(originally composed April 2009.)
Is it possible to make $2.5 billion with the stoke of a pen?
Ask Citigroup--they did! With the help of the BIS's Financial Accounting Forum, that is. The big story on Friday was all about the fluffy profits for Citi--the international bank's first "profits" in 18 months. It was a $1.6 Billion black mark, which is great considering they only needed $45 Billion in from the Treasury $300 Billion in US-backed guarantees to get the chance to "make a profit" in the first place. And don't worry, they still claim that nice imaginary $87 Trillion in derivatives on their balance sheet, which you can see on the Bank Find at the FDIC's site. The only problem is--in regards to this "profit"-- is that is was created not through wise investment and measured risk-taking. No: the bank's $1.6 billion "profit" was the result of a stroke of a pen, and the accounting rule change that resulted. This has BIS written all over it.
Bloomberg, April 17, 2009:
Stress Tests "Citigroup posted a $2.5 billion gain from accounting rules that allow companies to profit when their own creditworthiness declines. The rules reflect the possibility that a company could buy back its own liabilities at a discount, which under traditional accounting methods would result in a profit."
My words: So let me get this right: I don't pay for my liabilities, let my creditworthiness decline, and now I can rewrite a $2.5 Billion gain, apply it to my also re-written losses, and claim a $1.6 Billion profit? Cool! But that's only one change to the rules, here's the other:
"Citigroup already is benefiting from the Financial Accounting Standards Board’s decision earlier this month to ease rules that forced banks to write down assets whose market value had been depressed so long their impairment was no longer considered "temporary.” That rule change reduced impairment charges by $631 million on a pretax basis, the bank said."
Wow! Who would think that a bank could claim a profit if they were allowed to assign their own values to otherwise worthless toxic assets on their books? I would have never guessed. (Especially if they could re-assign the value to something high enough to reduce their creditworthiness and thus take advantage of the first rule change as well!) According to Bloomberg, between the two accounting rules, Citi gained $2,500 (million) + 631 (million) = $3.131 BILLION. That's pretty nice penwork, there. You know, this must be a coincidence, because it just so happens that the exact "rule change" that allowed for this re-working of the books at the various banks was something that the Financial Accounting Standards Board (FASB) decided just after the G20 meeting. Perhaps a little info on this FASB, then, might be appropriate.
First thing about the FASB is that you might sometimes hear their name on the radio as one word, pronounced as "Faz-bee", and this is indeed the same FASB. The FASB is under the authority of the Financial Accounting Forum, originally established in 1972. According to itself, the FAF is "a non-stock Delaware corporation that operates exclusively for charitable, educational, scientific, and literary purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code. The Foundation, FASB, and GASB are located in Norwalk, CT." The FAF has a number of boards under its domain, including the FASB. Here's what the FASB is, according to the FASB:
"Since 1973, the Financial Accounting Standards Board (FASB) has been the designated organization in the private sector for establishing standards of financial accounting. Those standards govern the preparation of financial statements. They are officially recognized as authoritative by the Securities and Exchange Commission (SEC)."
So, are they as "private" and 501(c)(3) "unbiased" as they claim, and as the SEC apparently finds them? You can decide for yourself, but here's some more info. As well as the FAF, the FASB has a very cozy relationship with the Accounting Task Force. Here's more on the ATF:
"The Accounting Task Force (ATF) works to help ensure that international accounting and auditing standards and practices promote sound risk management at financial institutions, support market discipline through transparency, and reinforce the safety and soundness of the banking system. To fulfil this mission, the task force develops prudential reporting guidance and takes an active role in the development of international accounting and auditing standards. Ms Sylvie Mathérat, Director of Financial Stability, Bank of France, chairs the ATF. Three working groups report to the ATF: the Conceptual Framework Issues Subgroup, the Financial Instruments Practices Subgroup, and the Audit Subgroup. The Conceptual Framework Issues Subgroup monitors and responds to the conceptual accounting framework project of the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board in the United States."
So, now, what then is the Accounting Task Force, the ATF? The ATF is a subcommittee of the Basel Committee on Banking Supervision (BCBS) at the Bank for International Settlements. Funny how that works.
