system changed back to one of control by a private corporation and not the US Treasury. Our currency now says, "Federal Reserve Note." Earlier in the day on December 24, 1913, Congressman Charles A. Lindberg, Jr. stated from the House floor: "This Act established the most gigantic trust on earth. When the President signs this bill, the invisible government by the Monetary Power will be legalized . . . The worst legislative crime of the ages is perpetrated by this banking bill." We should note that President Woodrow Wilson could have vetoed this bill like Andrew Jackson did, but he was put into office by the same powers that passed the bill.
Since 1913, the Federal Reserve Act has been amended over 195 times. Between 1914-1939, US Federal Reserve Notes were backed by gold certificates to 40% of their value. This was reduced by 25% in 1945. Today it is questionable as to how much gold backing there might be.
In the last eight years, there have been a number of empowerments given to all central banks, including the Federal Reserve. In 1997, the Bank of England was given powers like the Federal Reserve which included the power to set interest rates without permission from government and to have a separate pool of foreign exchange reserves to INTERVENE in currency markets at their discretion. A Washington Times article said that their central bank minister, Gordon Brown, was "modeling the Bank of England much more closely after the US Federal Reserve which can adjust rates even if that causes short-term political discomfort for the White House" (Washington Times, 5/7/97, p. 1). About the same time, the Bank of Japan was also given more power to determine monetary policy. Currently, the Bank of England, the Bundesbank, and the European Central Bank all have the same ability as the Federal Reserve to change interest rates without prior governmental approval.
It also appears that there was a harmonization between Fed concerns and market direction. In 1997, every time Federal Reserve Chairman Alan Greenspan made any kind of comment about the markets, they reacted. This strange phenomena has continued into present times, signaling the power of this private corporation over our entire economic system!
Then in 1999 Congress passed HR1094 which amended the Federal Reserve Act to broaden the range of discount window loans. The discount window is where banks borrow from the Fed overnight to maintain their stated level of capitalization. The Fed now accepts for collateral: Treasury and federal agency securities, gold certificates, Special Drawing Rights, foreign currencies, and discount window loans made under Section 13 of the Federal Reserve Act. Please note Special Drawing RightsI asked Volker if that was going to be the future international currency. If it is, the Federal Reserve already accepts it as collateral!
What we can see is that as our indebtedness grows, this private corporation wants more collateral for the loans they are making to the US government. Furthermore, with the expansion and harmonization of central bank powers, the Fed has gained great power over the government. It is Alan Greenspan who TELLS Congress what he thinks and some of what he is doing, not the other way around.
It should also be noted that as a result of the Asian Crisis in 1997-1998, the Group of Seven finance ministers, under the direction of Bill Clinton and Robert Rubin, then Treasury Secretary, invited the central bank ministers of the G7 countries to join them in their discussions. They have now become a permanent addition to global economic meetings.
2. Rise of Big Business and Big Banking
As a result of the Industrial Revolution, there was a massive shift from the farm to the city. The importance of the farm is that people were self-sufficient in that they could grow the food they needed to stay alive. In the city, everyone is dependent on the corporation or the government for sustenance.
As the world became more industrialized with more people moving from the farm to the city, the importance of the corporation to create jobs and maintain a certain standard of living rose to the point that they now have great, great power over people and governments. We are now dependent on the corporation to buy food, clothing and the other necessities of life as well as to provide us with healthcare and retirement income.
Many will remember the Carnegies (steel), Rockefellers (oil and gas), Vanderbilts (railroads), and Goulds (the "Wizards of Wall Street") who were also known as "the Robber Barons" because they were able to amass huge amounts of wealth by forcing out the little guy and controlling an entire industry.
They used devices such as private trusts to solidify their financial holdings by not paying taxes. According to the Chronicles of America, "Industrialists see in the trust a way to control the rabid competition that undercuts prices and destabilizes the business environment. For the titans of industry, business has been war." The beauty of the trust is that it allowed those with tremendous wealth to amass huge fortunes without paying taxes throughout the 20th century.
According to Bill Clinton's mentor, Georgetown University professor Dr. Carroll Quigley, who wrote Tragedy and Hope:
In the United States, Financial Capitalism was achieved when the structure of the financial controls created by Big Banking and Big Business were built with one corporation being built on top of the other. (Quigley cites two financial powerhouses: J. P. Morgan (banking) in New York, and the Rockefeller family (big businessStandard Oil Corporation).
In 1909, US Steel, which was controlled by J. P. Morgan, was the only billion dollar corporation. By 1930, there were 15 companies worth one billion dollars. In 1930, the 200 largest corporations held 49.2% of the assets of all 40,000 corporations in America or 22% of all the wealth in the country. [The] Morgan and Rockefeller groups acting together or even Morgan acting alone, could have wrecked the economic system of the country merely by throwing securities on the stock market for sale, and having precipitated a stock market panic, could have then bought back the securities they sold at a lower price (Quigley, p. 72).
Corporations also evolved in the 1960's and 1970's as they started to buy up other kinds of non-related companies to build their empires. They started to build factories and open offices in other parts of the world, making them multinational. The final evolution was to transcend the nation-state and become transnational by having home offices in other parts of the world. This facilitated their desire to not pay allegiance to any one particular government. Interestingly enough, none of their originating governments prohibited this new level of structure.
Their power continued during the 1990s when hundreds of mergers and acquisitions occurred. How many mom and pop hardware and grocery stores went out of business as a result of Wal-Mart, Staples, Home Depot, and Sam's? The laws which originally were to guard against monopolies have fallen by the wayside with the merger of Mobil Oil and Exxon in 1999 that reunited the Rockefeller oil empire broken apart in the 1910s by anti-monopoly legislation. Then British Petroleum bought out Amoco. Now monopolies have returned, giving them unparalleled power. Currently, of the 100 largest economies in the world, 51 are corporations. Think of it, there are 51 corporations that have more economic power and might than countries. When we think about a shift in the "balance of power," we need to consider the power and might of corporations.
