By Martin Hutchinson, Contributing Editor – Money Morning
When U.S. President Barack Obama late Friday (Sept. 11) signed an order that imposed an additional duty of 35% on tires imported from China, it set up the potential for an old-fashioned trade war.
Currently, global trade is down only 20%. During normal times, worldwide commerce would recover on its own. But as most investors understand all too well, these aren’t normal times.
Global trade fell by 35% after last September’s financial crash. And it plunged 65% between 1929 and 1932 as a result of the Great Depression. With the worldwide economy already in a weakened state, a bare-fisted trade war between the world’s two most important trading partners – the United States and China – would be devastating.
Call it “Great Depression II: The Sequel.”
Courting Trouble
When it comes to trade wars, there are two factors that are important to understand. First, once a trade war starts, everyone tends to join in. And second, once this happens, there’s no percentage in being the only free-trading country left in a totally protectionist world.
That’s what President Obama is risking. The 35% tariff he imposed is in addition to an existing 4% import duty. His action should be met with loud protests – not just from China, but from here in the United States and from Europe, too. We must stop the dreadful downward momentum from building.
The Chinese government has replied by accusing the United States of blatant protectionism as part of a World Trade Organization (WTO) complaint. And China is also threatening to retaliate against imports of U.S. poultry and vehicles. This all sounds arcane, but it isn’t. This escalating tiff over tire tariffs has the potential to damage the global economy much more than the banking crisis ever did.
President Obama’s action comes as a result of an “anti-dumping” investigation by the International Trade Commission (ITC) of the U.S. Department of Commerce. Competitors tip off the ITC about foreign imports that are allegedly being “dumped” – that is, sold below their full costs of production. Why U.S. voters should care about dumping is an interesting question. Dumped products are effectively being subsidized by China.
However, even if dumping mattered, the ITC is an inadequate body to investigate the alleged trade infraction. The commission has no subpoena powers in China. And it is subject to intense lobbying from advocates on only one side of the controversy.
Not surprisingly, the World Trade Organization (the proper judge of such claims) does not regard unilateral anti-dumping claims as an acceptable excuse for randomly imposing extra tariffs on imports. The whole purpose of trade agreements – several of which the United States promoted and signed – is to prevent that kind of thing.
During the 2008 presidential campaign, there was considerable debate about whether then-U.S. Sen. Obama was a protectionist.
Candidate Obama cheered union audiences by announcing that he wanted to renegotiate the North American Free Trade Agreement (NAFTA). But then his economic spokesman, Austan D. Goolsbee, was accused of holding a meeting with the Canadian embassy, and saying Obama wasn’t serious. The tough talk about NAFTA was only campaign rhetoric, Goolsbee allegedly confided to his Canadian audience. Then Obama’s campaign people said that no such meeting occurred.
Now that he’s in the White House, the fog obscuring President Obama’s views on trade is beginning to clear. In Group of 20 (G20) meetings, he’s paid lip service to free trade. But his actions contradict his statements.
President Obama has done nothing to advance the South Korea and Colombia free trade agreements, stuck in Congress since 2007. He has also done nothing to revive the stalled Doha round of trade talks, though his global prestige is so high he could easily have done so. That would be no small achievement. The World Bank estimates that a deal would add $100 billion a year to global trade.
Worst of all, however, is that President Obama now appears to be doing nothing to enhance trade with China, the country that will be our most important trading partner for generations to come. In the past two weeks alone, he’s twice imposed anti-dumping duties on China. On Sept. 9, the administration said it imposed a 23% duty on $2.6 billion worth of steel pipe from China.
President Obama owes a lot to union support, and it’s pretty clear that he is prepared to go along with Big Labor’s protectionist agenda. But the two cases are very different and one has to question whether the gains will be worth the very real costs.
In terms of the actual dollar value – as well as indirect economic costs – experts say the steel-dumping case may be the biggest case in years to be brought before the nation’s trade-dispute system. It demonstrates that there’s a deep-and-growing concern that Beijing’s industrial subsidies are translating into lost U.S. jobs.
The tire case may be a different story, however. It involves the “low-grade” tire market. The profit margins in that slice of the tire market are virtually non-existent. In fact, U.S. tire manufacturers did not join in the complaint. The reason: They actually lose money in the low-end market. Most had already abandoned it to China-based rivals, reports Irwin M. Stelzer, a columnist and director of economic policy studies at the Hudson Institute.
The One Sequel That Shouldn’t Be Made
None of this would matter much if the global economy were sailing serenely along, as it did before the financial crisis struck. For the 20-year stretch that ended in 2007, world trade advanced at a pace that was slightly faster than global economic growth in general. Against such a relatively healthy backdrop, minor disputes on tires or metal pipes would be of interest only to the tire and metal-pipe industries. And perhaps to the poultry or other industries against which China chose to retaliate.
But the global financial crisis changed the game. For a couple of months immediately following last September’s near-meltdown of the world’s financial system, global trade plunged by an astonishing 35% from its normal levels. That wasn’t really a surprise. U.S. consumption was way down. And the near-freeze-up in the banking system made trade financing very difficult to get.
That 35% drop was not as bad as the 65% plunge in world trade that came during the first four years we during the Great Depression between 1929 and 1933. But let’s face it, a stretch that’s half as bad as the Great Depression – even a relatively short one – is still pretty serious.
Global trade has since recovered somewhat, as trade finance has once again become available. As of July, it appears to be down about 20% on the previous year. However, that’s still a lot: Economic activity on a worldwide basis is down about 5%.