So back to the "rule change." Citi (and Wells, and BB&T, and lots of others) was able to re-write the books this quarter because of the FASB's decision to pull back the mark-to-market rule that made these banks attribute market values to assets. If there was no market, then the value decreased or the "asset" became a liability. Those who prefer an even more ridiculously leveraged and manipulated market than we currently have get very upset at the idea of the market determining value, and so they don't much like the mark-to-market. The FSF (Financial Stability Forum at the Bank for International Settlements) seems to hate it—“those damn markets are always messing with our ‘stability.’ They're so ‘procyclical.’ After all, why can't we just make up values?! We’re the BIS, dammit!” The FASB's big decision in early April was to side with this incredible philosophy, basically. And it seems perhaps they were told to do so by the FSF.
A March 2009 FSF document titled "Report on the FSF Working Group on Provisioning" is important. Remember, the FSF is part of the BIS. Here's what it says:
"Provisions for loan losses reduce an institution’s reported net income in the period in which the provision is recognized and decreases the carrying value of the loans held by the institution. The basic principles provided in generally accepted accounting principles in the United States (US GAAP) as issued by the Financial Accounting Standards Board (FASB) for recognizing loan loss provisions have been formally in place since 1975, and, after enhancement in 1993, have remained relatively unchanged. The basic principles provided in International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) for recognizing loan loss provisions are very similar to those provided in US GAAP and the principles have been in place since the IASB revised its standards in 2003. Many financial institutions in Europe and other parts of the world began to report using IFRS in 2005."
That's in the introduction. The FSF is citing the FASB as the body it wishes to call out, and the FSF does not mince words. Its demands are very clear. Very clear. In fact the following text is literally printed in bold with a square around it! You cannot miss it! It says:
"The FASB and IASB should issue a statement that reiterates for relevant regulators, financial institutions, and their auditors that existing standards require the use of judgment to determine an incurred loss for provisioning of loan losses." (pg 7).
Repeat: "use of judgment to determine an incurred loss?" The FSF is telling the FASB to “issue a statement” that “the use of judgement” should be used to “determine an incurred loss.” So much for the FASB’s “independence.” This FSF document further elaborates on the typical denial assumed by a body that sees no worth to those pesky markets determining value: (pg 8)
"The FSF believes that institutions that effectively use required judgment to incorporate the impact of changes in current factors (such as environmental indicators and relaxing underwriting standards) into the methodologies used to determine the provisioning for loan losses would likely recognize higher provisions earlier in the credit cycle than those that placed greater emphasis on historical loss experience. The FSF believes that improving the diligence used by all institutions to incorporate reasonable judgments regarding the impact of factors that are likely to cause loan losses to differ from historical levels may improve practice and help lessen procyclicality while enhancing the consistency of information provided to investors. Therefore, the FASB and IASB should issue a statement that reiterates the required use of judgment in incorporating the impact of factors that are likely to cause loan losses to differ from historical levels under existing requirements for the provisioning of loan losses. This statement should be developed and issued by end-2009."
There’s the FSF repeating that request of the FASB yet again. As far as the words above that last sentence,--why, yes, I agree: the "consistency of information" provided to investors can certainly be "enhanced" if it continues to be all lies, based on the financial institution's "reasonable judgment" that the negative circumstances that it might be encountering don't have to be addressed as "loan losses" because those circumstances, the financial institution determined, "differ from historical levels," so the financial institution can continue to attribute the status of "asset" to those loans instead of what they actually are--liabilities. This is the same nonsense logic that Geithner had with his "legacy asset" Public-Private Investment Program: La, la, la, we can manufacture a market, I swear, we can! But notice--what has happened to the talk about the PPIP since the G20 and the FASB rule change? Not much. The reason is simple: Why would the institutions even want to sell to the PPIP when they can just keep the "assets" and actually benefit from doing so? With the new rule change, they would actually be hurt by selling the worthless stuff, because then they would have actualized the liability, thus permanently making it a loss. With the new rule, they can just keep pretending it’s an asset!