Furthermore, there is another evolution occurring in business. It is called public-private partnership which is the coming together of all levels of government with multinational and transnational corporations and non-governmental organizations. They partner together to buy parts of government such as sewer systems, water companies, airports, etc. Some see this as a "co-management" of government with business. Please see Newsletter #12, "Reagan Privatizes Government when he says, 'Get Government Off our Backs'."
3. The Stock Market Crash, Depression and John Maynard Keynes 1929 1933
The US stock market crashed in 1929. This was a separate occurrence from the depression which followed. The Crash came about as a result of (1) America reducing the gold content of the dollar by 40%, (2) Speculation in the stock market, much of which was financed by credit, (3) Foreign investors selling their stocks, and (4) the Federal Reserve taking money out of the banking system which the Fed thought would stop the frenzy. This private corporation used the same technique used to burst the Nasdaq bubble seventy-two years later they took money out of the banking system which made the market drop.
The Fed or any central bank is able to create market highs or lows by the amount of money they pump into the banking system (buying US Treasury Notes, puts money into the system) or take out of the banking system (by selling US Treasury Notes).
When the Federal Reserve took money out of the banking system, it caused the Depression. John Maynard Keynes, a British socialist and economist, came over to advise Franklin Roosevelt. His solution was to go into debt in order to stimulate the economy. President Roosevelt financed all of his New Deal programs by borrowing money.
The legacy today of Roosevelt and Keynesian economics is that every level of government is broke: local, county, state and federal, and every level of government is selling assets in order to pay down debt. The City of Chicago just announced that they have sold the Chicago Skyway which is a toll road to Spain's Grupo Ferrovial and a unit of Australia's Macquarie Bank for $1.8B. A lawyer involved in the deal said, "Every US governor is going to be looking to see what assets they can now monetize as a result of this deal" (Financial Times (FT), 10/18/04, p. 20).
4. Roosevelt Confiscates Gold 1933
When President Franklin D. Roosevelt was elected on his "New Deal for the American People" program, his first act as president in his inaugural speech, March 4, 1933, was to declare a national bank holiday. For the next 8 days, banks were closed because of the number of people withdrawing their savings in gold.
A little more than a month later, on April 20, Roosevelt passed the Emergency Banking Act of 1933 which took America off the gold standard. It put an end to the following: (1) Convertibility of notes into gold by Americans; foreign countries were permitted to convert their gold-backed dollars at any time, and (2) Private ownership of gold was made illegal except for collectors of rare gold coins. In essence the American financial system was transferred from a standard of accountability which used gold to guard against excess debt, to a system in which there is no accountability. All a government has to do is print money. This opened the door for massive debt which paved the way for Keynesian economics which have created a world indebted to a group of powerful bankers who own the world's central banks. Talk about a banking monopoly! Can you imagine the interest they make from the debt of the world's governments?
5. The Glass-Steagall Act 1933
The excesses of an unchecked and unregulated stock market became central in 1929 when the market crashed. As a result, FDR put Joseph P. Kennedy in charge of finding solutions, commenting, "It takes a thief to catch a thief" (6/25/02 History Channel). Much has been written about those who were able to "sell high" while others lost it all.
Because of the Crash, Congress commissioned a study to determine why it happened. They concluded that it was the result of the broad range of services that banks could perform which created the right circumstances for the Crash to occur. Up until 1933, banks could not only make mortgages and take deposits; they could also bring new stocks to market, offer them through the bank and make loans for people to purchase stocks on margin. The report recommended these functions be separated from banking.
Congress recommended that the mortgages and deposits or community banking activities be separated from the stock market and investment activities so as to put a "fire wall" in place to protect the banking system from possible stock market excesses. Two bills were passed to protect the investor but also our entire banking and financial systemThe Glass-Steagall Act of 1933 and the Securities Exchange Act of 1934.
These laws worked very well until the GATT was passed in 1994 which became the World Trade Organization. As a result, the nation-states no longer have any restraints, laws, or barriers between them. We have entered a "new world" where there are no borders. Please refer to Newsletter 019, "The Repeal of the Glass-Steagall Act".
6. International Financial Infrastructure Born with IMF/World Bank 1944
In 1944, finance ministers from over 40 countries of the world met in New Hampshire to set up an international financial institutions that would deal with a post-War world: the International Monetary Fund, and World Bank. Their ultimate objective was to set in place global institutions that would facilitate the financial and economic integration of the nation-states. The immediate objective of these institutions was to facilitate loans to help rebuild war-torn Europe. Today, finance ministers from 186 countries meet on a bi-annual basis to determine the state of the world's finances. Thus these two organizations have been instrumental in "harmonizing" financial growth around the world and redistributing growth from strong countries to weaker countries.
7. The United Nations 1945
In 1945, countries of the world met in San Francisco to establish a new international organization that would prevent wars by providing a forum were nations could talk out their differences. Although the United Nations has not prevented any wars, they have set in place an extensive global infrastructure of governance through international law. The establishment of the UN has basically torn down the political barriers between countries. Please go to their website to understand how huge their governmental structure is that oversees everything from health, education, labor, transportation, postage, civil aviation, space and the oceans: www.un.org.
8. The 1970's: Nixon Severs the Dollar from Gold in 1971, Currency Crisis in 1973, Period of War, Lower Dollar and Inflation
The 1970's are the key to understanding where we are today and where we are going in the future. While Roosevelt continued the gold standard for countries who wanted to cash in their gold-backed dollar certificates, individuals had their gold confiscated. In 1971 President Nixon closed the "Gold Window" which cut off from countries the ability to cash in gold-backed dollars for the precious metal. Since the dollar was the world's strongest currency, many countries supported the value of their own currencies by holding gold-backed US dollars. Basically what Nixon did was to DEFAULT on the millions of dollars those countries held in their vaults. This precipitated the 1973 currency crises. Let's take a look at what Nixon did and the repercussions.
There is no historic incident comparable to the financial devastation inflicted by Nixon when he removed the dollar from the gold standard. Never in 6,000-years of history has international trade been conducted on the basis of a piece of paper that has no tangible backing! During Biblical times and earlier, traders used animals, jewels, expensive clothing, and gold and silver to trade. These all have TANGIBLE value. Today, the world is on a fiat monetary system that has nothing of value to support it. Its purchasing power can drop simply by government printing more paper money! From what we can understand, this was the first phase of changing the monetary system of the world. Please see Newsletter 023, "Snow Signals markets Will Determine Value of Currency-2004."