Even U.S. retail sales are down only around 8%. The U.S. consumer is being more careful than before, but still is spending at a pretty rapid clip.
By comparing all these numbers, we can come to only one conclusion: Global trade is still ailing as a result of the financial crisis.
Lower global trade affects all of us. Thanks to a concept called “comparative advantage,” the whole point of trade is that it allows each item to be manufactured in the place that’s most efficient. So if trade is blocked, as it was in the 1930s, the whole world economy becomes less efficient, output declines, and we enter a Great Depression (in which U.S. GDP nose-dived 25%).
There’s no reason a Great Depression has to follow a banking crisis. After all, the world has had lots of banking crises, both before and after 1930. And virtually every one has been followed by only a medium-sized recession.
The one banking crisis that set off a really serious downturn was that of 1837, after U.S. President Andrew Jackson abolished the Second Bank of the United States. The Second Bank’s notes were the main mechanism for financing trade between different parts of this still-young country. So President Jackson’s action effectively wiped out about 25% of the U.S. money supply. Not surprisingly, things got very tough for several years.
As tough as that period was, a 67% freefall in world trade would clearly plunge us into a much more dire period. In fact, were world trade to decline by two thirds, there would be no way of avoiding “Great Depression II – the Sequel.”
And this is one sequel everyone is certain to hate.
ONE-WORLD CURRENCY
U.N. calls for replacement of U.S. dollar
Joins Russia, China and G20 in call for IMF to step forward
Jerome Corsi, WorldNetDaily.com
Increasingly, world organizations including the United Nations, are openly calling for the creation of a one-world currency to replace the dollar.
That calls to create a one-world currency are increasing indicates the Obama administration trillion-dollar deficits are serving as a trigger.
A United Nations report recommended that a new one-world currency should be created to replace the dollar as the standard for foreign-exchange holdings in international trade.
If the plan succeeds, the United Nations would effectively end up replacing the United States as the issuer of the one-world international currency used as the standard of foreign exchange to settle international trade transactions.
The move would obviate the need for any nation state in the future to be the arbiter of world trade, marking yet another blow to national sovereignty on the path to one-world government.
The report, released by the United Nations Conference on Trade and Development, or UNCTAD, endorsed a proposal that Special Drawing Rights, or SDRs, issued by the International Monetary Fund, or IMF, “could be used to settle international payments.”
Red Alert has previously reported that Russia and China championed the idea to use the IMF’s Special Drawing Rights as a new international currency as a proposal that was adopted by the G-20 meeting held in London last April.
That G20 summit meeting took an important step to create a new one-world currency through the International Monetary Fund that is designed to replace the dollar as the world’s foreign exchange reserve currency of choice.
Point 19 of the final communiqué from the G20 summit in London on April 2 specified that, “We have agreed to support a general SDR which will inject $250 billion into the world economy and increase global liquidity,” taking the first steps forward to implement China’s proposal that Special Drawing Rights at the International Monetary Fund should be created as a foreign-exchange currency to replace the dollar.
The IMF created SDRs in 1969 to support the Bretton Woods fixed exchange rate system.
“The international supply of two key reserve assets – gold and the U.S. dollar – proved inadequate for supporting the expansion of world trade and financial development that was taking place,” a document on the IMF website explains. “Therefore, the international community decided to create a new international reserve asset under the auspices of the IMF.”
When the Bretton Woods fixed rate system collapse, major world currencies, including the dollar, shifted to a floating exchange rate system where the price of the dollar and other major world currencies was created by trading on international currency exchanges.
Until the current global economic crisis, SDRs issued by the IMF have been used by IMF member nation states primarily as a reserve account to support international trade transactions, not as an alternative international currency available to settle international debt transactions in danger of default.
The discussion of using SDRs at the IMF as an international reserve payment system is further evidence that the momentum to create a one-world currency is gaining among not only among academic economists, but also among and professional economists holding prominent government positions.
Red Alert previously reported that strong support for the idea of a one-world currency has recently come from Canadian economist Robert Mundell, who won a Nobel-prize in 1999, for his work formulating the intellectual basis for creating the euro.
Doomsday author says Obama is doing nothing to forestall disintegration
By Paul Joseph Watson, Prison Planet.com
Russian Professor Igor Panarin says that events are continuing to confirm his doomsday prediction first made over 10 years ago, that the United States will completely collapse like the Soviet Union before the end of 2010, and warns that the chaos could begin to unfold in as little as two months.
Panarin, doctor of political sciences and professor of the Russian Diplomatic Academy Ministry of Foreign Affairs, told journalists during the unveiling of his new book yesterday that President Obama has done nothing to forestall the fast approaching crisis and that it could begin to properly unfold in November.
“Obama is “the president of hope”, but in a year there won’t be any hope,” said Panarin. “He’s practically another Gorbachev – he likes to talk but hasn’t really managed to do anything. Gorbachev at least had been a secretary of a regional communist party administration, whereas Obama was just a social worker. His mentality is totally different. He’s a nice person and talks nicely – but he’s not a leader and will take America to a crash. When Americans understand that – it will be like a bomb explosion.”
Since 1998, Panarin has been warning of a future disintegration of the United States and the collapse of the dollar. The recent election victory for Japan’s Democratic Party is another sign that the economic collapse of the U.S. is imminent, according to Panarin.
