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Archive for November, 2011

Who Owns Currency?

Sam’s Exchange: Who owns сurrency?

22/11/2011

by Sam Barden

I have a friend that calls me from time to time to discuss the financial crisis. I should say from the outset that my friend operates on the far end of the curve.  That is to say, his views and thoughts are generally ahead of the main stream by at least a couple of years but his predictions freakishly all come to pass. Recently he called me to discuss the Euro and currency in general. He asked me a simple question:  Who owns the euro?

Well, surely the European Central bank owns the euro?  No! Definitely all the members of the European Union own the Euro?  If the Euro is owned by the European Central Bank or by all the members of the European Union then why is there a crisis with the euro?  Why is there talk of members leaving the European Union or talk of the Euro collapsing or disappearing?  I did some research and here is what I found.

Currency is or I should say was originally backed by something.  Usually it was gold or silver.  The question is who backs it?  Who gold or silver backs currency?  Is it governments or is currency privately backed?  And where is all the gold and silver that backs or backed currency?

Let’s start with the Worlds reserve currency, the USD.  The USD became the world’s reserve currency at the end of the Second World War, replacing the British pound.  The Bretton Woods agreement, effectively anointed the USD as the world’s reserve currency because the US economy was by far the strongest in the world with the most industrial output, the most production of oil and coal and of course the most powerful military in the world.  Backing the USD was gold, with Fort Knox holding 7,500 tons that secures the USD, or did.  You see, there is no public record, oversight, or audit to ensure the gold is actually there. Who gave the United States 7,500 tons of gold in the first place?

There are 33 trillion USD in circulation.  When you add all the euros, pounds, yen and other currencies together there are 88 trillion USD equivalents in circulation. Yet when you look at all the derivative positions in the market, then there are 650 trillion in value.  There seems to have been some double counting, or worse, duplication.  Has someone being duplicating currency?

What about the USD?  Who owns the USD?  Actually, as we know, printed on the USD are the words Federal Reserve Note.  And we know the Federal Reserve is a private institution.  The Federal Reserve was created in 1913 by the congress with the Federal Reserve Act.  Does the Federal Reserve own the 7,500 tons of gold that backs the USD? Unlikely!  Is there an organization within the Federal Reserve that owns the gold?  I think not.  If we go a little further back in time we get to 1688.  This is when William III decreed that printing money was no longer a sovereign right.  In 1694, the Bank of England was formed, a private institution, which was granted the power to print money.

It should be noted that for the first 150 years of America’s life, the colonies there fought for the right to issue their own currency, or scrip, which was free of interest and used to settle trade.  The current Federal Reserve is the 3rd incarnation of its kind in the United States.  Banks and central banks have tried successfully to control the issue and supply of money into a country’s monetary system.  This is the practice today.  There is no logical reason why sovereigns, each country, cannot print and control the issue of their own currency and issue it without interest.

The problem with currency today is that it has been commoditized.  Rather than being used as a tool for the settlement of trade and to facilitate stable money supply, currency itself is being traded.  As a result we have hugely volatile markets across almost every asset class and sovereigns are being loaded with unnecessary debt that will never be paid back.  None of this provides a stable money supply or the ability to settle trade.

So who owns the euro?  I don’t know.  What I do know is that whoever it is, they are not handing over more until the financial system is reformed. The commoditization of currency appears to have included duplication.  Why do banks have so much money, stock markets have so much value, yet sovereign nations have perpetual debt?  Financial system reform is likely to be wholesale and soon. It would be fair to expect that people are arrested for financial fraud and corruption across many countries.  The Occupy Wall Street movement is a modern day civil war.  The people want control of their money back.

 

 

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America Without a Middle Class

Elizabeth Warren

Chair of the Congressional Oversight Panel created to oversee the banking bailouts

December 3, 2009

 

America Without a Middle Class

 

Can you imagine an America without a strong middle class? If you can, would it still be America as we know it?

Today, one in five Americans is unemployed, underemployed or just plain out of work. One in nine families can’t make the minimum payment on their credit cards. One in eight mortgages is in default or foreclosure. One in eight Americans is on food stamps. More than 120,000 families are filing for bankruptcy every month. The economic crisis has wiped more than $5 trillion from pensions and savings, has left family balance sheets upside down, and threatens to put ten million homeowners out on the street.