Under a gold standard, a country could only spend or import according to the amount of gold it had. Now there is no accountability to gage how much a government spends! When we think of the effect of inflation, we should equate it to the actions of Pharaoh when he told the Israelites to make bricks without straw. Inflation "inflates" the value of our savings, pensions, and IRAs as it costs more to live when our central bank is printing money to cover our credit spending. We lose purchasing power under inflation.
9. The Group of Eight is Birthed 1975
In 1973, President Nixon called together the leaders of four countries to meet with their finance ministers at the White House. Since the world monetary system was no longer backed by gold, they needed to have some new kind of mechanism. It was agreed that the presidents and prime ministers of key developed countries would take on the function of overseeing the world's monetary system. In 1975, the Group of Five, which later became the Group of Eight G8, was formed. The top industrialized countries that comprise the G8 are: the United States, Canada, Britain, France, Germany, Japan and Italy plus Russia which became a full partner in 1998. The G8 is considered a "global board of directors" as the agenda they set basically is the path the world is going to follow.
Over the years, the G8 has added a "global cabinet" comprised of the various cabinet secretaries from those same countries who now meet throughout the year: labor, education, transportation, trade, housing, finance, state, and the environment. The cabinet secretaries now issue their own directives and mandates as to how the countries of the world are going to harmonize their laws to conform to their new mandates. Their ideas are then incorporated into the main statement that the G8 heads of state issue.
It is the Group of Eight that is directly responsible for "globalization" which refers to the removal of the various barriers that exist between the nation-states. Without their leadership, the world would still be comprised of individual nations instead of ONE new world.
10. The Monetary De-Regulation Act 1980
In 1980 during the Carter presidency, Congress passed the Monetary De-Regulation Act of 1980. It impacted the US in three ways: First, it changed various federal laws as foreigners could now invest in America and Americans could invest outside the United States. These changes led to the proliferation of foreign and global mutual funds, global mergers and acquisitions between companies, and $2T in stateless money running around the world daily looking for higher returns and a quick currency play. Obviously the integration of investments and corporations is part of making the world one and in changing its currency from individual nation-state currencies to a global currency.
Second, the Act removed ceilings and floors on interest banks had to pay and charge on savings and certificates of deposit. Banks can now pay the "going rate of interest" rather than a minimum percentage. Currently banks are paying ½% to 1% on savings while charging 5½% to 6½% on mortgages and 21-23% on credit cards. By paying so little interest, the banks have shifted the bulk of consumer savings from the banking system to the stock market. Economist Kevin Phillips writes in his book, Wealth and Democracy:
Over the three decades from 1970 to 2000, the US slowly substituted the securities sector for the banking sector as the linchpin of the overall financial sector. In 1980, the average daily volume of shares traded on the NYSE was 45 million, in 2000, it was 1.041B. In 1980, all mutual fund assets totaled 135B, and in 2000 they totaled $7.8T. The value of all stocks in 1980 was $1.4T, by 2000, it was $12.2T.
Lastly, The Monetary De-Regulation Act gave the Federal Reserve more power over the US banking system.
11. Reagan's Tax Cuts U.S. becomes Debtor Nation 1980s
When President Reagan came to office he obtained passage of major tax laws in 1981, 1982, 1984, 1985, and 1986. The Economic Recovery Tax Act of 1981 (ERTA) reduced the maximum individual tax rate from 70% to 50% and the top tax rate on long-term capital gains from 28% to 20%. While lower tax rates made the US attractive for foreign investors as capital flowed into the US from all over the world, it eroded the after-tax income of lower bracketed taxpayers. Kevin Philips documents that as a result of Reagan's tax cuts, the tax rate of the median family rose from 5.30% in 1948 to 24.44% in 1985 while the millionaire level or top 1% dropped from 76.9% in 1948 to 24.9% in 1985. Thus, the burden of taxation was shifted from the corporation and millionaire to the middle-class.
Furthermore, Reagan's tax cuts allowed corporations to wipe out most of their tax liability in 1981 and actually qualify for refunds for previous years. Between 1982 and 1987 corporations claimed $1.65T with huge sums of corporate income tax liability being wiped out because of depreciation excesses in ERTA. Corporate give-a-ways like this helped to increase the federal deficit. Phillips notes, "In 1950, corporate taxes as a percentage of total receipts was 26.5%, in 1980, it was 12.5% and in 2000, it was 10.2%."
By 1983, Social Security and Medicare payroll taxes on lower and middle-income Americans required increases. The Tax Reform Act of 1986 dropped the highest income tax bracket to 28% and gave the rich some 650 special tax preferences to embellish their after tax income. By 1985, expanding FICA earnings coverage and higher rates made these taxes a greater burden for two-thirds of US families. It was during Reagan's watch that the US became the world's largest debtor nation as our deficits reached $1T. Today it is over $7T.
12. Reagan Privatizes Government when he says "Get Government Off Our Backs" 1980s
During Reagan's term in office, he developed a very close friendship with Britain's Margaret Thatcher. Elected in 1979, Thatcher rejected Keynesian economics and became a student of Friedrich von Hayek's work which proposed a "market-based economy." Von Hayek's book, The Road to Serfdom, set forth the radical concept of government selling off assets. Thatcher adopted the term "privatization" which was used in a book by American Management expert Peter Drucker to explain this idea.
The underlying concept of selling state owned assets or privatization is the freeing-up of cash to service government debt. Also selling government industries shifts the pension burden to the purchaser. By 1992, two-thirds of British state-owned industries were sold and those assets were moved into the private sector.
In a recent Financial Times editorial, it lauded the program of "privatization" or selling government assets. In Britain it began with the sale of 51% of British Telecommunications. Then other government owned industries were sold: British Petroleum, British Aerospace, Cable and Wireless, Amersham International and Jaguar. It explained how the British example, "has been followed around the world, in developed countries, developing countries and those in transition from communism to the free market" (FT, 11/20-21/04, p. 6).