“Today I received another confirmation that the collapse of the dollar and the US is inevitable. Japan’s Democratic Party won the election, and I’d like to remind you that its leader [Yukio Hatoyama] has the snubbing of the dollar among his economic plans. In plainer words, he plans to transfer Japan’s monetary reserves from US dollars into another currency. The move will seriously accelerate the dollar’s exchange slump as early as this November. Disintegration will follow shortly,” he said, adding that next year China would also begin to massively dump the dollar and that Russia would begin to sell oil and gas for roubles.
Panarin previously stated that the dollar would eventually be replaced with “a common Amero currency as a new monetary unit”, referring to the Security and Prosperity Partnership agreement between the U.S., Canada and Mexico.
He foresees the U.S. breaking up into six different parts, roughly along lines similar to those of 1865 during the Civil War, “The Pacific coast, with its growing Chinese population; the South, with its Hispanics; Texas, where independence movements are on the rise; the Atlantic coast, with its distinct and separate mentality; five of the poorer central states with their large Native American populations; and the northern states, where the influence from Canada is strong,” according to Panarin.
Longer term, Panarin predicts that the breakaway states will eventually be taken over by the European Union, Canada, China, Mexico, Japan and Russia and America will cease to exist altogether, as depicted in the illustration above.
Panarin blames the collapse on a “political elite that implements an absurd and aggressive policy that aims to create conflicts around the planet” and warns that increasing firearms sales in the U.S. are a sign that people are preparing for “chaos” in the aftermath of a total financial meltdown.
“In my opinion, the probability of the US ceasing to exist by June, 2010 exceeds 50%. At this point, the mission of all major international powers is to prevent chaos in the US,” Panarin concluded.
President Obama went to Guadalajara, Mexico, in August as part of his promise to “rejoin the world community” and become a “citizen of the world.” He participated in a conference with Mexican President Felipe Calderon and Canadian Prime Minister Stephen Harper.
These cozy meetings of the so-called three amigos used to be labeled the Security and Prosperity Partnership. The three North American heads of state met in Waco in 2005, in Cancun in 2006, in Quebec in 2007 and in New Orleans in 2008.
After conservatives exposed the mischievous goals, the amigos accepted the Hudson Institute’s helpful suggestion to change their name. Now they call themselves the North American Leaders Summit.
Prestigious internationalist think tanks, the Council on Foreign Relations, the Hudson Institute and the Center for Strategic & International Studies, explained the real purpose of these high-level get-togethers. These meetings were planned to be the first steps toward a North American Union modeled on the European Union, with open borders and a common currency, which Canada’s Fraser Institute prematurely labeled the amero.
The words “union” and “amero” have become embarrassing, so the goal has now been identified as “economic integration” and “labor mobility.” The Guadalajara joint statement reaffirmed the purpose of “integrated economies,” and that still means allowing unlimited access for cheap labor from Mexico to take U.S. jobs.
President Calderon demanded unlimited “labor mobility” and asserted that it is “unthinkable” for the United States to function “without the contribution of the Mexican laborers and workers.” He also wants free access for Mexican trucks to all U.S. roads and U.S. citizenship for Mexicans living illegally in the U.S.
Canada’s Harper wants all three to pledge to work “together on a North American focus against climate change in order to assure and guarantee a new international covenant that is efficient and truly global.” Harper also complained about the “buy American” provision in our $787 billion stimulus law.
Obama reaffirmed his commitment to pass the Cap-and-Trade bill so he would be hailed as a hero at the upcoming United Nations climate-change conference in Copenhagen, Denmark. He promised to “take the lead by reducing U.S. emissions by 80 percent by 2050″ and to “work with other nations to cut global emissions in half.”
Obama also promised to “continue to work to fix America’s broken immigration system,” which most people see as code words for amnesty for illegal aliens. He did not promise to stop the flow of illegal drugs and people coming across our southern border, but he did say he wanted “to stem the illegal southbound flow of American guns and cash that helps fuel this extraordinary violence.”
In other words, he was blaming the United States for Mexican drug violence. In fact, most of the guns found at Mexican crime scenes are not American, and U.S. taxpayers are already generously footing the bill to train Mexicans to fight the drug war.
Fortunately, Obama did not pledge to open our roads to Mexican trucks, which may be his only concession to American public opinion so far in his presidency. Congressional law forbids the entry of Mexican trucks, and the latest Rasmussen Survey shows that 66 percent of Americans oppose lifting this congressional ban.
Under NAFTA, the United States agreed to let Mexican trucks operate freely in our country after 1999 so long as they meet U.S. safety standards. But they have never met them — and nothing in NAFTA requires us to admit trucks that don’t meet U.S. standards.
Highway safety is the primary reason why Americans are adamantly opposed to allowing Mexican trucks on our roads. The problem is not only the wear and tear on our deteriorating highways from additional tens of thousands of heavier, environmentally dirtier trucks.
U.S. truck drivers are limited to 10 consecutive hours of service, but Mexican drivers typically drive up to 20 hours a day. Even if limits are imposed, nobody knows how many hours they are behind the wheel before reaching the border.
In contrast to U.S. requirements for truck drivers, Mexico has no credible system of driver training, licensing, drug testing, physical and age requirements, safety inspections even for brakes, weight limits, insurance, or nationwide criminal or driving-record databases.
U.S. law requires commercial drivers to be able to “read and speak the English language sufficiently to converse with the general public, to understand highway traffic signs and signals in the English language, to respond to official inquiries, and to make entries on reports and records.” But Secretary of Transportation Mary Peters testified at a Senate committee hearing last year that when Mexican drivers respond to our questions in Spanish, her employees nevertheless check the box for English-proficient.
