China Wants To Run IMF

June 4, 2008

Elaine Meinel Supkis

A top monetarist theorist, Mr. Mundell, thinks the Chinese will turn over their $2 trillion FOREX reserve to the IMF. HAHAHA. I say, yes, they will. Only when they run the IMF. Then we will play by the cruel IMF rules we created for third world nations. We won't like this one bit, that is certain. The banking collapse in the West, far from over, is actually accelerating. Several top investment banks like Merrill Lynch are being reduced from AAA to A by Standard & Poor. Also, banks are refusing to put on their books over $3 trillion in loans that are going bad. And the global recession has barely begun! Indeed, all the news is bad except for oil: it is no longer rising like crazy. But the damage from that is just beginning to be felt. Maybe China can save us, eh?

Banks fear new $5,000bn balance burden

Accounting changes could force US banks to take thousands of billions of dollars back on to their balance sheets in the coming months in a move that is likely to curb further their lending and could push them into new capital raisings, analysts have warned.

Analysts at Citigroup (NYSE:C) said a planned tightening of the rules regarding off-balance sheet vehicles would force banks to reconsider arrangements and could result in up to $5,000bn of assets coming back on to the books.

The off-balance sheet vehicles have been used by financial institutions to keep some assets off their balance sheets, thereby avoiding the need to hold regulatory capital against them.

When I sat down yesterday and read a sampling of Federal Reserve emergency phone calls over the last 40 years, I noticed a very troubling thing: the amounts they were discussing with such urgency and fear were usually between $500 million and $20 billion! Today, amounts of $20 billion is viewed as chump change. It is like pennies to the dollar. Often, it is said to be 'only' $20 billion. This is true across the board: $1 billion buy out deals were considered huge back in 1987. Nearly unbelievable. In the last three years, it was common to see the most pathetic deals for goofy things that are not all that profitable going for over $20 billion. The Alliance Boots deal, for example.

Last year, a hedge fund plunked down several billion for Dollar General. Dollar General was a very, very low class store that sold things to people who couldn't afford to shop at Walmart! After dumping this giant loan on top of Dollar General, the store chain went belly up since it couldn't pay off this new pile of debt's interest rates. This story is now across the board. Everywhere we look, we see corporations saddled with epic amounts of debt. Most of which was piled on in the last 7 years.

This flood of new lending created trillions of new money that flowed across the entire planet. Anyone tracking this flood of red ink that was transformed into hard cash can clearly see that the rate of growth of the 'money supply' was insane. It grew very rapidly! Absolutely nothing irritates me more than to see all the media talk about the need to restart that insane lending era. The reason we have to force bankers to increase their reserves and to admit to losses is, this is the ONLY way we can stop global inflation. Remember: the whole point of central bankers raising interest rates is to STOP lending! They do this because TOO MUCH LENDING CAUSES CURRENCY VALUES TO ERODE. Too much lending debases currencies. Any country that ever tries to create wealth via wild lending to itself always ends up with raging inflation. This is also why the mechanism of inflation kills lending. Loans are repaid with ever-weaker paper money! The more the money is created, the greater the losses to the banks holding these loans to businesses and consumers. It is in the interest of both to repay these loans with cheaper dollars. And the more the banks lend, the dynamic of cheaper repayment rises. To infinity where it all collapses.

Debtors need raging inflation. They can get a loan for sub-inflation rates like Japan and the US now have. Then use this to buy things. Over the following years, they pay back with Funny Money™ which is increasingly worthless. The only two things that can stop this force is higher than inflation interest rates...no matter how high that goes. We had to go to 20% in the past to kill this sort of inflation. The other way is to block the ability to get pay raises or bonuses so all inflation is eaten literally at home via rising food and fuel prices. If no one can get a raise, the inflation eats up all the savings, buying ability and even assets of debtors and savers alike. Then the system has 'reset' and can resume. If the debtors can get pay raises, they will up the ante forever and we get hyper-inflation.

We are already obviously in a hyper-inflationary cycle here. And it is being burned out in the food and fuel sectors. My income has been eaten up this way! And I am betting everyone here is feeling the pinch. People who have credit still are trying to outrun inflation by increasing their debts. But they can't do this via their housing equity. They are using credit lines that have super-high interest. This is why I say, raising interest rates to 20% will not kill our economy! We are ALREADY running it on 20% interest. The only problem is, SAVERS are not getting 20% interest on CDs. They are the biggest losers here.

I never touted gold hoarding as a solution to this problem, by the way. Gold has hit a peak and since then has dropped by $140 an ounce and has bounced about between $800 and $900 this last month as I predicted. I lost a lot of readers when I warned them about all this. Faith is a huge element in the financial markets. And I am not pushing any product or thing. I am pushing for CLASSIC BANKING PRINCIPALS. I am angry with the central bankers who were tempted to throw out classic banking rules. Everyone fell for the Funny Money™ principal. And Funny Money™ is credit not backed by gold.