Ronald Reagan adopted Thatcher's philosophy as his mantra. He told us, "[V]ote for me if you believe in yourself. Too much governmentGet government off our backs." Americans did not understand that Reagan was proposing that the US government sell off its assets to reduce the size of government and bring in funds to (hopefully) pay down our debt. This was and is a total philosophical change and view of government. This later opened the door for Bill Clinton's "Reinventing Government" in 1994 which introduced the concept of public-private partnershipa buyout of government by business. I have written two books about public-private partnership: Prince Charles the Sustainable Prince and the United Nations' Global Straitjacket.
13. Communism Falls 1989
How can the events that led up the fall of the Berlin Wall be explained? Somehow the citizens of Russiawithout one bullet being firedwere able to change the rigid political communistic system in the Soviet Union overnight! Communism, we are told, is dead. We are told there is no more Cold War enemy to oppose. The world is one philosophically. Russia was hailed by President Bush at the Group of Eight meeting in 2001 as "America's closest ally." China is now America's largest importer as US corporations have transferred manufacturing jobs to a nation that pays slave-labor wages. While China still needs jobs for 2 billion more people, both of these countries are being integrated into various global organizations: Russia is now a member of the Group of Eight and China has joined the World Trade Organization.
14. The Birth of the "Market" 1990's
At the beginning of the 1990s: the Dow achieved a market high of 3,000 (only to fall 540 points was considered a huge, gigantic fall), the Fed discount rate fell to a 27 year low of 3.5%, and the first President Bush passed the largest tax package in history. Furthermore, because of our growing trade deficit, the dollar fell to new post WWII lows: from 148 to 83 yen and 1.62 Deutsch marks. America was involved with the war in Kuwait, and the US banking system was in the worst shape since the 1930s.
By 1998, the Dow had risen to 9,334, on its way to 10,000. Why did the Dow triple during the 1990s? The reason was the amount of money foreigners were investing in the US, the fall of trade barriers between countries with the passage of the 27,000 page General Agreement on Trade and Tariffs (GATT) which became the World Trade Organization, and the rise of mergers and acquisitions (M&A). In 1990, M&A's totaled $180B, by 1995, they totaled $502B, in 1996 $1.15T, in 1997 $926B, and so on. Furthermore, the Federal Reserve tried to jump start the economy by cutting the Federal Funds rate almost two dozen times.
By the end of the 1990s, the highest number of Americans, 45%, owned stocks either through a 401k, IRA, or personally. Today, the market has a psychological effect on people. When it is up, people feel good and when it is down, they are not happy.
15. NAFTA/GATT Passed 1994
Two new trading spheres were birthed in 1994. The first had to do with tearing down trade barriers in the Western Hemisphere between the US, Canada and Mexico.
The second had to do with tearing down ALL OF TRADE BARRIERS between the countries of the world. And whilst the US Senate would not ratify a world trade organization in 1944, by 1994, with the help of Rush Limbaugh and the Republicans, Congress passed "free trade." The GATT was 27,000 pages long and established a "United Nations of Trade," the WTO, as trade representatives from 191 countries meet in Geneva to discuss trade harmonization. Farmers in Idaho, Wisconsin or Florida no longer compete with the farmer down the road or across the state, but now compete globally against all farmers. The same goes for every profession. We now compete in the local market which is part of the global market!
Americans who have had the highest standard of living in the world are in the process of seeing it drop as a result of outsourcing which is the transfer of jobs to lower wage countries. Over the last twenty years, steel and manufacturing jobs have been outsourced to China which does not have our standard of living and wage scales. White collar jobs are being transferred to India. This allows multinational and transnational corporations to improve their profits at the expense of Chinese slave labor and lower wage scales in India while eliminating jobs in America. Retired General Motors executive, Gus Stelzer wrote an article for Middle American News in which he talked about a computer employee who earned $86,000 a year. Stelzer estimated that if 2 million jobs have been lost to India and China, this represents loss of $30B in tax revenues.
Since President Bush II has been in office, 2.7 million jobs have left the US. Their response is that people will have to be re-trained. While this can and will be a blessing to some, it will be a burden to those who are too old or whose town has no calling for their new skills. There is a great concern that the middle-classthose earning from $25,000 to $99,999is contracting and that fewer people may be able to enjoy what once was "the American dream."
In order to accommodate the WTO, laws on the local, county, and state level are in the process of being changed or eliminated to conform to international trade laws. By dropping trade barriers, people have no political protection which was the purpose of government. The same corporations that created the middle class are now, with the help of pro-corporate tax laws, deconstructing the middle-class through out-sourcing. Pat Buchanan said this about free trade: "[It is a] Trojan horse of world government. Free trade is the murderer of manufacturing and the primrose path to the loss of national sovereignty and the end of our independence." Time will tell.
16. The Rise of the EU and the Euro 1990's
The goal of a united Europe was not a new idea for the 20th Century since kings and popes from the Roman Empire fought to become "Emperor of Europe". People who fancied themselves as such included Charlemagne, Charles V, Napoleon Bonaparte, and Adolph Hitler. It was the 1951 Treaty of Paris signed by France and Germany that created the European Coal and Steel Community as a way to obtain greater economic strength. This pool of iron, coal, and steel resources was later enlarged to include Italy, Belgium, the Netherlands and Luxembourg. In 1957 the Treaty of Rome brought the European Economic Community (EEC) into being with the initial goal of removing trade and economic barriers between member states to unify their economic policies.
This evolution continued in 1969 when member countries decided they would create an economic and monetary union (EMU) which was enlarged a number of times by new members so that by 1991, the Treaty of European Union was established in Maastricht (the Netherlands). The first goal was economic union which would be followed by political union that would also include joint foreign and security policies. In January, 1993 the European single market became a reality for 345 million people in 12 EMU countries. To join, countries had to meet stringent goals which included budget deficits of no more than 3% of GDP. In 1998, the euro began trading in the form of credit (plastic, mortgage, and IOUs) until official paper trading began on January 1, 2002. National currencies ceased to exist after June, 2002. To date, after the admission of many eastern bloc countries, the European Union has 25 member countries. For the first time in our nation's history, we have a viable competitor currency.