By Stanislav Mishin, courtesy American Family Association.
(Editor’s note: We have received this several times by email, but it’s difficult to verify a source/author in just a mail. AmeroCurrency.com trusts AFA’s credibilty.)
It must be said, that like the breaking of a great dam, the American decent into Marxism is happening with breath taking speed, against the back drop of a passive, hapless sheeple, excuse me dear reader, I meant people.
True, the situation has been well prepared on and off for the past century, especially the past twenty years. The initial testing grounds was conducted upon our Holy Russia and a bloody test it was. But we Russians would not just roll over and give up our freedoms and our souls, no matter how much money Wall Street poured into the fists of the Marxists.
Those lessons were taken and used to properly prepare the American populace for the surrender of their freedoms and souls, to the whims of their elites and betters.
First, the population was dumbed down through a politicized and substandard education system based on pop culture, rather than the classics. Americans know more about their favorite TV dramas than the drama in DC that directly affects their lives. They care more for their “right” to choke down a McDonalds burger or a BurgerKing burger than for their constitutional rights. Then they turn around and lecture us (Russia) about our rights and about our “democracy”. Pride blinds the foolish.
Then their faith in God was destroyed, until their churches, all tens of thousands of different “branches and denominations” were for the most part little more then Sunday circuses and their televangelists and top protestant mega preachers were more then happy to sell out their souls and flocks to be on the “winning” side of one pseudo Marxist politician or another. Their flocks may complain, but when explained that they would be on the “winning” side, their flocks were ever so quick to reject Christ in hopes for earthly power. Even our Holy Orthodox (Russian Orthodox) churches are scandalously liberalized in America.
The final collapse has come with the election of Barack Obama. His speed in the past three months has been truly impressive. His spending and money printing has been a record setting, not just in America’s short history but in the world. If this keeps up for more than another year, and there is no sign that it will not, America at best will resemble the Wiemar Republic and at worst Zimbabwe.
These past two weeks have been the most breath taking of all. First came the announcement of a planned redesign of the American Byzantine tax system, by the very thieves who used it to bankroll their thefts, loses and swindles of hundreds of billions of dollars. These make our Russian oligarchs look little more than ordinary street thugs, in comparison. Yes, the Americans have beat our own thieves in the shear volumes. Should we congratulate them?
These men, of course, are not an elected panel but made up of appointees picked from the very financial oligarchs and their henchmen who are now gorging themselves on trillions of American dollars, in one bailout after another. They are also usurping the rights, duties and powers of the American congress (parliament). Again, congress has put up little more then a whimper to their masters.
Then came Barack Obama’s command that GM’s (General Motor) president step down from leadership of his company. That is correct, dear reader, in the land of “pure” free markets, the American president now has the power, the self given power, to fire CEOs and we can assume other employees of private companies, at will. Come hither, go dither, the centurion commands his minions.
So it should be no surprise that the American president has followed this up with a “bold” move of declaring that he and another group of unelected, chosen stooges will now redesign the entire automotive industry and will even be the guarantee of automobile policies. I am sure that if given the chance, they would happily try and redesign it for the whole of the world, too. Prime Minister Putin, less then two months ago, warned Obama and UK’s Blair, not to follow the path to Marxism, it only leads to disaster. Apparently, even though we suffered 70 years of this Western sponsored horror show, we know nothing, as foolish, drunken Russians, so let our “wise” Anglo-Saxon fools find out the folly of their own pride.
Again, the American public has taken this with barely a whimper…but a “freeman” whimper.
So, should it be any surprise to discover that the Democratically controlled Congress of America is working on passing a new regulation that would give the American Treasury department the power to set “fair” maximum salaries, evaluate performance and control how private companies give out pay raises and bonuses? Senator Barney Franks, a social pervert basking in his homosexuality (of course, amongst the modern, enlightened American societal norm, as well as that of the general West, homosexuality is not only not a looked down upon life choice, but is often praised as a virtue) and his Marxist enlightenment, has led this effort. He stresses that this only affects companies that receive government monies, but it is retroactive and taken to a logical extreme, this would include any company or industry that has ever received a tax break or incentive.
The Russian owners of American companies and industries should look thoughtfully at this and the option of closing their facilities down and fleeing the land of the Red as fast as possible. In other words, divest while there is still value left.
The proud American will go down into his slavery with out a fight, beating his chest and proclaiming to the world, how free he really is. The world will only snicker.
Mortgage Backed Securities are like boxes of chocolates. Criminals on Wall Street stole a few chocolates from the boxes and replaced them with turds. Their criminal buddies at Standard & Poor rated these boxes AAA Investment Grade chocolates. These boxes were then sold all over the world to investors. Eventually somebody bites into a turd and discovers the crime. Suddenly nobody trusts American chocolates anymore worldwide.
Hank Paulson now wants the American taxpayers to buy up and hold all these boxes of turd-infested chocolates for $700 billion dollars until the market for turds returns to normal. Meanwhile, Hank’s buddies, the Wall Street criminals who stole all the good chocolates are not being investigated, arrested, or indicted.
Mama always said: ‘Sniff the chocolates first, Forrest’.
Quote of the day from a fund manager:
“This is worse than a divorce… I’ve lost half of my net worth and I still have my wife…”
The bailout–a different perspective:
Back in 1990, the Government seized the Mustang Ranch brothel in Nevada for tax evasion and, as required by law, tried to run it. They failed and it closed. Now we are trusting the economy of our country to a pack of nit-wits who couldn’t make money running a whore house and selling booze?
