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Don't Delay EURO, but...

Copyright 1997 J.N. Tlaga

Advice to brethren across the Atlantic: Don't delay EURO, especially if such a delay is labeled "temporary", for nothing is more eternal than temporary delay, but... do consider defining your new currency unit as a GRAM of standard monetary silver (0.900 fine), and let it find its ultimate price in terms of individual currencies by way of a free float during the transition period.

(And by all means do convert your dollars to silver bullion at any price you can before they become convertible into beer bottle caps.)

The only thing that is holding off the repudiation of the fiat dollar along with the national debt of the United States is the possibility that the euro can still be scuttled. But once the euro will become reality, the Anglo-American establishment, that is now controlling the Federal Reserve System and the international traffic in Federal Reserve notes, will loose its grip over America, and the Congress of the United States may again become independent.

The first act of the liberated Congress can only be the repudiation of the Federal Reserve dollar and the national debt it created. Not one word of argument will be heard against it.

In his article "Monetary Folly", published in New York's "National Review" on February 10, 1997 (p 26-31), under a banner "Europe Against the Anglo-Saxons", Bernard Connolly proceeds to warn us that M. Gerard of the policy-making council of the Banque de France believes, that...

...only if Europe is in a position to inflict real and serious pain on ordinary Americans will it be possible to force the United States to agree to a moderation of the "Anglo-Saxon world-market system".

To fortify this conclusory statement (M. Gerard never used such language) and to amplify its propaganda effect upon the American reader, Mr Connolly proclaims that... Persuading Asian central banks to dump dollars for euros is the first step on the road to creating unemployment in America and forcing the US Government to sue for peace.

One possible way to implement this plan, Mr Connolly explains, would be to drive European currencies down before their conversion into the common currency. Then, once these currencies are converted into the euro, it, rather like the Deutschmark at the beginning of the 1960s or the yen right up to the late 1980s, would be structurally undervalued and ripe for an ascent that would see it replacing the dollar as the premier reserve currency.

This strategy might work if the euro had the underpinnings that made the Deutschmark and the yen successful currencies in their day. Unfortunately for the citizens of Europe, the euro will instead be a Mickey Mouse currency.

It is true that destruction of American dollar in its present form of the Federal Reserve note is, and must be, the necessary objective of the new European currency unit, but...

It is not true that creating unemployment in America and inflicting real and serious pain on ordinary Americans must be the necessary price for the blessing of destruction of the Federal Reserve dollar.

Destruction of the Federal Reserve dollar is as much in the interest of ordinary Americans as it is in the interest of ordinary people all over the globe.

Federal Reserve dollars are no more "American" than narcotic drugs are "American". Because of her residual wealth and open democracy, all kinds of sinister people have been invading America over the years; the recent invaders traffic in narcotic drugs, while the earlier invaders hold on to their trafficking in counterfeited dollars (officially known as Federal Reserve notes).

This counterfeited dollar, that invades settled order of sovereign nations, wrecks havoc on the global environment, and distributes raw sewage packaged as "American culture", does not belong to ordinary Americans. It has always been the sole property of the cabal of Anglo-American bankers who own Federal Reserve System and for whom this paper "dollar" is printed by the United States Treasury at 2 cents a note.

To convey the real meaning of the Federal Reserve setup in a manner everyone can understand, a parable of fiction will do better than statutory definition:

One day in 1913, Congressional leaders in Washington met five gentlemen from New York, whose spokesman proceeded to announce: "We have an offer for you, you cannot refuse."

"The other autumn, it dawned upon us that our banks, First Gambino City Bank, Bonano Guaranty, Luchese Manhattan Bank, Colombo Bank of Commerce, and Genovese Trust should form a syndicate under the name and title of La Cosa Nostra Reserve Bank for the purpose of printing and circulating counterfeited dollar bills.

"Later on, we decided that the Federal Reserve Bank would be a better name, and you, that is, Bureau of Engraving and Printing of the United States Treasury could do the printing for us, at a cost, naturally.

"You will print our Federal Reserve notes and we will circulate them to our friends and associates, who in turn will pass them on the unsuspecting public at the face value of gold and silver coins now in circulation. If anyone will question the value of our notes, you, that is, the Treasury of the United States will exchange these notes for gold coins at face value on demand. That way, people will get used to the idea that our counterfeited dollars are as good as gold."

Did US Congress accept this "offer"?

Yes it did. Only not the fictitious mafia banks but the real life Anglo-American banks were on the receiving end of that giveaway of the century.