Dollar crisis looms, says Nobel laureate Mundell

A major dollar crisis could come within five years and China is discussing reforms to the global monetary system to protect its $1.6-trillion (U.S.) reserves pile, says Nobel Prize-winning economist Robert Mundell.

Mr. Mundell, who has regular contacts with Beijing officials, said they are considering proposing ways to fix major currencies including the dollar and the euro, in a system similar to the one which operated under the Bretton Woods agreement from the end of World War Two until the 1970s.

“There's no doubt about it that inside the Chinese government there's a lot of discussion going on. I'm not sure how they're doing it but I know they're going to get an input from me,” Mr. Mundell told Reuters in an interview.
*snip*
“What you need to have is an International Monetary Fund that's going to take some of these excess dollars, put them into a substitution account inside the IMF or some other institution and then use that and create what is a new international currency,” said Mr. Mundell.

“This kind of proposal would be very acceptable inside China. The Chinese are thinking in terms of this,” he said.

First: China's FOREX reserves are growing at a mad pace. It is now nearly $2 trillion. The story at the top talks about $5 trillion in
loans that are 'off the books' at the G7 banks. These many trillions of dollars are dwarfed by the idiotic and dangerous Derivatives Beast. This creature is now $500 trillion and growing greater by the hour. So, we see some harmonic number matters here: the $5 trillion in loans by the banks happens to be 10% of the Derivatives Beast! I see a connection here in the darkness. Remember, the Beast was born and fed in order to protect the lending done by the banks! Instead of basing all this on savings and capital, this was transformed into lending based on loans. Thanks to the central banks calling 'Treasuries' positive assets and not 'debts' which is what they really are. And this was extended to ALL loans held: they are really assets and appear on the ledgers of bankers in this form. But they are not that at all. Debt is money only so long as it is limited. The limit usually was gold values.

But unlimited debt rapidly becomes unlimited inflation and unlimited degradation of currencies.

So here we see chat about Bretton Woods I. Bretton Woods I was when the US, the world's biggest economy and mistress of the Seven Seas. The condition of world banks was dire after WWII. Europe basically didn't have a working banking system. The destruction of many cities and most transportation systems meant all the debts based on the infrastructures were dead. And the ability to lend for rebuilding was gone due to looting on top of all this. The chaos was tremendous. And the US was untouched by the war, for the most part. So we had good debts plus MOST OF THE GOLD. The growth of the gold holdings in the US before and during the war was tremendous. Virtually complete. Using this gigantic gold hoard as a basis for lending, the US generously fixed all other currencies to the gold-backed dollar. This allowed them to make loans without a real basis so long as they were 'pegged' to the dollar which had the gold. This backdoor scheme worked as far as rebuilding Europe was concerned.

But it planted the seeds for the destruction of the US banking system. The US had to keep the dollar in balance with the value of the gold hoards while not allowing inflation to take off. This worked from 1948-1964. Then, the US decided to go the guns 'n butter route. This meant spending like fiends on wars and social services while cutting taxes. This rapidly destroyed the currency and by Bretton Woods II, after losing 75% of the gold we got during WWII, the US threw in the towel and opted for inflation over restrictions of lending.

It is very, very, VERY interesting to me that the Chinese are telling Mr. Mundell they want to have the Bretton Woods ONE system, not the floating currency system of Bretton Woods II. China has been collecting gold. Gold bug sites online know this fact. But few Americans know this. The US government hopes no one notices this. The truth is, the Chinese were forced to read history and reconsider all they had learned under Mao. This process of learning began in ernest only after Madame Mao was arrested. Then, the Chinese spread out across the planet seeking information. During this learning period, they focused very much on literature and information about how and why empires fail or go bankrupt.

They hobnob with many outsiders while seeking information about this mega-project and weigh the input from these sources at home in Beijing. China is a very big country and has far, far more people than the US. We see in the earthquake news how difficult it is to run China. Like in all systems including our own, there is government corruption and kickbacks. The collapsed schools are a major embarrassment for the government and the determination of the surviving parents to get some justice is a danger to Chinese communist rule. But then, Bush got of scot free with the destruction of both the World Trade Centers and most of the city of New Orleans. The Chinese know that one can have a certain number of total disasters but ONLY if one has the monetary means of keeping things going despite this.

In other words, if the government and banking system is healthy, huge earthquakes or hurricanes have virtually no effect in the long run. The US rebuilt San Francisco very rapidly after the Great Quake, for example. Tokyo was rapidly rebuilt after the Great Kanto Quake, too. The Chinese have just gone through a terrible revolution and then several sub-revolutions like the Great Leap and Cultural Revolution. They were, in 1984, sick and tired of revolutions. They wanted a return to classic systems. After reading a lot of books about the history of finance and empires, they felt an emotional attachment to the concept of using gold as the basis for banking.

