Findings & Forecasts 10/24/2012

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Tech­noc­racy and the IMF: New Global Mon­e­tary System?

Beware of a new trial bal­loon being floated by the Inter­na­tional Mon­e­tary Fund, that is, “The Chicago Plan Revis­ited.”

According to British jour­nalist Ambrose Evans-Pritchard,

The con­juring trick is to replace our system of pri­vate bank-created money — roughly 97pc of the money supply — with state-created money. We return to the his­tor­ical norm, before Charles II placed con­trol of the money supply in pri­vate hands with the Eng­lish Free Coinage Act of 1666.

Specif­i­cally, it means an assault on “frac­tional reserve banking”. If lenders are forced to put up 100pc reserve backing for deposits, they lose the exor­bi­tant priv­i­lege of cre­ating money out of thin air.

The nation regains sov­er­eign con­trol over the money supply. There are no more banks runs, and fewer boom-bust credit cycles. [Emphasis added]

At a time when some ivory-tower econ­o­mists are pre­dicting the end of cap­i­talism, any talk of mon­e­tary reform by global banking orga­ni­za­tions is worthy of atten­tion, if not alarm. The IMF has been one of the pri­mary engines of glob­al­iza­tion, having worked in con­junc­tion with the World Bank and the Bank for Inter­na­tional Set­tle­ments for decades.

The IMF has now dug up the so-called “Chicago Plan” from the Uni­ver­sity of Chicago dating back to 1936, and is seri­ously studying it for modern application.

Beware. As Patrick Henry once stated, “I smell a rat.”

First, the Uni­ver­sity of Chicago was orig­i­nally cre­ated with a grant from John D. Rock­e­feller in 1890, and has long been an aca­d­emic vassal of Rock­e­feller inter­ests. In 1936 during the heat of the Great Depres­sion, leading econ­o­mists were looking for alter­na­tives to cap­i­talism and mon­e­tary theory. Tech­noc­racy, for instance, was one attempt to sug­gest an alter­na­tive eco­nomic system, during the same time period. Nei­ther Tech­noc­racy nor the Chicago Plan were suc­cessful at the time.

According to the IMF’s study,

“The decade fol­lowing the onset of the Great Depres­sion was a time of great intel­lec­tual fer­ment in eco­nomics, as the leading thinkers of the time tried to under­stand the apparent fail­ures of the existing eco­nomic system. This intel­lec­tual struggle extended to many domains, but arguably the most impor­tant was the field of mon­e­tary eco­nomics, given the key roles of pri­vate bank behavior and of cen­tral bank poli­cies in trig­gering and pro­longing the crisis.

“During this time a large number of leading U.S. macro­econ­o­mists sup­ported a fun­da­mental pro­posal for mon­e­tary reform that later became known as the Chicago Plan, after its strongest pro­po­nent, pro­fessor Henry Simons of the Uni­ver­sity of Chicago. It was also sup­ported, and bril­liantly sum­ma­rized, by Irving Fisher of Yale Uni­ver­sity, in Fisher (1936). The key fea­ture of this plan was that it called for the sep­a­ra­tion of the mon­e­tary and credit func­tions of the banking system, first by requiring 100% backing of deposits by government-issued money, and second by ensuring that the financing of new bank credit can only take place through earn­ings that have been retained in the form of government-issued money, or through the bor­rowing of existing government-issued money from non-banks, but not through the cre­ation of new deposits, ex nihilo, by banks.” [Emphasis added.]

I have long argued that the Fed­eral Reserve Bank, estab­lished in 1913, is a pri­vate cor­po­ra­tion whose pri­vate stock­holders were the major banks of that time period. The Fed was a super-lobby that would work directly with gov­ern­ment to orches­trate lending and col­lecting on an orderly basis. At that time, the banks did not “own” the var­ious nations of the world, so they could not sum­marily dic­tate public policy.

The Frac­tional Reserve system that cur­rently spans the globe was never intended to be a per­ma­nent solu­tion to wealth dom­i­na­tion. By def­i­n­i­tion from the start, the lenders would even­tu­ally wind up owning every­thing (all the resources) in society, and the frac­tional banking system would become obsolete.

