Morality101.net

by Michael S. Rozeff, original post at LewRockwell.com

November 6, 2009

India’s central bank, Reserve Bank of India, announced on Nov. 2, 2009 a purchase of gold from the International Monetary Fund (IMF):

“The Reserve Bank of India (RBI) has concluded the purchase of 200 metric tonnes of gold from the International Monetary Fund (IMF), under the IMF’s limited gold sales programme. This was done as part of the Reserve Bank’s foreign exchange reserves management operations. The purchase was an official sector off-market transaction and was executed over a two week period during October 19–30, 2009 at market based prices.”

By my calculation, the bank disposed of about 2.3 percent of its June 30, 2009 foreign currency assets or about $7 billion worth, expressed in dollars. These assets grew tenfold between 1998 and 2007, and by only 20 percent since then. RBI’s gold reserves, at market value, were 3.85 percent of the total foreign currency assets before the purchase. They jumped by 60 percent. They become about 6.3 percent of the new lower amount of foreign currency assets.

We don’t know how many dollar assets RBI disposed of as compared with pound and euro assets. It’s likely to have been a large amount.

This transaction has a significant meaning that goes well beyond the dollar amounts involved, which are not that large. It means that a major central bank has actually disposed of dollar assets and prefers gold instead. It means that it regarded its dollar holdings as excessive. There are more central banks in the same position. They may do the same. China had been suggested again and again as the potential buyer of the 403 tonnes of gold to be offered by the IMF. India’s purchase was a surprise.

In financial terms, RBI is not simply adjusting its reserve position. It is arbitraging. It has a profit incentive to sell dollars and buy gold. In a recent article, I suggested the following:

“There is another way to arbitrage the difference between the market price of gold and its ZDV [Zero Discount Value] when the market price is less than the ZDV. Other central banks can borrow dollars, buy gold, and then issue currencies against it. With these currencies, backed by gold, they can repay the dollar borrowings and still have a profit. They can gain the arbitrage profits in precisely the same way that the FED might have or that private entrepreneurs might have.”

RBI and other central banks hold dollars whose nominal gold backing is about 15 percent of the FED’s monetary base liabilities (currency plus reserves). RBI sells $1,000 worth of U.S. securities and gets 1 oz. of gold. The $1,000 that it gives up have only $150 worth of gold behind them. RBI profits by $850. The article pointed out that this arbitrage is an economic incentive or force for selling of dollars and buying of gold. RBI has availed itself of this opportunity.

The article observed that foreign central banks and governments, for their own reasons, had spurned this opportunity in the past, thereby maintaining various economic disequilibria:

“MANY foreign central banks have done the opposite. They sometimes have sold gold. They have usually accumulated dollars in substantial amounts in the form of dollar loans. They have not only not competed with the FED and taken advantage of this arbitrage opportunity, they have gone the other way and supported the FED and the U.S. government by their loans. This was one part of the financial side of government-run economic policies.”

RBI’s action signals a change in this behavior. It is a fresh signal, since we already had been given others. The arbitrage between dollars and gold is so large that it is bound to draw further players into it. The dollar is on its way to losing its reserve status.

Does India’s purchase signal a run on the dollar? Does it signal a rapid and widespread attempt by major players to divest the dollar in favor of hard assets? Not at this time. Bear in mind that China has already been accumulating hard assets for a few years now. There is no run on the dollar, but there is a steady movement away from dollars as a reserve asset in the coffers of central banks. A stroll on the dollar has become a brisk walk on the dollar, and there is a threat that this will become a trot on the dollar.

In economic terms, the end of dollar dominance has momentous implications for the world’s political and economic arrangements. Price levels, interest rates, loans, asset prices, production facilities, trade arrangements, and much else all have been put into place based on the dollar as a reserve asset. Domestic political arrangements, promises, taxes, and programs are involved. All of these are in for adjustments. Some serious changes await us. Even if the changes are smooth and gradual, they are likely to be large. Large discontinuous changes cannot be ruled out.

