Tariffs Versus Gold As Regulator Of Trade

May 19, 2008

Elaine Meinel Supkis

I harp all the time about tariffs and barriers. Today's news bears me out in this matter. The US is ideologically unable to use ancient tools to protect our sovereignty. Japan's GDP is above 3% while ours is going negative. The need to protect our currency and our trade is very important. Deliberately making a currency weak for trade purposes won't work for the US. It only makes our situation worse. And increases the hidden and not so hidden future taxes of our people. We also go back to the great book, 'The Bubble That Broke the World' to learn more about gold and international trade. Also, we visit an old, old Federal Reserve report about gold reserves written the first year of WWII. Back when the US was the world's most solvent nation.

The Canadian Dollar under the Gold Standard (1854-1914)

The price-specie flow Classical economists explained international economic adjustment under the gold standard using a theory developed in part by David Hume—the price-specie flow.

Under this theory, an economic shock that led to increased demand in one country, and rising prices, would trigger an increase in imports and a countervailing outflow of specie to the rest of the world. The drain in gold from the country experiencing the shock would reduce the quantity of money in that country, leading to higher domestic interest rates (which, in turn, would slow demand), lower prices (relative to those elsewhere), and higher exports. Increased net exports and capital inflows attracted by relatively high domestic interest rates would restore equilibrium to the balance of payments.

The opposite process would happen simultaneously in the rest of the world. The successful functioning of this adjustment mechanism depends critically, however, on the sensitivity of demand to price changes in the countries affected. If the “price-elasticity of demand” was low, it would be possible under the fractional gold standard that prevailed during this period for a country’s reserves of specie to be exhausted before adjustment was completed.

The volume of thinking and writing about using gold as the basis of all banking is huge. And was all tossed out the door by first, the British empire and then somewhat later, by the American empire. This occurred during the period running from 1916-modern times when the British empire sought to re-incorporate itself into the American empire. The many prohibitions of thinking about 'isolationism' and 'anti-free trade' comes from this merger. Americans who resisted this merger were mocked ruthlessly until nearly everyone surrendered to this process. The merging of the French empire and the rending of and then absorbing of the German empire was all part of this. Oddly enough, Japan's imperial dreams also merged during this time but being a very closed society, Japan did this while remaining very much aloof and apart.

If the US were 'isolationist' it would react like Japan to the concept of trade deficits: pure poison! Instead, because our 'allies' are not allies at all but rather, joint mistresses and masters of our economic house, we are curtly ordered to ignore the trade deficit and tariffs are evil, gold standard is foolish and patrolling the entire planet for the other empires that are now embedded inside of our own empire, is to be done for free and entirely at our own potential losses. It is interesting to me that the day the US cast away its rock, the gold standard, coincides with the death of our sovereignty. This is why we cannot stop the flood of imports that ravage our nation, for example. We have foreign powers meddle, via financing our politicians in various tricky ways...note how many of the top political controllers in DC have become multi-millionaires while in office! We have no longer a decent banking or taxation system thanks to this.

All the theories about trade revolve around punishing nations that go into the hole by allowing excess imports. The quote above comes from an article about Canadian sovereignty of their own currency and how it was killed. And what killed it?

World War I. England basically took the gold reserves of Canada, a gold producing country, and used it to buy time. Slowly, Canada is losing sovereignty to the US even as the US loses it to the world. The balance of monetary values vis a vis both Canada and the US is negotiated rather than the forces of commerce. This is due to the astonishing fact that the US has a giant trade deficit with Canada. Instead of the classic solution, the US raising interest rates and making Canadian goods more expensive, they tinker with other solutions. Across the board, all the classic systems for dealing with failures like the US trade collapse, are being tossed overboard and 'new' solutions are being created. All, so this failure in trade can continue! Which is a disaster of historic proportions.

All negotiations concerning monetary rescues are based on one premise only: to maintain the US trade deficit! All the other nation's negotiators have this in mind. It is, indeed, #1, #2 and #3 on their private agendas. There is no other point to these negotiations! Europe has a big trade deficit with Asia that is growing very fast. They want to kill this and keep their trade benefits with the US. So they have conspired with Asia to raise the value of the dollar. This is being sold to the US as a triumph for us.

It is not. For we still have the trade deficit. Indeed, I have said before, years ago, using a weak dollar to fix our deficits won't work. For the simple reason, we can't make the dollar weak vis a vis all our manufacturing competitors. And it raises the cost of importing commodities we need for manufacturing. It makes our trade deficit worse by raising the value of commodities we need, like oil. While not dropping imports of manufactured goods! Trying to balance the dollar against all our competitors so it is strong with the commodity nations and weak with the manufacturing nations is IMPOSSIBLE. This is why tariffs have been very useful in the past: it targets specific areas for controls and restrictions. It also raises money for the government. Right now, we are taxed ever more for this purpose. While importers get a free ride.