Families have survived the ups and downs of economic booms and busts for a long time, but the fall-behind during the busts has gotten worse while the surge-ahead during the booms has stalled out. In the boom of the 1960s, for example, median family income jumped by 33% (adjusted for inflation). But the boom of the 2000s resulted in an almost-imperceptible 1.6% increase for the typical family. While Wall Street executives and others who owned lots of stock celebrated how good the recovery was for them, middle class families were left empty-handed.

The crisis facing the middle class started more than a generation ago. Even as productivity rose, the wages of the average fully-employed male have been flat since the 1970s. But core expenses kept going up. By the early 2000s, families were spending twice as much (adjusted for inflation) on mortgages than they did a generation ago — for a house that was, on average, only ten percent bigger and 25 years older. They also had to pay twice as much to hang on to their health insurance.

To cope, millions of families put a second parent into the workforce. But higher housing and medical costs combined with new expenses for child care, the costs of a second car to get to work and higher taxes combined to squeeze families even harder. Even with two incomes, they tightened their belts. Families today spend less than they did a generation ago on food, clothing, furniture, appliances, and other flexible purchases — but it hasn’t been enough to save them. Today’s families have spent all their income, have spent all their savings, and have gone into debt to pay for college, to cover serious medical problems, and just to stay afloat a little while longer.

Through it all, families never asked for a handout from anyone, especially Washington. They were left to go on their own, working harder, squeezing nickels, and taking care of themselves. But their economic boats have been taking on water for years, and now the crisis has swamped millions of middle class families.

The contrast with the big banks could not be sharper. While the middle class has been caught in an economic vise, the financial industry that was supposed to serve them has prospered at their expense. Consumer banking — selling debt to middle class families — has been a gold mine. Boring banking has given way to creative banking, and the industry has generated tens of billions of dollars annually in fees made possible by deceptive and dangerous terms buried in the fine print of opaque, incomprehensible, and largely unregulated contracts.

And when various forms of this creative banking triggered economic crisis, the banks went to Washington for a handout. All the while, top executives kept their jobs and retained their bonuses. Even though the tax dollars that supported the bailout came largely from middle class families — from people already working hard to make ends meet — the beneficiaries of those tax dollars are now lobbying Congress to preserve the rules that had let those huge banks feast off the middle class.

Pundits talk about “populist rage” as a way to trivialize the anger and fear coursing through the middle class. But they have it wrong. Families understand with crystalline clarity that the rules they have played by are not the same rules that govern Wall Street. They understand that no American family is “too big to fail.” They recognize that business models have shifted and that big banks are pulling out all the stops to squeeze families and boost revenues. They understand that their economic security is under assault and that leaving consumer debt effectively unregulated does not work.

Families are ready for change. According to polls, large majorities of Americans have welcomed the Obama Administration’s proposal for a new Consumer Financial Protection Agency (CFPA). The CFPA would be answerable to consumers — not to banks and not to Wall Street. The agency would have the power to end tricks-and-traps pricing and to start leveling the playing field so that consumers have the tools they need to compare prices and manage their money. The response of the big banks has been to swing into action against the Agency, fighting with all their lobbying might to keep business-as-usual. They are pulling out all the stops to kill the agency before it is born. And if those practices crush millions more families, who cares — so long as the profits stay high and the bonuses keep coming.

America today has plenty of rich and super-rich. But it has far more families who did all the right things, but who still have no real security. Going to college and finding a good job no longer guarantee economic safety. Paying for a child’s education and setting aside enough for a decent retirement have become distant dreams. Tens of millions of once-secure middle class families now live paycheck to paycheck, watching as their debts pile up and worrying about whether a pink slip or a bad diagnosis will send them hurtling over an economic cliff.

America without a strong middle class? Unthinkable, but the once-solid foundation is shaking.

Elizabeth Warren is the Leo Gottlieb Professor of Law at Harvard and is currently the Chair of the Congressional Oversight Panel.

 

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