Take away the banks' licence to print money

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Monday, July 05, 2010
Take away the banks' licence to print money

Take away the banks' licence to print money
By Paul Hellyer, Citizen Special July 5, 2010


I am one Torontonian who was bitterly disappointed by Canada's attempt to lead the world through the G20 group of leaders. Apart from putting our city through a kind of hell for three days, the "victory," if there was one, was not for the people of the world. It was a confirmation of the supremacy of Wall Street and of the fact that Mammon rules the world.

What was missing at the G20 was any meaningful discussion of why the banking industry was able to get the world into such a mess and how to keep it from reoccurring. Especially when, as U.S. economist Jeffrey Sachs recently told a London audience, "Wall Street has had the most profitable year in its history. It made profits of $55 billion," thanks to bailouts and low interest rates. "Bankers are brazenly smirking as they pocket large amounts of our money," he said. And the most the G20 could agree on was to give them a green light to keep on doing it.

The world monetary and banking system that left tens of millions unemployed in Canada, the U.S., Europe and elsewhere, and eroded the retirement wealth of a whole generation, is a disaster and must be fixed for the benefit of all. You would think G20 leaders would get the message after 25 recessions and depressions since 1890. Apparently not; we are doomed to struggle with more of the same.

The real source of the problem is a privately owned money-manufacturing monopoly that creates virtually all the new money as debt, of which there is so much that the real economy is about to drown in it. But there is a quick and simple fix with a Canadian precedent to support it.

Most people believe the bankers' myth that the money they lend to you today is money that someone else deposited yesterday. The odds of that being true are infinitesimal. They have to create the "money" they lend to you.

This is the way it works. Suppose you decide to borrow $35,000 to buy a new car. You visit your banker, who will ask for collateral; then you will be asked to sign a note for the principal amount with an agreed rate of interest. Once the note is signed, your banker will tap the bank's computer and, presto, a $35,000 credit will appear in your account. The important point is that only seconds earlier that "money" did not exist. It was created out of thin air -- so to speak.

The problem with bank-created money (BCM) is that it is all created as debt on which interest has to be paid. But no one creates any money with which to pay the interest, so collectively we have to borrow more and go deeper and deeper in debt. The system is like a balloon being pumped full of debt. The balloon keeps getting larger until the debt load is too big, and then it's like a balloon with a pin stuck in it. A recession or depression wipes out a lot of debt so the whole process can start over again.

In 1938, there were no job openings in Canada -- none. Then war broke out in 1939. Soon everyone was working. Some people joined the armed forces, others built factories or made munitions. So, you might ask, where did they get the money necessary to do all this? The Bank of Canada just printed it.

The system worked this way. The Bank of Canada (BoC) printed money to buy government of Canada bonds. The government paid the BoC interest on the bonds, but the bank paid it back as dividends. So the net cost to taxpayers was close to zero.

The cash that the government got from the sale of its bonds was spent into circulation and wound up in the private banks, where it became what the economists called high-powered money. That became the monetary base (cash reserves) for private banks to expand their lending capacity and make loans for building factories, etc.

In effect, the money-creation function was shared between the government of Canada, through the Bank of Canada, and the private banks. This was the system that got us out of the Great Depression, helped finance the Second World War, helped finance post-war infrastructure and assisted in laying the foundation for our

social security network. It was the system that gave us the best 25 years of the 20th century!

It continued, in effect, until 1974 when the BoC, in concert with other central banks, adopted the ideas of Milton Friedman and his colleagues at the University of Chicago. This led to the current so-called capital adequacy system that is basically uncontrollable because all of the yardsticks are subjective. It has got to go.

The first requirement is to re-instate the cash reserve system as an objective regulator of the rate of money creation without the wild fluctuations in interest rates that have had such horrific consequences in the real world.

Next, bank leverage has to be reduced from 20-to-one to a level that the banks themselves would consider prudent if they were making a loan to industry. A ratio of three-to-one appears to be most appropriate. That leaves them with more than enough money-creation power to meet their legitimate objectives while denying the reckless latitude to finance leveraged buyouts, hedge funds, the purchase of stocks on margin, and the casino-like activities that have become addictive.

Third, and profoundly significant, the proportion of government-created money (GCM) should increase to 34 per cent of the total, while the banks are reduced to 66 per cent from about 95 per cent. If the GCM is created as debt-free money, it will be possible to reverse debt-to-GDP ratios in every country. Of course, the 33-per-cent cash reserve should be phased in over a period of years to give the banks time to adjust to the new reality. Still, benefits of the transition would be immediate.

