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Introduction Let me begin by asking you a question – ‘2012 - Will the World Economy take the Greatest Plunge?’ What do you say? If you ask me the same question – I would reply – ‘I do not know.’ But, this is hardly the answer you were expecting, and hardly an answer that will satisfy you. So, I say, ‘Yes, in all probability it will.’ We will discuss the issue at hand. Identifying the Problem First, we will analyze the debt-problem in the US and indeed in the whole world. The US debt is 10.040 trillion Euros. The US, Japan, and Germany are the most industrialized nations in the world. The question arises that why the industrialized nations are facing such a debt problem.
The Root Cause Industrialized nations are producers, so they should ideally be creditors and not debtors. The answer lies in the fact that there is an intrinsic flaw in the monetary system. The monetary system in existence around the globe is fiat monetary system. Fiat monetary system is debt-based and interest-based monetary system. It is based on paper currency. In a fiat money system, money is not backed by a physical commodity i.e. gold. The statistics as per fig. 1 is that of government-debt. But what matters in macro-economics is the entire debt, i.e. government debt, individual debt, and business debt - the total debt of the system. For example, the total debt of the US is € 11.906 trillion ($ 15.098 trillion) - as of Dec. 15, 2011. The total debt as a % of GDP is displayed in fig. 2. The countries are colour-coded into segments. The Japan and Britain are marked in red; some European countries - ‘France, Italy, Spain, and Switzerland’, and South Korea are marked in dark orange; US, Canada and Germany are marked in light orange, etc.
The Effect The GDP means what a country can produce totally in one whole year. The debt is over 4 times (400 %) of the GDP for Japan and Britain. Japan has the highest debt-to-GDP ratio in the world. This debt carries compound interest. So, when debt carries compound interest it is an exponential function. So, what happens when the real produce in the economy cannot match with the rise in the debt? The real sector would not be able to catch up with the monetary sector. This is exactly what is happening in the global economy right now. The Gold Price as a Function of Time Let us look at how gold price has changed over the years. Fig. 3 shows us the rise of gold price since 2000 - Do you see the exponential growth? The important thing is that many studies have shown - the price of gold in relation to the real things is constant. So, if you see an exponential growth like this, what is the inference?
The Inference The inference is that the dollar and the global economy is collapsing exponentially, it is heading towards a point of no return. That is the story this is telling us. Therefore, when an economy is unable to pay the debt, for example – for Japan the debt-to-GDP ratio is over 400%, so, Japan is stuck, Britain is stuck, Europe is stuck, America is stuck; we call this an economics liquidity trap. The markets are all in liquidity trap. The way to solve this is debt relief, that is to write off all the debt, at least the interest portion, and that people are to repay only the principal portion. This will help to stabilize the economy again. But when people and businesses default then there will be a collapse of the monetary system, that’s what we call the melt down.
It all started in 2007, with the sub-prime crisis. It is actually a distraction of the dollar. This spread the problem to the Euro as well. So many banks in Europe collapsed, for example - Northern Rock. The America, Europe, Dubai, and the Middle East are all experiencing the effect of the global economic collapse; a domino effect is what is observed.
Collapse of the debt-based monetary system What we are observing today is the collapse of the debt-based monetary system. That means, the major currencies - the Dollar ($), the Euro (€), the Yen (¥), all of them are facing a problem now. When the countries collapse, the currencies would collapse. This is what is looming. And, when the major currencies collapse, people will lose faith in all currencies.
The Alternative What is the alternative? To understand the alternative, it is important for us to discuss the concept of ‘seigniorage’. Seigniorage is money that is created out of nothing. That is when you print, or you create money electronically, it is very easy, very cheap to create, so the extra or free purchasing power it carries with it, we call it seigniorage. The seigniorage transfers wealth and power from individuals, companies and governments to people who create money.
This is a view from political economic perspective. The means of political economy is the struggle for wealth and power. So, this monetary system takes away wealth from individuals, businesses and governments, and it enthrones this on people who have the right to create money, basically, to the banking system. We have seen the statistics of America, Japan, etc. that they are debtors. In accounting system, for every debtor there must be a creditor, who are the creditors in this system? The creditors are those to whom we have given the right to create money out of nothing, and in turn to give it to people as a loan on a compounded basis. So, individuals (including you), businesses and governments are being more and more indebted to the creditors i.e. the banking system. And, hence, the creditors control the resources of the nations and wield power. Very easy, I don’t think you need a Ph.D. to understand this.
The European debt problem We know about the European debt problem. What happened? Italy’s new appointed (not elected) Prime Minister, Mario Monti, was a member of Goldman Sachs Board of International Advisers. Greece’s new appointed Prime Minister, Lucas Papademos, was Governor of the Bank of Greece from 2002-2010. He was Vice President of the European Central Bank.