Within the last several years, there has been a changeover from the dollar to the euro by European central banks, American and foreign corporations doing business in Europe and businesses within the EU now take euros instead of dollars. The euro has posed quite an adjustment for the dollar as oil was purchased throughout the world in dollars. As a result of the war in Iraq, oil is now being traded in euros. The fall in the dollar is partly accounted for by this change.
Since the 1970s, the world has been unofficially and now officially divided up into three trading spheres dominated by the dollar, Deutsche mark (until it was replaced by the euro), and the yen. When the euro was birthed, one dollar purchased 1.17 euros. Then the euro dropped against the dollar so that it was worth only US$0.80. Now US$1.00 will purchase only 0.75 euros. In other words, the euro has risen since its low against the dollar by over 56%. The dollar has fallen against the yen by more than 70%. It is this fluctuation that Paul Volcker was addressing when he told me he saw an "international currency."
17. Group of 7 Agrees to Empowerments in International Financial Architecture 1995
The Group of Seven agreed to a wide and deep range of empowerments and structural changes to the International Monetary Fund and the World Bank in order to prepare them for a world without borders. Ideas such as a "World Bankruptcy Court" were even suggested. The IMF/World Bank were given various new powers. The IMF has responsibilities which include "surveillance" of the world's banking systems and the flow of monies worldwide. In addition, the IMF will provide lines of credit for countries in trouble and create a "stabilization" fund. This is all part and parcel of the evolving global stock exchange.
18. International Criminal Court 1998
In 1998, the legal experts of the world went to Rome to hammer out the rules and regulations for an International Criminal Court (ICC). For the first time since the Roman Empire a world court now has the power to transcend national sovereignty, to issue an international search warrant, make arrests, and to detain and extradite alleged offenders to The Hague for trial by a jury of judges. Currently it will try people for crimes against humanity, war crimes and genocide. It is anticipated that the number of crimes the Court will be able to exercise jurisdiction over will expand. In the future it will try environmental crimes and drug offenses. While the US voted against the ICC along with Israel, Egypt, India, China, Libya and Russia, it is now established and functioning. The Indian delegate pretty much summed up the fact that idea of an ICC was only for countries that did not have legal redress and was not to be used for "political purposes. What the ICC has achieved is a contradiction in terms: a Court framed with Armageddon in mind is set in Utopia."
19. The Repeal of the Glass-Steagall Act 1999
I first came across the concept of "financial conglomerates" while reading a number of Bank for International Settlements (BIS) documents in which they described a bank that would bring stocks to market, sell stocks and bonds, offer mortgages and insurance. However, it said the US posed a problem for the world because of the Glass-Steagall Act. When I read this is when I began following various activities which were going on in the House Banking Committee. Early in 1995 I questioned Congressman Jim Leach who was in favor of repealing Glass-Steagall although we would be tearing down the firewalls that protect against the activities that led to the Crash. He put me off and was clearly agitated by my question.
Because of the sensitivity of this law and the fact that Congress was reuniting the investment and community banking industries into financial conglomerates, there was a great deal of activity to make all the changes leading to the repeal before the repeal was even brought before Congress so that the passage basically "caught up to the actuality of what had already been set in place."
Part of repealing the Act involved the ability of foreign banks and insurance firms to buy American banks and insurance firms.
Between 1995 and 1999 when the Glass-Steagall Act was repealed, there was a tremendous amount of activity generated by foreign banks buying American banks, brokerage firms and insurance companies. The Fed changed the amount of income a bank could earn from financial subsidiaries which was accompanied by many mergers throughout the financial industry: Salomon Brothers and Fidelity Investments; Holland's ABN Amro Bank bought Michigan's Standard Federal, Morgan Stanley and Dean Witter merged, Discover & Company merged in 1997 to create the worlds' biggest securities company and First Union agreed to partner with Hartford Insurance. By the time HR10 was passed in 1999, the Glass-Steagall had already been dismantled. With it effectively repealed, the other law that had to be overturned to rid our legal system of any national bias was in the Securities Exchange Act of 1934.
If you want to know why Enron occurred, it was the elimination of the Glass-Steagall that facilitated it and the excesses of the Nasdaq bubble. In Bruce Nussbaum's Business Week editorial entitled, "Can You Trust Anybody Anymore?," he wrote, "There are business scandals that are so vast and so penetrating that they profoundly shock our most deeply held beliefs about the honesty and integrity of our corporate culture. Enron is one of them. This is corruption on a massive scale. The Glass-Steagall Act was passed in 1933 to stop those conflicts. Its repeal in 1999 has ushered in their return."
Lastly, these laws had to be torn down in order to continue not only the global integration between banks, brokerage firms and insurance companies, but to prepare the way for a single international currencyand eventually "e-money" which is a cashless society.
20. International Accounting Standards 2000
To fix the Enron's and corporate fraud, it was proposed by Paul Volcker, who at the time, was the Chairman of the Board of the Trustees for the International Accounting Standards Committee (IASC) located in London, that the accounting rules around the world be harmonized. This meant that the US GAAP be harmonized and converged into a new set of global account rules. This merger is in the process of being finalized. The bottom line is that if you are going to have a world in which there are no more barriers between the nation-states, then everything, including accounting rules have to be harmonized.
21. 9/11 Barriers between Military/Intelligence Drop 2001
Unfortunately with the September 11, 2001 Attack on America, countries of the world are now cooperating in ways they never did before. Formerly forbidden, the US now shares information across borders, and our CIA/FBI are in the process of being merged. The CIA is now working with the British MI6 and the Russian KGB as well as other spy agencies in ways they never did before. The Group of Eight has, on a number of occasions even before 9/11, called for the cooperation of every country at every level. Through the auspices of INTERPOLInternational Policelaw enforcement agencies are linked with each other. We have the "coalition of the willing" countries fighting with us in Iraq.