Back to the March 2009 FSF document from above: the FSF demands of the FASB to "issue a statement that reiterates the required use of judgment in incorporating the impact of factors that are likely to cause loan losses to differ from historical levels under existing requirements for the provisioning of loan losses." "Required use of judgment"--it means, the FSF's judgment that the current losses that institutions are experiencing are not really losses, they just look like losses because this is a "historically different" circumstance because there's no credit, but, the FSF claims, if there was credit, people would surely buy them up in droves if the financial institutions needed to sell them, right? No, FSF--no one wants them, PERIOD. And now, because of this rule change, it has effectively become an advantage that no one wants them, because then those "assets" become special assets that can be treated differently on an institution's balance sheet, and Citi can swing them from billions in losses to $1.6 billion in profit.
I hate to be redundant, but again from the FSF document, and again a section that was bold and in a special square (pg 8):
The FASB and IASB should reconsider the incurred loss model by analyzing alternative approaches for recognizing and measuring loan losses that incorporate a broader range of available credit information. The FSF recommends that the FASB and IASB establish a resource group to provide input on technical issues and complete this project on an expedited basis.
Oh, no please, tell us how you really feel. So, the FSF suggests "alternative approaches for recognizing and measuring loan losses", and now we have Citi running a profit for the first time in 18 months in the middle of the worst economic downturn in 70 years.
The FSF runs the show, and they are the apparatus of the BIS. But it gets worse: The working group at the FSF which wrote the above document, the FSF Working Group on Provisioning, is co-chaired by Kathleen Casey and John Dugan (see pg 18 of the document). Who are these people? Kathleen Casey is Commissioner of the SEC, and John Dugan is Comptroller of the Currency. Oh, fine!
Remember who authorizes the independent "standards (that) govern the preparation of financial statements" established by the FASB? From the FASB link I cite above, "They are officially recognized as authoritative by the Securities and Exchange Commission (SEC)." Hmm. So, what, the Commissioner of the SEC just happens to be the co-chair of a BIS forum FSF Working Group that is recommending accounting standards changes to be established by the "independent" FASB weeks before they do? And as for her co-chair, US Comptroller of the Currency John Dugan: we guess who's the Chairman of the BIS' Joint Forum? John Dugan. By the way, the Joint Forum is a subcommittee of the BCBS, the BIS body responsible for the supervision of Basel II policy. Well, what a coincidence.
The SEC obviously holds sway over the FASB, as it authorizes the FASB's standards, which is the only reason those standards have weight. And that is the way it should be: I don't have a problem if a national regulatory body like the SEC authorizing the regulations. My question is: who's authorizing the SEC? The SEC Commissioner is co-chair of a Working Group at the BIS's Financial Stability Forum, which just so happens to be making FASB suggestions that are totally contrary to US current accounting rules yet totally consistent with BIS Basel II ideas. The FASB's decision was not a surprise. And though it was effectively told to do so in March by the FSF, the timing of the decision after the G20 meeting in April links it perfectly to one of the products resulting from one of the biggest declarations of the G20 Summit.
Specifically, the G20 made a serious declaration that changed the game internationally, and the BIS was smiling (and that's redundant, as the G20 finance ministers are all BIS members). The G20 declaration was that the FSF should be renamed and re-armed, and that that it should determine the deadlines to which the other national "accounting standards setters" (such as the “independent” FASB) must comply.
Well, hell, it was already doing that back in March! (FSF said, "FASB, jump!" and the FASB said "Okay, BIS, how high?") But now to make this official is something else: it is a major shift to move from "independent" national boards, like FSAB, which are authorized by their relative national regulators, like the SEC, to a super FSF, authorized by the BIS and its 55 owner-member central banks, calling the shots. But that is exactly what has occurred, and this sweeping change comes straight out of the G20. Check out the release "Declaration on Strengthening the Financial System". The sweeping declaration is that:
"We have agreed that the Financial Stability Forum (FSF) should be expanded, given a broadened mandate to promote financial stability, and re-established with a stronger institutional basis and enhanced capacity as the Financial Stability Board (FSB)." (pg 1)
- the FSB, BCBS, and CGFS, working with accounting standard setters, should take forward, with a deadline of end 2009, implementation of the recommendations published today to mitigate procyclicality, including a requirement for banks to build buffers of resources in good times that they can draw down when conditions deteriorate;
- all G20 countries should progressively adopt the Basel II capital framework (pg 2)
Again, the FSF comes out in March and says the FASB and its like-institutions need to do what it says, dammit, then the G20 declares allegiance to three BIS institutions, and seeks to empower one of them, the FSF, over the national authority (ceremonial as it was) of the "independent" accounting standards-setters like the FASB. Viola: supervisory regulatory authority is standardized. Folks, I believe this is called Pillar 2.