It is crystal clear! When empires cast aside gold as the basis of lending, they instantly go very deep into debt and then crash and burn! Usually wars are the cause of the desire to have infinite lending. So they began a program which they called 'The Fifty Year Plan'. We are in Year 24 of this plan, namely, half way. The ultimate goal of this plan is for China to be the Mistress of World Banking. And being a dragon, will reimpose the Gold Standard. China has no interest in the instabilities of the Floating Currency system. They can see how Japan used that as a weapon to deindustrialize the US or to colonize our industrial/banking and trade systems. They consider the Japanese to be the winners of WWII despite the destruction. For China was also destroyed! But the Chinese tried to rebuild by themselves. The Japanese latched onto the US systems and made hardly any headway until the US tossed out the Gold Guardian who protected our bank vaults. Then, the Japanese lunged at our systems and basically took over. The trade deficit with Japan which was slight in 1974 grew dramatically after that!

It was obvious by 1987 that the Floating Currency was actually sinking our ship of state! Instead of restoring the gold standard, the US tried every hook and crook, especially crooked things, to keep the Floating Currency system running. And the result was a gigantic trade deficit of nearly a trillion dollars a year and bankruptcy staring at us in the face! Mr. Mundell is a fool, by the way. He really thinks the Chinese will hand over their $2 trillion in FOREX funds to the IMF so long as the IMF is controlled by the US? HAHAHA. Or Europe? Or the Rothschild family? Of course not. Recently, China suggested to the G7 nations they hand over the IMF. This was laughed out of the room. So China bides its time and waits for the next 27 years to finish the obvious job here: replacing the US as ruler of the planet earth.

China is not ready to take over control of the world today. They have a lot of domestic work to do. They realize that running the planet can usurp running the nation so they want to be a lot stronger before going that route. By the way, the relations between China and Taiwan are blossoming. China is even pulling back the missiles aimed at Taiwan and cross-channel flights are now being discussed. China's main first step here is to reunite China. This is why China reacted so violently when the US used its Dalai Lama cat's paw to sever China in half. We won't be able to pull that sort of stunt again.

For years, China has come under pressure from U.S. and European authorities to allow its currency, the yuan, to appreciate, in order to make Western goods more competitive. But Beijing has resisted.

“They don't have many pre-conceptions. They don't have a belief obviously that floating is a good idea, whereas the European Central Bank and the Americans think that floating is the best of all possible worlds,” Mr. Mundell said.

Fixing exchange rates would favour the euro zone, which is now battling with a euro at around record highs against the dollar, said Mr. Mundell, who has often been referred to as one of the intellectual fathers of the single European currency.

The Chinese know that floating currencies are deadly. The G7 bankers think it is heaven but note that it is really hell. And the other stories here today illustrate this hellish situation pretty clearly.

S&P rating cuts could cost banks billions

Three of Wall Street's biggest banks face handing billion of dollars in collateral to their trading partners after their credit ratings were downgraded a notch on Monday, an unwelcome capital squeeze as they scramble to raise more funds.

Credit rating agency Standard & Poor's downgraded Merrill Lynch, Lehman Brothers (NYSE:LEH) and Morgan Stanley (AMEX:MWD) - three of the credit crunch's most prominent casualties - to A, A and A+ respectively, saying their profit outlooks were weakening and more writedowns were possible.

Because the downgrades make the banks less creditworthy, their trading partners in over-the-counter deals (such as credit default swaps or interest rate swaps) can ask them to post extra collateral as security.

The banking collapse continues! It grows worse and worse. The top story shows this clearly. We have another $3 trillion in bad loans to digest! This is impossible since neither the EU nor the US have $3 trillion in FOREX reserves. The US actually has only $68 billion and that isn't really reserves at all since most if this are Treasuries, not gold or other currencies. Ie: it is fake. See how Merrill Lynch and Lehman Brothers are both in Bear Stearns territory now. Not even AA anymore! In six months, they will all be BBBegone. Morgan Stanley is only an A+ which is marginal. Certainly, their deteriorating condition means they can't create money out of thin air anymore. They need savers to save them. They are hoping Chinese and Arab savers will save them. But both have been burned by the Citibank and Bear Stearns fiascos. So hope will fade rapidly. And they deserve this, quite frankly. They are the ones who put us in jeopardy by ringing up huge loans for buy outs by speculators.

And they are the ones who got rich off of the fatal Floating Currency regime.

Lehman Puts, Default Swaps Show Investors Bet on Further Drop

Investors in the options and derivatives markets are betting Lehman Brothers Holdings Inc. has further to fall amid concern the fourth-largest U.S. securities firm may need a capital injection.

Options traders increased their bearish positions to a two- month high yesterday, after analysts said Lehman may report its first quarterly loss since going public in 1994. The cost of protecting debt sold by Lehman from default rose to 240 basis points from 150 basis points in the credit-default swaps market during the past week, data compiled by UniCredit SpA show.

