The fiscal crisis in the United States is near, and it won’t be pretty

By LUIS MIRANDA | THE REAL AGENDA | MARCH 5, 2013

When one hears talks about the collapse of the dollar, it is hard to picture how a currency that is the base of all global transactions can simply disappear. An important point to understand is that such a collapse does not occur at once. It takes a while to happen because that is how it has been arranged. What most people are clueless about is that, not only is the death of the dollar possible, but that it has already started.

Since the dollar became the world’s currency by design, the American currency has lost a great deal of value. According to the U.S. Bureau of Labor and Statistics, one dollar today is worth only about 5% of what the green back was worth back in 1913. More recent signs of the loss of relevance the dollar has had in the global economy is the fact that major commercial power houses –American commercial partners and foes– have officially adopted new ways to conduct commercial transactions. For example, China and Russia are now using their own currencies to deal with the purchase and sale of products. Another case is that of India and Japan. They have also resourced to their own currencies to carry out trade.

The dollar has not only lost value, but also credibility. The origin of the lack of trust on what once was the base currency on which every single product and service was priced –including gold– is the United States’ thirst for debt as a ‘development’ model. Today more than ever before, the American government depends on the issuance of debt as a way to keep up with its spending. For that reason, the country’s central bank, the Federal Reserve, has come up with all kinds of circus moves to slow down an outcome that seems imminent: the complete collapse of the U.S. dollar currency.

The influence of the Fed in the way the U.S. manages its debt to GDP ratio stems from the country’s inability to make payments on the cash it has borrowed from the Fed itself, as well as China and other foreign investors who own much of the American debt. The path chosen by the Fed to temporarily deal with the American inability to make payments on its debt –which continues to grow out of control with every passing day– is to make large purchases of government bonds and to use quantitative easing –the pumping of unlimited amounts of electronic money– in an attempt to make everyone feel good about the state of the economy.

The Fed’s intention is to make clear to the world that the U.S. has meaningful ways to prevent a default, because since all important transactions are carried out in dollars and the dollar is the world’s currency, the private central bank can issue fake money for as long as it wants. The obvious consequence of indefinitely pumping cash into the economy is hyperinflation, which has not happened because banks were ordered not to put the money they were given out into the market in the form of loans.

It seems that the Fed has everything figured out and that the collapse of the dollar will not come as soon as some economists have predicted, but the reality is very different. According to a study conducted by four prominent economists, it is almost crunch time for the Fed and the U.S. government. Right now, the least of the problems for the central bank and the American government is not lack of credibility, but a strong change of a fiscal crisis. The report was prepared by David Greenlaw, Managing Director and Chief U.S. Fixed Income Economist at Morgan Stanley; James D. Hamilton, Professor of Economics at University of California at San Diego and Research Associate of the National Bureau of Economic Research; Peter Hooper, Managing Director and Chief Economist, Deutsche Bank Securities Inc; and Frederic S. Mishkin, Alfred Lerner Professor of Banking and Financial Institutions, a Graduate of the School of Business at Columbia University and former Chairman of the Federal Reserve Bank.

What these four men found, is that the actions of the Federal Reserve caused massive inflation to a level where the dollar’s purchasing power has gone down in free fall . As the very same Federal Reserve policy books say, the goal is to devalue the currency by at least another 30 percent. The 89-page report states that reductions in fiscal revenues and excessive increase in government spending, the close relationship between sovereign debt and the levels of interests to be paid on the debt, a significant relation between debt loans and borrowing costs and the direct effects of the fiscal crises on monetary policy have been combined to render a single outcome: massive losses for countries and institutions such as the U.S. Federal Reserve that will exceed available capital.

What this means is that, if things continue business as usual, even the Fed will become unable to sustain the current fiscal crisis. According to the report, the Fed may enter unknown territory where the amount of debt created will exceed its capital holdings. What will happen when the Fed gets to its limit and can no longer maintain the current debt-based system? According to the authors, the more a country’s debt is held by foreigners the greater the political incentives for the government to default on that debt. This is what has been seen in developing countries. The day of reckoning for the Fed may come as early as 2016. If better fiscal and monetary policies are adopted, the disaster could be put off until 2018.