Additionally, looking at the first subsection above, we know about the FSF (part of the BIS), and the BCBS (part of the BIS)...but what about this CGFS to which the G20 is rendering the duty to "take forward...implementations of the recommendations?" Oh, well, they are totally different, you see, they are, uh....well...they are part of the BIS too. Wow. The CGFS is the Committee on the Global Financial System, BIS through and through. Now, the CGFS is worth pausing over. Because this is were it gets crazy.
To the lunatic fringe we go....
According to the BIS, the CGFS was formed in 1971--under a different name. It was the ECSC, or the Euro-Currency Standing Committee. Funny: I didn't know there was a "Euro-currency" in 1971....oh wait! That's because there WASN'T a euro in 1971! So, what happened in 1971 that the BIS would see as a clue to establish the Euro-currency Standing Committee? Well, that would be an economic crisis, the disintegration of Bretton Woods, and of course, Nixon's official severance of the US dollar as a (internationally) gold-pegged currency. In other words, the world reserve currency (US dollar) blinked in 1971, and the BIS noticed. From a document on the BIS website, Historical Background to the Statistical Activities of the BIS:
"the process of European unification, started by the 1957 Treaty of Rome, gave rise to its own BIS-based committee. In 1964, the Committee of Governors of the Central Banks of the EEC Member States started holding regular meetings in Basel, at which the Governors of the Six exchanged information on domestic monetary policies with a view to increasing cooperation and coordination within the EEC framework. International developments in the 1970s cemented and further expanded the role of the BIS as a meeting place for monetary policymakers and a hub for information exchange. The unbridled development of the euro-dollar markets led to the creation in 1971 of a specific G-10 committee, the Euro-currency Standing Committee, which continues its work to this day with a broader scope as the Committee on the Global Financial System. The collapse of the Bretton Woods system in 1971-73 by no means spelt the end of efforts towards intensified international cooperation. Quite the contrary. The Americans may have become less active in this field after the abandonment of the gold-dollar parity in 1971 and the floating of the dollar from 1973. The fact remains that, under the regime of fluctuating exchange rates which followed Bretton Woods and in conditions of increased uncertainty following the 1973 oil crisis, there was, if anything, a need for more information exchange and cooperation, albeit again more on a European than on a global level." (pg 30)
The year, 1971, when the ECSC pops up, when there wasn't even a "euro" currency....but there was a "European Economic Community," and thus, I'm sure the BIS noted, the potential for a single, unified, central-bank controlled, fiat euro-currency. But, you wonder, why harp on the old name of the Committee, if it is now called the CGFS? Is that a big deal? When did it change names (and perhaps focus?)?
That's the question, when did it change names (focus?) and here's your answer: How about 36 days after the euro was officially introduced as an electronic currency on Jan 1 1999?! Oh yeah. The ECSC, after 28 years of hard work, accomplished its ostensible but never stated (other than in their name!) goal, and the "euro-currency" appeared. It only took a month for the G20 (BIS-run, “Governors of the Twenty”) to recalibrate the group as the Committee on the Global Financial System. And now, the latest G20 is calling on it again.
The ECSC, like its new CGFS, claimed in its mandate to seek to gather statistical information on bank activity for "risk analysis." But it focused its statistical collections on the Treaty of Rome's creation, the European Economic Community (EEC). Ironically, the EEC itself was the result of a body with the same anocrymn of ECSC, but that was the European Coal and Steel Community. The ECSC (the BIS one) consolidated information, and this internal national policy information was happily handed over by the owner-member central banks under the auspices of monitoring international (European) risk. Almost immediately, the ECSC used to the info to create the "currency snake" (pg 30). The currency-snake linked European currencies to each other in a fashion that attempted to remove the risk for the banks in holding them, as it did not adhere to the post-Bretton Wood method of market-valued currency exchange. Of course, it did reduce risk for the banks, but it wasn't too good for the people (not that anyone at BIS cared). The currency-snake ate its own tail, and the European Monetary System (EMS) replaced it, itself laying the foundation for the 1995 acceptance of the euro-currency by the EEC. Long story short, the BIS's ECSC was as instrumental in creating the euro as the other ECSC was in created the European Union.