And Lehman will be torn to pieces by growling, snarling hell hounds. The offshore hedge funds know no master. They are literally in the 'dog eat dog' evolutionary universe of Nature red in tooth and claw. They were spawned by the Floating Currency system and they will devour all the systems that depend on monetary value systems. And they know, the greater the imbalance, the greater the profits. Which is why all systems are being set to be as unbalanced as possible. Also know the real interest rate: it is more than double the Federal Reserve's rates. This is due to both elevated risk as well as inflation. By the way, even with a 250 basis point hike, this isn't enough when we look at how swiftly Bear Stearns went under. The rescue of Bear Stearns means the Funny Money™ that bankruptcy would have wiped out and thus, balance the books, is still there. And the Fed wants to preserve all of this Funny Money™ created by the Floating Currency system. Which is fatal and will kill the US. If we used a gold standard, this would still happen but at least money would not disappear. Remember: gold standards work only if they are used as a guide for setting interest rates.

Derivatives Traders Signal Bank Woes Likely to Worsen

Interest-rate derivatives traders are betting banks' difficulties obtaining cash to fund holdings and shore up balance sheets will worsen.

The difference, or spread, between the three-month dollar London interbank offered rate, or Libor, and the overnight index swap rate, traded forward three months, is greater than similar spreads expiring this month, according to data tracked by Credit Suisse Holdings Inc.

``The movement in the forward Libor-OIS spreads is telling you that the market is concerned that things can get even worse before they get better,'' said Carl Lantz, an interest-rate strategist in New York at Credit Suisse. ``Until all banks' balance sheets are cleaned up and they've re-capitalized, there is going to be funding pressure.''

And in this case, the hell hounds are right. They also know that there is a lot of Funny Money™ out there but LITTLE CASH. As well as not very much gold, for that matter. Anyone can get assets. But few can CONVERT these into CASH. Much less, gold. Americans are finding this out the hard way, too. There is a huge fleet of gas guzzling SUVs and trucks on our roads. And they can't be sold for love or money. They are not 'convertible.' Indeed, a convertible is better than a truck [sorry, had to say that]. Nearly all of these useless vehicles are also burdened with debt. As they are being abandoned, so are the debts piled on these wasteful machines. This, in turn, causes the banking system to go bankrupt. This means, risk is rising, not falling. So the bankers have to reflect this with higher rates. This, in turn, prevents them from giving out Funny Money™. End of story.

The banking system is collapsing. This is due to the unstable Floating Currency system. The Chinese will reimpose the gold standard again in 20 years or so.

Admit to your losses, FSF chief tells banks

Some large financial institutions are still being far too slow to come clean about their credit losses and other market risks, a senior central bank official warned on Tuesday.

This problem seems to be particularly marked in Europe, where banks are dragging their heels about implementing new standards for disclosing their assets on a timely basis, said Svein Andresen, secretary general of the Financial Stability Forum, an important grouping of global regulators and central bankers.

This gap has “not escaped the attention” of the regulators, Mr Andresen added.

He also noted that if the poor levels of disclosure continued, they could potentially have wider regulatory consequences.

There are many stories pouring out this month, all of which detail the collapse of our banking systems. This is yet another example. The refusal of the banks to accept losses and thus, balance their books, this is the definition of bankruptcy. Anyone who refuses to list losses can pretend to be solvent forever. But if everyone does this, the whole system collapses. This is why we need regulators of various sorts. The fantasy that the free market with no controls is the best is proven false. Free markets always debase currencies, they always bloat debts. They always shoot for the moon. They are NOT self-regulatory. To protect them from their own greed, one needs a central government strong enough to control them. And then an engaged electorate to stop the bankers and speculators from buying up the politicians. It is a cruel world we are in.

Most of my talk here is about how we have to be awake, well informed and aware. We must punish politicians and bankers when the belly flop. But first, we have to have an idea about how the system works and why it works the way it does.

FASB Lobs a Balance-Sheet Bombshell

Losses tied to banks’ off-balance-sheet subprime-mortgage investments have reached into the hundreds of billions of dollars and caused some real soul searching among the nation’s top accounting group, The Financial Accounting Standards Board, which has moved quickly to radically alter the rules for how banks must account for so-called qualified special-purpose entities, or QSPEs.

Reform is needed and probably inevitable, but is FASB moving too fast? Some banks may sit on QSPEs, whose values are almost equal to their balance-sheet assets, analysts say. Forcing financial institutions to load up their balance sheets too soon with these still largely untradeable holdings could prolong the financial market’s misery.

The IMF, The Bank of England, the Securities and Exchange Commission, the President’s Working Group and other groups have jumped on the reform bandwagon. And since March, FASB staffers have been gathering data and assessing whether risk was masked under current accounting rules used by banks for securitized investment vehicles, collateralized debt obligations and other toxic instruments currently languishing in an illiquid market.