The IMF is sug­gesting that the day of the Cen­tral Bank (the Fed included) may be over, and that the power of cur­rency cre­ation and issuance should instead be given to the state. This would lit­er­ally pull the rug out from under all the cen­tral banks of the world, requiring their untimely disbandment.

But, so what? Corporation’s change strategy all the time. If the cen­tral banks are essen­tially a ser­vice provider to their major con­stituent banks, then they will be useful only as long as they can pro­vide a ben­e­fi­cial ser­vice; there­after, they are discardable.

The orig­inal Chicago Plan and the Chicago Plan Revis­ited make no ref­er­ence to the eco­nomic system of Tech­noc­racy (also from the 1930’s) or the use of Energy Credits as cur­rency. How­ever, during the 1930’s and beyond, the Uni­ver­sity of Chicago has been a hotbed of Technocracy.

For instance, Pro­fessor Patricio Silva wrote In the Name of Reason: Tech­nocrats and Pol­i­tics in Chile that the so-called “Chicago boys” (Chilean econ­o­mists edu­cated at the Uni­ver­sity of Chicago) brought Tech­noc­racy to Chile where it sur­vived sev­eral changes of polit­ical power.

The “Chicago Boys” were edu­cated by Milton Friedman and Arnold Har­berger as the result of a State Depart­ment ini­tia­tive called the “Chile Project” that was orga­nized in the 1950’s and finan­cially spon­sored by the Ford Foundation.

Thus, I will sug­gest that the IMF’s new plan could be an impor­tant and nec­es­sary stepping-stone toward tying the issuance of cur­rency to energy policy instead of eco­nomic policy.

This link is not trivial. A state that arbi­trarily deter­mines the nec­es­sary level of cur­rency required to make its economy work must have some form of linkage to a non-political and more stable touch­stone. For many years, gold was such a touchstone.

While gold is not in the imme­diate pic­ture for mon­e­tary policy, energy is!

The United Nations has been pushing hard for a new global “Green Economy” that would replace the cur­rent “brown economy” based on fossil fuel and over-consumption in devel­oped nations.

“A green economy implies the decou­pling of resource use and envi­ron­mental impacts from eco­nomic growth… These invest­ments, both public and pri­vate, pro­vide the mech­a­nism for the recon­fig­u­ra­tion of busi­nesses, infra­struc­ture and insti­tu­tions, and for the adop­tion of sus­tain­able con­sump­tion and pro­duc­tion processes.” [Emerging policy issues, UNEP, 2010, p. 2] [Emphasis added]

If mon­e­tary cre­ation is handed back to the state, the above “decou­pling” could easily become a reality. Con­versely, as long as the cen­tral bank system imposes a frac­tional reserve system on global mon­e­tary policy, it cannot become a reality.

Again I say, Beware! The argu­ments for scrap­ping the Fed will sound appealing to everyone: no more boom/bust cycles, no more bankster rip-offs, etc. Just remember that the global elite do not exer­cise influ­ence in order to ben­efit anyone except themselves.

In this writer’s con­sid­ered opinion, the next phase of global dom­i­na­tion will focus on the direct con­trol of resources, rather than indi­rect own­er­ship via debt-based money.

Defla­tion vs. Spending

An economy grows when spending occurs for goods and ser­vices. There are three gen­eral sources of spending: Per­sonal, busi­ness and government.

Since I have been talking about credit defla­tion for sev­eral years now, it is worth noting again that the only escape from defla­tion is spending. When spending caves in, the economy caves in with it.

Since Fed Chairman Ben Bernanke was appointed by George Bush on Feb­ruary 1, 2006,  his pri­mary nemesis has been defla­tion, not infla­tion. As the credit melt­down pro­gressed, con­sumer and busi­ness spending fled, leaving gov­ern­ment spending the only pos­sible source of rescue. This became painfully obvious as lending/borrowing activity did not pick up after interest rates were dropped to almost zero.