It is then necessary to remember who are the United States’ investors. As of December of 2012, the Federal Reserve System, which is a branch of the international banking cartel came up as first. In second place is China, with $1202.9 billion. After China, other countries like Japan, Brazil, Switzerland and Russia appear in third, fourth and fifth places. With the U.S. debt reaching and passing 100% of its GDP and the government borrowing and printing money as if it were going out of fashion, the only possible outcome is what we have seen in modern cases of fiscal irresponsibility.

Countries get in debt up to their eye balls to fulfill the promises made at home during by irresponsible politicians during political campaigns. Since the government does not have any money to actually pay for the expenses it creates, it is only ‘normal’ to get in debt to be able to meet demands for more social programs and to pay interests on old debt. But since the governments do not borrow locally, they subject their country, (i.e. the people) to having to work all their lives to make payments on the debt generated on the debt it has gotten into. The ability of a government to make debt payments is finite. Cases in point Argentina in 199o, Greece in 2008 to 2012, Portugal and Spain in 2013 and the looming fiscal crisis the United States will have to face in the near future.

The supposed programs to help nations pay their debt is nothing more than an attempt to slow the collapse of the global economy and the that assures foreign debt holders they will have enough time to loot the countries for all they have gotten. That is the ultimate form of payment used by the international banking cartel uses to recover their so-called investments. Different from Argentina, Greece, Portugal and Spain, it is hard to see how the Americans will allow the bankers to suck every drop of blood for not paying its debt, which is why negotiations have been held to find the least painful way to phase the dollar out. Although the bankers want every single penny back, they prefer to get it in the most peaceful way possible as supposed to having to face street protests as it has happened in Egypt, Libya, Syria, Argentina, Spain and Portugal.

In conclusion, the current system of debt creation as the base for development has reached the end of its life cycle. The consequences to come should the United States continue to print or issue fake money to pay its debt instead of cutting down spending and making big international corporations liable for evading the payment of corporate taxes, will make it impossible for the U.S. government to pay its debt and for the Fed to issue fake money to sustain the current system. The only reason the U.S. has not collapsed as a debtor nation is due to the demand for U.S. Treasuries at home and abroad, which has been maintained due to the dollar’s status as the world currency. That status however, is a subjective and ephimerous concept. The moment more nations decide to trade with their own currencies, or to set up sound monetary systems such as the one Muammar Gaddafi intended to create in Libya –the gold dinar–, the more credibility and trust the dollar will lose. Lack of trust and the impossibility to meet fiscal obligations will end up destroying the dollar.

As the authors put it simply, high debt leads to higher interest rates and higher debt. The high levels of debt reach a tipping point –fiscal crisis– in which the interest rate shoots up. In the case of the U.S. it has many of the possible triggers of that shoot up in interest rates and the only thing that is holding them from going through the roof is an imaginary belief that the U.S. is still that powerful economic entity that it appeared to be many years ago.

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Why is Venezuela selling its Gold reserves?

Another equally important question to answer is, where is the cash going?

By LUIS MIRANDA | THE REAL AGENDA | OCTOBER 1, 2012

After loudly announcing the arrival of its gold reserves from Europe on national media, the Venezuelan government is now selling that same gold and allegedly ‘injecting’ the cash from the sales into the economy. “Labeled as a historic event for the country, the arrival of the last shipment of Venezuelan gold arrived from Europe last January, but just as fast as it arrived, it is now leaving the Bolivarian territory.

The government led by Hugo Chavez had to resort to selling the country’s gold reserves to add dollars into the economy. Last January, heavily armored tanks and trucks escorted Venezuela’s gold from one of its ports to the Venezuelan Central Bank coffers, while government-sponsored media parroted about how the return of the gold was a move to strengthen national sovereignty and Venezuela’s economic future. The Venezuelan gold had been in European banks for about two decades before returning to the country, after Hugo Chavez ordered the return back in 2011.