But the 'thinkers' of this vast US/EU/UK imperium have forbidden even thinking about tariffs and barriers! They bend all their will towards teaching us, this is hostile and evil. We are unable to even discuss this topic anymore. It never makes the news nor do any politicians, all in the pay of outsiders wishing to use us as an imperial tool, none of them [excepting a very tiny handful like Ron Paul] even mention tariffs. Back when I hung out at other economic blogs run by professors, the minute I wrote, 'We must have tariffs and barriers' they would blow up and scold me. As if the CAUSE of the Great Depression was tariffs and barriers and not the bankruptcy of all the European empires due to WWI financing finally collapsing. Now, on to today's news:

TIPS Show Bonds See Bubble Burst for Commodity-Driven Inflation

Consumers expect prices to rise 5.2 percent in the next 12 months, according to a monthly survey by the University of Michigan in Ann Arbor, the most pessimistic they've been since 1982. Treasury Inflation Protected Securities, or TIPS, show traders anticipate inflation of about 2.9 percent by January, in line with its average of 3.1 percent the last 20 years.

The disparity has never been wider. While consumers grapple with gasoline above $3.70 a gallon, record rice prices and the escalating cost of wheat, TIPS say the commodities market is a bubble about to burst. A commodity slump would worsen losses in the $500 billion TIPS market, where investors lost 2.35 percent in April, the most since December 2006.

``There's a lot of people who just don't believe the economy's going to stay strong enough to keep prices of things where they are,'' said Chris McReynolds, who trades TIPS in New York at Barclays Plc, the largest dealer of the securities. ``Part of what's going on here is a lot of people view this price rise in oil, a lot of commodities, as being somewhat bubbleish and that they'll come off again very quickly.''

When I go around the neighborhood, I find severe despair due to inflation. It is now at the point, people can't even think of taking out a loan to shove inflation costs into the dim future. Eventually inflation will kill spending on imported goods. It is a cruel way to do this since it gives our government NO benefits nor does it release us from our rising future tax burdens. Seriously, if we paid higher prices for things due to tariffs and this money flows into DC which collects this, we still have 'inflation' but the benefits of this inflation doesn't flow overseas, it keeps our government solvent! Instead, we are going into the hole while our government digs an even deeper fiscal hole!

Our ancestors were not idiots. The tariffs were invented because they worked on several levels. I would dare to say, tariffs MADE THE USA and many things were made in the USA thanks to this. Now, we have no tariffs and lo and behold, nearly nothing is made in the USA. Isn't that....stupid? Or what? What proof do we need at this point?

The monetary solution set up by Keynes and his crew works great...for Germany and Japan. But not for the US or the UK. Since all the negotiations and deals in the past 35 years such as the Bretton Woods II negotiations, the Plaza Accords, the Louver Accords failed, we must change gears. Just discussing tariffs and barriers set all our trade partners on fire. This proves we are on the right track when we do this. It scares them therefore, it is what we should do. Since most of our exports are now commodities, we don't need to fear trade wars nearly as much as the host of nations using us for trade profits. Their losses will be greater than ours. But we have one thing we have to do before we try this: we have to stop fighting all of Europe's colonial wars!

This is the 'isolationist' side of the deal. Europe and Japan have defense budgets that are far, far smaller than ours. And both resent any American attempts at getting them to pay their own way. Negotiations over our expenses, trade imbalances and our dying currency and banking system has to be loud and hostile, not friendly. For the goals we seek are diametrically opposed to the goals of our 'allies'.

Exports again push up GDP growth

Japan's economy grew at a faster-than-expected pace during the January-March quarter, but uncertainty over the future also increased because the country remains heavily dependent on exports, analysts said Friday.

According to preliminary estimates released by the Cabinet Office on Friday, gross domestic product during the first quarter of this year rose by a seasonally adjusted 0.8 percent, or an annualized 3.3 percent, from the previous quarter in real terms.

Real GDP grew for the third straight quarter, supported by brisk exports to emerging economies and the European Union, which more than offset the decline in exports to the United States.

The US isn't 'growing.' Europe, thanks to the strong euro, isn't 'growing'. But Japan is as it has for quite a few years. The fake depression there is onesided: workers are depressed. Exporters are elated. All of this growth in Japan is due to exports. Exports to Europe are picking up rapidly as they fade somewhat with the US. Up until this year, Europe cheerfully conspired with Japan to prevent the US from adjusting our finances to deal with our giant trade deficit and government overspending. But now the knife is being turned on Europe and Europe will fall to Japan's aggressive trade policies. The queer fact is that one of the top exporters of the world has the weakest currency while the world's biggest importer, the US, has a strong currency with Japan [remember, the fall of the dollar is against the euro and others, not the yen!].

When the US tried to drop the value of the dollar deliberately in order to fix trade problems better fixed by tariffs was a failure due to Japan counteracting this via dumping excess trade dollars in their bulging FOREX reserves. This is the third issue: the US refuses to understand how FOREX reserves work as hostile trade tools. As our trade system collapses, so does our government funding and our entire banking system. We are in a crisis now where ALL our systems have collapsed and we haven't a single useful tool for dealing with this. We have a central bank which adamantly refuses to raise the value of the yen by buying and holding yen. We have no tariffs or barriers to trade and our dollar is dropping in the wrong places: energy systems, for example. So all our finances are flowing to oil pumping nations like Mexico, Canada and the Middle East rather than staying home. And comes back home in the form of other nations buying up our infrastructure and our financial tools. And we are losing sovereignty due to this.