And the ECSC’s bizarre creation, the euro, as you know, is a strange phenomenon. It ran for 3 solid years as an electronic currency before anyone even touched one: the banknotes/coins did not appear till Jan 1 2002. It may be the first total fiat internationally-recognized currency, some people say, having not even a history as anything other than promise-backed. Banksters rejoice, too, as it is probably the first internationally electronic and paper bank-created currency (the IMF's SDR's are not used like paper, and all other paper currencies are claimed by a specific nation, but no one nation country "owns" the euro). And it didn't take long for this BIS creation "euro-currency" to begin to rival the big, bad US dollar as an alternative world reserve currency. Although euro-holdings don't come near dollar-holdings, they would if the holders switched confidences. And at any rate, the euro, and the ECSC, is proof that totally a baseless, banking-created, 100% fiat currency can be done. Electronic to paper.
So, remember this history on the newly-renamed CGFS, Committee on the Global Financial System, as we go back to consider it today. The Chairman of this CGFS is Donald Kohn, current Vice-Chairman of the Board of Governors of the Federal Reserve System (Background: Kohn replaced Roger Ferguson at the CGFS, who also was also former Vice-Chairman of the Board at the FRS before resigning and Kohn receiving that spot as well. Ferguson was Chairman of the FSF till 2006, and now sits on Obama's Financial Advisory Panel.) Mr Kohn is a FRS veteran. He's been part of the System, holding positions from Secretary to Economist to Board Governor and now to #2 man, since he joined the FRB of Kansas City in 1970.
Kohn has served the FRS under every Chairman for the last 39 years, including Bernanke, Greenspan, and Volker. And now he's Chairman of the formerly-known-as Euro-currency BIS creation, CGFS. The goal of the ECSC was clear: to collect information on currency exchange, statistical bank holdings, national bank holding, interest rates, and according to the BIS, that's "all" they did. Okay. Well, somehow all that information that the BIS collected--again, and think about this, currency exchange, circulation, bank holdings, and interest rates--somehow that information was eventually used in the establishment the "Euro-currency," and somehow all those other currencies are no longer on the planet. Information gathering is all they claim to be doing (yeah, I've heard that before from the CIA), even now with the CGFS. What is the goal of the CGFS then, and does Kohn as Chairman have any significance?
The CGFS claims to have the same mandate as the ECSC, but instead of just a European scope, it’s a global scope. Also from the mandate:
"The Committee is encouraged to co-operate with other national, supranational and international institutions with responsibilities for pursuing related objectives. In particular, it shall co-ordinate its activities with other Basel-based committees, such as the Basel Committee on Banking Supervision and the Committee on Payment and Settlement Systems (CPSS), in order to strengthen the overall effectiveness of the process."
(Sidenote: Until his move to Treasury Secretary, Timothy Geithner was chairman of the CPSS, but I'm sure that has nothing to do with anything. Not.)
Here's something the CGFS Chairman, Donald Kohn, wrote of the group in BIS CGFS No. 29, Dec 2006 document, Research on global financial stability: the use of BIS international financial statistics:
"BIS statistics on international bank lending, collected by central banks under the auspices of the Euro-currency Standing Committee at the BIS since the late 1970s, have long been used to monitor risk exposures in the international financial system. For instance, these statistics provided clear and timely warnings about the scale and nature of external bank debt accumulation before almost all the crises to hit the emerging markets from the early 1980s. As international financial intermediation has evolved over the years, the scope of these statistics has been gradually broadened beyond bank lending to cover debt securities, syndicated credit facilities, and derivatives. These statistics are being used increasingly in economic research on questions related to global financial stability."
Never mind the first part of that, about "these statistics provided clear and timely warnings about the scale and nature of external bank debt accumulation before almost all the crises to hit the emerging markets from the early 1980s" (...yeah, and you want us to think you didn't know this one was coming? Right.), because the real deal is that last sentence addressing the "broadened" scope. What this says is clear: the ECSC was collecting statistics on international bank lending, interest rates, circulation, holdings, etc from information submitted by the central banks and through regular surveillance. But, as Kohn states, the scope has "broadened" from firstly this central bank data, to now debt securities, syndicated credit facilities, and derivatives. In other words, to the entire OTC market.