Canadian banks had considerably more than $2 trillion in assets at the end of last year. Requiring them to increase the cash in their vaults by three per cent would allow the federal government to print enough money to eliminate its budgetary deficit for last year. One or two additional percentage points would provide cash to allow the federal government to assist the hard-pressed provinces and still have enough cash to provide additional stimulus to help create jobs for people affected by the banking crisis.

Whenever government-created money is suggested, the knee-jerk reaction of orthodox economists is that it would be inflationary. That is not correct. It is the quantity of money put into circulation that influences prices, not who prints it. GCM would be entirely neutral if BCM was reduced accordingly.

The infusion of substantial sums of debt-free money would end the tsunami of debt that has put the world financial system in peril and paralysed governments from taking the essential steps to solve the problems of the real world, as opposed to the demands of the money-changers.

Was it too much to ask of the leaders of the G20 that they put the interests of their electors and of future generations ahead of the interests of an elite few?

Former defence minister Paul Hellyer is the author of a new book titled Light at the End of the Tunnel: A Survival Plan for the Human Species.

WTSHTF

China devalues US buying power by 30%, Protects US Treasury Holdings

From here.

The trade imbalance between the US and China, a hot button between the nations for the last decade or so, is finally going to start to stabilize in the summer of 2011. However, it is doing so with a de facto devaluation of the US dollar and its buying power. The average American will see a spike in the price of everything from their favorite jeans and T-shirts, to the cost of some electronics.

The Chinese have decided to devalue the US dollar’s buying power, without devaluing the US Treasury holdings they hold. It is an elegant solution to their issues. It will be interesting to see if they can pull it off, while they try to prop up the European Sovereign debt markets at the same time.

The Chinese are attempting, successfully so far, to introduce the Yuan as a global currency in which to settle international trade. China is pumping into its own internal currency markets so much liquidity, they need an export market to develop for the Yuan or their own internal markets will overheat.

So China is going to start offering Yuan based savings accounts, to westerners as a vehicle in which to park capital. While this is a test case only, one might expect Yuan based accounts to be offered around the world sooner rather than later.

If western investors take to Yuan based cash accounts as a way to try and gain an increase in value, the transition will drive the western banks to be more proactive in adding convertibility into their systems. To start, they are offering these Yuan accounts at three US based branches.

The US Dollar devaluation will come in the form of an increase in the prices of all products. In reality it will represent the uniform cost push effects of inflation. The US can expect it on all Chinese based products of one form or another. The timing of the change is set to arrive with the products on the US shores in the summer of 2011.

“They’re going to go home with 35 percent less product than for the same dollars as last year,” particularly for fur coats and cotton sportswear, said Bennett Model, chief executive of Cassin, a Manhattan-based line of designer clothing. “The consumer will definitely see the price rise.”

China has no choice at this stage, but to pass on the cost of raw inflation to its customers. The era of cheap Chinese imports is over. The real impacts of higher commodity costs are going to push into the economy at different levels.

The weather impact on Australia has not hit the Chinese manufacturing capacity yet, but you can expect that diesel will increase significantly in the coming weeks, as China draws upon the world’s spare capacity to fuel their economy this spring.

The US had warned China to adjust its currency peg with the US, or suffer the consequences. Those consequences are now being going to be return to the US shores as expensive imports of dubious quality.

However, not all nations or economist agree with the stance the US is taking. Robert Mundell, Nobel Prize winning economist, and the proverbial father of the Euro, feels that the US is pushing China too hard in this regard.

Robert Mundell, Professor of Economics, Columbia University, said: “It’s a mistake to have China change the exchange rate. This is a bad way of changing something.

“A big appreciation in China would create deflation, aggravate poverty in the western part of the country, in the rural areas. It would be something that would in the long run come back to haunt China.”

Channel News Asia

China has no choice but to push the cost of the rising raw commodity prices onto their end consumers. The dirty secret of the runaway commodity bull market that started in the summer of 2010 is how much real inflation is raging inside of the Chinese economy in 2011.

“Four percent, China can bear it — beyond 5 percent, people will complain a lot,” said Huo Jianguo, president of the Chinese Academy of International Trade and Economic Cooperation here.

The Chinese people are reported to be experiencing painful levels of internal inflation on food staples. The hard reality is that in the global trade in fresh produce, requires that energy inflation is quickly pushed through to food prices. The Chinese government has reacted to these increases by rolling out Nixon like price caps on staples.

“Given that food prices are spearheading immediate inflationary pressures, supply-side measures should be more effective than rate hikes,” Qu Hongbin, the co-head of Asian economics research at the international bank HSBC, “There’s no need to panic, as Beijing has more than enough effective policy options to combat inflation.”

