Germany Could Exit the Euro "Overnight"

May 25, 2010 (LPAC)—Certainly a sign of the times are remarks like those coming from Ansgar Belke, a director of research at the Berlin-based German Institute for Economic Research, or DIW (Deutsches Institut fuer Wirtschaftsforschung), who is quoted in several investment newsletters and other German media these days, saying that "legally, a voluntary exit from the currency union is possible." Belke went into some detail, saying that "first of all, [Germany's currency] the d-mark would have to be reintroduced as an accounting unit, with a fixed exchange rate [to the euro] for about one year. During this period, the euro would still be the official currency, and in the meantime, new bank notes and coins would be being printed and pressed, which after that one year would come into circulation. All euro coins and notes would then be abolished and the euro would become an accounting unit. In the last stage, the fixed exchange rate between both currencies would be lifted, and the d-mark would be independent again."
For his part, Belke is not in favor of such measures, but does say it is possible, naturally.
However, according to Alfonso Tuor, an economist and deputy editor of the Swiss newspaper Corriere del Ticino, "Germany's exit from the euro must occur overnight." Tuor expressed this view to EIR saying that a transition period such as the one described by DIW researcher Belke does not work. "You cannot do it in one year; it must be done overnight, or in a weekend. The announcement must be done by surprise, like: 'You are given 30 days time to convert euros into DM and state if you want your debt to be denominated in DM or Euro... It must be done in the same way as Nixon did with gold".
The question of the physical changeover is irrelevant, according to Tuor. "Circulating money is very little. Monetary supply is mostly electronic. Technical banknote changeover "is a joke", you can do that afterward.
Tuor is convinced that Germany will exit from the Euro in 2-3 months, "or even in one month". "Now everything is coming down" in the financial system, he said. "I do not see who can intervene" to stop that. The stock market plunge is having other effects, in terms of devaluing bank collaterals. It is a chain reaction.
"I am convinced that Germany's participation to the bailout package is the price Germany has paid in order to get out of the euro", he said. In other words, soon Germany will say: we have given what we could give, it is over now. Now we go back to the DM.

Hugo Salinas-Price on the Nature of Money and Why Silver Should Be Legal Mexican Currency The Daily Bell

The Daily Bell is pleased to present an exclusive interview with Hugo Salinas-Price.
Introduction: Hugo Salinas Price, 75, is a successful, retired businessman who lives in Mexico. He has been a follower of the Austrian School of Economics since his youth. He has written three books in Spanish on how and why silver should be instituted as money in Mexico, in parallel with paper money, and numerous related articles in English and Spanish, posted at his website. His organization, the Mexican Civic Association Pro Silver, is actively lobbying the Mexican Congress to approve legislation, which will institute the pure silver "Libertad" ounce as money.
Daily Bell: What is your campaign in Mexico for sound financial policy?
Hugo Salinas-Price: I actually avoid discussing "sound financial policy" because one can argue about that till the cows come home. During the last fifteen years I have devoted my efforts to one single aim, and that is to achieve the monetization of a silver ounce coin currently minted by our Central Bank. This coin has no engraved monetary value and is called the "Libertad" coin; it can very easily be turned into a monetary coin, that is to say, a coin with a monetary value. As such, anyone owning such a coin could, if he or she wished, be able to pay any bill or debt denominated in Mexican pesos.
The monetary value of this coin would be slightly higher than its bullion value; the monetary value would not fluctuate according to the price of the silver ounce, but its monetary value would be raised if the bullion price of silver rose and closed in on the monetary value. The Central Bank would give the coin its monetary value, according to a formula in the proposed legislation.
If the price of silver fell to $1 dollars an ounce, the monetary value of the coin would remain where it was last pegged. (But it would still be better money than any paper or digital money in the world!)
On the other hand, if silver should go to $50 dollars an ounce, this coin would remain in circulation, useable as money, because then its monetary value would be about $57 dollars, and stay there until a further rise in the value of bullion silver.
The monetized silver ounce would be an excellent refuge for savings and would attract them irresistibly. You don't need a bank account, you don't even have to know how to sign your name, to invest your savings in this simple and inflation-proof way.
