QE2, and the Great Misdiagnosis

Jim Willie

The backdrop has turned dire on several fronts simultaneously. The great millstone around the USEconomy’s neck continues to drag it down. CoreLogic reported 2.1 million units have created a swamp in Shadow inventory of the housing market. That equates to 23 months inventory, whereas normal is 7 months. They tallied the growing tumor of bank owned properties as a result of home foreclosures, also called the REOs (real estate owned). Look for no housing market recovery for at least another two years. Starting in summer 2007, the Jackass forecast each year has been for another two years of housing market declines, all correct. Ireland might be squarely in the news, but the big enchalada is Spain. The Irish banks have presented a grand headache for the European banks, with a $150 billion exposure. Ironically, Ireland has done more to reduce its budget spending effectively than any EU member nation, yet is left to twist in the soft rain. They cut their government budget by 20%. The USGovt budget grows every year without remedy or remorse. Few seem to remember that Irish fund managers lost the German civil service pension funds a couple years ago, a source of hidden tension and great resentment. Spain will rock Europe and the Euro currency in the springtime. The gold price consolidation will center on the Spain debt crisis hitting fever pitch, with the Euro hit. Then again, perhaps a mammoth new wave of European gold demand will neutralize any USDollar stability. On Tuesday this week, the Euro fell by 200 basis points, but the gold price was stable like a rock. That is notable strength. But the bigger story of strength is with silver. The round robin of destruction to major currencies that makes the Competing Currency War, the race to the bottom in rotated currency debasement, it will lift gold & silver in a round robin of strong demand.

Misdiagnosis: Insolvency not Illiquidity

The US bankers often go home to mommy and order a giant slosh of monetary inflation whenever in deep intractable trouble, like after the previous mistake in QE1 when ordering a giant slosh of monetary inflation. The USFed, led by the academic professor with no business experience, has ordered a fresh supply of gasoline from a lit fire hose, but he does so on a collapsing building. Bernanke has very erroneously diagnosed lack of liquidity within the system to be the underlying problem. He has prescribed a huge swath of ‘free money’ to be sent into the bond market as a solution. He has prescribed that cheap money continue to be delivered to the USEconomy. Bernanke has failed to notice the insolvency in banks, and has failed to notice that 0% has yet to prompt any revival in lending among banks. Bernanke is fighting INSOLVENCY with LIQUIDITY for a second time after learning nothing the first time.

The USTreasury 10-year yield has risen from a grand bond market dare, not at all from evidence of growth. Bond players dare the USFed to create another $1 trillion in new money. In no way does another lift in retail spending constitute a recovery. Household insolvency rises every month from worsening home loan balances. The USFed wants households to spend more on borrowed funds, yet they have depleted home equity and vanished income security. No, US bankers are confused with their wrecked financial engineering aftermath and the broad banking system insolvency that they refuse to acknowledge or discuss. Ever since the April 2009 decision by the USCongress to bless the falsified accounting practices by the Financial Accounting Standards Board, the big US banks have masked their ruined balance sheets, sold stock for their dead entities, and pretended to act as banks. Instead they are mere carry trade shells taking advantage of the USTreasury yield differentials, and storing the cash profits in the USFed, where it earns interest.

Finance minister Wolfgang Schauble from Germany was hostile in public remarks toward the desperate monetary decisions. At the recent G-20 Meeting, Schauble called USFed Chairman clueless openly (his word), describing his policies as reckless (his word). He ridiculed the USGovt approach to urge China and Germany to reduce their trade surpluses. Take surpluses as signs of success and competent industrial and policy management, where the US is void. He gives his nation credit for a strong competitive industry. He cites a direct contradiction. Schauble said, “The American growth model, on the other hand, is in a deep crisis. The United States lived on borrowed money for too long, inflating its financial sector unnecessarily, and neglecting its small and mid-sized industrial companies. There is no lack of liquidity in the USEconomy, which is why I do not recognize the economic argument behind this measure.” Exactly on both counts!!! The USFed is fighting insolvency with liquidity rather than debt restructure for a second time, after learning nothing the first time. The US economists have lost their way so badly, that they no longer comprehend the concept of legitimate income. The US counselors push for putting more cash in consumer hands, regardless of where it comes from. Call it heresy, or call it incompetence, or call it blindness from the Keynesian bright lights that burn bright in the inflation laboratory.