Here is a terrific piece by an attorney who practices constitutional law. He has won three Supreme Court cases.
A Crisis of Dollars and Sense
Written by Edwin Vieira, Jr., TheNewAmerican.com
24 December 2008
The “dollar” bills that we routinely exchange for goods and services are not genuine constitutional dollars, but promissory notes substituting for the real thing.
Every day, millions of Americans receive and pay out what they think are “dollars.” Yet, in almost every instance, they are deceiving themselves. For the “one-dollar” (picture of George Washington on its face) Federal Reserve Note (FRN) that most everyone uncritically calls a “dollar” is not a “dollar” at all. No statute of the United States has ever declared that note to be a “dollar.” Neither could such a declaration ever be made. For each and every FRN, of whatever denomination, is only a “note” — a private bank’s promise to pay the holder a stated number of “dollars.” Self-evidently, a promise to pay some thing is not that thing itself.
Even the statute that authorizes the emission of FRNs requires that “They shall be redeemed in lawful money on demand at the Treasury Department … or at any Federal Reserve bank” (12 U.S.C. § 411) – which proves that FRNs are not themselves “lawful money.” Another statute does declare FRNs to be “legal tender for all debts, public charges, taxes, and dues” (31 U.S.C. § 5103). But FRNs would not have to be declared “legal tender” if they were actually “dollars.” Rather, the statutory designation “legal tender” recognizes that FRNs are not “dollars,” but may be used as substitutes for “dollars” with respect to any payment covered by the law.
Thus, amazing as it may seem, the present chaotic circumstances plaguing America’s financial markets have nothing to do with the true “dollar.” The markets’ derangement has arisen, over the course of decades, from the absence of the “dollar” in day-to-day economic transactions — indeed, from having the “dollar” supplanted as the American people’s official monetary unit so that hardly anyone anywhere in this country employs the “dollar” as his medium of exchange or standard of value. This has occurred because all too many Americans have simply forgotten, or have never learned, what a real “dollar” — a constitutional “dollar” — is.
The constitutional “dollar” is a specific silver coin — and nothing else. A “dollar” derives from the Spanish milled dollar, which was proposed as America’s monetary unit by Thomas Jefferson, adopted as such by the Continental Congress, and then designated the standard of value in the Constitution (Article I, Section 9, Clause 1) and the Bill of Rights (the Seventh Amendment). Its then-contemporary content — 371.25 grains (troy) of fine silver — was determined as an historical fact, and declared to be the value of America’s own “dollar,” in 1792. (For more information about the dollar referred to by the Constitution, click here to see “What’s a Dollar?”)
Because the Founding Fathers knew that real “money” consists of valuable commodities, they delegated to Congress the power “To coin Money, regulate the Value thereof, and of foreign Coin” (Article I, Section 8, Clause 5). And to promote national uniformity in official coinage, the Constitution declares that “No State shall … coin Money” (Article I, Section 10, Clause 1). So, the official “Money” of the United States is to be coin, and coin alone.
In the same clause, the Constitution also mandates that “No State shall … emit Bills of Credit” (the Founders’ term for paper currency) or “make any Thing but gold and silver Coin a Tender in Payment of Debts.” Often overlooked, though, is that the original draft of Article I, Section 8, Clause 2 of the Constitution empowered Congress “To borrow Money, and emit bills on the credit of the United States.” But, by a vote of nine states to two, the Federal Convention deleted the power to “emit bills” — so that Clause 2 now reads simply “To borrow Money on the credit of the United States.” Inasmuch as Congress has no powers other than those the Constitution delegates, this deletion absolutely deprives Congress of any power to “emit bills.” And if Congress cannot “emit bills” at all, it cannot emit “bills” with the special character of “legal tender,” either. Thus, the emission of every form of paper currency by the General Government is as utterly unconstitutional as the emission of paper currency by the states.
The reason for this sweeping prohibition was the Founders’ experiences with their own Continental Currency and state “bills of credit” during the War of Independence. The collapse of these “legal-tender” paper currencies disabused the Founders of the notion that a “bill of credit” is as good as the money in which it is denominated. In any particular case, such a promise may be honored, or may not be — but in every instance the conversion of promise into payment remains problematical until actual performance is had. Even less were the Founders subject to the modern delusion that a paper promise to pay (such as a Federal Reserve Note) not only can substitute for real money for a while, but even can supplant it permanently. Moreover, the Founders recognized that “bills of credit,” when expanded beyond the issuers’ ability or willingness to pay with silver or gold, were instruments capable of unjustly redistributing immense amounts of wealth from society to the issuers — a result at odds with the general welfare.
So how, constitutionally, is sound money to come into existence? In four ways:
(1) Congress must “coin Money,” particularly of silver (the constitutional “dollar”) and gold, so as to supply the “gold and silver Coin” which the states are required to “make … a Tender in Payment of Debts.” (See United States v. Marigold, 50 U.S. (9 Howard) 560, 567 (1850).) Congress may, of course, coin whatever silver and gold the General Government happens to own or acquire. But the greater source of official coins is to be through so-called “free coinage”: the requirement that the government mint coin, at the minimum possible (or even no) charge, whatever silver and gold private parties bring to them, the resulting coins then being spent into circulation by those parties. In this manner, ultimately the free market will determine the amount of official coinage in circulation.