This coin would be better money than the US dollar and I expect many Americans would be wanting to own these "Libertad" ounces once monetization is realized.
Daily Bell: Has Mexico always been an unsound economy? Does Mexico now have a stable political structure?
Hugo Salinas-Price: The first question is like asking me "When did you stop beating your wife?"
Seriously, I think the Mexican economy is sounder than the US economy – which isn't saying too much. The Mexican economy is much less complex than the American economy. Think of the Mexican economy as a low, wide pyramid or mound. The American economy is by comparison a skyscraper. Personally, I don't like to occupy hotel rooms above the 12th story, thinking of the possibility of a fire. Think also of all the things that can go wrong for a skyscraper: a power outage, and you and your family are on the 30th floor. No elevators, no water, no refrigerator...you get the idea. The American economy is vulnerable in ways that the Mexican economy is not.
Mexicans have mostly fully-paid housing – the house may be very modest, such that most Americans would not care to live that way, but – it is paid for! Mortgages are not widespread; during recent years there was an increasing use of mortgages but on the whole, the Mexican population lives in housing that is paid for.
Mexican indebtedness is not as great as in the US; because until recently, 70% of the population did not have bank accounts – which given the behavior of banks in general, is a very good thing.
Mexicans, unlike Americans, are used to bearing with hard times. They can "cope" with situations which would drive an American to despair. We do not have a government that prints the World's money, so we haven't been as coddled by all levels of government, as the American people.
About political stability: I don't think American political stability is stronger than ours. We don't have Tea Parties and we don't think about taking up guns and holing up in our houses. Matter of fact, I think I see a Revolution brewing right in the old U.S. of A. But of course, we can always be the object of "Regime Change" by the Powers That Be in Washington, D.C. It's happened before, though most Mexicans are not aware of the fact that our Glorious Revolution of 1910, was a "Regime Change" Operation, carried out covertly by the U.S., because Mexico was getting too prosperous and inviting European Capital into the country, in preference to American Capital. So, it can happen again – any excuse will do. How about: "The Drug War in Mexico threatens American security"? That ought to do the trick.
Daily Bell: Give us some background on yourself. Where did you grow up? Where did you go to school and how did you get interested in business?
Hugo Salinas-Price: I grew up in Mexico City, the eldest of six kids. My father was a Mexican from Monterrey, Mexico. My mother was an American from Bryn Athyn, PA. Our family all spoke both English and Spanish from childhood. We still slip from one language to another when we talk. Most of my friends as a boy were sons of Americans living in Mexico. I went to High School in my mother's home town, which is a religious community, and enjoyed it greatly. I tried three different Universities looking for a career, and dropped out of all three. I was particularly unhappy at the famous Wharton School of Business and Finance, at the U. of Pa.
After three strikes I was out and decided, at the ripe old age of 20, that I better get to work and stop wasting money. So, I got a job from my father. Two years earlier, he had set up a small company manufacturing radios and I got the job of manager. So I started at the top and did what I could to stay there! Well, fortunately we had a bright man as engineer, he was a Mexican who had been interested in electronics since he was boy. One day, this man asked me "Mr. Salinas (no employee of mine has ever called me by my first name) why don't we manufacture TV sets?" I said, "Are you out of your mind? That's a terribly complicated technology, we can hardly make good radios..." But he insisted, "No, we can do it; it's not such a big problem." So I said, "Well, build a sample; if you can build a TV set, I'll give you a new car..."
So we got into TV business, and that saved that tiny company. If we had not done that, in not more than two years we would have gone broke. I didn't realize this until many years later. In 1954 I married; my wife and I fell in love at first sight, she was 15 and I was 18. The very best decision I ever made in my life!
Elektra couldn't sell our sets by selling to retailers – there were a dozen manufacturers offering retailers their goods, with well-known brands; our brand was unknown. So, we went to direct sales.
Once we were in direct sales, we added other household goods to the stuff our salesmen could offer the public. Our salesmen were heroic, they knocked on doors from morning till night, and got us our orders.
