Currency Collapse Reveals Limits Of Modern Monetary Policies

Elaine Meinel Supkis

Looming economic chaos showing up in currency problems as the face value of pennies and nickles fall relative to the mineral value of the actual coin. Debtor empire USA---now the oil pumping nations are reducing their American bond holdings. This is why stockmarkets shot up. Derivatives are now 800% the value of world annual GNP. Housing foreclosures shoot up in USA.

&hearts Debasing the currency means confiscation of past coinage and re-issuing it in cheaper forms, preferably paper which is the cheapest of all.

Sharply rising prices of metals such as copper and nickel have meant the face value of pennies and nickels are worth less than the material that they are made of, increasing the risk that speculators could melt the coins and sell them for a profit.

Such a risk spurred the U.S. Mint last month to issue regulations limiting melting and exporting of the coins.

But Francois Velde, senior economist at the Chicago Fed, argued in a recent research note that prohibitions by the Mint would unlikely deter serious speculators who already have piled up the coinage.

The best solution, Velde said, would be to "rebase" the penny by making it worth five cents rather than one cent. Doing so would increase the amount of five-cent coins in circulation and do away with the almost worthless one cent coin.

"History shows that when coins are worth melting, they disappear," Velde wrote.

History of coins is very old and has the same rhythm: coins are struck, the government prospers, the need for more money to pay for imperialist wars arises as the emperor/king needs to loot the neighbors to hide his/her wild spending on palaces and parties, the wars go bad due to corruption and ineptitude, the emperor/king then solves this problem by debasing the coinage. Each time, their ministers think of new schemes for doing this, the trick is to trick people into thinking their money's value isn't being confiscated by the state!

This is where it pays to have a very smart, evil, clever finance minister. Clumsy ones start riots and insurrections and in some cases, revolutions. Sneaky taxes are tried, too. Same outcome if the peasants get motivated. Peasants motivated to burn down cities and blow up everything are an awesome sight to see. They will happily toil for centuries, carry huge burdens and then suddenly rise up.

Usually, this is in conjunction with very pissed off bourgoise who suddenly see their wealth confiscated by tricky finance ministers debasing the currency!

I will note here that the USA is BOASTING about debasing the currency. 'This will punish the Chinese and correct the trade imbalance,' these tricksters exclaim. In retaliation, no sane American saves any money. A fool's errand indeed!

Of course, this is backfiring. At first, a rapidly debased currency (done to correct trade imbalances!) causes inflation. One of the signs this inflation is out of control is, the coins issued by the government start losing the government money! So now we hear talk of ending the practice of using pennies and maybe even nickles. Wooden nickles, anyone?

Heck, wood might be too expensive.

So they sneeringly sidle up to the peasants and the bourgoise and whisper, 'You don't like all that metal jingling in your pocket, do you? Let's eliminate it!' Quite. I happen to be fond of hard currencies.

&hearts The Chinese have a trillion debased American dollars and now the oil sheiks have nearly as much, too.

By Bo Nielsen and Daniel Kruger

Jan. 22 (Bloomberg) -- OPEC nations are unloading Treasuries at the fastest pace in more than three years as crude oil prices tumble, sending bond yields higher.

Exporters including Indonesia, Saudi Arabia and Venezuela, sold 9.4 percent, or $10.1 billion, of their U.S. government debt securities in the three months ended in November, according to Treasury Department data. Members of the Organization of Petroleum Exporting Countries last sold Treasuries for three straight months in June 2003.

Oil producers have surpassed Asian central banks as the largest pool of global savings, accumulating an estimated $500 billion in 2006 alone, according to research by Pacific Investment Management Co. The sales during those three months mark a reversal because OPEC countries have boosted their holdings of U.S. government bonds by 70 percent to $97 billion in the past 17 months, Treasury data show.

``There will be a significant sell-off,'' Joseph Stiglitz, a Nobel laureate and economics professor at Columbia University in New York, said in an interview. ``Medium-term and long-term yields will go up.''