(2) Congress must also “regulate the Value” of “foreign Coin.” This requires assigning to “foreign Coin” the value in “dollars” such coin has in the free market. (Thus, a “foreign Coin” containing 742.50 grains of fine silver would be “regulate[d in] Value” at “two dollars.” Or a “foreign Coin” containing 371.25 grains of fine gold, when the market exchange ratio between silver and gold is 20 to one, would be “regulate[d in] Value” at “20 dollars.”) Through this process, Congress could incorporate all of the present gold and silver coin of the entire world into the monetary system of the United States, with the passage of a single statute.
(3) Although coins minted or “regulate[d in] Value” by Congress are the only official “Money” of the United States, Congress may not prohibit any nonfraudulent forms of private coinage — whether of silver, gold, copper, or any other metal or alloy (see Amendments IX and X). Every American may use any of these media of exchange in his private transactions. Unfortunately, on the basis of a statute that purports to penalize anyone who “makes or utters or passes … any coins of gold or silver … of original design,” the Department of Justice is harassing at least one issuer of private coinage, the so-called “Liberty Dollar” (18 U.S.C. § 486). But, as applied to any honest private coinage, this statute is plainly unconstitutional.
(4) Private banks and other financial institutions may emit notes, and the holders of those notes may use them as media of exchange in private transactions — provided that the issuers: (i) make full disclosure to the general public as to what reserves or assets secure the notes, and how and when the notes may be redeemed; and (ii) suffer severe legal consequences if they fail to abide by their promises with respect to redemption.
Today, though, the monetary system with which Americans deal flouts the Constitution at every turn.
Being a paper currency, the FRN is a “bill of credit.” Worse, it is a discredited “bill.” For the “one-dollar” FRN does not promise to pay an actual constitutional “dollar” containing 371.25 grains of fine silver. A statute does require the FRN to be redeemed “in lawful money” (12 U.S.C. § 411); however, in practice, redemption yields not an actual “dollar,” but only base-metallic coinage containing no silver (or gold) whatsoever. In addition, the Department of the Treasury will not redeem a “one-dollar” FRN with, or exchange “one dollar” of base-metallic coinage for, a real “dollar,” either. Instead, the relevant statute provides that “A person lawfully holding United States coins and currency may present the coins and currency to the Secretary of the Treasury for exchange (dollar for dollar) for other United States coins and currency (other than gold and silver coins) that may be lawfully held” (31 U.S.C. § 5118(b)). And no one may sue the General Government on a claim “for United States coins or currency” or “arising out of the surrender, requisition, seizure, or acquisition of United States coins or currency, gold, or silver involving the metallic content of the dollar or in a regulation about the value of money” (31 U.S.C. § 5118(c)(1)). Meaning that, although a “one-dollar” FRN must be redeemed “in lawful money,” the medium of redemption will be whatever Congress — in defiance of its constitutional duty — wants it to be other than gold and silver coins, and notwithstanding that the thing used for redemption is worth far less in the marketplace than a “dollar” containing 371.25 grains of silver.
Yet, notwithstanding all of this chicanery — exacerbated by the “legal-tender” statute — no one is obliged always and under all circumstances to use FRNs in his private transactions. In addition to the Constitution (particularly Amendments IX and X), a statute entitles any American to use United States or foreign silver and gold coins to the absolute exclusion of FRNs (31 U.S.C. § 5118(d)(2)). Contracts for that purpose are often called “gold-clause contracts” because gold was the preferred medium of exchange when such arrangements originally became popular in the late 1800s. Congress outlawed “gold-clause contracts” in 1933, but permitted them once again in 1978. Since then, however, they have been only infrequently employed because almost all Americans have been unaware both of such contracts’ legality and of their usefulness for avoiding losses in monetary purchasing power due to inflation.
Such widespread popular ignorance evidences a shocking failure on the part of America’s political leadership, her educational establishment, and the big media because FRNs’ chronic loss of purchasing power — amounting to more than 90 percent since World War II — should hardly be unexpected, and the way to correct it hardly uncertain. FRNs are not backed “dollar”-for-”dollar” by silver or gold, but instead are issued on the supposed security of public and private debts. Each FRN is the product of an essentially magical process by which debt (a liability) is somehow monetized via the creation of money (an asset) out of thin air.
As if that were not enough, FRNs are the currency of a private banking cartel, the Federal Reserve System (FRS), which operates on the basis of so-called “fractional reserves.” Using “fractional reserves,” the Fed can expand the amount of currency and credit many times beyond the amount of public and private debts on which that currency and credit rests. The result is an inverted pyramid in which at the bottom a relatively small amount of debts, the real values of which are themselves uncertain, attempts to support at the top a much larger mass of currency and credit, the values of which depend upon the values of the debts. As long as this pyramid continues to expand, all appears well, because one “dollar’s” worth of debt at the bottom seems to prop up many “dollars’” worth of currency and credit at the top. Economic activity in society accelerates. But should enough of the debts prove bad, serious trouble follows — because each “dollar’s” worth of debt that must be written off at the bottom requires many “dollars’” worth of currency and credit to be extinguished at the top. Then the economy rapidly stagnates and sinks into recession, or even depression.
This “boom and bust” cycle inevitably and unavoidably occurs because bankers maximize their profits by transforming debts into currency and credit to the greatest extent possible. Thus, they have an incentive to make loans that are excessive in amount and only questionably secure. At some point a disjunction must occur between the speculations of the financial system and the physical realities of the productive system, bringing about an economic crisis.