In 1959, I began to set up our stores, where salesmen could take their customers to view the merchandise. So that's how we got into retailing. We sold on terms – credit up to 24 months. How to sell on credit – and collect! – was something learned from my father, who learned it from his father. That's what we are still doing today, with about 1,000 stores.
Daily Bell: How big did Elektra get – and was it your biggest achievement in business?
Hugo Salinas-Price: Elektra has gotten rather large – stores in Mexico, Guatemala, Honduras, Salvador, Panama, Peru, Brazil and Argentina. (Argentina is the pits, let me tell you.) Elektra owns a bank, which has a very large deposit base among the same people who are its customers. Very solid bank, I am pleased to say. Our Systems department is vast – one of the largest in Latin America. I started up our Systems in 1968, on a ten-year plan to get the company wholly computerized. This finally happened in 1983. We are totally up-to-date in this technology.
Well, my biggest achievement in business happened in 1987, when I was 55. I didn't know it was that, at the time. What happened was that – I got myself out of the way. Elektra had 59 stores, no debt, was running just fine; my eldest son, who was 32, had been working at Elektra for the past seven years, and he knew everything there was to know about it and was much more active and energetic than I; so one fine day, I just up and resigned, to everyone's great surprise. Cancelled all Powers of Attorney, Bank signatures, the works. Son Richard took over that day and – that was the best business decision I ever made!
Daily Bell: Is it easy to build a business in Mexico? Why did you decide to retire from it?
Hugo Salinas-Price: Maybe it's hard, maybe it's easy. For those who have the knack, it may be easy. I don't have that knack. Let me tell you I see a family that sells tasty food out of a pick-up truck at around 11 a.m. weekdays; they set up business outside of the building where I have my office. That family pays zero taxes and is raking in money every day, customers galore. A lot of Mexico lives this way, under the taxman's radar, Praise God!
Now why did I decide to retire? I am not really a businessman. I got a job and worked at it "in my fashion" – never got a degree. I enjoyed my work very much, designing radios and TV sets and "Combos", and opening stores. Actually I am more of a thinker than a man of business. I have very few friends. Don't play golf. I have a large library, I like to collect books. I saw that Richard had much more push than I did, that he knew exactly what was going on in the business and more enthusiasm than I about running the business. So, I just handed over the reins. I have never missed not being No. 1. And I never will. It appears that very, very few men are willing to give up being No. 1.
Daily Bell: Does Mexico have a large middle class? If not, why not?
Hugo Salinas-Price: No, I guess I would have to say we do not have a large middle class. I am worried that our middle class may begin to contract in numbers, given the world situation of excessive debt everywhere.
Why is our middle class in danger of contracting? First of all, I have to express my opinion that the US middle class that prospered so much after WW II was to a large extent based on an expansion of credit which took place in the US after WW II and up to 2007. So, as that expansion appears to be over, you may see an unpleasant phenomenon take place – people who thought they were in the middle class, reduced to poverty. Present US policies are headed toward that outcome.
The problem for Mexico has been that, as in all countries everywhere, its governments have attempted to stay in power by spending money they don't have in order to get the votes. So this spending hits the value of our money and cancels the savings of those who would make up the middle class. This policy hits us harder than Americans, because our money is not welcome outside of our borders, unlike Americans whose Fed can print up money and allow Americans to export it to buy a lot of nice things all over the world.
Daily Bell: Is Mexico a bifurcated state between upper class and the poor? [If so] why is it?
Hugo Salinas-Price: I think that a "bifurcation" – in other words, a division into two – is one of the objectives of Communist agitation: to promote "class consciousness" through envy, mainly. This way of advancing in politics has been going on for centuries. Julius Caesar used it and it worked for him – and he was no Communist.
I can truly say that I do not feel we are in a "bifurcated state" – to promote this feeling is the policy of Chavez in Venezuela, as it has been the policy of Castro in Cuba. My opinion is that there are always and everywhere, rich and poor, but this only becomes a problem when a politician or a political party wants to create the problem for their own advancement. Perhaps we shall face that problem further on – as you well may, yourselves.
Daily Bell: How bad is the drug war in Mexico? Do you think drugs should be made legal?