For the last 30 years, ever since the USA hit its own Hubbert's Oil Peak, we have literally lived off of borrowed time. Instead of dealing with the restrictions of expensive, disappearing oil, the USA stupidly decided to party on and simply import oil which degraded our trade balance which was, pre-Hubbert Oil Peak, in the green, to increasingly deeper into the red. The race to make things cheaper to hide inflation has erupted into a tsunami of debt coupled intimately to a trade deficit that is greater than any in the history of humanity since... the decline and fall of the Roman Empire.

&hearts Foreclosures on unmanagable debts is shooting to the stars.

The number of North Carolina homeowners threatened with foreclosure reached an all-time high last year, new state figures show.

More than 45,500 foreclosure filings were recorded in 2006, according to the Administrative Office of the Courts.

I have seen this process during past recessions. This is why it is wise to clip the debt before a recession hits. These recessions are inevitable because they are the result of inflation/debasing the coinage which always happens when too much debt builds. Namely, the trick all emperors/kings unfailingly use in such situations is to make the debts cheaper to pay off by debasing the coins forcing the bankers to raise interest rates to recoup losses from this process. There is a time lag involved which the ruler has to exploit in order to keep afloat. Usually, these policies are wildly popular with citizens who are as deep in debt as the government. But it makes savers very pissed off and they remove their money from easy access, namely, they park it in hard to find places including sending it to other countries like Switzerland (did that in 1976-1980).

But when the bills come due as the bankers/savers demand greater returns, the emperor/king runs off to loot someone and give more juice to the exchequer. This means invading countries with loot. And Iraq, disarmed and disarrayed, is up to its gills in loot! Ditto Iran only that place is not in such dissarray. It is, in fact, primed to blow up. And Iraq blew up, too! And instead of replentishing the ruler's coffers, it is proving to be a financial coffin.

I will note here that nearly universally, the economic bloggers on the net, and this includes Calculated Risk, focus on only one thing at a time and this grasping of individual trees in this moving forest (refering to Macbeth here) is fine but limited. One has to understand diplomacy, war and read tons of history books to get a grasp on what is going on.

The chief thing here is, the very rich (mostly rulers) are dumping us because our government mismanaged the currency or rather, the Skull and Bones/Bohemian Grove/New World Order satanic ritualists have flubbed it very badly and their invasion seeking loot is rapidly becoming a bust and workers and peasants are emboldened to pull down the ruling elites who are right now fretting about where to hide. Switzerland? Monaco? Virgin Islands? Live on a really big ship that yo-ho-ho's around the world?

One thing they ARE doing is building nuclear bomb shelters and buying estates in Paraguay.

&hearts Safe Haven is a right winger but he does note the underlying expression of fiscal irresponsibility.

Looking around the world, from the G-8 to the emerging markets and BRICS (Brazil, Russia, India, China) we can see rates of currency and credit growth ranging from 9.8% to 50% almost anywhere we look. On a compounded basis it equates doubling the money in circulation on anywhere from a 2 to 6 year basis depending on the country you are reviewing. How can currency in circulation double in 2 or 6 years and avoid prices on goods and services from doing the same? Inflation is the elephant in the room as governments worldwide provide a chorus of lies, which they feed to the public. So they can buy the publics support in the next election with their easy money policies. It is set to continue ad infinitum until something derails the Bread and Circuses routines of the policy makers.

But what is more troubling is that money and credit creation is now outside the central banks control, and is expanding on an almost geometric scale.

Like all right wingers such as Hitler and Mussolini, he thinks uppity workers demanding fair pay and health care are the problem. Work them peasants to death and whip the survivors! Of course, this game plan had to be modified by Hitler who simply whipped the Jews to death and confiscated their properties and then, running out of stuff to loot, while offering goodies to 'Aryan' workers, he persuaded them to go on a massive looting/enslavement expedition called WWII.

This, like our own today, was a failure because enslaving peasants can suddenly turn into a nightmare as they strike back, stubbornly fighting to death, literally. Today in Afghanistan, more suicide bombers attack our looting machine. In Iraq, they have our number and take us out with ease. This is following the same arc as Hitler's attempts at enriching Germany while being irresponsible.