So recap: the CGFS has detailed statistical information submitted by member central banks (remember, we the public don't even get to see the FR's M3 anymore because they stopped issuing that in 2005) including total money supply, interest rates, bank holding, mutual fund holdings, debt securities, credit facilities, derivatives, and more. This Committee has a lot of information at its fingertips, doesn't it? Its goal is GLOBAL financial stability. Not local. Not even national. Global. Now, from the BIS' perceptive, do you think the euro-currency stabilized or de-stabilized the EEC? Hmm. What do you think the BIS might think could, from their perspective, "stabilize" the global economy?
I'll tell you what I think: I think that once you have all the information you could think of on all the currencies that matter, from the happily submitted statistics of the (BIS owner/member) 56 central banks', to the entire banking system, to the non-bank institutions, and to OTC markets (think Basel II, Pillar 1 capital reporting requirements and Pillar 2 supervisory authority), you can call the shots. You can start talking about a single, global, international reserve currency, to which all other "currencies" are based. And you can control them all.
Check out this March 26 article from the WSJ, From the article:
"As if the dollar didn't have enough problems, Timothy Geithner took China's bait yesterday and said he was "quite open" to its suggestion this week to displace the greenback with an "international reserve currency." The dollar promptly fell and stocks followed, before the Treasury Secretary re-emerged to say "the dollar remains the world's dominant reserve currency. I think that's likely to continue for a long time."Mr. Geithner is learning on the job, and yesterday's lesson is that it isn't smart to fool with currency markets when you are already tempting fate with a gigantic U.S. reflation. Treasury and the Federal Reserve are flooding the world with dollars to break the recession, and the world is rightly getting nervous. Since the collapse of Bretton Woods in 1971, the global economy has tried to function with floating exchange rates, in which the "market" is said to set currency prices. As the world discovered in the 1970s and the Bush Treasury forgot, however, the market for currencies isn't the same as for apples or copper. Central banks control the supply of currencies through their monopoly on money creation. Often, as at the Alan Greenspan-Ben Bernanke-Donald Kohn Federal Reserve this decade, they get policy wrong, with disastrous consequences. Amid the global economic downturn, some central banks, like Vietnam's, are also turning to currency devaluation for a trade advantage."
I'm not surprised to see Kohn's name in there, the FRS veteran that he is. And also, Vietnam isn't the only CB to engage in intentional currency devaluation, of course, because China does it too. But so also has the Federal Reserve, and Mr Kohn was there when it happened, diligently working away under Chairman Paul Volker. Kohn was there when the US dollar was intentionally devalued by means of an international agreement, and I'm sure he remembers it well.
I'm referring to the 1985 Plaza Accord, which was the result of a BIS/G5 meeting at the Plaza Hotel in NYC, attended by the central bankers and national policy makers of France, UK, US, Germany, and Japan. Then Treasury Secretary James Baker later admitted that though the group did not present the Plaza Accord as a complete shift in policy, he and everyone else there knew it was: it was a multi-lateral intervention in the currency market to intentionally devalue the dollar against the Japanese yen and German duetsche mark. The plan was to weaken the dollar to increase the demand for cheaper US goods, to reduce the relative negative value of the national deficit and debt, and intervene in the currency markets to prevent the dollar from rising. And it worked: in less than 2 years, the dollar lost more than half its value compared to the yen and duetsche mark. The trend continued, as policy, until it was reversed, as policy, in 1987 by the Louvre Accord. It was too late for the yen, of course, as the Plaza Accord was a major factor in Japan's looming "Lost Decade" because the newly and artificially "strong" yen led to way too much liquidity, liquidity that the BoJ has still not mopped up. So Mr Kohn knows a thing or two about currency devaluation, and as Chairman of the CGFS, he's know more than a thing or two about global reserve currencies.