The real mark up of inflation will be higher, and across the board for buyers of Chinese products in the spring 2011 for the next Christmas buying season. This is going to introduce expectations of inflation in the US by the spring of 2012.

Victor Fung, the group chairman of Li & Fung in Hong Kong, a 35,000-employee trading company that supplies most of the world’s big retailers with Asian goods, said that contracts signed late last year would produce a jump of 10 to 20 percent in the import prices of consumer goods arriving at American ports by the second quarter of this year.

“By the middle of this year, you’ll see considerable diversion of trade away from China,” which will start to bring down the United States trade deficit with China, Mr. Fung said in an interview.

New York Times

The Chinese – US bilateral trade will show signs of leveling at a new lower rate, just as the European mess grows worse. This is the Catch-22 China now finds itself in. Europe has grown into China’s most important export market, just as the economy of Europe shudders from the fiscal and monetary policies of the area. China can handle the market adjustment to one of its major export markets, but can it handle both?

The Chinese could find themselves in a situation in 2012 where their largest two export markets have radically changed on them. This leaves their government open to domestic issues concerning the support they are providing to bankrupt western nations.

The US purchasers for organizations like Wal-Mart are international mercenaries. They will look to relocate their international low margin purchases to nations like Vietnam, the Philippines, and Africa, and to the Mexicali factories, once again.

The Chinese are going to find themselves priced out of the low end of the cheap product market. While their factories are the largest in the world and they employ armies of workers, the scale of large numbers is starting to work against the Chinese as a whole.

The increase in prices from most if not all world sources, will drive new changes to the US business models in the near future. It will be interesting to see where China and its exports are in that make up.

The Fall

For years, people have been laughing at the horrific economic decline of Detroit. Well, guess what? The same thing that happened to Detroit is now happening to dozens of other communities across the United States. From coast to coast there are formerly great manufacturing cities that have turned into rotting, post-industrial war zones. In particular, in America's "rust belt" you can drive through town after town after town that resemble little more than post-apocalyptic wastelands. In many U.S. cities, the "real" rate of unemployment is over 30 percent. There are some communities that will start depressing you almost the moment you drive into them. It is almost as if all of the hope has been sucked right out of those communities.

Meanwhile, the economic downturn has been incredibly hard on the finances of state and local governments across the United States. Unlike the federal government, state and local governments cannot use the Federal Reserve to play games with their exploding debt burdens. Facing horrific budget deficits, many communities have begun adopting "austerity measures" in an attempt to slow the flow of red ink. All over the nation, deep budget cuts are slashing police departments, fire departments and other basic social services, but it seems like no matter what many of these communities try the debt just keeps growing.

So when you combine economic hopelessness with drastic budget cuts, what you get are hordes of communities from coast to coast that are becoming just like Detroit. In the city of Detroit today, there are over 33,000 abandoned houses, 44 schools have been permanently closed down, the mayor wants to bulldoze one-fourth of the city and you can literally buy a house for one dollar in the worst areas. Many Americans thought that it was funny to make fun of Detroit, but little did they know that what happened there would soon start happening everywhere.

The following are 24 signs that all of America is becoming a rotting, post-industrial, post-apocalyptic wasteland just like Detroit....

#1 The second most dangerous city in the United States - Camden, New Jersey - is about to lay off about half its police.

#2 In the city of Camden, about the only "industries" that are truly thriving are drug-dealing and prostitution. It is estimated that there are literally dozens of open-air drug markets in Camden.

#3 The city of Newark, New Jersey laid off 13 percent of its police force just last week.

#4 Of 315 municipalities the New Jersey State Policemen's union recently surveyed, more than half indicated that they were planning to lay off police officers.

#5 At least 1000 people now live in the 200 miles of flood tunnels that exist under the city of Las Vegas.

#6 All over America, asphalt roads are being ground up and are being replaced with gravel because it is cheaper to maintain. The state of South Dakota has transformed over 100 miles of asphalt road into gravel over the past year, and 38 out of the 83 counties in the state of Michigan have transformed at least some of their asphalt roads into gravel roads.

#7 The number of Americans on food stamps has hit yet another new all-time record. 42.9 million Americans are now enrolled and federal authorities fully expect that number to continue to skyrocket.

#8 The city of San Jose, California recently laid off 49 firefighters.

#9 Over the past year, approximately 100 of New York's state parks and historic sites have had to cut services and reduce hours.

#10 In 2009 alone, approximately 4 million more Americans joined the ranks of the poor.