The housing boom is doomed. It won't come back for at least five years. The Great Depression's housing collapse lasted for nearly 20 years! Even as money flowed again, housing languished because banks wanted over 20% down and 10 years steady employment before giving loans which is why the government issued bonds so they could give loans to young soldiers coming back from battle, itching for the good life.

Seriously, the rulers were terrified that if money was too tight, these same soldiers might get nasty. As history shows again and again.

Most people interested in financial matters don't like my blog because I keep pointing out the connection between fiscal irresponsibility/public debt/private looting and revolutions. They are all one big, ugly mess. One flows from the other relentlessly. And the game we are playing now is very much pointed in that direction, worldwide.

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Comments

[DeVaul]

Yes, you are right about the connection between war and financial bankruptcy. History shows it over and over again, but no one reads history, not even the fringe financial commentators. They think the Federal Reserve alone is responsible for our problems. Most never even mention Iraq.

I am really amazed that only a few people now and then make the connection between war and red ink, when it is so clearly visible via history. Ron Paul does this, which is why I am afraid he may not live until 2008 to run for president.

[D. F. Facti]

It's the crap they propound in graduate school economics programs and business schools which are endowed - maybe I should spell that en DOW ed - by big business.

History is bunk. So sayeth Henry Ford.

The testosterone empowered males and females running the world have no need of introspection - - - they are masters of the universe. How dare we ask questions?

[DeVaul]

You are probably right, DF Facti. That does seem to be their general attitude.

[Elaine Meinel Supkis]

Ask the French Peasants how to talk to the elites...they managed it. So did the Russian Peasants in 1917. As Mao said, 'Power grows out of the barrel of the gun,' and arming peasants to fight sometimes backfires.

[Rouser]

At least credit Calculated Risk when you "borrow" one of his nice graphs!

[JSmith]

Wow. That's some ancient economics there - "the mineral value of the actual coin" hasn't mattered for over a century. The paper and ink in a dollar bill has never been worth a dollar.

The idea that money is a "storehouse of value" is an old one, no longer useful - we don't trade a certain number of grams of gold for groceries and haven't for a long time.

In today's world, money is a measuring tool for value. It provides a way to compare disparate things in terms of some standard: how long do I need to pound this keyboard to pay Hugo Boss for a suit? How many suits does Mr. Boss need to sell to buy a new Porsche?

[JSmith]

A bit more on this topic... since the late 90s I've carried a plastic item in my wallet called a "debit card" - it's a credit-card-like thingy that I use at the grocery, the gas station, etc. instead of coins, bills, and paper checks (I haven't written a paper check in years.) There are a bunch of coins in a cupholder in my car that I use for parking meters, and I keep maybe $20 cash in my wallet for the cafeteria, but the vast majority of my transactions don't involve physical "money" at all - they involve the movement of electrons from the vendor to my bank, and from my bank to the vendor's bank. So "money" in my world is an abstract yardstick I use to compare the value of my time vs. the value of something I want, and to make purchases on that basis.

It's not the tenth century any more!

[Elaine Meinel Supkis]

Dear Rouser,

Tell Calculated Risk I will never ever refer to him or link to him again.

Anyone clicking on the link would discover where it came from. But I find irritable followers of various gurus to be a major annoyance. So it is better to not connect with them.

This is the problem with many sites and is why I have ceased to refer to other bloggers: it is a real pain. Once, I had dreams of bloggers refering to each other. But they have thinner skins than the major media who have pretty thin skins as it is.

People should be happy ANYONE connects! We are all very small fish in a very big ocean. As for Calculated Risk: he steals stuff ALL THE TIME. He seldom says more than one or two sentences, he simply hijacks other people's stuff. Isn't that charming.

So original.

For his followers to yap at me about this is hilarious. He should at least post as much original context as I. This is why my standing in Google and other search engines rises by the day: they grade us according to original content and my blog is at the very top of all blogs when it comes to both originality and careful use of links! I NEVER see Risk's stuff when I google financial information, for example.