New money does not cure an insolvent banking system or insolvent households. No sterilization of QE2 is in the plan, to serve as protection for the USEconomy. Not in QE2!! My forecast is for the hollowing out of the USEconomy from a massive cost drain with puny export benefit, compounded by continued income erosion. Price inflation will be labeled as growth, even income growth, the chronic sins. The borrowing costs have been near 0% for 18 months with no economic response, making Bernanke’s points again vacant, myopic, and deficient. He is fighting an endemic insolvency problem with amplified monetary inflation. A voice with hint of wisdom came from former New York Fed President E Gerald Corrigan Corrigan. He said, “Even in the face of substantial margins of under-utilization of human and capital resources, efforts to achieve an upward nudge in today’s very low inflation rate make me somewhat uncomfortable.” His experience came under ex-USFed Chairman Volcker during the late 1970 decade, who raised interest rates to 20% to combat inflation, pushing the economy into the 1981-82 recession. That was the final chapter of anti-bubble USFed chieftain linneage. Since the Greenspan Era, it has been full speed ahead with inflation engineering, asset bubble creation, erudite apologists, permitted bond fraud, careful collusion, and reckless management. They have systemic failure to show for it.

The claim by Bernanke and a supporting chorus of economists that QE2 will bolster USEconomic competitiveness is fallacious, and patently backwards as usual. It will push the US further into a wasteland, a vestibule to the Third World. The higher cost structure uniformly imposed will render great damage in a profit squeeze for businesses and discretionary spending squeeze for households. New money does not cure an insolvent banking system or insolvent households. It presents a new problem of significiant price inflation. They want it, so they can call it growth!! Producing high value products efficiently and cost effectively makes the nation competitive. Imposing a fair tax structure that is stable, reasonable, and with proper incentives makes it competitive. Having an active legal prosecution staff to combat bond fraud and defense appropriation fraud makes it competitive. Having a strong education system makes it competitive. A weaker currency raises the cost structure, increases import costs, and assists the export trade if a nation has one. The United States has shipped a large segment of it away in the last 10 years to China, after having shipped a larger segment away in the 1980 decade to the Pacific Rim. Not only did the US promote its financial sector, but it denigrated the industrial sector as dirty. By removing a significant portion of the nation’s capacity to generate legitimate added value income, the USEconomy was left vulnerable to debt overload and insolvency. The US Ship of State was hoisted on its own petard. For those ignorant of naval terminology, that means the US killed itself in a great display of cannon backfire in recoil. The QE2 initiative will be disastrous from many angles, certain to push the nation into an Inflationary Depression, from the current chronic Deep Recession.

Margin Hike as Final Limp Weapon

Increases to the silver margin requirement in futures contracts should be viewed as the final act of desperation. It is a device to control price within the paper silver arena. However, in a grand backfire, a higher margin produces a lower price for the physical buyers, who eagerly step up to place and fill orders. The margin maintenance hike on November 9th was six times greater for silver than for gold. The Big Four US banks are caught in an historically unprecedented short squeeze, bleeding $billions. Tuesday November 9th saw a powerful gold & silver price downdraft. The COMEX raised the silver margin requirement in a bland attempt to slow a raging bull market amidst a broken global monetary system. One week later they raised the margin again for both monetary metals. The price downdraft continued. But some calmer winds in Europe enabled precious metals prices to recover. Silver has snapped back much more than gold.