Thus, the var­ious stim­ulus and Quan­ti­ta­tive Easing pro­grams were directed to get the gov­ern­ment to spend, and hence, we now have a $16 tril­lion national debt and vir­tu­ally nothing to show for it. The economy has not recov­ered, jobs have not returned and global sen­ti­ment has rad­i­cally shifted to a policy of fiscal austerity.

Since 2007, the Amer­ican con­sumer has been limping along while slowly descending into the eco­nomic abyss. Wages are down, unem­ploy­ment is higher and banks aren’t lending. People are trying to spin the real estate market uptick as some kind of bottom, but the activity is more like oxygen-starved koi sucking for air in a stag­nant pond.

The fol­lowing excerpt from the October 2012 McAl­vany Intel­li­gence Advisor) aptly describes the state of the average consumer:

…con­sumers are in the worst finan­cial shape they’ve been in since the Great Depres­sion. One recent report showed that credit card bal­ances for the indebted (people who carry a bal­ance each month) have dropped nearly $2,000, from $16,383 in March 2010 to $14,517 in March 2012. This sounds like Amer­i­cans are finally get­ting a grip on their finances. Hardly. If you look at credit card debt for all house­holds, the average has only dropped from $7,219 to $6,772.

That’s not the worst news, though. The reason for the decrease is not that Amer­i­cans are paying off their debt. Tim Chen wrote on Forbes.com (5/30/2012): “The reality of the sit­u­a­tion is much grimmer. In 2010, credit card com­pa­nies wrote off seri­ously delin­quent debts, declaring a huge chunk of money uncol­lec­table. America’s credit card debt dropped. The charge-off rate, which is the per­centage of dol­lars that have been clas­si­fied uncol­lectible, jumped to 10.7% — a 300% increase from 2006.

“After losing a gar­gan­tuan number of pay­ments, credit card com­pa­nies began to exer­cise shrewder dis­cern­ment in issuing finan­cial prod­ucts. With credit cards more dif­fi­cult to obtain, average debt con­tinued to fall.

“So, no. A decrease in credit card debt does not indi­cate height­ened finan­cial lit­eracy, a recov­ering job market, or smarter spending habits. It means the sit­u­a­tion was beyond repair and required an arti­fi­cial reduction.”

The truth of the matter is that the Amer­ican con­sumer is com­pletely tapped out on credit. This was true before the housing crunch, as most home­owners used the equity in their home as a piggy bank to main­tain bloated lifestyles. When home prices dropped, they went under­water in a hurry. [Emphasis added]

So, do the math. Con­sumer spending is not recov­ering. Gov­ern­ment spending will shift due to inter­na­tional and internal demands for aus­terity. Busi­nesses are already cur­tailing spending on cap­ital goods and ser­vices. Who is left to spend? No one.

This is where we stand as of today. On the first of Jan­uary, how­ever, the employed uni­verse of workers are going to see sig­nif­i­cantly higher taxes taken from their pay­checks, thanks to the sunset of the Bush Tax Cuts of 2001.

A family with a $100,000 income will lose about $3,000, or 3 per­cent, of their spend­able income. Con­sid­ering how tight bud­gets are already, that $3,000 loss rep­re­sents a dis­pro­por­tionate per­centage of dis­cre­tionary spending… and it’s going to be painful to many households.

Thus, the spiral down into defla­tion continues.

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Market

Last week I wrote,

“In order for the very short-term bearish fore­cast to stand, the DJIA and related major indexes need to reverse lower imme­di­ately, oth­er­wise another modest leg up may be seen to com­plete wave 5 up. A pen­e­tra­tion of last Friday’s low (DJIA, 13,296) would be a good con­fir­ma­tion that the trend has really changed to the downside.”

 And, reverse they did, sliding to new lows in the DJIA to close at 13,077.30 today. The other major indexes fol­lowed suit. The key char­ac­ter­istic of the decline thus far is that no rally has found legs bounce into a sig­nif­i­cant cor­rec­tion. Such con­di­tions increase the risk of a cas­cading decline where down days are steep and cor­rec­tions last only momen­tarily in order to relieve the over­sold condition.

Some will argue that because the market is deeply over­sold, it has to bounce back soon. This is just not true. Some of the worst declines in his­tory have started from a deeply over­sold market, and con­tinued to fall in spite of it. The physics of nor­malcy were discarded.