You don't have to replace the currencies at all if you can just get hold of 1.) their interest rates, and 2.) their liquidity. You can call it whatever you want, put whoever's mug on it you'd like, make it green, purple or polka-dot--once you have the ability to artificially manipulate currencies through their interest rates and circulation, you can manipulate their value into perfect synchronization, and their issuance from a single body. From the WSJ article above, the author states simply, and truthfully, that "central banks control the supply of currencies through their monopoly on money creation." This, of course, totally sucks, but at least the "banks" part is plural. Imagine if it is singular. Well, we have singularity of sorts--one consolidated central bank with lots and lots and lots of information and you know who I'm talking about. In my opinion, this latest G20 Summit does much more to vastly increase that info-hoarding by the BIS by specifically strengthening the BCBS and CGFS, and especially by elevating the FSF to the status of FSB, and bowing down to it. It is really incredible when you think about it.
The IMF, of course, has weighed in on this. I'm sure Timothy Geithner heard plenty about a new world reserve currency when he was there, and maybe that's why he expressed openness to the idea of replacing the dollar's status before promptly reversing himself. Geithner was chairman of the Committee on Payment and Settlement Systems at the Bank for International Settlements, while he was FRBNY president, right up until he was sworn into Treasury. Geithner was at the BIS and IMF--he knows plenty about how to manipulate currencies. Meanwhile, real-time over at the IMF, the head, Dominique Strauss-Kahn, gave a speech in October 2008 about the 10th anniversary of the euro. The title: "The Euro At 10: the Next Global Currency?" Despite this ambitious top line, Strauss-Kahn actually didn't talk much about the euro, but mostly about the economic crisis. However, what he did say about the euro is interesting. He states that despite the turmoil, "We have not seen a foreign exchange crisis." He attributes this to the euro, and apparently thinks that it gives the currency the potential for the next global reserve currency:
"Why is this? Well one reason is obviously the success of the euro. For example, consider what the last year might have been like if Europe had not had the euro. If the past is any guide, the appreciation pressure on the euro would have gone disproportionately into the German Mark, which may have appreciated much more than the euro now has. In other countries, political and business forces would have lined up in favor of decoupling or devaluing against the Mark. Anticipating the possibility of exchange rate realignments, market participants would have withdrawn capital from countries at risk of realignment, driving up interest rates and risk spreads and potentially causing current account financing problems. Higher interest rates would have undermined housing markets and choked growth. As in the past, exchange rate realignments would likely have been needed to restore order, and these exchange rate realignments in turn would have caused inflationary pressures in countries that devalued. So there is no question that the euro has contributed to the stability of its member countries during this crisis. And—for its members—it has become an essential element of the global monetary system."
"So there is no question that the euro has contributed to the stability of its member countries during this crisis"? That's a lot of praise for the euro, considering that Strauss-Kahn has absolutely NO idea what would have happened if there was no euro around (because no one knows that), and considering that as a matter of fact, the economic collapse is happening with the euro around! He seems to think that the euro and the economic crisis are utterly unrelated. Okay, maybe he's right (I don't think so) but he has to admit that internationality of the euro for European banks removed the firewalls that sovereign currencies presented, and therefore the uniformity of the euro very likely may have contributed to the crisis. Who knows. The fact is, we have a euro now, and we have crisis now. But Strauss-Kahn's euro-as-the-"Next Global Currency" speech was waaaay back in October. I wonder what the head of the IMF is saying currently?
Well, here's an article for your convenience from March 26, in anticipation of the G20. From it:
"The issue of the world currency reserve is expected to be raised at the April 2 summit of the G20 club of developed and emerging economies. On Wednesday IMF managing director Dominique Strauss-Kahn said that talks on a new global reserve currency to replace the US dollar were "legitimate" and could take place "in the coming months." "
and:
"But the UN panel warned that a two (or three) country reserve system "may be equally unstable."
It said a new Global Reserve "is feasible, non-inflationary and could be easily implemented, including in ways which mitigate the difficulties caused by asymmetric adjustment between surplus and deficit countries."