The Chicago Mercantile Exchange raised the margin requirements for silver on November 9th. It was highly motivated. They wanted to prevent a blowout upside move in silver past $30 before Christmas, and to relieve some of the pain to the Big Four US banks. Unlike gold & silver, no margin hikes were doled out for soybeans, corn, sugar, or cotton despite their concurrent price gains. The message is clear, that desperation has set in relative to precious metals, as conditions are breaking down badly. The CME sent out a memo raising the margin maintenance requirements for silver futures by up to 29%, from $5000 to $6500 per contract. Initial positions have a slightly higher margin. It is their right, being the market maker. Let not their fast disappearing silver inventory deter their path. Less than two weeks later, the CME raised the silver margin maintenance requirement another 11.5% to $7250 in a sign of desperation. They also raised the gold margin, but only by 6% from $4251 to $4500 in a symbolic gesture. The CME motive is less about risk mitigation concerns and more driven by the desire to restrain the bull market movement. The investment world will regroup long before Christmas, like in the next week or two. Just when the European woes focused on Ireland, and a rescue aid package seemed in the offing, the silver price jumped upward by $2.00 on a single day, November 18th, a strong telegraph across the paper-physical silver table. The Powerz cannot halt the silver juggernaut, which will see $30/oz by January. If a double hike in the silver margin is the best they have, then they are truly whistling in the grave yard.

The demand for gold is global, diverse, and motivated by the gradual disintegration of the monetary system. Sovereign bonds that support the major currencies are in deep trouble the world over. The consensus actions toward Quantitative Easing, also known as hyper monetary inflation, have boosted demand for gold & silver monumentally in a natural offset. Dozens of nations and billions of people around the world are slowly awakening to the grand deception of money itself and the crumbly foundation that make up fiat currencies. They are losing money in supposedly safe government bonds, a trend without precedent. Most of Southern European nations will declare debt default within two years. Foreign central banks are attempting to diversify their oversized US$-based reserves without causing a run on the USDollar. Gold is gradually being seen as part of the solution, at least in private wealth preservation. Gold is the new reserve safe haven asset, since it is true money.

Important changes have come to the precious metals market. Silver has taken a leadership role. It has broken out in Europe to new highs. Its snapback was impressive after the weak-kneed COMEX hike in margin requirements. Silver is no longer only seen as just an industrial metal, a commodity, but rather as a safe haven alternative, a monetary brother to gold. The European Union bond fracture has wrought great damage to the structural foundation of the global monetary system. It is exposed as having a debt backbone, a paper spine fashioned of weakness, vulnerable to central bank abuse. Money is fleeing the EU Govt bonds, and fleeing even to some extent the USTreasurys. Horrible publicity has befallen the Big Four US banks with class action lawsuits at a time when Asian buyers have targeted the silver market. The Asians of unidentified origin (probably China) have descended with waves of layered orders, exploiting the discount offered from the paper impact after the margin hikes by COMEX officials. Recall that the US & China are locked in a trade war. The louder the USGovt accuses China of currency manipulation, the more they bid up Gold & Silver on the quiet. The strongest months of the year for Gold & Silver are December and January. The margin hike seemed designed to interrupt momentum. It only delayed the next powerful upward thrusts in price.

Titanic Battle over Physical Metal

The nature of the Gold & Silver markets is two-headed. The price discovery aspect is driven by the paper futures contracts. Intended as devices to aid in pricing, to protect from drawn out periods under which business is conducted with commitments made, the paper futures arena turned into a monster two decades ago. The paper tail has led the metal dog, a backwards condition. Some important developments have taken place in recent weeks and months. Secure allocated account holders at both the COMEX and LBMA have forced the situation, demanding physical delivery of futures contracts. They openly cite their distrust, as suspicion is aroused of improper lease of allocated accounts. Huge delivery demands have come from Chinese and Arab investors. The remarkable new wrinkle is that silver paper price ambushes have led to strong silver physical purchases. Stories abound of an Asian assault on the silver market underway. Interviews granted by those with direct information have appeared on reliable websites. The skirmishes result in backfires to the paper market mavens, as they offer repeated discounts to the Asian physical buyers, who grab at the discounts with layered orders, as reported. Therefore, the actions by the paper mavens works to accelerate their own destruction. Investors should hope for occasional ambushes, so that the physical side can reload and obtain more physical metal at lower prices. Also, with occasional bouts of consolidation, the price advances are more stable. A very bizarre pathogenesis of the silver paper market is evident, hidden from view.