The arrival of the gold that began last year prompted the government to start the sale of gold in order to put more US dollars into the Venezuelan economy. The first sale accounted for 3.2 tonnes of gold, which attempted to alleviate the shortage of dollars. The move to sell gold to get dollars was not made public until recently in Venezuela, after the International Monetary Fund revealed details about the transaction last week.

Early last week, the news agency Reuters published details about the IMF report, which states how Venezuela’s gold reserves decreased by  10.98 tonnes in 2012. The country saw its 372.93 tonnes turn into 362 , 05 tonnes as it was accounted for last August. Just last month, the Central Bank of Venezuela sold 3.2 tons for about $ 300 million.

Last Wednesday, the chairman of the Finance Committee of the National Assembly, the government deputy Ricardo Sanguino, admitted to Caracas’ daily El Mundo that the government had indeed cashed over three tonnes of gold. According to information published by the local press, the sale was made to alleviate the cash dollar shortage facing the country and to cover the payment of imports, which in the past year  increased by 20%.

The main source of foreign cash are Venezuela’s oil exports, which also finance 60% of the national budget. Oil reserves are short right now, while President Hugo Chavez seeks reelection for another 6-year period.

Venezuela possesses today the largest proven reserves of oil while its oil price exceeds $ 102. But state-owned Petroleos de Venezuela (PdVSA) produces below its capacity. A month ago, there was an explosion of fuel tanks of the largest of its refineries. The event killed 48 people and paralyzed operations at the government installation.

Imports are the oxygen of the Venezuelan economy. About 80% of food products consumed in the country are imported: powder milk, meat, sugar, chicken, coffee offered at subsidized prices in the popular market network managed by the state and , along with all this, the government also subsidizes all the social programs that benefit the poorest people who usually support of Hugo Chavez.

These imports are controlled by the government, which since 2003 maintained a strict policy of exchange of products. The purchase of foreign goods is tightly controlled by the Commission of Administration of Foreign Exchange, which decides who, what and how much Venezuelans can buy in foreign currencies.

Only entrepreneurs closer to the government have access to the official rate of 4.3 bolivars per dollar. The rest of the people need to go to the two parallel currency markets operating in the country.

The move to sell gold to flood the currency market with US dollars is seen as a political one from Hugo Chavez, who needs to keep his supporters happy until October 7, the day of the presidential election.

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Tokyo Injects Fiat Money while Beijing Talks about Bond Attack on Japan

By LUIS MIRANDA | THE REAL AGENDA | SEPTEMBER 19, 2012

The territorial conflict for the Senkaku/Diaoyu islands on the East China Sea have revealed two things in the last few days. First, China’s thirst to defeat its rivals in the region, despite American interventionism. Two, China will not necessarily use military weapons. Instead, it will use its economic might.

While the Japanese Central Bank announced it will follow on the steps of the American Federal Reserve and European Central Bank in flooding the market with money to keep its economy afloat, in Beijing the Communist Party led government is now considering attacking Japan by imposing sanctions on its main funding source: the sale of government bonds.

China is Japan’s main creditor today with holdings of over $230 billion in Japanese government issued bonds. This is China’s strongest weapon at the moment, or at least the one that the Chinese may use to obligate Japan to withdraw from the territorial dispute that has now called for the intervention of United States Defense Secretary Leon Panetta.

The most recent asset purchase program in Japan was extended by about 10 billion yen (€ 97,200 Mn), to 80 trillion yen (778 000 € Mn). In turn, the types of interest are maintained between 0 and 0.1%, a level at which they are since October 2010. The same policies are now being used by the United States Federal Reserve and the European Central Bank, which continue to facilitate funds to large financial institutions while denying loans to small and mid-size entrepreneurs.

The Bank of Japan opted, just like the Fed, to inflate its currency, by printing fiat money into the banking system in an attempt to revive the economy. As seen for the past 4 years, the insane policy of creating fiat money out of nothing does not work. In fact, it only prolongs the crisis because governments are not doing anything to kick start their economies.