There is a big difference between a global reserve currency and a global currency. Just as there is a big difference between a Federal Reserve Note and a US Dollar. Well, oops, let me correct that. Just as there used to be a big difference between a FRN and a US dollar. Until, of course, it became law that taxes must be denoted in US dollars and paid in FRN's. Then all the sudden the two are interchangeable. Interchangeable, that is, except for the fact that you will never get a US dollar for an FRN. And yet mysteriously, the Federal Reserve still claims they'll exchange FRN for "lawful money." Consider Section 16, Paragraph 1 of the Federal Reserve Act, in my opinion the most totally nonsensical and utterly oppressive part of the entire law, and think of it in the context of a legal global reserve currency:
“Federal reserve notes, to be issued at the discretion of the Board of Governors of the Federal Reserve System for the purpose of making advances to Federal reserve banks through the Federal reserve agents as hereinafter set forth and for no other purpose, are hereby authorized. The said notes shall be obligations of the United States and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues. They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank.”
FRN's are issued for "no other purpose" than making advances to the FR banks, are obligations of the United States, and "shall be redeemed in lawful money on demand" at the Treasury or any Federal Reserve bank? Lawful money, huh? I'm gonna try this stunt next time I'm in St Louis. I'm gonna go to the FRB of St Louis with a $5 Federal Reserve Note and a copy of this Section 16.1 of the FRA, and I'm gonna demand lawful money. We'll see what happens. I'm guessing either nothing will happen, or I'll get to know a little more about FRA Section 11, Paragraph (q), which is the one that lets the Federal Reserve establish its own police force. Yeah, either nothing or police action, but I can guarantee I'm not getting "lawful money."
My point in bringing up the FRN/US dollar paradox in regards to global reserve currency/global currency is simply that it was the legal requirement that taxes had to be denoted in dollars and paid in FRN's that started the decoupling of the US dollar from the FRN, and the takeover of the FRN. The "Dollar" is the world reserve currency--but that is by choice. No one is required to hold dollars (and I think we will learn this the hard way soon), but instead they choose to (true, they might get invaded if they don't, but its still technically not legally required). Even China with all its complaining about the dollar, still chooses the dollar. True, countries have a good reason to be mad at the US for devaluing the dollar through the FRN, but for some reason, countries still choose it. So its the world reserve currency of choice. But imagine if there arises a world reserve currency of law?
Think about what happened in this country: the law made it impossible for the "dollar" to beat the FRN, the FRN issued for "no other purpose" than as an advance to member banks. You know this, but of course at the time when the Federal Reserve Act was written, there still was "lawful money" of the metallic sort, so there was "lawful money" to which an FRN could be converted. As that metallic money was not made by the Federal Reserve, but by the Treasury, from its own purchases, sales, and reserves. Still, it didn't take long for the FR to put the Treasury out of the metal "lawful money" making business, first through the illegalization of gold as domestic currency in 1933, and second by devaluing the dollar and inflating prices so much that by 1962, silver was well over $1 an ounce and moving higher in melt value than the face value of the US coins containing it, and by 1963 the Treasury was replacing silver certificates with $1 Federal Reserve Notes. That said, the "lawful money" remains part of the Act to this day, despite the fact that many other sections have been removed or declared "obsolete" in the Act, by the Act, and it remains in there because they can't really change it. Well, they could but then it would make less sense than it does now, but I say they can't change it, because if they did, it would remove the FRN from being the "lawful money" for which it itself is exchangeable. Confused? Good, that's way you're supposed to be. In other words: the currency is exchangeable for a currency. That's it. Now get back in your cage.
And back to Mr Kohn's Committee on the Global Financial System at the Bank for International Settlements. The amount of information that is coming into consolidation in the hands of so few is very disturbing. As I said before, we ourselves, American citizens, are prevented from seeing the Federal Reserve's M3 money aggregate, but then the BIS, an institution that the average American has never even heard of, has more information on the dollar and FNR that we can imagine. I will be monitoring the business of the CGFS as closely as I can, which will be substantially less closely than they, apparently, can monitor me!
The G20's obsequiousness to the BIS is both disgusting and predictable: they are the same creature, but you would think that they would at least try to think of national sovereignty. And after investigating this CGFS, I am admittedly quite paranoid that it used to be called the Euro-currency Standing Committee. Those banksters did get the Euro-currency standing, alright, making their first mission “accomplished.”
The question is, what are they trying to stand up now?
Newsflash: This just in, the Federal Reserve has announced that it will begin taking Monopoly money as collateral for future loans to Investment Banks. Fed Chairman Ben Bernanke was quoted as saying "We have come to respect the Parker Brothers..."
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