Tuesday, November 16, 2010

Phoenix Rising

Part 1: Ashes to ashes

On November 3, 2010 the Federal Reserve Bank made perhaps the single most important announcement concerning monetary policy in the history of the United States of America. Ben Bernanke and the Federal Open Market Committee announced that the Fed would be embarking on a round of quantitative easing. In reality what the Fed was telling the populace was that they would be purchasing $600 billion of Treasury Bonds. In simpler terms yet, they agreed to purchase debt of the United States by pumping a extra $600 billion in freshly minted bills into the monetary supply, or, they agreed to monetize the debt.

Simple economics states that when you increase the amount of a currency in circulation without proper growth in whatever material backs said currency, you decrease it’s intrinsic value. In this case, they are trading debt, for a even bigger pile of debt plus interest. The public spin on this, is that with more currency in circulation, more would be available to be spent, thus stimulating the economy. What is not being discussed here in the U.S. is that with devaluation of the currency comes inflation, given the $600 billion tag attached, I would suggest Hyperinflation. I would even suggest that this was the real intent of Bernanke and the gentlemen from Jekyll Island, more on this in a moment.

Some may remember that post the spring meeting of the G-20, Treasury Secretary Timothy Geithner was the focus of attention with statements like "U.S. consumers are going to be less of a source of demand for the world in the future". Most assumed this statement was about the economic downturn and dismissed it as nothing more. The problem is the statement is about a future world, presumably post recession. So if the statement can not be taken into the context of the recession, what could Geithner have been referring to? Keeping in mind that this G-20 meeting was held among finance ministers who had, or would, call for replacement of the dollar as the world’s reserve currency.

Such suggestions came from ministers of nations such as Russia, China, Brazil, Germany, as well as officials from the International Monetary Fund and the World Bank. This came as a United Nations: Trade and Development Report argued the dollars replacement. Could THIS possibly be what Geithner was referencing? If so, what might a move away from the U.S. Dollar as the world’s reserve currency look like? How might such a move be made against arguably one of the strongest monetary markets on the planet? If you answered, by devaluing the currency, you can now see the level of importance of the Fed’s announcement regarding quantitative easing.

To further examine this possibility, we should take a look at global reaction to the decision by Bernanke and crew. Brazil, China, and European finance ministers have openly condemned the action with little logic employed in their explanations, despite their desire to see the dollar go the way of the dinosaur.   The dollar is sinking like a stone, while other markets are gaining ground. Once again the calls have begun for a new global reserve currency. In addition to the chorus already mentioned, the G-20 added the topic to their discussions for the recent meeting. While reports on this meeting show no clear consensus on the global reserve currency, reforms to the IMF were agreed upon that could essentially (pardon the pun) ‘pass the buck’ on this decision to the IMF, World Bank, and UN.

Notably silent in this debate has been the United States Treasury Department, or any member of the Executive Branch for that matter. What has come forward is a lot of double speak and misleading talk from Geithner concerning the dollar’s loss of value. Keep in mind this is the man who in October stated that the U.S. would not pursue a "deliberate policy of devaluing the dollar".

Given these developments, I saw it important to begin a companion series to my Traceability in a Sustainable World articles. While the previous series deals with identifying pieces of a emerging system and incremental advancement. This series will deal with economic developments and unilateral advancement of the entire New Economic Order. The topics will be related, but separated by context of local versus global, or segmented versus wholistic. Continued thanks go to all who have supported and participated in the work that goes into these articles. As always comments and discussion on this material are greatly encouraged.