Many of my readers come via google. They type in questions and I am on page 1. Top ten, ranked right after the BBC and NYT! Ha.

[Elaine Meinel Supkis]

Smith: if you truly believe hard mineral stuff has no value, please donate all your coins to me. I will add them to my hard coin collection.

Pennies worth $0.02 shows clearly that anyone holding real pennies and MELTING them will be richer than someone who has pennies in some number system and nothing solid. Double your money. Can you see the problem here? I hope.

[Z]

Rouser, JSmith,

Good points. So it is obvious that you do not negotiate with your bosses for trade of goods. You don't say "Mr. Bossman, I will work three hours for you if you will give me a new suit". Instead you use a commonly recognized exchange of value we call "the dollar". Now if the amount of dollars in circulation were fixed and as long as everyone agreed to the use of dollars, you'd be fine. You could even argue that an increase in the number of dollars in existence based on some marker of economic growth would work. The problem is, once you give someone (anyone) the printing press you are counting on them not to get greedy. And somebody, if not them then their heir apparent, *always* gets greedy. And then they start printing dollars. And once they start they have to do it faster and faster. And before long people start to question the value of those pieces of paper. And then we are off to the races (the inflation races). I'm not a big beleiver in the gold and silver standard. But I do like the idea that money must be tied to *something* otherwise that printing press lever (or now days "button") is just too tempting.

Z

[Elaine Meinel Supkis]

100% correct, Z.

Couldn't put it better. Anyway, I have the means for melting pennies. Unfortunately, it is illegal to make them worth something by melting them. So all I can do right now is complain. And scavange copper.

[JSmith]

"if you truly believe hard mineral stuff has no value, please donate all your coins to me."

"I do like the idea that money must be tied to *something*..."

That's what Marx (Karl, not Groucho) called "commodity fetishism. And it's odd that the mineral stuff most valued through history isn't one that's good for a whole lot, as it's rather soft as minerals go. If use-value equaled fetish-value, structural steel would be the medium of exchange.

As far as I'm concerned, they could stop printing "dollars" tomorrow. Bits get transmitted electronically from my employer's bank to mine, and from my bank to the banks of entities I deal with. The "dollars" I use the vast majority of the time are just numbers on monthly statements - inbound and outbound.

But it seems as though there are still some people who want to haul it around in a sack!

[Elaine Meinel Supkis]

Wiping out 'bits of memory' is very easy. Wrestling metal from my grip is much, much harder.

Note how many banks collapsed in the past because of 'numbers' being suddenly wiped out. Like famous, old banks going kaput in one day!

[JSmith]

You remind me of Long John Silver's parrot...

"Pieces of eight! Pieces of eight! SQUAWWWWK!"

Do you have a hole in the basement floor where you've stuffed sacks of krugerrands or something?

[John]

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[John]

The best way to get started with foreclosure real estate is to see what is currently on the market in your chosen area, and the best way to do this is to browse online foreclosure listings. There are several large, up-to-date databases online, most offering free full access trial memberships. Take advantage of their offers and use the free trials to get a better understanding of exactly how much foreclosures are selling for in your area. Use online listings to find local properties and then go check them out in person and see how they measure up. Taking a hands on approach will give you an edge over 90% of the foreclosure wannabes out there.
http://www.thejohnbeck.tv

[Peter]

The best way to get started with foreclosure real estate is to see what is the current rate on the market in your chosen area. To do this browse online foreclosure listings as there are several large, up-to-date databases online, most of them offers free access trial memberships.

[Ronald]

The best way to get updated information regarding the foreclosure is through internet free foreclosure listings by sitting at home, which saves our time as well as money.

[stop foreclosure]

Predatory lending is also a threat to deal with now a days. I am happy you wrote something worth reading about foreclosures. Foreclosure freeze for a
wrongful foreclosure is a must. Lenders should explain terms and conditions in a simple manner to home owners. This would certainly decrease the amount of foreclosure fraud.

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