U.S. Dollar: "An Absurdity...Supported Only by Faith"

Council on Foreign Relations on U.S. Dollar:
"An Absurdity… Supported Only by Faith"

Cryptogon.com
Thursday, May 10, 2007

The End of National Currency is the most astonishing thing that I have
read since Zbigniew Brzezinski's appearance before the Senate Foreign
Relations Committee earlier this year.

Foreign Affairs is the most important and influential journal of
International Relations in the world. It is the mechanism by which the
Council on Foreign Relations disseminates the game plan to people in
polite circles. CFR's positions on core issues represent the raw
building blocks for most of the gibberish spewed by the corporate
media and the maniac fascist policies of the "developed world."
Publications like the New York Times and the Wall Street Journal are
dumbed down versions of Foreign Affairs that are published daily.
Television news is the same thing, but dumbed down again. Foreign
Affairs is also where politicians from several countries look to
determine what's safe to say, which policies are doable and what needs
to be done. A degree in International Relations is largely a
certification of a student's ability to internalize CFR jargon and
concepts.

Got the picture?

Now, what did the most important and influential journal of
International Relations in the world just say about the U.S. Dollar
and the global economy?

In summary: The U.S. dollar is an "absurdity" and the only way to
stave off a global disaster is for most countries to join one of three
global currencies, based loosely on: the dollar, the euro and a pan
Asian currency.

I encourage everyone to read The End of National Currency in its
entirety, but I'll quote some of the more remarkable parts below:

The dollar's privileged status as today's global money is not
heaven-bestowed. The dollar is ultimately just another money supported
only by faith that others will willingly accept it in the future in
return for the same sort of valuable things it bought in the past.
This puts a great burden on the institutions of the U.S. government to
validate that faith. And those institutions, unfortunately, are
failing to shoulder that burden. Reckless U.S. fiscal policy is
undermining the dollar's position even as the currency's role as a
global money is expanding.

Four decades ago, the renowned French economist Jacques Rueff,
writing just a few years before the collapse of the Bretton Woods
dollar-based gold-exchange standard, argued that the system "attains
such a degree of absurdity that no human brain having the power to
reason can defend it." The precariousness of the dollar's position
today is similar. The United States can run a chronic
balance-of-payments deficit and never feel the effects. Dollars sent
abroad immediately come home in the form of loans, as dollars are of
no use abroad. "If I had an agreement with my tailor that whatever
money I pay him he returns to me the very same day as a loan," Rueff
explained by way of analogy, "I would have no objection at all to
ordering more suits from him."

With the U.S. current account deficit running at an enormous 6.6
percent of GDP (about $2 billion a day must be imported to sustain
it), the United States is in the fortunate position of the suit buyer
with a Chinese tailor who instantaneously returns his payments in the
form of loans — generally, in the U.S. case, as purchases of U.S.
Treasury bonds. The current account deficit is partially fueled by the
budget deficit (a dollar more of the latter yields about 20-50 cents
more of the former), which will soar in the next decade in the absence
of reforms to curtail federal "entitlement" spending on medical care
and retirement benefits for a longer-living population. The United
States — and, indeed, its Chinese tailor — must therefore be concerned
with the sustainability of what Rueff called an "absurdity." In the
absence of long-term fiscal prudence, the United States risks
undermining the faith foreigners have placed in its management of the
dollar — that is, their belief that the U.S. government can continue
to sustain low inflation without having to resort to growth-crushing
interest-rate hikes as a means of ensuring continued high capital inflows

…

At the turn of the twentieth century — the height of the gold
standard — Simmel commented, "Although money with no intrinsic value
would be the best means of exchange in an ideal social order, until
that point is reached the most satisfactory form of money may be that
which is bound to a material substance." Today, with money no longer
bound to any material substance, it is worth asking whether the world
even approximates the "ideal social order" that could sustain a fiat
dollar as the foundation of the global financial system. There is no
way effectively to insure against the unwinding of global imbalances
should China, with over a trillion dollars of reserves, and other
countries with dollar-rich central banks come to fear the unbearable
lightness of their holdings.