Now comes a rather under-the-radar bombshell. FASB has decided to “eliminate the concept of the QSPE” in the revised financial-accounting standard, FAS 140, and also will “remove the related scope exemption from FIN 46R,” says FASB director of technical activities Russ Goldin. FASB is sill studying actual implementation and disclosure issues, but it seems pretty clear those unpriceable, lamentable assets are headed for the balance sheets.

Qualifying Special Purpose Entity: I have written about this in the past. From my own site last April 7th:

Oh, goody! If the financial wizards simply put down the real value of these derivatives and their size, etc, all will be...FUCKED AS ALL HELL!!!! HAHAHA. Seriously. How on earth can they do this? Can we trust them to do this? They created this creature, the Godot/Beast that is trillions and trillions of interlocking derivative games of various qualities, quantities and lord alone knows, what sort of backing any of this has in the real universe where planets go around suns and moons circle planets. I fear, black holes have a lot more in common than ordinary stars! We don't know. No one knows. We are all waiting for Godot/Beast to tell us the truth. Yes we fear this. What if the Godot/Beast says, 'These $500 trillion in derivatives is worth NOTHING, HAHAHA!'? Then what?

We don't know. Let's enlighten ourselves by checking out another aspect of the FASB. That is, the QSPE: Acronym for 'Qualifying Special Purpose Entity'.

FASB: “We have a concept that really isn’t working, and we need to come up with some other way to help investors evaluate what these transactions are,” said Smith. “At the end of the day, I don’t think the current application of 140 is what the board that approved 140 had in mind, therefore I think we should just stop pretending, and eliminate QSPE’s from our literature, and rely on other aspects of the consolidation model to give [us an] answer that is appropriate.”

IT ISN'T WORKING??? HAHAHA. No kidding. So the solution is...to eliminate the QSPEs. These odd entities, these queer creatures of the night and the storm, they will now vanish! Begone! So much for all the preceding headaches. Don't even bother trying to figure out what the hell is going on. The wizards can't use QSPEs anymore so why bother having them? Eh? Poor creatures. Gone. Like that. Wizards at work: power politics. Playing with words is magic just like numbers are magical.

Rolling forward to yesterday’s board meeting, FASB Chairman Robert Herz observed, “I think the [QSPE] concept has been stretched and stretched and stretched and stretched and stretched over the years, and the crescendo has been with the latest round of very problematic assets that were securitized with this approach.”

The names of all these spawn of the Floating Currency system are an indication of the vapid nature of this enterprise. Soros got very rich playing the Floating Currency game. Milkin committed crimes using this system's weaknesses. The Japanese destroyed much of America's trade power using this system as leverage. The Chinese are rapidly destroying US power in Asia and here, using the might of Floatation Devices in clever ways. The US and our entire banking system and investment houses are all going bankrupt together because of delusions of power connected with the Floating Currency concept. The bankers know they have to stifle or kill off these spawn. But if they kill any of them, the Derivatives Beast becomes visible. So long as it is invisible, they can pretend all is well.

But all is not well, they have to kill off the spawn. So they stand there, in a panic, and look for someone to bail them out. Enter the dragon of China. Who is in a very foul mood right now.

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Comments

[D. F. Facti]

Does Fluff have a boy friend?

[D. F. Facti]

Does Fluff have a boy friend?

[DP]

Elaine - As always , thanks for your writing. Am happy to say, my wife and I are in a very fortunate situiation at the moment. It hasnt always been that way. And for many years I fell for the Greed is good / Debt is wealth BS.
Just this last week - we decided to bite the bullet ( what with the developing mess upon us all ) and pay off our 2 LARGEST debts. HUGE credit card balances. So large even making more than the monthly payment only served to whet the appetite of the growing beast we created. It was time if we EVER wanted this monkey off our backs.
Very hard to take that cash and do -BUT we decided to do it while it was still actually worth anything. Very liberating.

[xerxes]

Elaine.....

Congrats on your prior gold call. How do you see gold performing in the coming months. And considering the long centuries of attachment to silver, by the Chinese, how do you see that metal performing. I'm not looking for advice, just your unique perspective...

[Anthony]

China is bigger than IMF by now. They will hit $2T by the end of the year if current rate stays.

[calvino]

My compliments for the high quality research, including yesterday's transcripts. The unlimited access to trading power granted to the investment banks is their ability to stifle the innovators through market manipulation. Metabolix was willing to hand itself over to Archer Daniels control was rewarded with a fat IPO that put them on the way to a billion in capitalization and access to capital. Cereplast did not want to play ball, and continues to question its survival on a daily basis, from limited access to industrial consumers and capital markets. This is one example, however I could go on and on. The very best thing for this nation would be to take out wholesale the engorged parasites sitting on top of the money spigot in New York. YOu know their names. I have said this to others, there are no investment bankers in NYC. These are gamers and manipulators, who propser by bribing the corrupt SEC, amongst others. They have no idea what investment banking means, except for about a eight houses in the Silicon Valley that employ a hundred people. This is why rescuing Bear and their piggish brethren is an assault on this country, allowing the failures and the bankrupt to persist through oligarchical corruption, while stultifying the new talent.