The London contact source has shared details to the inner workings of the Asian silver market assault on New York and London with an update. The Asian buyers have been squeezing the shorts in the silver market, causing great pain as the silver price has risen 50% since late summer. After the drop in price from a brief touch of $29 down to the low $25’s, the physical market has responded with strong demand. Keep in mind that the paper silver market is the opposite, a key point. The bizarre anomalous paper market results in more selling when the price drops, the opposite to normal. The ambush catches the leveraged players off guard, forcing paper position sales in sudden liquidations. So a collision is in progress. The paper arena cannot produce enough silver after the raids push down the paper price in order to relieve their tenuous short condition. By pushing down the paper price, they must bring to the table the discounted silver at the lower price, in physical deliveries. The paper market is playing directly into the hands of the physical participants who want to drain the exchanges of their bullion metal. The credibility of the London source was enhanced by the quick jump above $26 as he predicted earlier in interviews. He described lines being crossed between the paper and physical orders, stops, covers, and delivery demands. Details are provided in the November Hat Trick Letter. Great intrepid work by King World News for developing the valuable source.

A staggering rise in physical demand is noted from Chinese & Indian buyers. Physical demand growth more than offsets the miner de-hedging, a process almost wound down fully. Investment demand globally is skyrocketing. According to the World Gold Council, global demand for gold bars climbed by over 30% between 2Q2009 and the second quarter this year. De-regulation in China might permit much broader gold ownership. That would unleash huge demand and pressure the Anglo bankers. Chinese demand has been strong for years, soon to reach a higher gear. With domestic mine output not expected to grow much next year, China will tap the global market, pushing up the gold price. New rules in China have already enabled tremendous increases in private gold demand, whose volume surpasses and overwhelms European central bank sales. The Chinese gold demand in 2010 will be a mammoth consensus estimated 500 tonnes. It will rise by as much as 20% in the year 2011, enough to surpass India as the top consumer in the next three years. Demand is forecasted to rise to around 600 tonnes in 2011, according to a Reuters survey of five analysts. Recent Chinese Govt restrictions imposed on property investment and speculation in other markets have resulted in more money going into gold and jewelry, which seems a calculated policy by the crafty government officials in Beijing. Gold will not burn their citizens in a bubble bust. Jewelry demand has risen by an average of 7% annually in steady fashion.

Investment demand for gold in China has surged by 60% in 2009 to 150 tonnes. On an annualized basis, China is on course to import 118 tonnes of gold through Hong Kong. Domestic gold mine output is expected to be flat inside China for 2011, the first time in years. Couple strong demand and flat output, and big net import of gold bullion will result. The Peoples Bank of China announced in August a relaxation of gold rules, a prelude to broader reform of financial markets pertaining to bonds and currencies. Banks would be permitted to export and import more gold in a program to drive the development of their market in the precious metal. Regard this as a direct assault on the COMEX in New York and LBMA in London, since huge physical gold demand will ramp up to a staggering high level. The PBOC wants to draw gold tonnage into their country without disrupting market equilibrium unduly, as it diversifies more of its burgeoning $2.6 trillion in FOREX reserves.