To make matters worse, the Federal Reserve System is not a purely private banking cartel, but instead a cartel in which private banks are interlocked with the Treasury of the United States. Indeed, a statute designates the Treasury as the surety for redemption of FRNs “in lawful money” should the banks fail (12 U.S.C. § 411). This political-economic integration of bank and State renders the General Government, and through it the American people as a whole, hostages to the vicissitudes of fractional-reserve banking and allied speculative ventures in the world of high finance. This is why the present crisis in the financial markets threatens not only the solvency of the banks and their clients, but also the solvency of the Treasury, the credit of the United States, and ultimately the economic stability, if not the survival, of the whole country.
The severity of this crisis at the constitutional level can be gauged by observing that the Federal Reserve System is a cartel established by Congress for the purpose of self-regulation by its member banks, all of which are private parties, not governmental entities. When in 1933 Congress attempted to set up similar self-regulating cartel arrangements throughout private industry under the National Industrial Recovery Act, the Supreme Court held that “Such a delegation of legislative power is unknown to our law and is utterly inconsistent with the constitutional prerogatives and duties of Congress.” The illegal delegation involved allowing the industries themselves to set quotas on production and to fix prices for goods and services, with the force of law behind their actions, so that dissenting businessmen could be criminally charged for bucking the system. It was pure and simple “fascism” (in the economic sense of that term). (A.L.A. Schechter Poultry Corporation v. United States, 295 U.S. 495, 537 (1935).) The FRS escaped condemnation in the Schechter case because its purported authority arose, not from the National Industrial Recovery Act, but instead from the Federal Reserve Act of 1913, the unconstitutionality of which has evaded adjudication since its inception.
Self-evidently, the economic and legal chaos that has arisen throughout America’s economy by structuring this country’s monetary and banking systems on “a delegation of legislative power [that] is unknown to our law and is utterly inconsistent with the constitutional prerogatives and duties of Congress” dwarfs by many orders of magnitude the harm that such an illegal “delegation of legislative power” in the poultry (or any other) industry could cause. And it will become increasingly severe until the contradiction between what the Constitution mandates and what politicians and the banks have done in defiance of it is finally resolved in the Constitution’s favor.
How might that occur? The constitutionally correct course would be to return America to money that is sound because it is honest, and honest because it is the silver and gold “Coin” the Constitution commands the General Government and the states to employ in all of their financial transactions. This will require at least:
• First, reinstatement of the “dollar,” containing 371.25 grains of fine silver, as this country’s monetary unit, along with United States gold coins valued in “dollars” according to the free market’s exchange rate between the two metals, and foreign coins regulated in “dollar”-values according to their contents in silver and gold.
• Second, reestablishment of “free coinage” as the primary means for creating official coinage, along with complete allowance of all forms of nonfraudulent private coinage.
• Third, elimination of all “legal-tender” laws that license the unjust substitution of some unsound currency for sound money in the payment of any debt, tax, or other monetary obligation.
• Fourth, prohibition of all forms of paper currency (”bills of credit”) emitted, directly or indirectly, by the United States or any state — whether such currency is redeemable in silver and gold or not.
• Fifth, absolute separation of bank and state, such that no private bank can claim to exercise any delegated governmental power, or other abusive special privilege, with respect to money. And,
• Sixth, stringent regulation of all fractional-reserve and kindred financial practices in the private sector, so as to eliminate fraudulent expansion of debts and excessive speculation.
Bankers and their pet politicians, however, do not intend to allow America to follow the course her supreme law requires. When, in the near future, the FRS finally melts down in monetary chaos as the inevitable result of its own inherent instability, they will use its collapse as their excuse to introduce a new North American hemispheric paper currency — already being touted as the “Amero”; or perhaps even a new global paper currency — for which the name “Phoenix” has been predicted. But, to obtain the promised “stability” of this new currency, financially desperate Americans will be obliged to accept the transfer of their country’s sovereignty, in whole or significant part, to a North American Union or some new global political entity.
Thus, the present financial crisis goes beyond even a constitutional crisis. In addition, it is a crisis that strikes at the heart of the Declaration of Independence — a crisis of America’s national identity, national independence, national sovereignty, and even national survival. If Americans do not wake up and demand enforcement of constitutional money and banking — in particular, the reinstatement of the constitutional “dollar” as the monetary standard — America herself will be irretrievably doomed.
************************************************************************* What’s a Dollar?
Although the word “dollars” appears in the Constitution and the Bill of Rights, it is not defined there. Nonetheless, it must have referred specifically to something then in existence. But no “dollar” had been created by the Continental Congress prior to ratification of the Constitution. No “dollar” was created by the constitutional Congress coincident with ratification because that Congress had not yet been elected. And no “dollar” had been created by the constitutional Congress before the Bill of Rights was ratified.
The only possible referent of the word “dollars” was the silver “Spanish milled dollar,” which was actually being used as the money of account throughout the independent states at that time, and had been the standard for regulating the “value” — the metallic content — of foreign silver coins in the colonies since the early 1700s. To determine the value of this “dollar,” and thereby define the constitutional “dollar” as an historical fact, a representative sample of Spanish milled dollars then in circulation was subjected to chemical analysis. The Mint Act of 1792 incorporated the result in its definition of America’s “DOLLARS or UNITS” as “of the value of a Spanish milled dollar as the same is now current” — that is, the metallic content of a Spanish milled dollar accepted in the free market as containing a “dollar’s” worth of silver — which was determined to be 371.25 grains of that metal. (Act of 2 April 1792, ch. 16, § 9, 1 Stat. 246, 248.)