A dollar overhang is a sword of Damocles hanging over the U.S. government and economy. If a surplus of dollar securities exists at current prices, then their prices will have to decline. This will drive U.S. interest rates up. This has many implications. For one thing, it will drive the U.S. budget deficit up even further, which in turn will set off untold political actions and reactions.

Dollar overhang is not a new problem. It goes back to 1971 and earlier. It has never been solved. The problem is now far larger than ever before. If a scramble for new solutions is not already on among economists who are trying to save this system, it will be soon enough. We can expect to hear new ideas broached, each of which is supposed to resolve the problem.

There are only two kinds of solutions: inflationary and non-inflationary. A British pound as good as gold is long gone. A U.S. dollar as good as gold is long gone, but the dollar has hung on for 37 years now. A yuan as good as gold does not exist. A basket of currencies as good as gold does not exist. The inflatable dollar and inflatable currencies are ruling the roost at present. India’s action and some of China’s actions signal that they are inching – really groping – their way back to hard assets and a non-inflationary solution.

China’s IMF proposal indicates a degree of confusion on her part. It is at best an attempt to buy time and gain political influence, but it does not address the international monetary problem. The IMF solution won’t work if the SDR is backed up by paper currencies or is a paper currency basket. There is no way that all the central banks can offload their dollar reserves on the IMF. What good will it do to receive another paper credit, the Special Drawing Right (SDR) in return? It especially won’t work if the IMF is selling gold reserves, for that weakens the backing for its supra-national currency, which is the SDR. RBI’s purchase shows that at least one central bank is not waiting for such a “solution.” It prefers gold.

The world’s State-controlled money system based on the dollar has built up serious and embedded economic imbalances or disequilibria. They are what lay beneath the stock and real estate bubbles and the market crashes of 2008 and 2009. They are just beginning to be unwound. Political and economic statements, trial balloons, conferences, speeches, negotiations, and frictions among the major powers will be the ongoing indications of this process. So will actions like that of the Reserve Bank of India.

Viewed in this context, U.S. fiscal and monetary policies seem grotesquely out of step with reality. Yet another bout of massive inflation and debt creation in order to “create” a buoyant economy does nothing to address the basic political economic issues. While America ponders further socializing health care and further controlling and taxing energy use, it continues to debase its currency. This used to provide U.S. pressure for other countries to inflate their currencies. That situation appears to have changed. It now provides ever-greater incentives to other countries to abandon the dollar and revalue their currencies upwards against the dollar and gold. American legislators have not yet woken up to this fact, which entails serious changes in U.S. domestic and foreign policies.

Michael S. Rozeff [send him mail] is a retired Professor of Finance living in East Amherst, New York. He is the author of the free e-book Essays on American Empire.

Copyright © 2009 by LewRockwell.com. Permission to reprint in whole or in part is gladly granted, provided full credit is given.

The Best of Michael S. Rozeff

This article has been submitted to Digg and Propeller

from email subscription at GaryNorth website.

The Five Financial Shockwaves to Expect When China’s Yuan Swaps Places with the U.S. Dollar | Overseas Stock Markets. | Overseas Stock Markets.

This article is from Australia, for goodness sake!  It’s written more for the viewpoint of investors, but will apply to everyone.  Obviously Australians can see past the brainwashing better than we Americans!

Due to the continuing increases in the debt, now beyond any ability of America to pay, our vaunted dollar will most surely collapse.  This article says it will be replaced by the yuan of China; well maybe, maybe something else, but which doesn’t really matter.

The USA Fed and Treasury will be unable to maintain the charade forever.  Adding to the debt will absolutely result in severe inflation or hyperinflation of our dollar, and America will be forced to admit bankruptcy.  That will mean that all the funding for defense, collectivist shams, … everything, will cease.

The government and it’s welfare system will be unable to pay itself to send you more checks, because it is out of “real” money.  This will be the economic collapse, far worse than the Great Depression.