#11 The state of Arizona recently decided to stop paying for many types of organ transplants for people enrolled in its Medicaid program.

#12 Many of the police in Arizona that patrol communities near the border with Mexico say that they are "outmanned" and "outgunned" and now live in fear of being taken out by drug cartel assassins.

#13 Gang violence in America is getting totally out of control. According to authorities, there are now over 1 million members of criminal gangs operating inside the country, and those gangs are responsible for up to 80% of the violent crimes committed in the U.S. each year.

#14 Oakland, California Police Chief Anthony Batts has announced that due to severe budget cuts there are a number of crimes that his department will simply not be able to respond to any longer. The crimes that the Oakland police will no longer be responding to include grand theft, burglary, car wrecks, identity theft and vandalism.

#15 One out of every six Americans is now enrolled in at least one anti-poverty program run by the federal government.

#16 The state of Illinois is so far behind on its bills that not even schools and essential social services are getting their money on time.

#17 The sheriff's department in Ashtabula County, Ohio has been slashed from 112 to 49 deputies, and there is now just one vehicle remaining to patrol all 720 square miles of the county.

#18 As our local communities degenerate economically, it appears that they are falling apart morally as well. There are approximately 400,00 registered sex offenders in the United States as you read this.

#19 In a desperate attempt to save money, the city of Colorado Springs turned off a third of its streetlights and put its police helicopters up for auction.

#20 According to one recent study, approximately 21 percent of all children in the United States are living below the poverty line in 2010.

#21 According to the U.S. Department of Transportation, more than 25 percent of America's nearly 600,000 bridges need significant repairs or are burdened with more traffic than they were designed to carry.

#22 In Georgia, the county of Clayton recently eliminated its entire public bus system in order to save 8 million dollars.

#23 Things have gotten so bad in Stockton, California that the police union put up a billboard with the following message: "Welcome to the 2nd most dangerous city in California. Stop laying off cops."

#24 Major cities such as Philadelphia, Baltimore and Sacramento have instituted "rolling brownouts" in which various city fire stations are shut down on a rotating basis. So if you live in one of those cities and you have a fire, you had better hope that your local fire station is not scheduled for a "brownout" that day.

As I have documented in article after article, the "American Dream" is rapidly becoming the American Nightmare. We were once a nation that was endlessly expanding, endlessly growing and endlessly becoming more powerful, but now just the opposite is happening.

All of this didn't happen overnight. Back in 1982, Billy Joel could see what was starting to happen and he released a song entitled "Allentown" which captured the depression that many residents of once great steel cities were experiencing. The song started out with these two lines....

Well we're living here in Allentown
And they're closing all the factories down

Well, the United States has lost over 42,000 factories since 2001 and now all of America is turning into "Allentown".

Unfortunately, things are going to get even worse. Thousands more factories and millions more jobs will be sent overseas. The debt loads of our state and local governments will continue to skyrocket. The truth is that city after city after city is going to start looking like something out of a third world country.

From here.

Related articles

• Billy Joel Song 'Allentown' Predicted American Decline (musicians4freedom.com)
• Camden, New Jersey: Another Leftist-Run City Bites The Dust (thedaleygator.wordpress.com)

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Young Americans flock overseas to teach English

Image via WikipediaFrom here.

Now, I've got a bit of a different take on ESL teaching. I believe we are not so much teachers as cultural insurrectionists. Teaching English is secondary to introducing our culture and values. While over there, I got endlessly tired of hearing English teachers drone on about 'backward Korean values", "diversity" and "women's rights".

I love diversity, and I think other cultures should be left alone, not badgered into alignment with Liberal Western thinking. The world would be a boring place if it was consumed by a sprawling monoculture, and you can already see it beginning everywhere.

Out of college, out of money and out of luck in a lackluster economy with millions of people out of work, Jeremy Salzman felt trapped after college graduation, facing a certain loss of freedom and an uncertain stretch under the watchful eyes of his parents.

So when the newly-minted graduate of the University of Michigan had to choose between returning to Atlanta to look for a job or signing on for a hitch as an English teacher in South Korea, it was a no-brainer.

He’s now teaching kids in a private school 7,000 miles away, with no professors or parents to answer to, no homework, and maybe best of all, no rules and no curfew.

Like tens of thousands of young Americans with degrees, but few job prospects, Salzman, 23, took off for South Korea to teach. The only requirements — no criminal record and a bachelor’s degree in anything.

And the school paid his airfare, is putting him up in a small apartment and will buy him a ticket home when his contract ends.