Japan's cruel ways astonish us:

Many private-sector think tanks are forecasting a decrease in summer bonuses for the second straight year-on-year decline.
*snip*
The contraction in corporate investment in plants and equipment was caused by the sharp deterioration in business confidence amid soaring prices of crude oil and raw materials and the appreciation of the yen.

Such investment could shrink further.

Real GDP for all of fiscal 2007 rose by 1.5 percent from a year earlier, exceeding the government's forecast of 1.3 percent, but falling below the 2-percent level for the first time in five years.

GDP on a nominal basis increased by 0.6 percent in fiscal 2007, short of the government projection of 0.8 percent.

The nominal growth rate was lower than the real growth rate for the 10th straight year, underlining the deflationary trend.

The DOMESTIC markets of Japan are in a depression cycle. Wages and bonuses are being crushed even as profits from trade soar. Germany, not China, is the world's #1 trade profiteer. Japan is #2. And Japan has a depression? Only at one level. Japan's business outlook is fading due to rampant inflation of imported commodities. Just as it is here. This is why Germany's strong currency is helping their profits: commodity rises have been significantly smaller in Germany.

Bush Says Saudi Oil Boost `Not Enough' to Ease Prices

Saudi Arabia, the world's largest oil exporter, said yesterday, while Bush was in Riyadh, that the country's daily output will rise to 9.45 million barrels a day in June. Saudi Oil Minister Ali al-Naimi told reporters the kingdom took the step in response to demands from customers.

Oil prices have doubled in the past year on surging demand, supply disruptions in places such as Nigeria and commodity purchases by investors as a hedge against a weakening U.S. dollar. The price surge threatens to accelerate inflation and curb economic growth.

The US which is flooding the world with worthless dollars, wants the world flooded with oil and thus, get out of our trap. It won't work. Any excess oil will be sopped up by Japan and China as well as India. Asia has a growing desire for oil and this is due to the trade imbalances in the US. So the solution is for the US to constrict oil to the US itself and force the populace here to cut back on oil consumption via higher oil taxes. This is very unpopular, politically. So it won't happen. Thus, the only reasonable tool would be trade tariffs that bring IN taxes from the OUTSIDE. People pay higher prices but it is a haircut at the entrance to the US rather than at the exit.

Cheap energy leads to misuse and wastage. So higher prices are not a total evil. It is coming very fast which is evil. And I warned the US back when energy was cheap, to tax it higher and use the money for better transport systems like the trains and use it to launch alternative energy systems. Cheap energy is a big vote getter. Ask Reagan, the fool who drove us in this direction in the first place. He basically said, 'What, why worry about the future?' And the US celebrated this garbage. Still does.

But the writing is on the wall: the trade surplus nations will get the oil in the long run. We are not competing with Saudi Arabia for oil, we are competing with Germany, Japan and China for oil! And they, not we, have the trade profits to buy the oil. This economic fact is being masked by Germany, Japan and China so they can continue trade surpluses with the US. But we would be fools to fall for this. We must resist this with all our might. Not out of hostilities but out of a desire to survive. For only a fool can imagine we can run huge trade and tax deficits forever to infinity. This is obviously impossible. The longer we do this, the more utter our destruction when it ends.

China's Stocks Bow to Whims of Control Freaks: Michael R. Sesit

On Sunday, April 20, the China Securities Regulatory Commission, the country's market overseer, said shareholders selling more than 1 percent of a publicly traded company's stock within a month would have to execute the transaction in a block trade, instead of releasing the shares onto the open market.

The intent was to make sure buyers were already lined up, which would slow the release of new shares onto a falling market and prevent investors from being spooked by sudden new supply.

On April 24, the government cut the tax on stock trading to 0.1 percent from 0.3 percent. The change came two days after the Shanghai Composite Index fell 51 percent from its October highs. The CSI 300 Index jumped 15 percent in two days and 23 percent in seven. The market has since shed 0.3 percent.

This is no way to run a railroad, or a financial market. Typical of most bureaucrats, Chinese regulators seem to feel a need to micromanage, which raises serious doubts about the government's commitment to free markets.
*snip*
What's more, their motives are suspect. Regarded as overly concerned with maintaining face, Chinese officials are commonly believed to be eager to see the equity market rallying during the Olympic Games in August -- although there is no substantive economic or financial link between the two. It's not unlike their refusal to bow to international pressure to curtail the Olympic- torch relay.

This isn't to say that Western policy makers never seek to influence equity-market performance. The Federal Reserve and Bank of England follow stock markets because of their impact on consumer and business sentiment, and on the economy.

HAHAHA. The US government and the central bankers meddle in our markets no end. Ask Bear Stearns. In China, the government meddles. In the US, Goldman Sachs and JP Morgan meddles. Which is better? Let's see: China has a world trade surplus and a huge FOREX reserve. The US has a huge trade deficit and a tiny FOREX reserve! Shall we go on?