It will be plain hell falling into that abyss.  The many who have never learned to be self-sustaining. who have survived only via the welfare system, will have no means of buying food or services, no reserves, and will resort to being the thieving criminals they have always been.  There will be severe shortages of everything as producers fail and their goods and services disappear.

The bright light at the end of that tunnel can be the opportunity for, either Anarchy (NO RULER) or a new constitution, which severely and absolutely limits the powers of government and it’s force upon the people.

We must return to Reason and assert our true Right to Life.  Either we get it together at that time, or humanity, if it survives at all, will return to the Stone Age.  All the alternative scenarios are too horrible to even think about.

This article, while oriented to investors, holds much which must be grasped by we everyday folk.  Understanding it will not be enough, for each of us must act to prepare for the events ahead.

Failure to use your mind and your Reason may well mean that you cannot survive.

ONLY LIBERTY IS MORAL.  Force and Sacrifice of collectivism is the immoral cause of this collapse, and if one fails to choose liberty, humanity can well disappear.  The leftist brain-dead altruists are not your friends, they are your mortal enemy.

See it now, or you’ll see it later the hard way. Ditch them!

There Will Be (Hyper)Inflation by Thorsten Polleit.

Increasing “Excess Reserves”

The demise of fiat-money regimes around the world has become unmistakable. They can only be kept alive by central banks creating ever-greater amounts of base money and governments underwriting commercial banks’ liabilities.

The US Federal Reserve, for instance, increased the stock of the monetary base – which includes banks’ demand deposits held with the Fed, plus coins and notes in circulation – from $870.9 billion in August 2008 to $1735.3 billion in January 2009.

Banks’ “excess reserves” – banks’ base-money holdings minus required reserves – rose from $1.9 billion to $798.2 billion. These excess reserves allow the banking sector, which operates under fractional reserves, to increase the credit and money supply manifold.

The monetary base expands when the central bank takes over the troubled assets of commercial banks in order to extend new credit to those banks. This process is gaining momentum: on March 18, 2009, the Federal Open Market Committee (FOMC) announced that it will increase base money by purchasing another $1,150 billion of securities. It is also considering increasing base money by extending credit to private households and small businesses.

	Print $17 Audio $25
	continue reading…

The US economy is lurching towards crisis with long-term interest rates on course to double, crippling the country’s ability to pay its debts and potentially plunging it into another recession, according to a study by the US’s own central bank.

n a 2003 paper, Thomas Laubach, the US Federal Reserve’s senior economist, calculated the impact on long-term interest rates of rising fiscal deficits and soaring national debt. Applying his assumptions to the recent spike in the US fiscal deficit and national debt, long-term interests rates will double from their current 3.5pc.

The impact would be devastating by making it punitively expensive to finance national borrowings and leading to what Tim Congdon, founder of Lombard Street Research, called a “debt explosion”. Mr Laubach’s study has implications for the UK, too, as public debt is soaring. A US crisis would have implications for the rest of the world, in any case.

More…

Dollar’s Days of Dominance Are Over

Seeking Alpha

by Jeff Neilson

While it may not constitute the final “nail in the coffin”, India commemorated the 4th of July by joining China and Russia in announcing they were seeking “alternatives” to the U.S. dollar (as “reserve currency”). With yet one more “prop” removed from the gangrenous greenback, this left only the submissive Japanese as the last major holder of U.S. dollars who strongly supports its continued status.

Bloomberg reported Saturday that the economic advisor to Indian Prime Minister Manmohan Singh has publicly and explicitly recommended that India reduce the U.S. dollar component of its currency reserves. “The major part of India reserves [totaling $264 billion] is in U.S. dollars – that is something that’s a problem for us,” said Suresh Tendulkar.