22. Bush Proposes Change in Income Tax System 2002-2010
Ever since the Income Tax Act was passed in 1913, Americans have paid a tax on income earned and generated. Over the years, the amount of income tax has risen substantially from its original 1/2%. Beginning with Ronald Reagan, the burden of taxation started to shift from the top 1% and corporations to the middle class. Under Reagan's tax cuts, the tax rate of the median family rose from 5.3% in 1948 to 24.44% in 1985 while the millionaire level or top 1% dropped from 76.9% in 1948 to 24.9% in 1985. Today, the largest tax deduction for the average worker is the mortgage interest deduction.
Bush has already passed three tax packages since his first election. In 2002, the Washington Post reported that Bush wanted a "Value Added Tax" (VAT). While key officials from the Bush Administration have not wanted to answer any direct questions about a VAT or national sales tax which is a tax on consumption, the media is now actively reporting the future changes.
In January, 2003, Bush outlined his tax package which he said would take ten years. Because of the huge change this would necessitate, Bush is dividing it up into five smaller packages: (1) Elimination of double taxation of dividends, (2) Reducing tax rates which were to phase in through 2006 by accelerating them, (3) Increasing business investment expense write-offs, (4) Increasing savings limits to IRAs and other retirement accounts, and (5) Restructuring international taxes to conform to WTO rulings. These all are in the process of being effected or have been passed. Currently the estate tax drops yearly until it disappears in 2010 but it comes back in 2011. Obviously, under a VAT, this provision will be made permanent by 2010. Currently the tax on dividends and capital gains is 15% and will be eliminated. Other programs to be put in place: Retirement Savings Accounts, Lifetime Savings Account, and Employment Retirement Savings Accounts. Bush is looking to make the 2001-03 tax cuts permanent and will name a commission to consider alternatives.
In addition, Bush is looking to privatize Social Security because it does not have the money promised to pay out. They propose putting some of a person's Social Security payments into the STOCK MARKET. These monies could boost Wall Street and provide billions in new investment capital for Corporate America which helped with his re-election. The problem is that the cost to restructure Social Security is estimated at $1T to $2T over the next decade. This cost, of course, would be added to our current deficit.
Interestingly enough, when the dollar dropped to 1.33 on the euro in late November, 2004, the Financial Times lauded our desire to reduce the deficit by tax-free savings accounts, tax reform, and the reform of Social Security.
By changing from a tax on income to a tax on consumption, the US would join the rest of the countries in the world by harmonizing our tax structures with theirs. Currently the US and India are the only countries not to have a VAT. This also paves the way for an international currency and e-money!
23. Snow Signals Markets Will Determine Value of Currency 2004
As the reality of the new international world becomes more apparent to Americans, so too will the very significant change in the dollar as Treasury Secretary Snow signaled in February, 2004. In opening the G7 Finance Ministers press briefing he announced:
We recognize that we are so interdependent that growth in Asia is important to us, and our growth is important to Japan, and Japan's growth is important to the euro nations, and their growth is important to us and the UK's growth is important to us and Canada, so that we are all interconnected in ways that one nation's growth feeds and assists growth in other parts of the globe. By letting market forces work economies can achieve their potential. But the relative values of currencies are best established in open, competitive currency markets.
Secretary Snow was signaling the new MARKET BASED GOVERNANCE SYSTEM in which the stock, bond, commodity, and currency markets now rule the world. This change has been coming for some time and began with President Reagan who encouraged the privatization or selling-off of government assets. Those assets, in some cases, went into the market. The World Bank also developed the market by setting up stock exchanges in many developing countries where there were none: China, Russia, Brazil, South Africa, Ghana, Poland, etc. To help these countries have stock to trade on their new exchange, they sold or privatized state owned assets: railroads, banks, telephones in order to list them on their new exchange. According to the World Bank, more than 80 countries are selling off state-owned assets.
Robert Rubin, the former co-chairman of Goldman Sachs, became Secretary of the Treasury during the Clinton Administration. From his experience in running the most sophisticated money-making machine on Wall Street, Rubin, more than any other individual, changed how the US economy was run under the auspices of the federal government. According to Kevin Philips in Wealth and Democracy, Rubin ran the economy like it was a "major Wall Street investment firm whose goal was to make money and attract investment from around the world. Leverage and speculation were givens, and the global reach of the Federal Reserve extended as a result of Rubin's vision."
At one point in our banking history, banks held the loans they made as part of their portfolio: mortgages, automobile loans, credit card loans, and personal loans. Today, banks have sold them and transferred the risk that they use to assume to the market (you and me). This technique is called "securitization." In the first nine months of this year, securitization outpaced conventional corporate bond issues for the first time. The market also includes derivatives, options, US Treasury bills, limited partnerships, real estate in the form of real estate investment trusts, and anything else you can think of.
Now, the value of the dollar, euro, yen, and any other currency is up to the buy-sell, supply/demand of the market and not government! This is a profound change that separates the value of currency from the policies and power of government. But this also reflects, in my opinion, the structural changes that government is undergoing to change its very position in the world as the world has been transferred to a MARKET-BASED STRUCTURE making the markets more powerful than government. This signals the second phase of global monetary reformde-linking currency with the policies and power of government.
So what kind of picture do we have for the present? Let's take a look at:
Gold and Debt
The decision to take America off the gold standard began in 1933 and was finalized 38 years later in 1971 when Nixon announced that he would no longer convert US gold-backed dollars to gold when presented by foreign countries. This two-step process has moved the monetary system of the world onto a paper system whereby there is no accountability for spending, thus opening the door to constant and continual inflation. As a result of Keynesian economics, America has $53T in government debts and liabilities which is five times the $9.5T Americans owe on mortgages, car loans, credit cards and other debt (Richard Gillis Commentary, 11/1/04). Our trade deficit is at 5% of GDP or over $500B and rising. It is up 20% from the previous year and is expected to climb to $600B next year. The total trade deficit stands at $1.5T as of the end of 2003. Our trade deficit with China is $150B. In November, 2004 the government reached its debt ceiling of $7.4T. Congress raised the debt limit by $800B in late November to $8,180B in order for it to avoid defaulting on its debt.