China's problems are half our own! Our 'wealth' is driving us into bankruptcy! Is this good? Of course not! Note the condescending talk of this hot shot American. The Chinese are stupid and the Americans are smart. This is why China will be our future rulers. The stupid things the government is doing are still leading China upwards. The government didn't want everyone putting everything into stocks and they deliberately killed the markets at a time when ours died due to stupidity! This way, people had to put money in SAVINGS. During a time when the US savings rate went negative, the first time since the Great Depression. In the US, we see frantic people bidding up the price of gold, wheat, oil, whatever in order to get a return on their savings! They can't just put money in a bank!

In China, the interest rates for banks and the reserve ratios have been aggressively moved upwards to encourage savings. Here, it is the exact opposite. Who will be the 'smart' winners in the end? The US or China?

I am betting on China, of course. This long article of mine isn't over yet. Here comes some history yet again. I try to frame my history sections with modern news so the parallels become clearer. So today we visit the history of gold reserves used to back imperial currencies. This topic is very important to today's markets and I suspect 'stupid' China and 'stupid' Russia are gearing up to reimpose the gold standard on the reckless lenders of the West.

Evolution of the World Economy, Precious Metals and India | Book Reviews

Part 2 -- The Role in the Capitalist World Economy: Some Cross-National Comparisons, 1880s-1940s -- covers three regions: Japan, South Africa and Australia. Simon Bytheway's "Japan's Adoption of the Gold Standard: Financial and Monetary Reform in the Meiji Period" (pp. 79-96) is a remarkable piece that shows how Japanese industrialization was related to the adoption of the gold standard which in turn allowed Japan to import "an unprecedented amount of foreign capital" (p. 79). Silver was produced in great quantities during those decades and there was a corresponding decline in silver prices; importing commodities from gold standard countries was more expensive. Japanese agriculture prospered but inflation in silver was disadvantageous to creditors and people living on wages. Meiji authorities chose to implement the gold standard and to industrialize the country at the expense of the export sector. The agreement to end the Sino-Japanese war included an indemnity to be paid in English pounds convertible to gold in London. Japan adopted the gold standard in October 1897. The deposit in London of a Chinese indemnity secured British economic and political cooperation. In September 1917 an embargo was placed on gold exports from Japan and the gold standard ended. (p. 94).

Russell Ally's "Gold, the Pound Sterling and the Witwatersrand, 1886-1914" (pp. 97-122) should had been placed before the previous article because in addition to examining the Witwatersrand history he succinctly explains how the gold standard of 1886-1914 was really a "sterling standard." British commercial and financial supremacy depended on the gold-convertibility of the pound, which was the responsibility of the Bank of England (p. 103). The discovery on the Witwatersrand in 1886 came after "a frantic search for the metal all over the world." The "Second Industrial Revolution" spanned two decades from 1871 to 1890 -- decades during which industry and trade reached unprecedented levels. "The gold standard could not have accommodated the growth without a corresponding increase in the stock of gold" (p. 99). The South African discovery coincided with similar events in United States, Canada, Russia, and Australia. The economic emergence of the United States and Germany challenged the hegemonic monetary position of Britain. In this context the weekly remittances of South African gold were crucial. The South African War and, more importantly, World War I indicated how the British Imperial system was dependent on the Witwatersrand gold fields (p. 114).

Gold discoveries always coincide with banking collapses. The value of gold rises just as we see today, when the banking system loses credibility due to excess credit making...granting loans too recklessly. The gold standard doesn't prevent banking collapses. This is due to dilution of the gold reserves vis a vis lending. China this year has raised the holding reserve rate ruthlessly to kill excessive, wild lending. It seems, only a very draconian dragon type government can have the balls to do this. It is very unpopular in democracies. Democracies tend to go for the easy money every time. Only a cruel government can go contrary to this. Like Japan's government which is a one party state. During the British attempt at the gold standard, every time the banks collapsed, Britain sought out more gold and gold prospecting would shoot upwards. So we get the 1849 California gold rush or the 1890 Alaskan and South African gold rushes. The African rush was particularly important. It supplied over 80% of the world's new gold for nearly a century. The South African gold also ushered in the cyanide process which is tremendously polluting but very effective for teasing out the gold flakes from dense rocks.

The cyanide kills all living things where gold is processed. Again, the striking connection between the Cave of Death and wealth creation comes to my mind. We cannot ignore this. The other day, I explained why gold is a good restrictor of the creation of wealth. And the world dealt with this restriction by seeking to find more and more gold no matter what so business could be unrestricted. Then the banking system collapses anyway! Gold or no gold. This is a human riddle we must understand. For one of my themes is, human nature will always seek a way past any restrictions or barriers set up to prevent us from falling into the pit of economic destruction. We want infinite wealth very badly. And it is fatal if we try to gain it. An issue ancient Greek philosophers struggled with in vain. A thing Jesus tried to stop using his stories and personal example. This failed, too.