[hakan with the reindeer]

You are brilliant as always Elaine !
Really.

I have been promoting you in any way I can here in Sweden. Slowly, really slowly, people around here start to picking up the 'underground news'.
Sad to say USA is on the very edge of bedoming a jaded mandarin for the rest of us.. why ?
How can that be ?
The land of the brave and the home of the free.
Sadness and confusion is the feeling a lot of us is feeling.

Stay alert Elaine.

Hug
/H

[Jim Smith]

Elaine: The Chinese are indeed looming ever larger and larger in our world. They now have a method (does it hold any water?) for predicting earthquakes.

http://www.321energy.com/editorials/wong/
wong060308.html

Do you think this is to be taken seriously?

[Roberto]

Hey.... Dollar general was started by my uncle, in a little Kentucky town, and he and his son grew it to a mega-corp. I remember when it went public and how proud all the family was. He was my uncle by marriage so I never rode any of that honeytrain but to hear they got reamed is sad. My family connections sold a few years ago, I heard, so probably didn't get hurt ( I wouldn't know since I live on a sailboat with no bank account and am considered eccentric and have been ignored by those monied folks). Anyway.... it all connects. Another ball over the fence by EMS. A daily read for me and I've educated myself in macroeconomics (and some other sites as well of course) at her efforts for a few years now.

[GK]

OK, I admire your brilliant article here but will suspend my disbelief for a few minutes and take the premise that the Chinese will take control of the IMF.

Here are a few questions now.

1. Who owns the IMF?
2. Who controls the IMF?
3. Why did they recently sell 400 tons of gold?
4. What 'transaction' or changes would have to take place to have the Chinese 'own' the IMF?
5. Is it a lucky coincidence that the British empire controlled all the gold for 50 years then lost it to the US, then the US controlled all the gold for 50 years and is now losing it to China in exactly the same pattern of building up capital/empire/manufacturing ability and then losing it all in wars?
6. When the British Financial powers of the British East India company invaded China to force them to allow import of the Opium from India, at what point in time did all the powerful people leave China alone to control their 'own' destiny?
7. How will we know that the IMF is 'owned' by the Chinese?
8. How will the seize control of the world's gold supplies to pull this off? War? Open Market purchase with US Treasuries? Purchase of Gold Mines? Drilling under the US Fed and Bank of England?
9. JP Morgan has acquired the rights to sell Chinese Government debt. If you are correct that they are plan to avoid government debt then this business model is worthless. Do you REALLY BELIEVE that are so 'scared' of debt that they will not be gradually nurtured to sell ENORMOUS quantities of debt to fund various school, business projects, overseas empires and eventually wars?

So to summarized my understanding of your position:
1. Chinese will take over control of IMF
2. Chinese will avoid government debt.
3. The will create gold backed currency.

My position:
1. Chinese will be given powerful voting seats on the IMF, but not control.
2. Chinese will, within 50 years, have $100 trillion in government debt.
3. They will sponsor the new one world currency, the SDR, which will be 40% backed by gold. This currency will then be relentlessly lent to all world development banks and gradually debased to 30% backing and then 0% then infinity and beyond.

Am I summarizing your position correctly or have I misunderstood?

Many thanks for your brilliant intellect to help wrestle with these crazy questions.

[Elaine Meinel Supkis]

Roberto: I loved Dollar General back when I was very poor. We shopped there all the time. Sometimes they had really neat stuff! I MISS THAT STORE!

And was ticked off that the guys who bought it used it as a dumping ground for debts. They did NOT build it up.

Jim, earthquakes are like other things in the future: we know they will happen. Giving an exact date is nearly impossible. We do make guesses. We know, for example, the middle section of the San Andreas is going to blow in a massive way. The exact day is impossible to tell.

But we can feel it in our sleep. It sort of lurks there like a dragon underground. By the way, the Chinese invented dragons to explain earthquakes.

Sweden: nothing finer than running around the forests on Midsummer's Night [no night!] totally drunk on fine wine and mushrooms! Great fun for a young woman. I learned how the twilight works in northern Germany when I went to school there.

[Elaine Meinel Supkis]

Gold: the Chinese public and Indian public are losing all their money because food and fuel inflation has hammered them. They use excess funds to buy gold. There is less and less such funds so long as food and fuel shoot upwards.

So gold doesn't go up with inflation. And this is the hard thing here: gold is a guardian of wealth, not a maker of wealth in the long run. And you can't eat gold. This is why inflation often hammers food so hard: it sucks up excess money like a vacuum cleaner. It also causes revolutions.

[Anthony]

I don't think IMF can sell their gold. (they will need US vote, and US vote will require congress vote... never happens, specially by gold mining lobbyists)

I forget where I read this. But I thin the gist is right.