The road from gold standard dollar of 1913 to two-tier Bretton Woods dollar, which in turn created the stateless dollar (by irony of fate nicknamed the euro-dollar) that is now devouring our civilization, is adequately presented in an article WE HAVE BEEN HAD, that was recently posted at GOLD-EAGLE: http://www.gold-eagle.com/editorials/Tlaga001.html and http://www.gold-eagle.com/editorials/Tlaga002.html

It's a 45K essay in two parts. For easy identification, the first part ends and the second part begins with: The devil was not in the "gold window". The devil was in the overvalued dollar.

Bernard Connolly is right that the euro's undervaluation is essential to its success in the world governed by the present Bretton Woods principles.

(Professors of economics continue to uphold the spin that Bretton Woods regime was abolished in 1971, but this is not so. Closing the "gold window" by President Nixon merely replaced monetary gold with US Government's IOUs, while the overvaluation of US dollar, the Bretton Woods regime was built upon, continues unabated to the present day.)

But Mr Connolly errs when he proposes that the euro's undervaluation will not work under present circumstances because the euro will be a Mickey Mouse currency.

It is true that the euro's undervaluation will not work as the Deutschmark's and the yen's undervaluation worked in their day, but for quite different reason than Mr Connolly proposes. The undervaluation of euro will not do its magic not because the euro will be a Mickey Mouse curency, but because the dollar will be a Mickey Mouse currency.

In 1947, when the International Monetary Fund began its operations, all currencies acquired the undervaluation edge against dollar, because all currencies were convertible at set par values to American dollar, defined as "15 and 5/21 grains of gold 9/10 fine", while depreciating paper dollar was worth only 75 cents at that time.

This arrangement, where the same dollar bill was worth 75 cents at home and 100 cents abroad (because abroad it was convertible to gold, while at home it was not), was automatically making American products one-third more expensive abroad, and foreign products one-fourth cheaper in America.

While American inflation was being "exported" over the years, the initial overvaluation of the US dollar has been maintained to the present time, with its actual rate increasing or decreasing, depending on whether a given currency depreciated slower or faster than dollar, and after March 19, 1973, depending on the extent of market intervention by a given central bank to keep dollar continuously overvalued.

If European currencies would now be driven further down before their conversion to the euro, this would only increase the percentage of already existing undervaluation. But even with such an increase, the undervaluation of the euro would not work as effectively as the undervaluation of Deutschmark and yen worked in the era of economic miracles.

Why?

Because, after fifty years of uninterrupted draining of America's wealth through the siphon of the overvalued dollar, America is now so deindustrialized and impoverished that she can no longer absorb additional import from Europe. Even if undervaluation of the euro would be substantially increased, as Mr Connolly suggests, it would still not be thick enough to match the combined effect of undervaluation of the Chinese juan and the meager wages of China's labor.

The products of Europe, no matter how rigged the euro's exchange rate may become, will continue to be too expensive for ordinary Americans, and there is too few Bretton Woods millionaires to make up for the loss of that mass market. It's not that the Bretton Woods wizards unwittingly saw off the tree branches on which they were sitting; the Bretton Woods system was unsustainable from the day one. It was never a system but a scheme to defraud.

Present day dollar is worth only 10.5 cents in terms of Roosevelt Dollar (parity of $35 per fine ounce of gold), and only 6.2 cents in terms of Gold Standard Dollar (parity of $20.67 per ounce). It is already a Mickey Mouse currency, and the worst is yet to come.

The fact that ordinary Americans can no longer afford the products of Europe is only a half of the euro's problem. The other half is the prospect of imminent collapse of the euro-dollar empire.

By creating a large reservoir of unearned money at the International Monetary Fund, from which countries with trade deficits could borrow indefinitely (and thus maintain their deficits indefinitely), the Bretton Woods system jammed the old and elegant system of self adjustment of trade imbalances between the countries.

Bigger and bigger deficits of one country quite naturally would lead to bigger and bigger surpluses of another.

Initially, the old instinct prevailed. Even the surplus dollars provided by Marshall Plan aid were promptly cashed for gold bullion from Fort Knox. But with ever increasing flow of paper money, and with ever complicating procedures for exchange of dollars into gold, came the realization that surplus gold in bank vaults did not earn any interest, while surplus money could be lent back to the same country whose deficit generated it.

Euro-dollar deposits emerged as the next logical step. Instead of investing into government bonds of the deficit country, the surplus money could now be placed for short dates deposit (overnight, tomorrow/next, spot/next, spot/week, spot/fortnight) or short term deposit (one, two, three, six, nine, twelve months) in a local commercial bank to earn interest and to remain easily accessible. Not without consideration was the fact that the foreign money so kept in "off-shore" accounts was beyond reach of the country of origin. (The first euro-dollar accounts were opened by the government of the Soviet Union to deny the government of the United States the option to freeze Soviet assets in time of crisis.)