Hugo Salinas-Price: The drug war is mainly between those who are in the drug dealing business and are fighting over territory. But this war also breeds criminals who take up other ways of getting money, by assaulting peaceable citizens. A US President once told a Mexican President: "Mexico is the spring-board for drugs into the US." To which our President at once replied: "If we are the spring-board, you are the swimming pool."
Legalization of drugs would greatly diminish the problem of outlaw drug lords in Mexico – but I mean, legalization in the US. We have a drug war, because drugs are illegal in the US and thus fetch a very high price. Legalize the business in the US and the price of drugs will come down to the price of corn. Mexicans will go back to raising vegetables. Remember, it was Prohibition that made Al Capone rich.
Daily Bell: Is the drug war Mexico's fault, America's fault or both? Is Mexico a failed state?
Hugo Salinas-Price: We had marihuana in Mexico when I was a boy. Only a few people indulged in it. Nobody cared if they did. Cocaine was in use in the US in the 30's – Cole Porter wrote it into one of his songs: "I Get a Kick Out of You".
Personally, I blame the artificiality of life in our times – caused by funny money, which distorts all aspects of human life – for the hunger that people feel for drugs, to forget their insecurity.
Mexico a failed state? Not yet, by any means! The US may be a failed state long before Mexico falls into such a condition. If we can monetize a silver coin – and believe me, it is quite possible we shall be able to do this – can a State which has silver money be called a "failed State"? Note well: our politicians are far, far less corrupt than yours! Ron Paul, a noble exception among US politicians.
Daily Bell: Would a more stable currency help Mexico?
Hugo Salinas-Price: Undoubtedly. But all currencies in the world are essentially unstable since they are all fiat currencies. There can be true stability only under a Gold Standard.
Daily Bell: What is your plan for the silver Mexican dollar? What is it called?
Hugo Salinas-Price: My plan is to have the Mexican silver ounce monetized, i.e., turned into ready money. It is called the "Libertad". This coin would come into circulation in parallel with paper and digital bank money.
People would then have the option of obtaining this coin for their savings – on which no interest would be paid; unlike deposits in banks on which the banks pay interest, people would save these coins even though they pay no interest. This is as it should be: there is no reason for people to expect interest on their savings, if what they are saving is worth saving.
Policy all over the world today, is to promote consumption. This is total nonsense! Savings must come before, long before consuming.
Families who have savings are happy, satisfied people. They are secure in the knowledge that they have solid savings for emergencies and for their retirement. This makes for a happy nation. And that should be the object of politics.
Daily Bell: Will your plan come to fruition in the near future? Does it have much support?
Hugo Salinas-Price: I think there is a good chance it will come to fruition in the near future. We were almost there, late last year. The terrible condition of the world, in monetary terms, is a plus for the silver coin. I have a book out just recently, where I mention all the warnings I made before the present chaos, announcing the coming disaster. The Mexican Congress made a poll of public opinion, last year, and found that 81% of the people want silver money.
We have wide support in the Congress, both Houses. Just yesterday I had a very heartening meeting with one of the leaders, he is all for the measure. He is President of the Mexican College of Economists and influential. I have met with energetic women in the Congress who are all for silver. (Silver is a tradition in Mexico, not yet forgotten.) Yes, there is lots of support. The main opponents are those arrogant individuals who have Post Graduate degrees in Universities such as Stanford, Princeton, Yale, Harvard, etc. who think that what they learned in the US is Gospel Truth. Their minds are closed. Not so the majority of our Congressmen and women, who still enjoy common sense.
Daily Bell: Why did you decide to devote your life to this cause?
Hugo Salinas-Price: When I was a boy, I had an excellent man as teacher. He was an Englishman born in the Victorian era. He made us memorize poetry every week. Do you remember this:

"Tell me not in mournful numbers Life is but an empty dream. For the soul is dead that slumbers And things are not what they seem.

"Life is real, life is earnest And the grave is not its goal. Dust thou art, to dust returnest Was not spoken of the Soul" ...

"Let us then be up and doing, With a heart for any Fate. Still achieving, still pursuing, Learn to labor and to wait."