Those are in charge of the unbalanced economic system, are being appointed and are given political authority, power and control, without us even realizing or taking notice of such events, though the events are unfolding in front of our very eyes. We grumble that our politicians are corrupt. And, the politicians i.e. the authorities are change, but is it going to be a change for good? I don’t think so. Because the same authorities now control the economy (unbalanced) and the politics, the policies adopted by them would not be people friendly. The only way to sustain the unbalanced economic system is by increasing taxation on us. The effect of an unbalanced economic system is slavery - not manual slavery, but economic slavery. The Fiscal Union is not the solution To stop the European problem German Chancellor, Angela Merkel, is calling for Fiscal Union for the Euro zone. The Euro is a Monetary Union. That means the Governments as a united body do the budgeting; that is what is meant by fiscal union. So, when you have a fiscal union, like that of a monetary union, basically you become One Country - One Nation.
This is the path to the One World Government. Seems good, isn’t it? But is frightening is that this would result in a pole shift of the power from national politicians to those in control of the One World Government (and because they control the unbalanced economy as well). There is a vacuum in the political leadership around the globe - in Europe, in the Middle East, and indeed around the world. And, simultaneously, the One World Government is taking shape. The study of the monetary system along with global politics will give you a true insight into what is happening across the globe.
The Solution What Need to be Done? 1. Nationalize Banks This step is not a remedy, but rather an intermediate step - so to say a necessary evil. This is in accordance with the principle - Let a small loss take place, to prevent a big loss. This also ensures that the wealth remains with the Govt., rather than being managed by a handful of private bankers, who essentially give out a loan on interest on a compounded basis - this only destabilizes the system even further. 2. Debt Write-Offs This is not something which has no precedence. In fact, this has happened in history periodically, that whenever there has been an economic crisis so to say debt has been written-off. The minimum that is required to stabilize the system is debt write-offs of at least the interest portion. 3. Eliminate Interest The entire cause of economic destabilization is a result of an intrinsic flaw in the present economic system - that of interest-based economy. Today, it may seem impossible to even think of an interestfree economy, some may well ask – how can such an economy survive? I say, for thousands of years the economic model for human beings has essentially been an interest-free economic system, and society was no less complex then as it is now, and trade was as much a part of society then as it is now. Basically, the transactions back then was on real money - either precious metals (gold and silver), or commodities such as wheat, barley, dates, salt, etc. like for like and equal for equal; or it would involve barter or exchange of commodities – all of which involved real money systems in an interest-free economy. Do you know what is missing in the present economic system? It is – ‘a measure of value’. For anything and everything we have a measure, for example – kilogram is used as a measure of weight, metre is used as a measure of length or distance, etc. Ever since 1971, when the Bretton Woods accord collapsed, we do not have a measure of value. ‘Gold and Silver’ – is to be used as ‘a measure of value’. This is the primary role of gold and silver, over and above its secondary, yet important, role - to be used as ‘a medium of exchange’. 4. Redistribution of Wealth Wealth accumulates in a few hands in an interest-based economy, as seen to have happened in this age, what is thus required is a redistribution of this wealth, at least a part of it, to be given back to society. Sure this does not make an economic sense, but surely it does make a humanitarian sense. 5. Education Education on this issue helps in easing the crisis. Education as regards science of economics, skills required to implement such changes, and of ethics goes a long way.
The Solution being attempted by Economists is Faulty The solution being suggested is ‘Eurobonds’. What is Eurobonds? Eurobonds is more debt. The problem is debt. So, more debt, in whatever form - be it Eurobonds or anything else will not solve the problem. It would compound the problem. A Micro- and MacroEconomic analysis helps us to understand the issue. Let us assume that all of us are a part of a certain economy, and I print 1 million Euros and give it to one of you, the person who gets it immediately becomes a millionaire. But, if I create millions and give to each one of you, then none of you would become rich, it would only lead to inflation.
Similarly, if you have a debt-problem, you cannot create Eurobonds (more debt), to solve the problem as a rectification strategy, it would only worsen the already unbalanced system. It would lead to hyper-inflation. The prices (including that of essential commodities) would just sky-rocket. This is so far as the solution being attempted by the European Economists is concerned, to relieve the system from the ailing dollar. The concept being promoted by the American Economists is ‘Quantitative Easing No. 3’ -‘QE3’. Do you know, what is QE3? It sounds very sophisticated, isn’t it? Quantitative Easing, sounds like Quantum Physics, right? It is just printing more money. So, all this would create global hyper-inflation. What is worrying is this - the price of staple food - rice, wheat, etc. is expected to sky-rocket this year. So, countries which import food will be heavily affected. And, in turn, it would lead to a serious recession. This is because the Economists know that the system in unsustainable, so solution of printing more and more money at best could be a temporary delay in the inevitable - leading to serious unemployment and eventually to a global economic depression - resulting in wars (it is important to take a lesson from history). This is not to scare you, but to make you understand the right solution as indicated. Insight on this issue from Current Affairs The Dollar, Euro, Yen, and all international currencies are getting weaker by the day - this is not hypothesis but an observable fact. In such a scenario the real resources assume prime importance. So, it results in wars - for the control of real resources. You may not have the clear picture, but the Economists are aware of such facts. Do you know Alan Greenspan? He is an American Economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. And, soon after he retired, he wrote a book – ‘The Age of Turbulence’, indicating what he foresaw in the immediate future. What did he say about the Iraq war? In the media, we hear about terrorism and weapons of mass destruction as the causes for the Iraq war, don’t we? But, Alan Greenspan in his book – ‘The Age of Turbulence’ notes that ‘the Iraq war is for oil’. It’s an open secret, and we have stated this fact. In fact, any war fought anywhere at any time is for the control of real resources.