Bubble That Broke The World
Page 123 :

For this now is the modern function of gold—to limit the amount of money and credit that may be wilfully, irresponsibly created and set free. Organized credit is relatively a strange thing in the economic life. New and experimental forms of it are continually being invented and we love to deceive ourselves with them. We forget that credit in any form represents debt in some other form. We know about ourselves that we have seizures of ecstasy and mass delusion; that again a time may come when the temptation to throw the monetary machine into wild motion so that everybody may become infinitely rich by means of infinite debt will rise to the pitch of mania, as it did, for example, in 1928 and 1929.

With this intelligent knowledge of ourselves we make bargains beforehand with reason; we agree that money, credit and debt shall not be inflated beyond a certain ratio to gold, under certain penalties such as we shall be very loath to pay and yet such as we cannot refuse to pay under worse penalties still.

So long as the convention is reasonably kept in the faith of credit nobody wants gold. People know what the fiction is. They may read for themselves in the published figures of the bank that its liabilities exceed its gold ten- or twentyfold, and yet they feel no anxiety about the gold value of their deposits. They may read for themselves in the figures from the public treasury that the gold reserve is only one half or one third as much as the amount of paper money in circulation. Yet they will treat that paper money as if it were gold. Nobody would dream of supposing that a country, no matter how rich, could redeem its bonds in gold. Yet its bonds will be treated as if they were gold, and one who happens to want gold for them may freely have it. All so long as the convention is kept.

I can't praise this Garrett book enough. The Mises Institute is often rather childish in clinging to a very hoary Victorian model for financial foundations. Their utter rejection of socialism means they want the British Empire complete with domestic and foreign slaves, not the Bismark ideal of a strong nation with strong, healthy workers who are educated. The failure of Germany was due to the desire to have that with slavery as an added goodie. So they kept trying to enslave neighbors as well as distant foreigners. Today, they no longer are doing this, they are trying to spread the German brand of socialism to the rest of Europe. Again.

But Garrett was an analyst, not an ideologue. I am very happy the Mises people recognize this genius and are promoting this book. I will be buying it and adding it to my own collection since reading it online is a pain. I prefer books for history because frankly, I read in the bath a lot. Heh. The above quotes are self-evident and I think, right on the money.

Bubble:

Does this mean, as some of the silly textbooks used to say, that we are all gambling upon a mythical law of averages? No. It means a very definite thing. It means that if every kind of physical wealth were priced in gold, all in one moment of inventory, the aggregate value of it would not be less than the total amount of money, credit and debt outstanding against it. Then all the money is as good as gold, all the credit is gold credit, gold itself is a nuisance in the pocket.

But let the faith be broken, let the delusion arise that the fiction is the reality, let the limit upon the amount of credit that shall be set free be left to imagination, and presently there is no way of telling what anything is worth by pricing it.

For a while this difficulty of not knowing what anything is worth but inflames the ecstasy. Everything will be priced higher and higher to make sure it is high enough; there will be the illusion that things are becoming dear and scarce. They seem to be dear because the value of the money and credit in which they are priced is falling; they will seem to be scarce because people are buying in the expectation that prices will go higher and higher still.

Suddenly doubt, then coming awake and panic. The spirit of gold has been debased by senseless inflation. The faith is lost. All with one impulse people rush to seize the gold itself as the only reality left—not only people as individuals ; banks, also, and the great banking systems and governments do it, in competition with people. This is the financial crisis.

All of it has happened. It was not the gold standard that did it; it was breaking faith with the gold standard that did it, and the case would be the same if the standard were anything else.

Hoarding leads to shortages. An example from the gas rationing of the seventies: the need for gasoline shot upwards when the price rose fast because people feared, if they drove until the tank was empty, they would pay more for gas. So everyone topped off their tanks on a daily basis rather than a weekly schedule. This caused shortages which raised prices even faster! We are seeing this again, today. People are buying gas, not slower than normal but FASTER than normal. This is 'individual hoarding' behavior. We are seeing record amounts of oil being pumped and it is vanishing from the markets faster and faster. The US government, until this week, increased purchases of oil for our reserves, for example.

The euphoria from the value of our homes shooting upwards due to monetary inflation created by the central bankers dropping interest rates well below inflation has now transmigrated to panic as the rates are again, dropped well below inflation. So people are using this bonus to bid up the price of oil, etc. And since we are all topping off the tanks again, the buying of oil products is RISING, not falling. But the percent of income devoted to this is rising, too. Which restricts spending on other things. Which depresses manufacturing, for example. As people lose their jobs, the unending troubles spread like a blood red sea at sunset as the tide rises. We can't fix this with gold or any other system at this point. We can hope gold sops up all the excess dollars. But this will lead to civil strife as people need to work, eat and live in houses.

It is far, far better to not create excess dollars to be sopped up somehow. This is the lesson we must learn, alas. As Volcker points out. Sopping up excess dollars via energy is evil. Sopping it up via higher interest returns on savings is good. Sopping it up via gold purchases is bad. Doing this via higher interest rates is healthy and good for our banking system! This is why I support Volcker and not the gold peddlers. They are selling gold and want your money. Volcker wants the damn bankers to give us our money!