State versus Federal Battle

A great battle is being waged, but not presented in the light preferred by the Jackass. Witness the Tenth Amendment battle by the states versus the USGovt on the federal front. The battle has myriad microcosms in the mortgage court decisions made against the big Wall Street banks. So far the decisions favor the people, but the USCongress is busy preparing an unconstitutional bill to permit interstate contracts and possibly to whitewash any mortgage contract fraud. Bank lobby funds flow briskly to the craftsmen of the legislation. If challenged, such a bill might not withstand a constitutional battle. Sheeple justice versus mega-banks could reveal a quintessential states rights battle versus the federal govt controlled by the banking syndicate. Local judges are taking action against obvious criminal and predatory behavior by the big US banks. Some Florida homeowners were foreclosed by the big banks when no home loan was active in force. The Robo-Signers have captured much attention in document forgery. People who challenge are often winning their homes free & clear. Fraudulent attempts to foreclose and seize homes are being interrupted by those who challenge, and demand to prove property title. Legal precedents are set. Banks are worried. Regard the battle as an extension of the Tenth Amendment challenge, with proxy brigades doing battle. The big US banks represent the federal authority when a certain lens is applied.

The struggle in my view reveals a bigger macrocosm, where the states are pitted against the federal government. The proxy warriors for the states are local courts, where mortgage jurisdiction lies. The proxy warriors for the USGovt are the big Wall Street banks, whose syndicate has taken control of the national government bodies in their financial ministries. The states are fighting and winning the battle on home property challenges. Recall that in separate movements, 20 states have invoked the Tenth Amendment in a struggle to wrest back control from the New York and WashingtonDC syndicate. Their turf struggle has been over taxation, waged war, national security directives, border immigration, even threats of pandemic. Witness numerous local battles, erupting conflicts that serve as substitutes for state revolt against the encroaching federal apparataus. The legal structure favors the states. Watch the movements in reaction in counter-attack. What comes next might be Fascist Business Model corrupt extensions. The November Hat Trick Letter includes a review of some legal cases and their implications, which seem to be centered in metropolitan New York City. Some confusion might come from different decisions in different jurisdictions that lack consistency across the 50 states. That lack of uniformity might work to the advantage of upholding state rights, since the nation has always favored individuality of the states, a strength from diversity. Either way, a gigantic hairball is building within the system pipelines at a time when the majority of states are ruptured with huge budget shortfalls and pension shortfalls. They point a finger to the Wall Street corner where the housing & mortgage bust rendered damage. They point a finger to the USGovt colossus where the bloat exists, the deficits have expanded, and the control is centered.

By the way, notice how Bank of America quietly is approaching the funeral parlor. Word from my sources tell of Wall Street buying heavily the Credit Default Swap contracts for Irish and Portuguese Govt debt, in order to lift the bond yields enough to create a renewed crisis. That accomplishes two goals. EU financial distress creates some selling pressure for the Euro currency, thus supporting the USDollar. But a buoyed buck did not soften the gold price!! Sabotage of PIIGS sovereign debt is the order of the day so as to force the situation in Europe, which is stuck. The US bankers sense the need for contagion and crisis to befall Europe once more. Ruinous monetary policy is being exported from US locations. In the recent spring months, the USDollar was given a relative lift from Greek financial woes. This time, the effect will not be the same. Perhaps they can engineer an eerie calm in the FOREX currency market. The USDollar image and condition are so damaged and crippled, that the funds in flight will find Gold & Silver in heavy volumes. But the more hidden motive is to provide effective diversion from Bank of America. It is in a death spiral that requires almost daily cash infusions. As one source put it, “The wires for funds transfers at the Federal Reserve are burning from daily rescues of BOA.” Witness the demise of Bank of America, again. Its own 200-day moving average serves as a ceiling on a dark pathway leading to the cemetery. Its managed death decline has come without news items. The mortgage mess is their curse.