South Korea is the hot spot for such jobs, but untold thousands of new grads are teaching in Vietnam, Thailand, Hong Kong, Japan and China, where parents are gung-ho for English.

“These schools are interested in pronunciation, being able to make conservation, not rules of grammar,” says Dave Sperling, 48, who runs a Web-based business in Los Angeles helping foreign schools and recruiters find teachers.

And in an economy still shedding jobs, it’s boom-time for Asian schools looking for U.S. grads and a boon for young people like Salzman.

“I have been going to school since I was four years old and was burned out from attending classes, taking exams and worrying about my future,” says Salzman, who has been in Daegu, South Korea, since last fall. “I did not want to get a mediocre job and live under my parents’ roof. So instead of worrying about finding a job or getting into graduate school like most of my friends, I decided to teach in Korea.”

So far, he’s having the time of his life, and also, he feels, providing invaluable help to youngsters there. He works at least eight hours daily, then parties by night, often into the wee hours, with other expatriates, most from the U.S. or Canada, but some from Britain, Ireland, South Africa and New Zealand.

He goes to a gym daily, swills SoJu, a stiff vodka-like drink, fills up on Korean barbeque and sees “amazing” sights.

“I am not an English major, and people in America would not want me to teach their kids English…what I am good at and enjoy doing is helping kids become successful at something.”

He adds: “I came to live out a once in a lifetime experience that I won’t have the opportunity to do again when I have a real job.”

The money’s pretty good, and in countries like South Korea, a salary of $24,000 -- paid in won - and with a free apartment, many Americans are able to save a lot.

Stephen Gronsbell, 26, of east Cobb, who has a bachelor’s in psychology from UGA and a BS in history education from Kennesaw State, took a job in Seoul because he couldn’t find a gig back home.

“The beginning teacher salary in Cobb County is around $39,000 and I am being paid 2.2 million won ($1,900) per month,” Gronsbell says. “It is not as much pay, but when you figure everything else out, things look different. I was provided round-trip airfare and free housing in a furnished one-bedroom apartment about 10 minutes walking distance from my school. Income tax is only about 3 percent of my salary.”

The government covers most of his health care.

“I knew how important education was in Korea, and as a teacher, I wanted to see what it was like working in a country that valued education,” Gronsbell says. Salzman went with his best friend, Max Holland, 23. Both plan to stay for one hitch, though others stay for more or hopscotch from one country to another.

Sperling, one of the top experts in the ESL (English as a second language) field who runs the authoritative Dave’s ESL Café job board, says most youths return home, but a few never do.

William Mallard, 47, of Decatur, is “on the 22nd year of my one-leave of absence” from a job in Atlanta he’d landed after graduating from Harvard.

“I wanted to see the world on somebody else’s dime,” he says.

He answered an ad posted by the Japanese government and signed a one-year contract to teach, then re-upped. Now he’s married to a Japanese woman, and they live with their two children in Singapore, where he works for Dow Jones & Co.

“I never meant to be away from the U.S. this long,’’ Mallard says. “But that’s the way it worked out. Now I barely recognize the place. You folks changed a lot with your three wars and your reality shows.”

Thousands of expats teach in Korea’s biggest cities, most in Seoul, which has a population of 10 million. Koreans are convinced that the only way their kids can get ahead is to learn “conversational” English, says Randall Davis, who coordinates a program at the University of Utah for youths interested in teaching abroad.

Greg Dolezal, president of the Association for Teachers of English in Korea, which helps if problems arise, says 24,000 Americans hold Korean visas, that “American standard dialect is preferred,” and that it’s the first full-time job for many.

Dolezal, who has a master’s in journalism from Middle Tennessee State University, is engaged to a Korean citizen and plans to start a business after his tour. Like Sperling, he urges grads to thoroughly investigate offers.

But it’s often more of a shock to the parents than their adventure-seeking children.

“I certainly miss hanging out with him,” says Jeremy’s dad, Martin Salzman, 55, an Atlanta lawyer. He says his son doesn’t really know what he’s going to do when he comes home but “I don’t think he ever wants to be a teacher.”

Jeremy’s mom, Beth, says she’s proud of him but that he “needed to clear his head.”

Jeremy knows it’ll be weird when he returns but doesn’t miss much, except deli food.

“I would love to eat a turkey sandwich from Publix about now,” he says.

Related articles

• English-Teaching Robots To Terminate Jobs in South Korea [TNW Gadgets] (thenextweb.com)

Quantative Easing explained

Great video breaking down what is happening in the US economy right now. There is more bad news, but this serves as a good introduction.