The ultimate borrowers on euro-dollar market are mostly governments and multinational corporations, and the original suppliers of funds are commercial banks, central banks and multinational corporations. The primary purpose for which euro-dollars are borrowed is to finance the foreign trade and the corporate investments.

Once the euro-dollar market has reached the level of exponential growth, the International Monetary Fund's role of a supplier of unearned international money became superfluous. In retrospect, IMF's role was simply to jump-start the system.

Because the ultimate borrowers need money usually for longer periods than original lenders are willing to offer, the bulk of euro-dollar market volume consists of interbank transactions whose purpose it is to repackage loans over and over again. Equally great volume of interbank transactions is generated by the incessant arbitrage whose purpose it is to extract as much profit as possible from constant movement of rates of exchange between various currencies.

On its record date, January 21, 1997, the Clearing House Interbank Payments System, CHIPS, at 420 Park Avenue South in New York processed 418,743 payments totaling over $2.178 trillion in eurodollar market transactions. That's twice the amount of the M-1 of the United States, or five and a half times the amount of dollar currency in open circulation in January 1997.

What will happen to this Niagara Falls of dollars once the new European currency is in place?

With foreign exchange arbitrage wiped out, and foreign trade financing in large part taken over by the euro, trillions in euro-dollar deposits will have no takers. That will be the day when the US dollar will become the real Mickey Mouse currency. And that will be the day when the Bretton Woods wizards will belatedly recall the agenda of the 1996 libertarian presidential candidate, Harry Browne.

In his election book WHY GOVERNMENT DOESN'T WORK, Harry Browne proposed: "If the federal government's unneeded assets can be sold for $12 trillion over a 6 year period, we can achieve the following..." And here followed the list of all the wonderful things "we" would acquire or accomplish by the year 2003. (In a nutshell, Mr Browne proposed to spend $5 trillion to repay national debt, $5 trillion to buy private annuities for Social Security recipients, and $2 trillion for current expenses during the transition period.)

"Where will the $12 trillion come from to buy these assets?" - Mr Browne asked himself.

Over $5 trillion in the new capital will come from the cashing in of the government bonds - by pension plans, individual investors, and others. Bids will come as well from foreigners, because we should maximize the proceeds by allowing everyone to bid on the properties. We desperately need the money.

Earlier, Mr Browne assured his fellow citizens that in a way they could sell their cake and have it too:

Realize that selling the properties doesn't make them disappear. Whoever buys them will have to use them for popular purposes, or else loose money on the investment. No one is going to turn Yosemite into a garbage dump; it would be a waste of money to do so.

What Mr Browne never told the public was that the money used to purchase the national properties would not disappear either. And how exactly if not by printing would the US Government acquire $5 trillion to cash $5 trillion worth of bonds was not explained either. (The additional $7 trillion presumably would come from abroad.)

Present M-1 of the United States (currency in circulation and demand deposits) is about $1 trillion. What would happen to the US economy when $2 trillion in new dollars and new deposits would be infused into it every year for six years in a row? Mercifully, Mr Browne never won the opportunity to act upon his "plan", but euro-dollars without takers will not need US electorate's approval to flood the US markets.

In the face of such flood, the Congress of the United States will have the choice to do nothing and watch the onset of hyper-inflation, or to repudiate all the Federal Reserve dollars and the entire national debt.

Because the proportion of the outstanding paper dollars to the outstanding US coin is about 22:1, and over one-half of the paper dollars are held outside the United States, it is possible:

People will loose all paper dollars in their possession, while their cents will appreciate in value by 10:1.

The whole reform can be executed with one presidential proclamation, literally overnight, without any cost whatsoever.

And how does defining the euro as one gram of standard monetary silver fit into this prospect?

It will be the first step to reinventing stable money based on silver and gold worldwide. (United States new cent-currency will have to find its price in silver too.)

Under such system daily items would be priced everywhere in grams of silver, and big ticket items and foreign trade in gold solidus (5 grams 9/10 fine). Only three coins will be really needed everywhere:

This is not the proposal to return to the XIX century bi-metallic standard. Silver and gold should only be used to stabilize the coming electronic currency of the future, that may finally bring all the nations together.

We have more important things to do than trying to outswindle each other in the crooked exchange-rate games.

And why is the extinction of the Federal Reserve dollar and the return to stable international money really necessary?

Because the wages and standard of living must be made comparable everywhere to expand world markets exponentially. China's labor, or any other country's labor, may not be paid $5 per day any longer. What China and the entire world needs, is the re-invention of Henry Ford's principle: "I am paying my workers so much, because I want them to be able to afford the products of their labor."

No fiat currency of any country should be elevated to the status of the official reserve currency ever again.

I have the honor to remain
Very truly yours,
J.N. Tlaga

tlaga@shadow.net


We Have Been Had       Part - I

We Have Been Had      Part - II

The Circular Charade


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