[Robert Sczech]

There is one important advantage of a fiat monetary system versus a monetary system based on a 100% gold backup. In the gold system, every coin is actual money and destroying that coin (by dropping it into the sea for instance) does lead to a loss of money in the system. In a fiat monetary system, money can not be lost. This is obvious for money represented by checking account balances. These balance can only be transfered from one account to another, but they can not be destroyed. In other words, the system of daily money transactions is a zero sum game. The total sum of balances does not change. Consider the case of paper currency, say a $20 bill. If that bill is burned, no money was lost since the bill is not actual money it is only a certificate of debt owed by the institution issuing that $20 bill (the Federal Reserve Bank). In other words, burning the $20 bill does not hurt the monetary system since the actual money is held by a bank in form of a digital entry on a computer system representing assets and liabilities. By burning a paper $20 Dollar bill, the credit represented by the $20 bill is transfered from the person burning the bill to the bank issuing the bill in effect canceling a $20 liability on the books of the Federal Reserve Bank.

To say that the banking system is bankrupt does not mean that the money in the system disappeared. That money still exists (if it existed in the beginning) since fiat money can not really be destroyed (unless credits were repaid but then that money did not exist in the beginning). The money owned by the banks has changed only its ownership. It is owned by other people or institutions (Warren Buffett or Sovereign Wealth Funds for instance). Since very little money exists in form of paper currency and all checking account money must always have its ultimate location in a US commercial bank, all the trillions of US Dollars exist as computer entries in US commercial banks.

The present debt crisis where almost everybody and every institution in the US is bankrupt can therefore be viewed as a case of an extremely asymetrical distribution of money among the economic agents in the US. A relatively small number of people and institutions own almost all the money. The rest of society is bankrupt. Elaine is blaming the Fed for creating too much money via interest rates below inflation rate in this way tempting society into the debt trap. However, the present mess can be equally attributed to a failing fiscal policy. It is the ultimate purpose of taxes to prevent one sided distributions of capital in society. The same problem existed during the depression in the 1930's. To rebalance the economy, Roosevelt had to abandon the gold standard by declaring gold money to be illegal. In addition he had to introduce progressive taxation with tax rates in excess of 90% for the top income bracket.

To solve the crisis today, we can not easily raise interest rates or introduce the gold standard simply because the debt levels are too high. However, we can raise taxes for all those people and institutions who hold the title to all the money and capital assets. We could reintroduce tax rates of over 90% for incomes above a certain level (say $1,000,000?). Elaine may remember that president Reagan abolished tax rates of 70% and more in the early 1980's. This was part of his "morning again in America" policies.

To sum up, the failure was not the artificially low interest rates of Greenspan. In fact, Greenspan was right in pushing for lower interest rates. In a sustainable future rates can only be a fraction of 1 percent if they are positive at all. No, the failure was to pursue a low interest policy combined with a fiscal policy aiming at lowering taxes as well. We can not have both in order for the system to be stable. Low interest rates must be accompanied by high taxes and vice versa. Low taxes require high interest rates. If these simple rules are ignored, the system enters a bubble where everybody start to speculate, that is, trying to make money without any real work giving that money value.

However, our ability to neutralize monetary policies by proper fiscal policies is to a certain extent made impossible by transferring so many Dollars abroad. There is no easy way to tax the sovereign wealth funds, although congress would like to do that by calling for regulation of these asset holders.

One more related remark: It is often said that our money system is a debt based system. This is certainly correct. However, the periodic occurrence of large scale bankruptcies creates a large amount of money in the economy which does not have to be repaid. That is, like in gold system, there exists a huge number of Dollars which are not tied to credits or debts. That number of Dollars is the sum of all bankruptcies and debt writedowns which occurred during the life of the monetary system. Clearly, we need to keep the percentage of that money small in relation to the total amount of money in the economy. The only way to accomplish this task is to create new money, that is, create monetary inflation. In other words, bankruptcies require more inflation.

[ccq]

It's obvious beautiful weaves can be made in the Outer Darkness, but can you find a good massage? Headlights...bubbly...bubbles...guzzle....rrrrrrrrttttsmash...crash. Dern, there goes the C20.

[Elaine Meinel Supkis]

EVERY depression/crash from 1600 to modern times features a 'gold rush'. Gold vanishes but is still around and can be found. EVEN AT THE BOTTOM OF THE SEA!

Also, gold is NOT a one/one ratio thing. One uses this as reserves. It is a basis for 90% lending. We will also always have credit bubbles and credit crashes.

Not not hyper inflation. Hyper inflation is very dangerous. Zimbabwe is now turning a dollar into a 1,000,000 unit. I have German marks from the great inflation of the 1920s. They kept adding zeros. This is because all of Germany's gold was seized after WWI and there was no basis to limit money making.

[Elaine Meinel Supkis]

Also, Robert, Greenspan dropped rates to 1% exactly when Bush cut taxes hugely! And the flood of red ink this caused is the DIRECT cause of the present crash/hyperinflation. I do hope you read some of my past postings concerning rampant inflation.