Bubble:

We go on the assumption that a bank is more interested in gain than in its own solvency and if it is not watched its greed for gain will wreck it. Therefore it must be policed. Examiners clothed with arbitrary power must appear at unexpected moments, taking the bank by surprise in any wickedness, and say: "Throw open your books." And yet they fail.

It will be always impossible to keep a bank solvent by law. The law that specifies the maximum risk a bank may legally take with other people's money turns out to be a law of minimum security. A good banker will not take a risk simply because the law says he may; he will use his own judgment. On the other hand, a reckless banker will find a way to do what his greed desires, no matter what the law is, even a legal way.

But arresting bankers: that puts the fear of god in them! We did this with the Savings & Loan collapse. Except we didn't really. The Bush family, under the aegis of Bush Sr, committed banking crimes and got off scot-free. And the Bushes to this day, happily rule America and have destroyed our entire banking system. Moral of this story: if criminals run the banks and don't get arrested, they will loot the banks. Duh! This is why I say, arrest all the Bushes. If necessary, arrest all trees, too. Heh. Actually, they are directly responsible for conspiring with Goldman Sachs and JP Morgan as well as foreign powers in order to loot our banking system and our nation.

Here is an old publication by the Federal Reserve from the beginning of WWII which talks about gold:

At one time gold circulated freely as money and was the basic form into which all other types of money could generally be converted. At present, however, the gold stock in most countries is held largely or entirely by central banks and government treasuries as a legal reserve against note and deposit liabilities or for stabilizing exchange rates. All gold belonging to the United States is held by the Treasury Department. Private gold holdings are forbidden except in limited amounts for licensed purposes. Gold certificates, issued by the Treasury against a part of its gold stock, or gold certificate credits on the books of the Treasury, are held by Federal Reserve Banks as reserves against their note and deposit liabilities. Gold may also be held by Federal Reserve Banks under earmark for account of foreign central banks or governments. Such earmarked gold is not a part of the monetary gold stock of this country.

This long article is full of charts. Reading these, we can get a whiff as to how world gold markets operated during the very critical period from the beginning of WWI to the launching of WWII. Britain destroyed global banking when she tried to continue to be the premier currency in the world after going bankrupt during WWI. That grinding, epic war went on forever [actually, our stupid colonial wars seem to last a lot longer but the bankruptcy for us is just as obvious] with Germany and England hammering on each other with stupid mindlessness. The confrontation in Europe was ceremonial while the real battles were overseas as both struggled to destroy each other's trade. The US saved England by singlehandedly funding this mad war after England went bankrupt.

The huge South African gold production that made England the Queen of trade thanks to the gold standard, ceased to flow to that empire and began to flow to the US. Starting in 1914. Here are some statistics I gleaned from these charts:

***************************************
US gold reserves:

1914: $1.2 billion

1934: $4 billion then jumping to over $6 billion due to seizure of private gold hoards and revaluing the dollar.

1941: $23 billion

**************************************
UK gold reserves:

1914: $0.5 billion

1934: $1 billion [rising to $2.5 billion in 1937]

1941: $1 billion [England appropriated all of the Common Wealth gold for WWII. Canada dropped from $0.2 billion to $0.05 billion by 1940]

*************************************
France gold reserves:

1914: $0.8 billion

1934: $3 billion [greatest amount in 1934: $5.3 billion]

1941: $2 billion [taken by the Nazis]

France raised 3X the amount of gold during the year that followed England's total capitulation to reality. Even as England tried to gain the gold stocks of her empire, she only had one billion at the beginning of WWII. Gold is used to fund wars. In order to fight WWII at all, England had to again, go to the place where there was a gold reserve to tap into the credit there: the US. From 1934 when our reserves were very depressed by other central banks turning over US credit to gain gold, the political deterioration in Europe meant a flood of gold flowed to the US for protection. Physical protection, of course. All the gold in Europe was seized, often very violently, by the Nazis. They even wrenched gold fillings from victim's mouths in a medieval search for wealth.

The rise of US gold reserves from only $4 billion to the staggering amount of $23 billion in just 8 years was unprecedented. And was directly related to our power as lender to the world. England played this role before WWI by being the agent selling gold from South Africa. If we look at the tables, we can see this clearly.

New York Times, 1914, just months before WWI breaks out:

Email this post

Culture of Life News Main Page

Comments

[Raphael]

Dear Elaine,
I agree with you. We are entering the Aquarian age by precession, and leaving the piscean age. The affects that are being felt are obvious. Aquarius is ruled by Saturn, and Uranus. It has been said that as we move toward the Aquarian age, the vibrations of Saturn and Uranus will slowly be felt by mankind. Also, as we leave the piscean age, the piscean banking system,court system, and collective mindset will slowly be dismembered. The entire babylonian ediface is breaking down. I think you are the posterchild for the coming age. Technologically advanced(affect of uranian vibration), Agrarian and self sufficient(affect of saturnine vibration), Independant, and revolutionary(uranian vibration).So, as you can see, not only are the affects of the new age affecting you. They are affecting all of us, in our own ways. We are evolving. This blog of yours is so massively powerful. You are providing such a tremendous and useful tool for mind and soul growth. Please dont ever stop the writing. Keep up the good work. The rewards and benefits from your writing are obviously affecting alot of people. Look at the debates you stimulate in your comments. YOU RULE!!! THANK YOU!!! YOU ARE HELPING TURN THE TIDE, FOR THE BETTER!!!