Con­firming fac­tors are seen in the sharp declines in not only gold and silver, but also in plat­inum, pal­la­dium and rhodium. At one point yes­terday, rhodium was off by 9 per­cent! At the same time, the euro has broken sup­port levels as the dollar has strength­ened con­sid­er­ably. If the dollar takes off higher, it should quickly approach its recent high of 84.10.

If this is truly (and finally!) the start of Pri­mary Wave 3 down, then treach­erous times lie straight ahead and we should exer­cise max­imum cau­tion in staying out of harm’s way.

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11 Responses to Findings & Forecasts 10/24/2012

  1. Rob Noble October 25, 2012 at 4:50 am #

    So basi­cally the cur­rent system is fin­ished so we have no choice but to start a new one. How con­ve­nient. So I sup­pose the elite will just abuse the new system into the ground and get even more filthy rich and come up with some­thing else a 100 years from now. Well good luck, might be harder to imple­ment than they think. Of course they just slip it in a little bit at a time. My thoughts are is the cur­rent system going to col­lapse too fast for them to grad­u­ally work into the new model? To me that’s what looks like is going on and that will result in com­plete chaos. Some say that’s the plan, I am not so sure if it’s just not the thief that’s got used to get­ting away with every­thing and has become so bold and greedy it thinks it can just do what it wants with no reper­cus­sions. We’ll see about all that.

  2. Gloria Jean October 25, 2012 at 11:03 am #

    am sus­pi­cious that the IMF is coming up with some­thing that sounds so good …
    that is, some­thing that might get wide spread approval at first from critics of the cur­rent system, the FED and cen­tral banks

    Everyone knows that the cur­rent banking system we have is headed for a fall, including the powers that be, so some­thing has to be
    done so that people can still buy and sell things, right?

    State printed money? Okay, but WHO OR WHAT IS THE STATE?

    It is basi­cally GOVERNMENT. And SO WHO cur­rently, owns “gov­ern­ment?”
    (The wealthy still do it seems, and so basi­cally the banks do.)

    Con­gress and our two Pres­i­den­tial can­di­dates have BOTH
    been funded (or bribed) by the banksters. SO THEY are bought and paid for.

    So what would really change? Nothing much at first except frac­tional reserve lending.. and the FED.
    For the most part anyway. The banks are all in trouble anyway. They are looking for a way to
    wiggle out of the deep deep deep trouble they are in with all the short deriv­a­tive prob­lems they have.
    What would they do? All go bank­rupt and refuse to deliver the goods they have over sold?

    The CEO of city bank and the guy just up under him recently .… retired. (Left)– so some­thing big is going on there.

    SO if the wealthy own the gov­ern­ment (The State) and THE STATE starts printing the money,
    (Instead of the FED) then not much has really changed. Why? Because the United States of America is still a
    cor­po­ra­tion. The gov­ern­ment is still actu­ally working for a cor­po­rate entity. (It is not the real gov­ern­ment of the people.)

    THEY (The elite) are still in con­trol, and now they can make and enforce the laws via the alleged “gov­ern­ment”
    of the people which is really a gov­ern­ment of the corporation.

    They still con­trol the money because they still con­trol the gov­ern­ment and the laws.

    Total con­trol is, after all, what they want. Having the STATE print the money is not going to change much. It is
    an illu­sion that fools the people into thinking they are win­ning because the people still think they elect the
    gov­ern­ment. But they are wrong. Money rules the government.

    In order to put money into the hands of the people, the people have to have more con­trol of the gov­ern­ment,
    —which they don’t have. So money has to be taken out of pol­i­tics before it can work in favor of the people.

    We need a non-political mon­e­tary system.

    Here is a book I have been looking at, but have not fin­ished. It is a little hard to wrap my head around and understand.