These remarks come only one day after China’s former Vice Premier, Zeng Peiyan stated, “There should be a system to maintain the stability of the major reserve currencies.” continue reading…

FBI cracks down on people using their own money

by Fred E. Foldvary, Senior Editor, June 8, 2009

The federal government continues to enforce its money monopoly under the new Obama presidency. In June 2009 the FBI arrested the chiefs of the private Liberty Dollar company. Among those arrested was an instructor at the Liberty Dollar University training sessions and the woman who manages the Liberty Dollar Fulfillment Office. The Liberty Dollar web site alert exclaimed, “The FBI strikes again!”In November 2007, during the primary presidential elections, when Liberty Dollars was about to issue copper dollar medallions depicting candidate Ron Paul, the FBI had raided the headquarters of Liberty Dollar and confiscated their materials and records. But the Liberty Dollar company continued in operation. Now the federal government has made it clear that it will enforce its money monopoly. The coming trial will test whether the use of a private barter currency is legal in the USA. There are people who consider themselves to be monetary reformers who advocate a monopoly government currency. But in effect, the USA has had a government monopoly currency since the Civil War. Since the end of the price controls of World War II, the US dollar has been continuously losing purchasing power. The Federal Reserve has continuously expanded the money supply by more than the growth of the economy. The inflation has in effect been a tax on money holdings, and has inflicted great damage on the US economy. When the federal government expands the money supply, this does not just raise prices, it also distorts the structure of relative prices. It is a disturbance in the economic space-time continuum! Prices rise soonest, fastest, and highest where the money is being loaned out. During the real estate boom until 2007, much of the lending went to real estate, and land values zoomed up. The Federal Reserve money monopoly does not just inflate the currency, but causes distortions that end up in recessions such as the current one. Monetary policy along with government’s subsidy to land values created the boom that ended with the Crash of 2008. Today’s monetary expansion will again result in more inflation and distortion later. So some folks turned to a private metals-backed currency as a protest and as an example. The fact that the government is stifling the private Liberty Dollars shows that it fears that the people could abandon the US dollar as it inflates. But in the end, governmental resistance is futile, as foreign governments are starting to abandon the US dollar as an international currency. The advocates of a fiat governmental currency monopoly have not explained how they justify prohibiting private currencies. Their silence implies there is no moral or economic justification for prohibiting voluntary exchange with whatever barter or money terms the parties desire. The Ninth Amendment to the US Constitution states, in its entirety, “The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.” This recognizes that the people have rights even if not specified in the Constitution, and that these rights existed prior to the Constitution and do not come from government. These are common-law rights and natural rights. The fundamental natural right is to do anything that does not coercively harm others. There is therefore a natural and common-law right to engage in voluntary exchange, which is also a Constitutional right under the Ninth Amendment. But the US courts have ignored the Ninth Amendment, and it may also ignore it in this case. The future of the US dollar is bleak, as the trillion dollar federal deficits over the next decade will create pressure on the Federal Reserve to buy the debt by creating ever more money. As the federal debt escalates and the US dollar loses value, US treasury bonds will no longer be regarded as absolutely safe. The US government will not be able to prevent foreign government from abandoning the dollar as a currency reserve, but they can crack down on Americans who seek alternative currencies. Thus the federal government’s war on private money.

– Fred Foldvary

————————- Copyright 2008 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.

via FBI cracks down on people using their own money.

Forbes.com — By Alister Bull

WASHINGTON, May 28 (Reuters) – Rising U.S. government bond yields could force the Federal Reserve to expand a massive program to buy Treasury and mortgage-related debt, and if it does, it may need to be much more aggressive to be effective.

The Fed’s second-in-command Donald Kohn gave a clear signal in a speech on Saturday that he viewed the economic impact of the asset purchase program favorably, and Fed documents show officials debated ramping up the program in April.

Since then, concerns over how the United States will fund a towering budget deficit have led to a bond market bloodbath.

The U.S. Treasury is expected to borrow about $2 trillion this year as it seeks to cover a fiscal 2009 deficit of around $1.8 trillion.

for more go to source: FED FOCUS-Rise in US Treasury yields may trigger more Fed buying – Forbes.com.

Original Author

This article was found as http://seekingalpha.com/article/139650-the-fed-s-balance-sheet,author Tyler Durden.  Good comments on that website.

It was also submitted to digg.com and has good comments there.