Workable Solution Far Too Late

The solution to the USEconomy and financial structure is long past available with the removal of the USTreasury gold. Here is a solution that could have worked. QE2 is the antithesis of a solution, one certain to cause great damage. Collateral, industry, and smaller government are the cornerstones to a solution. The $500 billion in gold collateral leased in the 1990 decade by Wall Street would be useful nowadays. People grope for bonafide solutions. Try this: Multiply the gold price 7-fold to obtain a hefty realistic $10,000 price level, sufficient to provide $3.5 trillion for US banking system collateral. Presto, some stability for the USDollar vis-a-vis the USGovt debt. Then the task shifts to reducing the USGovt deficit by means of terminating the endless war based upon dubious motives, ending Medicare largesse, cutting entitlements from pensions, eliminating several worthless agencies (like Energy and Homeland Security), and offering major incentives for the return of US manufacturing industry to US shores. The defense budget must be cut by 50%, and be declared no longer sacred. But the opportunity is long gone, since the USTreasury of gold was leased and sold for a few $trillion in private Wall Street gains. The usual suspects are deemed national heros.

These steps could have constructed the foundation for recovery, with $300 to $600 billion in budget cuts. Painful but progress. In two years, the deficit could have been tremendously reduced. That math works for me, but it is too late really. The nation repeatedly kicked the can down the road, the road that leads to the Third World. The opportunity for solution begins with a placement of gold collateral for both currency and debt, and a basis of industry for legitimate income. Both are absent, due to wretched leadership and profound corruption, as debt suffocates the system. Almost all attempts toward remedy mask the true motive at work, the preservation of power. The remedies turn out to be deceptive, adding $trillions to the clean-up bill without results. The squander of new money and the dissipation of asset bubbles are the essence of the Gold bull, which will take it well past $2000 in the coming two years, and much higher. The policy is not about solution, but rather power over money. Hyper-inflation, economic deterioration, and USTreasury default lie directly ahead, just a matter of time. Gold is the personal lifeboat, whose silver oars row to safety.

Decentralization in an Age of Globalization

Szandor Blestman

I’m not one known to make predictions about the future, but I am going to make a prediction here. I am going to predict that we’re going to start hearing more and more about global government, or global taxes, or global solutions to the ongoing economic crisis in the mainstream corporate media. I make this prediction because of the current precarious position of the dollar as the second round of quantitative easing takes place. Already there is a sector calling for a replacement for the dollar as the world’s reserve currency.

This is occurring mostly because of the fiat nature of all the world’s currencies. Currencies worldwide compete with each other for value. You hear it all the time, the Dollar against the Euro, the Euro against the Yen, the Yen against the Yuan. It’s all tied together. But they are all based on nothing. They are all created from thin air. Supposedly the value of a currency comes from the interest rates charged, but they all have to remain competitive against each other. So as quantitative easing takes effect and more dollars become available, other fiat currencies will have to follow suit to remain competitive. As a result of supply and demand, all currencies will eventually devalue. They will all become worth less.

Many foreign countries and international companies are holding dollars in reserve. They don’t like that their savings are going to lose value. They may well begin to dump their dollars for something that will hold its purchasing power, but other fiat currencies are not going to fit that bill. Precious metals, gems and other commodities, on the other hand, represent real wealth rather than debt. But the corporate establishment and the central banks don’t want the world’s governments actually acquiring real wealth. That could mean a collapse of their system and a diminishment of their power. They want governments to remain indebted to them. Their answer to this problem, of course, will likely be a one world fiat currency, perhaps something along the line of the IMF’s Special Drawing Rights (SDRs).

The solution proposed will be meant to centralize power into the hands of even fewer people rather than distributing power more evenly among the masses. It will be meant to make the rich richer and the poor poorer. It will widen the divide between the classes. This is exactly what the elite want. They seem to revel in their status and their superiority complexes. They seem to be jealous that so many are able to obtain the same luxuries that once only they could afford and are striving to make paupers of everyone but the elite few. In my opinion, centralization is the exact opposite of what we need. Centralization has been a dismal failure in every case and has led to impoverishment of the masses. Decentralization, on the other hand, has historically led to prosperity for all.