[JSmith]

"But the 'thinkers' of this vast US/EU/UK imperium have forbidden even thinking about tariffs and barriers!"

So you'd say that we need tariffs and barriers to keep other countries' products out of our economy - just as they need tariffs and barriers to keep our products out of their economies?

"Aquarius is ruled by Saturn, and Uranus. It has been said that as we move toward the Aquarian age, the vibrations of Saturn and Uranus will slowly be felt by mankind."

That's heavy, man, heavy. Pass the bong!

[Raphael]

Jsmith,
Pass the bong? maybe you should stop hitting it. Wake up buddy. Times are changing fast. Read the Rosicrucian cosmo conception for some stimulation of your mind.

[Elaine Meinel Supkis]

Hitting bongs breaks them, man! Don't do it! Yah! Pass that joint.

Hmmmm......back when I was a hippie, I used to collect old silver coins. People didn't care if their money came from 1969 or 1963 so I would ease away the 63 coins. Heh. And then sell them for their silver content.

Live and learn.

[pulse]

We should not hoard gold because some government (ours) will repossess it?

We should not hoard food because this will drive food prices higher?

We should not speculate on commodities because this will also drive prices higher?

It is time for the wise to evaluate what an INVESTMENT really is.

Gold: the blind, deaf and dumb regulator of the alchemists attempts to create endless wealth and life. It is our gift to negate the psychotic efforts those who refuse to yield to the value of a single individual's right to freedom of choice.

Do we believe in self-determination - or are we going to implode into the traps of this wretched generation? These "Boomers" who delighted in passing all debts to the next generations?

When we freely choose to consume beyond our means we have destroyed the fruits of our children's future labour, thus causing them to have no security, no value to their labour, no structure of hope..... we have become CANNIBALS.

Gold is the mechanism to arrest this disgusting display of greed and power which is quite plain to see..... for those with the wisdom to look.

The mad quest of something for nothing always results in destruction. We all need faith.... maybe a horse with wings will suffice?

[Michael]

Elaine,
Good work again - we need to revisit the WWI-Depression era often to clarify where we are currently headed.
I absolutely agree with your powerful concerns regarding the devaluing dollar and the trade deficit. However I do not believe these are the result of an absence of tariffs, but are the inevitable outcome of the desire and ability of American government, business, and households to spend more than they earn and finance that spending by borrowing from foreigners. The ability to borrow from foreigners entirely depends upon the willingness of those foreigners to lend, so we have to make the tough choice to either cut back our lifestyle drastically or continue to survive at the mercy of others with a sinking dollar. Tariffs can only enter this issue as a band-aid applied to the American debt wound after the fact, and at best it could provide a temporary but false sense of relief by "taking control" of our trade. At worst, and typically, here's what would happen:
1. Prices for everything slapped with a tariff would go up, quickly. Inflation would then accelerate.
2. Shortages of products we now primarily import (tariff-free) would appear, with hoarding and other domestic distortions.
3. A free-for-all would commence among our domestic producers to get tariffs placed (and raised ever-higher) on their specific products or commodities. Just as auto and textile manufacturers, steel producers, and agribusiness have sucessfully lobbied in the past (and present) for tariffs to raise the price of their products, so would EVERYONE who could do so under a tariffs-are-the-answer regime. I know the oil companies would like tariffs on foreign oil imports, likewise the copper, forest products, and other producers. How much are Americans willing to pay for a gallon of gas? $50 a gallon? The wealthiest capitalists seeking profit-enhancing tariffs band together and buy politicans to favor their products, so that they can get even wealthier and buy even more politicians. THAT'S HOW TARIFFS GET ALLOCATED.
4. All the exporting countries who lose out because of our tariff regime retaliate ("protect their industries" as we put it). Our own exports go down the tubes. The exporting countries who hold trillions in U.S. Treasuries start dumping them - they don't need them any more, since they're not selling us anything on credit like they used to. The dollar is dumped. World trade shrinks, world economic activity shrinks, world depression begins.

This is so much like the WWI-Depression era events that you are looking at that I know you understand how tariffs at that time helped destroy American agriculture, the auto industry, etc. We started the tariff wars and we paid the price just like everyone else when it got out of hand.

So, when looking for solutions to the trade and currency problems, I recommend we keep the focus on the underying (potentially fatal) credit/debt disease rather than on tariff medicine (also potentially fatal) to try to alleviate the symptoms.

[Bokonon]

Michael, I accept all your criticisms on tariffs, however you are dealing with people who do not play fair. The reason they do not play fair is that they believe they are fighting for survival.

In Australia, our trade surplus disappeared when we started to undo our tariffs.