[Al]

wow - I can get in now ? been trying to post since anthony's several hours ago. probably will get erased too.

[Elaine Meinel Supkis]

Also, about bankruptcies causing more inflation: the attempts by the central bankers to REPLACE the lost money due to bankruptcies cause inflation. But this also can't keep up with the bankruptcies in a crash. So even as there is inflation of necessities [because we can't put off using food and fuel!] there is a depression in all other things due to less and less money IN CIRCULATION.

Money that isn't being circulated is anti-money. This is why, in the Great Depression, the bankers and governments pleaded with people to not put money under the mattress. In the end, war took the money hidden under mattresses.

[Elaine Meinel Supkis]

AL! HI!

Typepad has been having problems lately! If you can't get in, please, please email me! If you get a message denying entry, tell me what it says. I have been talking to the webhost about this problem.

Thanks in advance! Elaine

[GK]

Testing 1,2,3: Time to move off Typepad before you get shut down.

Linked below is one of the most amazing articles I have EVER read.

http://www.modernhistoryproject.org/mhp/ArticleDisplay.php?Article=WorldCh08

http://snipurl.com/2e25s

"And behold at evening tide trouble; and before the morning he is not.
This is the portion of them that spoil us and the lot of them that rob us."
-- Isaiah 17:14

The Rule of The Order
History of the parasitic class and their techniques of control

[OC]

GK,

Chinese are control freaks: no control at IMF = death to EU + US financial institutions as far as they are concerned. They will then pick up all the pieces and form the new IMF. It's always their way or the highway!!

Have a look at the former USSR: once the economic collapse happens, they lose control over all aspects of their economy and country...within 5 years. It's not 20 years the Chinese will take over...my feeling is that events will force US and EU to hand over everything to them for a song within 5 -8 years.

[Gary]

This all reminds me of the movie, "Fargo"
where the hapless car dealer,in debt over
his head, just sits at his desk constantly
erasing,penciling in,then erasing again
the hopeless figures on his ledgers. In
the meanwhile the phone calls keep coming
from Detroit asking him when their money is coming.

I wonder if the solution of our Banksters
will be the same as the car dealer. Will
they try to kidnap us using some failed hoods and then try to collect ransom money ?
From whoom ? We're broke,eh?

[B.A.]

I cannot imagine why China would want to associate itself with the IMF brand. It will eventually have enough resources to set up shop as a direct competitor and you can bet that when it does, it will make a point of not acting in the predatory neocolonial way the IMF is known and despised for. The ChMF, probably sporting some positive name ("China World Prosperity Foundation" or some such), will emphasize actions and policies that maximize positive perception and good will, at the lowest cost and risk, all the while opening markets, guaranteeing resources and gaining privileged relations with the elites and approval of the masses. And why not? All it takes to appreciate the net advantages of such approach is a balanced, patient long term view of international relations, which the arrogant West lacks and China has in spades.

[Elaine Meinel Supkis]

B.A.---ever hear of 'revenge'? The Chinese think maybe we should taste our own medicine.

[Jojo]

My eyes will be on China after the Olympics when the dragon will no longer assume the polite accommodating posture of struggling state, and will like, Godzilla, trample those who have been disrespectful and stand in the way of it's goals.
Of all the survival strategies, learning Mandarin should be high on the list. How do you say, "Please pass the crumbs".

[Raphael]

The only reason Gold doesnt go up with inflation is because Govt, and FED artificially cap gold to suppress inflation expectations! How can anyone debate this. Today, oil is up $5.56 per barrell, Dollar is down big, Euro is soaring, and Gold is down? Please stop being so naive about Gold. The FED's #1 goal is to suppress golds exchange rate. Gold is the FED's enemy. Buy it now while its being subsidized by bernanke and paulson!!!

[Elaine Meinel Supkis]

Raphael, you are correct. The Fed HATES GOLD. Gold is very dangerous to the Floating Currency regime! This is why dealing with gold is DANGEROUS.

The Fed has in the past, confiscated gold! They do this! They use the government to do this! The battle here is not to hoard gold but to fight in the political arena for the government to return to ancient banking principals! I am a conservative in this regard.

[Don]

B.A. China is rankling the locals in several of the African countries they are working with. They tend to want total control, so the construction that happens is done by Chinese workers and as much as possible Chinese nationals are performing or at least supervising the resource extraction. They aren't trying to evangelize anyone, they just want the stuff.

The upside for the regimes is that the Chinese aren't going to try to tell them how to run their business. It helps that the Chinese haven't had the opportunity to show off their bad points yet as we've been busy doing on a world stage for the last century.

I wonder if the Olympics might not get ugly. All manner of activist groups are planning on trying to embarrass the Chinese at the games. The Chinese are in a nationalistic mood and feel picked on. I think the police will be firm but well controlled (at least while the cameras are rolling), but mob violence against protesters could break out.

[mike]

did not know cutting the cats whiskers will partialy blind it.............sorry.......