Ordo ab chao.

The CFR created this mess to begin with. Its fingerprints are on every
policy, politician and corporation involved with the funneling of
wealth up to the top of the pyramid.

Now what?

What do we do now, as we find ourselves gazing into oblivion, into the
chaos that They created?

Seek order with fewer national currencies, my son. Trust us. We've
gotten you this far. We have almost reached the promised land of a
global federal government, with a single currency, with no dissent, no
war, no crime, no hunger and no disease and…

But before we can move to the single currency, we need to move to three:

A future pan-Asian currency, managed according to the same
principle of targeting low and stable inflation, would represent the
most promising way for China to fully liberalize its financial and
capital markets without fear of damaging renminbi speculation (the
Chinese economy is only the size of California's and Florida's
combined). Most of the world's smaller and poorer countries would
clearly be best off unilaterally adopting the dollar or the euro,
which would enable their safe and rapid integration into global
financial markets. Latin American countries should dollarize; eastern
European countries and Turkey, euroize. Broadly speaking, this
prescription follows from relative trade flows, but there are
exceptions; Argentina, for example, does more eurozone than U.S.
trade, but Argentines think and save in dollars.

But wait, there's one more thing:

Gold.

This following paragraph is so weird, I had to read it several times.
I still don't know what to make of it:

So what about gold? A revived gold standard is out of the
question. In the nineteenth century, governments spent less than ten
percent of national income in a given year. Today, they routinely
spend half or more, and so they would never subordinate spending to
the stringent requirements of sustaining a commodity-based monetary
system. But private gold banks already exist, allowing account holders
to make international payments in the form of shares in actual gold
bars. Although clearly a niche business at present, gold banking has
grown dramatically in recent years, in tandem with the dollar's
decline. A new gold-based international monetary system surely sounds
far-fetched. But so, in 1900, did a monetary system without gold.
Modern technology makes a revival of gold money, through private gold
banks, possible even without government support.

Woh. Hold on a second.

On the one hand, "A revived gold standard is out of the question," but
on the other hand, "private gold banks already exist, allowing account
holders to make international payments in the form of shares in actual
gold bars. Although clearly a niche business at present, gold banking
has grown dramatically in recent years, in tandem with the dollar's
decline. A new gold-based international monetary system surely sounds
far-fetched. But so, in 1900, did a monetary system without gold.
Modern technology makes a revival of gold money, through private gold
banks, possible even without government support."

So, we're going to have a few "absurd" fiat currencies and private
gold banks that will be used to make international payments in the
form of shares of actual gold bars? Did the CFR just transmit a veiled
and obscure tipoff to the wealthy people who read their rag?

Or is it something else…

I don't know what to make of it. That paragraph is such a non sequitur
in the article that it practically slaps you right out of your chair
as you read the thing. Steil points out that rape and plunder
(Globalization) can't happen with currencies that are tied to things.
So… Why mention private gold banks that can facilitate international
payments?

It gets weirder. This article was published within days of the U.S.
Government's shut down of eGold, the oldest private electronic gold
bank. On the same day that the indictments came out against eGold,
Brinks, a U.S. firm that provides bullion vaulting services, dropped
BullionVault as a client. BullionVault allows individuals to easily
and efficiently move their fiat currencies into physical gold, but it
does not allow payments to other parties. [I am a satisfied client of
BullionVault, by the way.]

Are factions of the Elite in open conflict? Do some of them want
access to these gold services, while others, mainly U.S. dollar
interested parties inside the U.S., view those same services as a
threat? Is Steil warning governments to shut down these services, lest
individuals abandon their "absurd" fiat currencies?

I don't know what's going on here, but I'd really like to find out.

http://www.prisonplanet.com/articles/may2007/100507cfrdollar.htm

http://cryptogon.com/?p=706