    “Pri­vate Enter­prise money” non-political money system. by E.C. Riegel, 1944

    http://www.reinventingmoney.com/documents/Enterprise.pdf

  3. John J. Saintclair October 29, 2012 at 7:03 am #

    Just remember the motto:“If it looks and sounds too good to be true, it almost cer­tainly is.“
    If the IMF is proposing a new mon­e­tary system, it is because the present system of Inter­na­tional Finance (Fiat Pri­vate Cur­rency) is totally bank­rupt and dis­cred­ited, and such a pro­posal, if it has any cred­i­bility, would almost cer­tainly be the only way the global banking system can save it own neck.
    I have done a fair amount of study of the theory of Social Credit which I believe has merit,
    and their are web­sites where the prin­ciple of Social Credit can be studied.
    Do the sug­gested pro­posals of a new global mon­e­tary system mean the end of the Roth­schild (Red Shield) global dom­i­na­tion of Inter­na­tional Finance?
    Can the Rothschild’s afford to be so gen­erous as to allow coun­tries to intro­duce and con­trol their own Sov­er­eign Cur­rency?
    Seeing is believing, but don’t hold your breath.
    How long will it be when we see the news headline:“America and Israel promise not to attack Iran or ini­tiate WW3? Dream on sucker!!!

    John-Joseph:Saintclair

  4. Kent Mills October 30, 2012 at 5:39 pm #

    So it’s very pos­sible that by pub­licly hating on The Fed, we’re actu­ally sowing the seeds of our own destruc­tion by set­ting up public sen­ti­ment for ANYTHING that replaces it. The Fed has never been as dan­gerous as the IMF. End the IMF! We think life is tough now — wait until the IMF con­trols and allo­cates resources!

  5. Patrick Wood October 30, 2012 at 5:52 pm #

    Well, people exer­cise wishful thinking in that if the Fed is removed from the pic­ture, somehow a more benev­o­lent insti­tu­tion will take its place. Not! Simply “hating the Fed”, as most Ron Paul fol­lowers are very good at, is naive and short-sighted.

  6. DerekB November 14, 2012 at 5:40 pm #

    Direct sov­er­eign con­trol of cur­rency just means a future rife with hyper­in­fla­tion. This is the ace in the hole for the largest debtors in the his­tory of the human race (Nation States). The modern day green­backer move­ment, led by hilar­i­ously inept char­la­tans like Ellen Brown, is growing serious steam. People still look at gov­ern­ment as a source of pros­perity, as irra­tional and false as his­tory demon­strates that to be.

    During the great bank runs of the 19th, 18th, and 17th cen­turies, Scot­land and Canada both stand out as shining exam­ples of why gov­ern­ments and cen­tral banks both are hor­rible ideas and lead to poverty — when cus­tomers are allowed to fully dis­crim­i­nate on which banks they use, and when banks are allowed to actu­ally issue their OWN money (or any other pri­vate party), the market auto­mat­i­cally rewards safe insti­tu­tions that hold full or nearly-full reserves. During the bank runs in Eng­land, not a single Scot­tish bank (who prac­ticed “bar­baric” bank prac­tices without a cen­tral bank or cen­tral cur­rency issuer) closed down — those depos­i­tors retained their savings.

    Even with “full reserves” of sov­er­eign cur­rency, the issue then becomes that the sov­er­eign insti­tu­tion will simply print up what­ever it needs to spend at any given time. There won’t BE a bond market, because bonds will not be nec­es­sary any­more, there­fore there will be nothing to drop like a stone in the face of prof­li­gate spending.

    @Patrick Wood — I can hate the fed all I want — all vio­lent monop­o­lies are a detri­ment to human progress. I would also hate the idea of a full state cur­rency monopoly as well. Pri­vate money is the only way to go — his­tory demon­strates it aptly.

  7. Patrick Wood November 14, 2012 at 5:51 pm #

    Thanks for taking the time to express your thoughts. My main point was, if Tech­noc­racy is what the elit­ists are pushing for then they will even­tu­ally replace the global debt-based cur­rency with some­thing com­pat­ible with Tech­noc­racy. Both are scary sce­narios, and nei­ther will be good for the common man.

  8. Varija Ramakrishnan March 14, 2013 at 12:03 pm #

    I like fol­lowing these updates. It just adds that spe­cial some­thing to my afternoon.

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