[Elaine Meinel Supkis]

Bokonon is right. The proof is in the pudding. At NO POINT in time since we embraced 'free trade' have we had anything approaching a trade balance, much less a German or Japanese style surplus.

Nay! It gets worse and worse and worse! So what if our exporters can't export! They are a FAILURE. Utterly and totally, a failure for us.

No, that isn't a solution. Indeed, the idea that we can run trillion dollar deficits forever is pure madness. And the Chinese plan to end this game one fine day when they force us into bankruptcy like we forced Russia into bankruptcy. Period.

The US didn't have a giant trade deficit in 1929. But England was struggling to flood the world with her goods and by then, most of the other parts of the world couldn't buy this stuff and England couldn't lend them money to buy like Japan is lending to us.

For you see, England was BANKRUPT. As we are today. Quite literally.

[Michael]

Bokonon,

NO ONE plays fair with tariffs - they aren't about fairness, but the opposite - favoritism (favoring pet industries, no matter how inefficient, wasteful, and non-competitive they are) to help your own capitalists get richer than they already are (and in the hope the workers will get some more jobs or better pay out of it). Within a country trade restrictions to favor capitalists are called monopoly; in international trade they are called tariffs. For example, when OPEC sets a limit on the international sale of oil we call it a cartel, but functionally it's actually an export tariff regime (they call it a "production limit" but they don't limit domestic production and consumption, only international sales). Everyone always sets import or export tariffs to advance themselves at someone else's expense. The extreme form of tariffs is an embargo, which is intended to stop all trade with someone. Embargos, like tariffs, are strictly political devices that make no economic sense. Of course here is no such thing as "free" trade, and I don't advocate that fantasy as a panacea; but the absence of "pure" free trade is not an argument for erecting more tariffs to solve a society's debt, inefficiency, and shortage of resource problems.

The reason the U.S. uses corn (a vital foodstock for the world) to make ethanol instead of (much cheaper) sugar imported from Brazil and other countries (including Cuba) is because tariffs and embargos keep cheap foreign sugar out to insure high priced sugar in our country so as to enrich the American Sugar Lobby capitalists.

To illustrate how destructive tariffs can be, the American Civil War was almost fought - and barely avoided - four times before it actually started, because its real cause (sorry, not freedom for the slaves any more than the Iraq War was about freedom for Iraqis) was that the Northern industrialists wanted (and suceeded in getting) import tariffs on manufactured goods from Europe (to increase their profits, which raised prices for Southern planters. This battle was fought politically for decades before military conflict broke out. Tariffs always lead to conflict, and it's not always international in nature.

[Michael]

Elaine,

Let me say again: The trade deficit is only one of several symptoms, not the disease. The disease is DEBT, INEFFICIENCY, RUNNING OUT OF RESOURCES, OVERCONSUMPTION, DEBT, DEBT, AND MORE DEBT. Trying to cut off (or drive the price up) on imports will not solve any of these problems and will introduce a pandora's box of DRASTIC unintended consequences.

[Jim Smith]

AMEN, Michael!

[hardrock]

Good article Elaine....... ..except for this: "All the gold in Europe was seized, often very violently, by the Nazis. They even wrenched gold fillings from victim's mouths in a medieval search for wealth."

I am so sorry, but I have to say this: It is strange to me that someone who knows many of the fallacies regarding the Jews and the Nazi era and how an entire industry has sprung up around the tale, would repeat such tired, worn out tales, that in fact have never been proven. But with the help of the 'machine' they keep getting repeated over and over. Sorry example of falling into the trap of repeating "the big lie".....you give our hidden enemies more power...and we end up looking like children who, as you know....get no respect.

[Elaine Meinel Supkis]

The Germans took the gold out of Russian teeth, Jewish teeth, Gypsy teeth, Polish teeth, they were VERY intent on this and it is NOT a myth. Gads. My dad was there. And I lived with actual German Nazis after WWII.

Many online groups have worked very hard to deny these sorts of crimes. People can believe any stupid thing they want. But reality is reality. And when it comes to Nazis, I know their damn history.

There are many alternative belief systems out there in cyberspace. Like the refusal to believe that big cement structures can turn to dust like we saw on 9/11 or the Chinese earthquakes last week, there is a counter belief system being built out there that denies the horrors of ethnic cleansing. Both Jewish ethnic cleansers and Holocaust deniers are two sides of the same ugly coin.

This is a very severe historic force that is building insidiously. It basically wants to resume ethnic cleansing/looting and so it twists reality. For example, the beginning of Zionism wasn't due to Jews, it was due to the Czar of Russia suddenly announcing he was going to expel all the Jews and if no other nation took them in, he would allow mobs to murder them!

Zionism was born out of Russian ethnic cleansing. The Jewish ethnic cleansing in Palestine will give birth to yet another ethnic cleansing of the Jews in other nations. I am 100% against all of this, totally and completely.

About tariffs: like any tool, it can be used in a smart way or a stupid way. Rich people bribe politicians to do only the stupid way. The masses have to join together to stop this. Life is a struggle for power and no one can get lazy about this or they become life's victims.