During his Administration, President Bush has increased the government's debt by $2,000B. The Financial Times reported that Bush's spending "far outstripped that of the previous four presidents" (FT, 11/20-21/04, p. 5). Fed Chairman Greenspan warned that the current account deficit is unsustainable, "Net claims against residents of the United States cannot continue to increase forever in international portfolios at their recent pace." He went on to say foreign financing will "at some future point increase shares of dollar claims in INVESTOR PORTFOLIOS TO LEVELS THAT IMPLY AN UNACCEPTABLE AMOUNT OF CONCENTRATION RISK. Investors will eventually adjust their accumulation of dollar assets or, alternatively seek higher dollar returns to offset concentration risk." Greenspan said this would push the dollar down and interest rates up or both, (FT, 11/20-21/04, p. 5).
The federal debt ceiling first passed $1T on 9/30/81. Furthermore, the US presently has $44T in unfunded liabilities for Social Security, Medicare, government and veteran's pensions, with no way to pay them.
Obviously, the burden of Social Security, Medicare and pension's are going to be shifted on to the market, privatized and reduced through a lower dollar.
As a result of our deficits and a depreciating dollar, gold has been shining for quite a while. Central banks sold off billions of ounces of gold in 1999, depressing the gold markets and dropping its value to 30 year lows. When I called the World Gold Council to find out who was buying the gold from the central banks, they told me they did not know as there were many third parties buying for the real purchasers. Gold is up 76% from its February, 2001 low of $255 oz. Traders are now talking in terms of a "gold rally that looks set to become the longest in modern times" (FT, 11/5-6/04, p. 11). In one week at the end of November, gold rose $13 oz. USA Today featured headlines November 26, "Gold is on a tear, but where are investors?"
In an interview with Jay Taylor of J. Taylor's Gold and Technology Stocks Newsletter (718) 457-1426, he told me, "The early stages of a gold rally are the first phase when no one is buying gold. The second phase is where the public is becoming aware of gold and there is more reported on the news about gold and the Phase III is the blow off where everyone wants in."
Jay recently wrote:
As one who lived through and watched carefully the breakdown of Bretton Woods, I can't help but feel we may be very close to a major breakdown in the existing floating rate currency system which is clearly not working. The US has managed to keep the US economy from the recession/depression it needed and deserved following the bursting of the tech bubble in 2000. It has done so by blowing one bubble after another, with the latest and most absurdly overvalued bubble of all being the housing bubble. War expenditures have helped keep the demand side of the economy alive, even as consumers have been spending themselves into bankruptcy at a record pace.
What is the true value of gold? Alan Greenspan gave a speech in 1966 before he was Federal Reserve Chairman, in which he lauded the power of gold. In part, this is what he said:
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. The financial policy of the welfare state requires that there is no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.
Greenspan has provided us with the real value of gold and why it is important for today.
Since the Persian Gulf contains two-thirds of the world's known oil deposits, it is strategically important for the world. The Persians or Iranians owned the Gulf until it was taken away from them by the British and the US in the 20th Century. With our invasion of Iraq, the US now has laid claim to Middle East oil. The world is dependent on oil. With the modernization of India and China, more people are buying cars and increasing the demand for oil. China's economic growth rate of 9% pushed their demand up by 18% in the first seven months of this year.
After the 1973 oil embargo, our government said it would take measures to ensure America would not be dependent on foreign oil in the future. Here we are again. There are not enough oil refineries as our environmental laws have not allowed us to build any new ones. Thus, we are very dependent on foreign oil. Furthermore, the world's ability to refine oil has not increased significantly in the past 20 years and there are fewer rigs drilling for oil compared to the early 1980s (WP, 11/3/04, e1). The current prices which equate the 1970 high reflect this situation. There are projections that oil could go as high as $100 a barrel. The International Energy Agency which represents 26 industrialized countries thinks that international oil companies need to invest about $200B a year to keep up with the demand but are falling short. Oil prices are up about 70% since a year ago.
America made a pre-emptive strike on another country for the first time in our history when it invaded Iraq. Currently, we are trying to hold on to it. I had a conversation with a young sailor who had just returned from 18 months in Baghdad and she told me the US has no intention of leaving as they are building three military bases there. Furthermore she said the country was very dangerous. Bush will be submitting a new bill to Congress after the first of the year to request $70B, bringing the total cost for Iraq to $225B and there is no end in sight. Most of our strategic stockpiles are depleted and we are looking to replenish many key items.
As I noted in a previous economic newsletter, war is an economic stimulus and a transfer of wealth. Currently the Bush Administration has taken their re-election to mean that the American people are behind his desire to reconfigure the entire Middle East by taking on Iran, Syria, and Libya in the near future.
Dr. Thomas P.M. Barnett who wrote The Pentagon's New Map said in a C-span interview that the war games the War Colleges are playing are based on a war between China and Taiwan in the next 20 years. Most recently China tested its first unmanned airplane. Since they are now the manufacturing center of the world, they have the ability to prepare for war. The US does not. China is flexing her muscles as she recently entered into a $100B-$200B gas deal with Tehran. If America does anything to upset or invade Iran, we would be going against China and her need for oil and gas. This is what wars are fought over.
Dollar and Interest Rates
There are two things I am cognizant of: First, the dollar rises and falls according to the desires of the international bankers (central banks) when they decide to buy or sell the dollar. The value of the dollar can be tied to anything they want it to be tied todeficits, war, the President's tievirtually anything. IF the US Congress controlled our monetary system, we would not be at the mercy of international bankers who can make a fortune by playing currencies against one another.
Secondly, most economists when they make their predictions avoid the fact that the world's monetary system is held by a few international banking families and the British royal family. (In 1694 when the Bank of England was formed, William Patterson raised 1.2M British pounds to fund it. King William and Queen Mary were the largest investors in the new central bank that would control the country's monetary system. If royalty invested in the Bank of England, then I think that there is a good possibility that they have invested in the Federal Reserve and every other central bank? (I cannot prove this but it makes sense to me.) Is America the financial wreck we are made to be? I don't think so, but this is what all of the newspapers are telling us.