We’d like your comments here on morality101, as this seems KEY to further collapse any day now!

Always good to keep things in perspective. The most recent Fed Balance Sheet reading of $2.16 trillion is a doozy and is only getting higher, and a couple hundred bucks away from the highest ever recorded of $2.17 trillion a month ago. This is just the beginning: Bernanke and Co. have committed to monetizing $1.75 trillion of securities this year, of which $1.21 trillion remain to be purchased still. This means that the chart will likely pass the $3 trillion mark at some point over the next 3-6 months. As to the yield on these securities once the total is over $3 trillion, if the current trendline of UST pounding is any indication, look for something north of 5%.

Just as a reminder, the total foreign central bank holdings of Treasuries and Agencies is $2.7 trillion.

Very soon America’s largest creditor will be… America.

I have wasted most of this past 13 months on Digg.com, in futile jousting with immoral collectivists who do not and will not understand the morality of the personal right to life of each individual on this planet, who seek to use the Force of government to negate our right to property, and don’t give one rip about the objective of happiness.  Our right to property is now diverted from sustaining our life and enhancing our happiness, and is now instead being ripped from our hands (stolen) toward furthering the immoral goals of collectivism via Force.

Much time was simply wasted, trying to avoid reading trivia completely irrelevant to the ongoing economic collapse, and even more trivia wading thru irrelevant comments often nothing more than ignorant abusive blurbs consisting of nothing more than FU, FTW.  While we still hang onto the thread of freedom of speech, having to deal with such ignorance wastes everyone’s time and energy for naught.

During this period we have been clobbered by the burst housing bubble, bailouts serving only to increase the national debt, to the election of a non-citizen communist who now purports to be the president of this new USSA, to an infinitely broad “stimulus bill” which we have now seen serving only to increase the already impossible mountain of national debt.  This cannot be funded because the Federal Reserve cannot find buyers for the T-bills and T-bonds, thus Government cannot pay it’s bills nor even fund the bailouts and stimulus.  This is a GOOD thing, although we doubt the liberals and socialists and collectivists will not understand this just yet!

So what has this to do with Digg?  Well, just yesterday Digg ended it’s Shout feature, which was the way we could pass good articles to our friends.  Digg now suggests Facebook and Twitter be used to compensate.  Now I don’t know that you feel this way, but having to play KissyFace and Tweeting is not my idea of useful productive time on the internet, so you’ll not find me there.  If someone knows an equally active social website devoted to active and serious discussion of philosophical political issues and ideas, PLEASE comment and let me know.

But worse with Digg is it’s now blatant attempts to promote bleeding heart crap and to conceal or even delete anything relevant to true Liberty and the current actions of Government seeking to destroy that last vestage of Freedom. For that reason alone, I am done with Digg.com.  I may submit more (of Morality101) articles to Digg, but will not be otherwise participating.  I see no compelling reason that Digg will survive these fatal mistakes.  Leave that to the collectivists to have a mutual admiration society and continue to scheme how to gain more powers to Force.

I hope to convert this blogger into THE major forum for the serious ongoing discussion mentioned.  I wlll need your help to accomplish this, there is too much for me to learn about doing this and so I need the collaboration of others.  I barely know how to “Submit” an article here via WordPress, much less to set up the tools for good interaction between us.

So, requested action(s)

• My email address is available only  to my Friends who know me as Striker101 on Digg.  If you are one of those, please either use your Digg handle or else email me so I know who you are.  You will be authorized as Authors and thus allowed to Post and to Submit.
• To others, you will find my eaddy at the root website of http://morality101.net.
• ONLY to those who understand the foundations of Objectivist or Libertarian philosophy, REGISTER here at  Morality101 so that you can participate, and then DO participate.
• We are not here to argue with collectivists, who are wholly without virtue.  We are here to expand upon the likes of Ayn Rand and Ludwig von Mises.  We are here to destroy collectivism before it destroys Capitalism, the free market and Liberty.

Leave your comments HERE, don’t even bother with Digg anymore.