The decision has favored the Nikkei, Japan’s stock market. Transactions closed with a rise of 1.19%. Stock markets are another tool in the rigged game that governments use to paint a colorful picture about otherwise dying economies, because they do not represent the actual state of those economies, but that of specific sectors. Stock prices, as in the case of Facebook, can be manipulated to show whatever the manipulators want to show.

The fake snowballing effect of the fiat money printing mechanism reached Europe, where the local markets received the news about the Japanese Bank injecting the worthless money into the economy as a good sign, which helped lift the markets.

In the meantime, in China, Jin Baisong, a member of the Chinese Academy of International Trade wrote on the China Daily newspaper that his government should “impose sanctions on Japan in the most effective manner” to bring Japan to its knees. He said China should consider invoke the security exception to punish Japan.

Other Chinese media such as the Hong Kong Economic Journal published an article about China’s plans to to cut off Japan’s supplies of rare earth metals which Japan needs to produce high tech consumer goods for local and international electronic giants. The considerations to punish Japan through credit lending, imposing cuts of raw materials and calling on international trade organizations to sanction Japan are three of the first steps China is considering to tame down the country’s intent to claim the Senkaku/Diaoyu islands as its property.

In the last two days, multiple protests exploded all over China against the Japanese which prompted many Japanese companies to close their doors for fear of retaliation.

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What will Money be like? The Future is Being Written Now

By AMERICANFREED | JUNE 22, 2012

Reform of monetary system … IMF should build multiple reserve currencies including SDR and supervise their issuance and cross-border capital flows … Today, the most urgent task for the G20 is reform of the international monetary system. With sharply fluctuating exchange rates, it is difficult to monitor international capital flows, identify financial risks in advance, and save the global system once a crisis happens. If the current international monetary system cannot be successfully reformed, a new great financial crisis will soon be upon us. So, the G20 should focus on its historical mission to urgently reform the international monetary system. – China Daily

Rigged Gold Market, A Secret Payoff To China … “Gold is a reserve currency, as far as the market is concerned,” Sprott Asset Management’s Eric Sprott told FinancialSense Newshour’s Jim Puplava in an Oct. 2011 interview. Sprott went on to say that central banks and the shrewd money know the endgame for the dollar will include gold as the backbone of a new global monetary system—a system that presently finds China sorely lagging in gold reserves when compared with the core EU nations and the U.S … – ETF Daily News

The world’s new monetary system is being constructed as we write. You can spot the evidence in various articles, both mainstream and alternative. This article will profile two such stories.

First, there is an ETF Daily News article entitled, “Rigged Gold Market, A Secret Payoff To China.”

It complements a most important article from China Daily entitled, “Reform of the Monetary System.”

Together these two recent articles may provide us with significant insights into what is REALLY going on.

According to the ETF Daily News, Western powers-that-be are secretly funneling gold to China in anticipation of a new monetary system now being constructed. China needs more gold to be part of the planned new world monetary order – or so the Daily News article suggests.

For those who believe in directed (conspiratorial) history, such a scenario is certainly believable. The global elites seem to be creating economic chaos in anticipation that they shall then be able to introduce a world currency – possibly one based on a bundle of currency and informally backed by gold.

This will not happen all at once, but will happen over time. If the euro fails, this will surely be an elite setback, but that does not mean the enterprise itself will be halted. The elites that want to run the world – and are willing to produce any amount of agony to get their way – don’t give up easily.

The globalist currency may be run by the elite-controlled International Monetary Fund and could built out of the current Special Drawing Rights (SDR) “super currency” that the IMF has been attempting to implement around the world.

The China Daily article provides us with astonishing confirmation of what may be the IMF’s role. China Daily is widely seen as a private mouthpiece of Chinese government policy.

Reading between the lines, the two articles provide further evidence that China’s top leaders – actually those secretly behind the public’s leaders – are on board with the globalist plans of Western elites.

This has been speculated about before because the paradigm that Western elites use is to ally with the people at the very top of a society. Often hostilities are commenced against such countries.