This was the real insight into America’s War on Iraq. From the same perspective, if America can control the real resources - oil etc., then it can control China, Russia, or for that matter anyone. This is because they all need oil for their economic engine. And, now almost every day you read in the newspapers that America and Israel are threatening Iran, with war. Needless to say, again, it is for oil. You don’t understand this. But, China understands this. So, as recent as Nov. 2011, Zhang Zhaozhong, a Chinese Major General, said, “China will not hesitate to protect Iran even with a third World War.” It’s puzzling to some that the Chinese Major General should make such a statement. However, we have explained it, that it is a reaction to America-Israel threats for the control of oil i.e. real resources. Effect on Gold in the Age of Turbulence 1. There is almost a Negative One-to-One Correlation between the Dollar Index and Gold. That means if the dollar were to go up, gold price would come down. And, more importantly, since we know that gold prices are going up, it essentially means that the dollar is collapsing – and it is collapsing exponentially, as gold price rise is exponential. This is not just a problem with the Dollar, in fact, the Euro, Yen, and all international currencies are in a similar problem - ‘liquidity trap’.
2. Gold is a proven hedge against inflation. When there is inflation, the price of gold also goes up. This year is expected to be a year of hyperinflation. And so, this year the gold price is expected to rise very high. So, diversifying some of your savings into gold and silver protects you from inflation. You can protect your savings by investing in gold, silver, agri-land & complementary currencies. Gold, Silver, and agri-land will become very precious very soon. It is not advisable to invest in houses as the price of houses is expected to fall; all financial markets is expected to follow a downward spiral. Except, commodity market, it is expected to rise; and also land.
3. Central Banks are diversifying reserves. The Central Banks are aware of the problem of fiat money, so they are diversifying into and stock-piling gold as a reserve asset; even, the Federal Reserve – it is the largest holder of gold in the world, why is it? You don’t know, but the Federal Reserve knows that gold is real money - paper is not. Though the Federal Reserve prints dollar, it knows that paper dollar has no real value as it is not backed with gold since 1971 when the Bretton Woods agreement collapsed, paper dollar is no more redeemable with gold.
4. Gold is the asset of choice in chaotic, war and times of turbulence. Remember Alan Greenspan, this year is expected to be the commencement of ‘The Age of Turbulence’; and gold is going to be the asset of choice. Because, with gold, you can take away the gold to any place that is safer or where there is peace. 5. Gold is proven money and store of value. Gold is a proven store of value. The value of paper money goes down every day. There are documented evidences - the scope of this text does not allow us to quote extensively - that gold has retained its value in the last 1500 years. In fact, gold has retained its value ever since the dawn of human civilization i.e. since the time gold has been used as currency. For example, the price of a sheep, 1500 years back, was a standard gold coin (Dinar) - Dinar was in common use back then. And, today, the price of a sheep has remained one Dinar. This is astounding; there has been absolutely zero inflation when the price of commodities is considered in gold. In contrast, dollar has lost 90% of its value, since 1970, in a span of 41 years. 6. Return of gold as a global monetary standard. Robert Mundell, noted Economist and Nobel laureate, advocates strongly for a return to the gold standard. Not just Mundell, even Robert Zoellick - President of World Bank, and many noted Economists, Nobel laureates, and Thinkers favour a return to the gold standard. The success of the Dinar (gold coin) is not in minting the dinar, yes it is important; but the success is in pricing things in gold and silver. You can mint the Dinar but the moment you do not price things in gold and silver the system will not work. Conclusion The balanced economy in which real currency is used has no sustainable alternates. Both the extreme models attempted - Socialism and Capitalism, have failed. While Socialism gave way in the 1990’s; since 2007 onwards, with the onset of the subprime crisis, it was evident that the collapse of Capitalism is imminent. The balanced economic model, based on justice and truth, that we have proposed is the only solution that leads to global peace. This is what leads us to the age of bliss, abundance, prosperity, and freedom. We are at a very important junction point in history. It is for us to create a better world with a balanced economy. The choice is yours and so are the consequences!