MOSCOW, November 24 (RIA Novosti) – A leading Russian political analyst has said the economic turmoil in the United States has confirmed his long-held view that the country is heading for collapse, and will divide into separate parts.
Professor Igor Panarin said in an interview with the respected daily Izvestia published on Monday: “The dollar is not secured by anything. The country’s foreign debt has grown like an avalanche, even though in the early 1980s there was no debt. By 1998, when I first made my prediction, it had exceeded $2 trillion. Now it is more than 11 trillion. This is a pyramid that can only collapse.”
The paper said Panarin’s dire predictions for the U.S. economy, initially made at an international conference in Australia 10 years ago at a time when the economy appeared strong, have been given more credence by this year’s events.
When asked when the U.S. economy would collapse, Panarin said: “It is already collapsing. Due to the financial crisis, three of the largest and oldest five banks on Wall Street have already ceased to exist, and two are barely surviving. Their losses are the biggest in history. Now what we will see is a change in the regulatory system on a global financial scale: America will no longer be the world’s financial regulator.”
When asked who would replace the U.S. in regulating world markets, he said: “Two countries could assume this role: China, with its vast reserves, and Russia, which could play the role of a regulator in Eurasia.”
Asked why he expected the U.S. to break up into separate parts, he said: “A whole range of reasons. Firstly, the financial problems in the U.S. will get worse. Millions of citizens there have lost their savings. Prices and unemployment are on the rise. General Motors and Ford are on the verge of collapse, and this means that whole cities will be left without work. Governors are already insistently demanding money from the federal center. Dissatisfaction is growing, and at the moment it is only being held back by the elections and the hope that Obama can work miracles. But by spring, it will be clear that there are no miracles.”
He also cited the “vulnerable political setup”, “lack of unified national laws”, and “divisions among the elite, which have become clear in these crisis conditions.”
He predicted that the U.S. will break up into six parts – the Pacific coast, with its growing Chinese population; the South, with its Hispanics; Texas, where independence movements are on the rise; the Atlantic coast, with its distinct and separate mentality; five of the poorer central states with their large Native American populations; and the northern states, where the influence from Canada is strong.
He even suggested that “we could claim Alaska – it was only granted on lease, after all.”
On the fate of the U.S. dollar, he said: “In 2006 a secret agreement was reached between Canada, Mexico and the U.S. on a common Amero currency as a new monetary unit. This could signal preparations to replace the dollar. The one-hundred dollar bills that have flooded the world could be simply frozen. Under the pretext, let’s say, that terrorists are forging them and they need to be checked.”
When asked how Russia should react to his vision of the future, Panarin said: “Develop the ruble as a regional currency. Create a fully functioning oil exchange, trading in rubles… We must break the strings tying us to the financial Titanic, which in my view will soon sink.”
Panarin, 60, is a professor at the Diplomatic Academy of the Russian Ministry of Foreign Affairs, and has authored several books on information warfare.
In a Nov 18 story by one of its economic writers, AP identified an about face by Treasury Secretary Paulson from the previous, highly criticized “no-strings” infusion of cash to the U.S. banking industry, to a nationalistic buy in.
Many conservative financial analysts, particularly FOX’s Neil Cavuto, hammered away at the notion of free money with no conditions. With AIG executives romping around posh resorts and chicken-counting mortgage banks allegedly planning to squat on the fresh green, Paulson and Bernanke pivoted to a seemingly more sinister position–U.S. Government ownership in the banking private sector.
Jeannine Aversa’s (AP) report quoted the New York Post, New York Times and Paulson:
In a profile published Tuesday in The Washington Post, Paulson, who is overseeing the bailout program for the Bush administration, said he was also working on a proposal that would allow the government to take over a wide range of financial institutions — not just banks — that are in danger of collapse.
Last week, Paulson changed course and announced that the government would not use any of the $700 billion to buy rotten mortgages and other bad assets from banks. That had been the centerpiece of the plan when Paulson and Bernanke originally pitched it to lawmakers.
“Our assessment … is that this is not the most effective way” to use the bailout money, Paulson said at that time.
In an op-ed published Tuesday in The New York Times, Paulson wrote: “If we have learned anything throughout this year, we have learned that this financial crisis is unpredictable and difficult to counteract. We decided it was prudent to reserve our (Troubled Asset Relief Program) money, maintaining not only our flexibility, but also that of the next administration.”
Still, Paulson said that “recovery will happen much, much faster than it would have had we not used TARP to stabilize our system.”
Paulson said last week the department would focus on rolling out a capital injection program to pour $250 billion into banks in return for partial ownership stakes in them. In the Times on Tuesday, he explained that “stronger capitalization is essential to increasing lending, which is vital to economic recovery.”
As conservatives pushed the “socialist” button pre-election, liberals retorted, “what do you call this Republican bank bailout?” Perhaps Paulson decided it was time to show the world what’s in the bag.
Editor’s note: AmeroCurrency.com has been warning for almost three years, the wisest exercise in a government imposing a desired major change on a population is convincing the population to beg for it. The problem the population faces is designed to suit the “solution” the power wants to impose.
If the Alan Greenspans and the Barney Franks’ of the world didn’t see this (these) mess coming, they were either inept or complicit. The, supposed, smartest minds in the country drove our economy into the ground, and their first solution as the “problem” revealed itself was to dilute our currency. Now, the answer appears to be, dilute the currency and let the government in on ownership of the banks.