The idea is always to control the topmost leaders while positioning the opposing country as a threat in order to consolidate further domestic control.

In China, it’s been speculated that some specific dynastic families are involved in controlling that great country – and work with Western banking families such as the Rothschilds.

An alternative to this perspective is that of a three-headed shadow control that includes elements of the communist leadership (Mao was supposedly a “Soviet agent” – and the top Soviets in turn were allied with the West), the Hong Kong Tycoons (later entrants) and the Triads mafias.

This makes sense if one believes that the power players in Mainland China fled to Hong Kong during Mao’s reign and allied themselves with the Triads for purposes of developing political and criminal muscle.

Once China’s mismanagement had reached a critical level – after the failure of the Great Leap Forward – the stage was set for elite re-penetration of that vast state.

When one looks at China today, one sees a kind of Western parallel – but one that is even more extreme. The Chinese economic model is based on corrosive and inflationary central banking that has no doubt allowed elite interests to corral huge amounts of Chinese economic and industrial resources.

China is probably near the end of this particular cycle of monetary activity, with hundreds of empty skyscrapers and dozens of empty cities dotting the landscape. The ChiComs no doubt expect an implosion.

No, there will likely be no “soft landing.”  This is providing the ChiComs with a further incentive to cooperate with Western elites to create a new monetary system built out of the old, collapsing one.

The China Daily article “Reform the Monetary System” provides us with an astonishingly detailed plan for how the new world currency is to come about.

Here are some of the points:

•The IMF should build multiple reserve currencies including SDR and supervise their issuance and cross-border capital flows.

•The G20 should set up a permanent secretariat within the International Monetary Fund to improve its policymaking and implementation capabilities.

•A diversified international monetary system should consist of multiple currencies, such as the Special Drawing Rights, the US dollar, the euro and the renminbi.

• A good way to start the reforms would be to encourage the use of Special Drawing Rights for a broader range of activities and to start reducing the weight of the US dollar in the reserve currency system.

The article explains that, “such reforms would mean granting the IMF the ability to conduct open market operations as the world’s central bank.”

Moody’s: No Debt Ceiling, Continue Charade

The Credit Rating Agency founded by Berkshire Hathaway wants the fiscal charade to continue, but does not want limits. And who the heck gave this corporation the right to rate anything? The Bankers.

By Walter Brandimarte
Reuters
July 18

Ratings agency Moody’s on Monday suggested the United States should eliminate its statutory limit on government debt to reduce uncertainty among bond holders.

The United States is one of the few countries where Congress sets a ceiling on government debt, which creates “periodic uncertainty” over the government’s ability to meet its obligations, Moody’s said in a report.

“We would reduce our assessment of event risk if the government changed its framework for managing government debt to lessen or eliminate that uncertainty,” Moody’s analyst Steven Hess wrote in the report.

The agency last week warned it would cut the United States’ AAA credit rating if the government misses debt payments, increasing pressure on Republicans and the White House to come up with a budget agreement.

Moody’s said it had always considered the risk of a U.S. debt default very low because Congress has regularly raised the debt ceiling during many decades, usually without controversy.

However, the current wide divisions between the House of Representatives and the Obama administration over the debt limit creates a high level of uncertainty and causes us to raise our assessment of event risk,” Hess said.

Stepping further into the heated political debate about U.S. debt problems, Moody’s suggested the government could look at other ways to limit debt.

It cited Chile, widely praised as Latin America’s most fiscally-sound country, as an example.

“Elsewhere, the level of deficits is constrained by a ‘fiscal rule,’ which means the rise in debt is constrained though not technically limited,” Moody’s said, adding that such rule has been effective in Chile.

It also cited the example of the Maastricht criteria in Europe, which determines that the ratio of government debt to GDP should not exceed 60 percent. It noted, however, that such a rule is often breached by the governments.

In the United States, Moody’s said the debt limit had not effectively curbed the rise in government debt because lawmakers regularly raise it and because that limit is not related to the level of expenditures approved by Congress.