How can we decentralize? The secret may lie in the ability to say no, the ability to disobey. We are trained from birth to look up to authority. If a child is lost he or she is often told to find and trust a police officer. We are trained to accept the teacher’s authority, or the authority of the principle. We are trained to unquestioningly obey the “law” as if it was some kind of omnipotent being looking out for your welfare rather than mere words put on paper by mortal, fallible, corruptible humans in a veiled attempt to control your behavior and your choices to their benefit and your detriment. Many of us are trained or simply learn through experience that it is best to go along to get along. It is this attitude, this natural human quality, that has helped lead us to the place we are today. We don’t have to simply accept the dictates of the ruling elite just because they are super wealthy and this is what they want. If things are to change for the benefit of the many, it would be helpful if the masses recognized what was going on and simply stopped obeying the rules written by the wealthy elite for the wealthy elite.

The rich and powerful have set up the current worldwide economic system for their benefit, not for the benefit of the masses. They may have claimed otherwise at the beginning, and it might have seemed to have helped create the middle class to a point during the boom years, but now we are seeing what happens when the bubbles burst. Many have paid by losing everything they had earned after a lifetime of work to the too big to fail. The time has come to pay the piper, and the piper are the wealthy elite who control the Federal Reserve and other central banks around the world. They would love to establish laws and rules that supersede national sovereignty, limit competition and excuse the violations of individual rights by agents of the elite.

Their economic system, like so many government systems that have been usurped and are now controlled by the corporate establishment, has failed. They may be becoming desperate to prop it up. They would love to once again capture the respect of the masses by offering a solution, only it will be one that in the long run will lead to even more control for them. They would love to play the saviors while they dig their claws deeper into society’s economic life blood like the parasites they are. They want to pretend to fix a problem they created while blaming it on someone else. The masses of humanity need to simply stand up and say “no” to their attempts to force their will upon us.

The banking cartels have a monopoly on the creation of money and it is time to take that power from them. One way this can be accomplished is through agorism. People don’t have to use the fractional reserve fiat currencies that are circulated by governments and central banks worldwide. Other more stable currencies can be substituted for the current money people are required to accept by law. Precious metals pressed into coin form are historically the most stable form of exchange, with gold and silver being the most used. These exchanges can be made on a voluntary basis, the basis of agorism philosophy, between buyer and seller.

Such a free market has become known as a “black market” in the modern vernacular. I have the feeling that this name was made up by government propagandists who wanted to make such an organic and natural system seem bad because they couldn’t get in there and demand their cut. That is what central banks and their government cronies want, to be able to take a percentage of every financial exchange made between any two entities in the world. That is how they become wealthier than gods and maintain their power over the common folk. That is how they win.

Refusing to take part in this system takes their power away. Cutting them out of the picture is how the common folk win. Imagine how much less everything would cost if you remove the taxes. Imagine how much easier it would be to save for retirement and emergencies if the purchasing power of money was stable and didn’t need to grow to account for inflation. The purchasing power of gold has remained stable for thousands of years. I’m not certain, but I think the same is mostly true for silver also. I am certain that precious metals provide a much more stable economic environment than fiat currencies despite what the Keynesian economists claim.

We have been lucky in this country. We had mostly free markets and currencies based on gold and silver for long periods of time in this nation. The Constitution of the United States of America granted congress the power to coin money and spelled out that states could not make anything other than gold and silver a tender for debts. That helped us prosper and become the financial powerhouse we once were. The Federal Reserve has been chipping away at this base since its inception. The money now used by the United States is no longer backed by gold or silver, nor is any money of any nation that I know of. We are all in the same boat.

Globalization is not new. It has been going on for hundreds, if not thousands of years. There has been a global economy at least since the first trade routes between east and west were established. There has always been a competition between nations, always one trying to get the most value from the other. I my opinion, that competition has led to much innovation and better lives for all involved.