Now, as a result of Bush's deficit spending, the dollar is now dropping. How high can the deficit go? If we are at 5% of GDP, it could go to 10% or 15%. How low can the dollar go? Since 1973, the dollar has lost about 70% against the yen and about 54% against the euro. We have been warned by our central bank as to the unsustainability of our deficits.
China recently warned the US that they would not be rushed into revaluing its currency and that the US should not blame other countries for its economic difficulties. Said Li Ruogu, the deputy governor of the People's Bank of China (their central bank), "China's custom is that we never blame others for our own problems. For the past 26 years, we never put pressure or problems on to the world. The US has the reverse attitude, whenever they have a problem, they blame others." China went on to say that the US should give up textiles, shoe-making and even agriculture and concentrate on aerospace and then sell those things to them. This way their trade imbalance with America will be corrected.
There is great agreement on Wall Street that our debts are unsustainable. Some even predict the dollar will fall another 20-25% in the next two to three years. Is this the death of the dollarsomething people have been looking for since 1973? Will this set the stage for the international currency Paul Volcker spoke about?
Interest rates will rise if and when investors start to take money out of America. Interest rates will rise as the deficit continues to rise to provide foreign investors with an incentive to stay.
Interest rates have risen ¾ of 1% in 2004 from 45 year lows which stimulated the housing market. Now the Federal Reserve is concerned about a "housing bubble." Will housing prices burst like the Nasdaq did? I don't know. There are plenty of reasons for housing prices to stay the same. I believe it all rests on the fate of the dollar. Is it being crashed to pave the way for an international currency or to devalue our huge deficits? Only the international bankers know.
Currently China, which is the manufacturing center of the world, is one of the top three holders of US Treasuries. This has given them great power over America in addition to the power they are achieving in the global arena as they "play the power game" in all the global organizations where they participate. Furthermore, they hold the trump card at the UN Security Council.
Currently China is refusing to move to a market-based exchange rate. They have told the US they will do it when they are ready. Lastly, China is positioning itself through her oil and gas alliance with Iran in the Middle East, by standing up to the US with regard to its currency, and by holding US Treasuries which they could sell at any time.
Keynesian economics coupled with taking the dollar off the gold standard has paved the way for inflation. Inflation is when the cost of a house doubles in five years, when the cost of a new car is the price of a house in 1970, when our government is dependent on foreigners to meet its daily expenses, when the dollar is subject to market fluctuations, when government is selling assets to pay down debt, when corporations are lobbying for excessive benefits that push the tax burden onto the middle class and lower, and when corporations default on their pensions, forcing the government to take over.
The US Government has been undergoing a metamorphosis since the passage of the Federal Reserve Act. At every turn, her power and strength has been diminished. When the monetary system has no backing and the government prints more money to support spending the value of assets are easily inflated. When the government has too much debt it is forced to sell off government assets which taxpayers have paid for.
The Federal Reserve has amassed greater powers over the US economy as we have no way to pay them back. What will happen when government assets are gone and debt comprises more than 25% of GDP? Since corporations no longer have allegiance to any one country, they have the ability to take manufacturing and service jobs anywhere in the world. Senator Byron Dornan recently voiced his concern about the shrinking job base, and how Americans are going to be able to buy goods if they don't have the means to purchase themno matter how cheap they are.
Thirty years ago, Paul Volcker went around the world looking to shore up international currencies and agreeing to a new system of floating currencies, he now says it does not work. He should be fired, and our monetary system returned to the gold standard!
Mr. Volcker along with other well-known economists is now calling for an INTERNATIONAL CURRENCY. What this infers is that the dollar, euro, yen, British pound sterling and perhaps the Swiss franc will be combined into a new currency. Will this be inflationary? Absolutely.
My friend Jay Taylor is of the belief that we could be seeing deflation instead of inflation. This makes sense to me because unlike the early 70's when Nixon took the dollar off the gold standard, we had inflation which means there are too many dollars chasing too few goods. We were still a manufacturing center and we still manufactured steel. Steel did not start to leave America until the late 70's/early 80's. The tax burden was shared by the upper 1% and corporations instead of being shifted to the middle class. The cost of living was much lower and Americans were not up to their eye balls in debt.
Now with outsourcingAmericans are losing their way of life. Our standard of living is falling. As Mr. Stelzer showed, because of outsourcing we have a falling tax base and this increases the burden on government. If Americans cannot AFFORD TO BUY, deflation is what we get. No demandno matter if it comes from China or even Africa.
My whole goal as I wrote this newsletter was to examine if we are going back to the 70's. The answer is YES!!! As I review the market since the 1970s, I see a common pattern of investments: gold, oil, defense, non-dollar denominated investments, etc. Do these have highs and lows? Yes. Does the market correct from time to time so that those who rule the world can take profits? Absolutely! The stock market is now central to the financial systems of all the countries of the world. The system that has been set in place allows those with great power to "skim off the top" of the market since they have the power to create market highs and lows.
The purpose of this newsletter was to provide you with an understanding of the very serious structural changes that have taken place since 1913. I trust that this information will help you in understanding the realities of the 21st century.
We are basically bankrupt, our dollar is dropping in value at every turn, and the cost of living is rising as foreigners are buying US Treasuries to help bridge the $2B a day gap between income and spending.
With Americans up to their eye-balls in debt, Bush is proposing a new tax program that will tax consumption and not income. Because the real estate industry paid a fair amount to get Bush re-elected, mortgage interest deductions will be protected. In my opinion, for Bush to keep mortgage interest deductions, we will have to have BOTH a tax on income and a tax on consumption!!!
The bottom line is that there is no fixed point with regard to the value of our currency or the value of stocks. Everything financial has been "de-coupled" from government: the management of our monetary system and the dollar. This paves the way for an international currency and eventually e-money. The future will feature what we have discussed: war, gold, oil, and non-dollar investments. Today gold has risen to $453.50. Now that it has passed $450, many believe $500 is the next high. nl355.htm
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Brother Grigor-Scott is a non-denominational minister who has ministered full-time since 1981, primarily to other ministers and their congregations overseas. He pastors Bible Believers' tiny congregation, and is available to teach in your church.