As the fiat currencies of the world spiral out of inflationary control, it will be interesting to see what nation bails first. It will be interesting to see if any nation decides to back its currency with gold or silver in an effort to put itself on top of the heap. That nation, the one that first makes such a move, will likely prosper greatly as demand for its currency grows. If none do, however, it will be up to individuals and private entities to re-establish an honest money system.

My archived articles are available at szandorblestman.com. Please visit there to help support me and my efforts. I also have an ebook available entitled “The Ouijiers” by Matthew Wayne.

China, Russia quit dollar

Su Qiang and Li Xiaokun

Premier Wen Jiabao shakes hands with his Russian counterpart Vladimir Putin on a visit to St. Petersburg on Tuesday.

St. Petersburg, Russia – China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.

Chinese experts said the move reflected closer relations between Beijing and Moscow and is not aimed at challenging the dollar, but to protect their domestic economies.

“About trade settlement, we have decided to use our own currencies,” Putin said at a joint news conference with Wen in St. Petersburg.

The two countries were accustomed to using other currencies, especially the dollar, for bilateral trade. Since the financial crisis, however, high-ranking officials on both sides began to explore other possibilities.

The yuan has now started trading against the Russian rouble in the Chinese interbank market, while the renminbi will soon be allowed to trade against the rouble in Russia, Putin said.

“That has forged an important step in bilateral trade and it is a result of the consolidated financial systems of world countries,” he said.

Putin made his remarks after a meeting with Wen. They also officiated at a signing ceremony for 12 documents, including energy cooperation.

The documents covered cooperation on aviation, railroad construction, customs, protecting intellectual property, culture and a joint communiqu. Details of the documents have yet to be released.

Putin said one of the pacts between the two countries is about the purchase of two nuclear reactors from Russia by China’s Tianwan nuclear power plant, the most advanced nuclear power complex in China.

Putin has called for boosting sales of natural resources – Russia’s main export – to China, but price has proven to be a sticking point.

Russian Deputy Prime Minister Igor Sechin, who holds sway over Russia’s energy sector, said following a meeting with Chinese representatives that Moscow and Beijing are unlikely to agree on the price of Russian gas supplies to China before the middle of next year.

Russia is looking for China to pay prices similar to those Russian gas giant Gazprom charges its European customers, but Beijing wants a discount. The two sides were about $100 per 1,000 cubic meters apart, according to Chinese officials last week.

Wen’s trip follows Russian President Dmitry Medvedev’s three-day visit to China in September, during which he and President Hu Jintao launched a cross-border pipeline linking the world’s biggest energy producer with the largest energy consumer.

Wen said at the press conference that the partnership between Beijing and Moscow has “reached an unprecedented level” and pledged the two countries will “never become each other’s enemy”.

Over the past year, “our strategic cooperative partnership endured strenuous tests and reached an unprecedented level,” Wen said, adding the two nations are now more confident and determined to defend their mutual interests.

“China will firmly follow the path of peaceful development and support the renaissance of Russia as a great power,” he said.

“The modernization of China will not affect other countries’ interests, while a solid and strong Sino-Russian relationship is in line with the fundamental interests of both countries.”

Wen said Beijing is willing to boost cooperation with Moscow in Northeast Asia, Central Asia and the Asia-Pacific region, as well as in major international organizations and on mechanisms in pursuit of a “fair and reasonable new order” in international politics and the economy.

Sun Zhuangzhi, a senior researcher in Central Asian studies at the Chinese Academy of Social Sciences, said the new mode of trade settlement between China and Russia follows a global trend after the financial crisis exposed the faults of a dollar-dominated world financial system.

Pang Zhongying, who specializes in international politics at Renmin University of China, said the proposal is not challenging the dollar, but aimed at avoiding the risks the dollar represents.

Wen arrived in the northern Russian city on Monday evening for a regular meeting between Chinese and Russian heads of government.

He left St. Petersburg for Moscow late on Tuesday and is set to meet with Russian President Dmitry Medvedev on Wednesday.