Daily Bell: A Psalm of Life by the great poet Henry Wadsworth Longfellow. You are obviously a literary person, as your many articles illustrate. Are you a critic of Mexico as it is?
Hugo Salinas-Price: No, I don't think I am a critic of Mexico as it is. Why write about our defects when we are all conscious of them? What I attempt to do is to inspire our people to rise to what they can and should do, and specifically, to inspire them to the greatest possible thing they can do: monetize a silver coin.
Daily Bell: What does Mexico have to do to become a successful State in your opinion? Is America the problem?
Hugo Salinas-Price: I wouldn't say that Mexico is an "Unsuccessful State" at all. It has problems which are common to the whole world and which mainly arise from the world's having abandoned real money by stages, beginning in 1909, or 1873 if you want to go back that far, when the US government decreed that the Treasury would no longer continue to accept all the silver offered to it and return it minted into dollars.
I must admit that the US has forfeited its leadership in the world, over which it had such mighty power after WW II, by unwise behavior in the sphere of banking and money. You have an oligarchy in power, actually running the US Government behind the scenes, and they want to retain their power at all costs, even sacrificing the American People to their ends. Together with their brothers in the UK, they are the prime obstacle to a reform and renewal of Finance and Money, to put the world on a path to sustainable prosperity. I believe they have put a rope around their own necks due to their obstination and avarice. The rope is closing in on them – note the rising gold price.
A strong State is a generous State. As the US has become weaker and troubled, it has become easier for people to take out their frustrations on minorities. Thus the illegal immigrants are in for it. The politicians approve of this – it distracts people from thinking about the true causes of their troubles. Not that I blame Arizona for the legislation it is putting into place regarding illegal immigrants. This measure has provoked wrath in Mexico, but the fact is, Arizona is clearly within its rights.
Daily Bell: Is America becoming a failed State?
Hugo Salinas-Price: I don't think so, not yet. But popular discontent may cause a lot of grief in the US. Americans are not used to hardship.
Daily Bell: Are you an Austrian free-market economist?
Hugo Salinas-Price: I am an economist without a degree. If I had a Degree in Economics, I would probably not be an economist. Yes, I consider myself an Austrian economist – but a Neo-Austrian economist. You see, Professor Antal E. Fekete of Budapest, has improved some points of the Austrian theory as left to us by the eminent Ludwig von Mises and Murray Rothbard. He is the founder of a Neo-Austrian School of Economics. Those who have accorded Mises and Rothbard iconic status, don't think there can be any improvement upon their theories. I disagree and I think that Mises, a fine gentleman of my acquaintance when I was young, was great enough to accept well-founded observations which improved upon his basic ideas, without discrediting their underlying value.
Daily Bell: Are free-market economics having an impact in Mexico?
Hugo Salinas-Price: Yes, but the impact has not been favorable. Because "free market economics" was thought up when gold was the only money that existed. Economists of that time could not imagine a world without true money such as we have today!
It turned out that a free-market without the Gold Standard caused the de-industrialization of the US, Britain and Europe – and Mexico, too.
Deindustrialization causes unemployment, of course. Since the deindustrialization occurred while we were trying out "Free Market Economics", the deindustrialization has been blamed on "Free Market Economics", when the real cause was going off the Gold Standard. Very, very few anywhere, see the relationship. I have written briefly about this, in my article, "Gold the Protector and Creator of Jobs."
You see, if we had the Gold Standard, Americans and Mexicans could simply not buy from countries that did not buy from the US and Mexico in return; that being the case, if the Gold Standard were reinstated jobs would sprout like mushrooms in a matter of months. Protectionism is only a Band-Aid.
Daily Bell: Where does Mexico go from here?
Hugo Salinas-Price: There is going to be terrible turmoil in the world. No one can know what is in store.
Daily Bell: Where do you go from here?
Hugo Salinas-Price: This is my last decade! From here, the grave.
Daily Bell: Are you optimistic about Mexico's economy?
Hugo Salinas-Price: Not too optimistic – unless we monetize the silver coin. I think it will be a seed from which a multitude of good things will grow, beginning with an awakening of a spirit of confidence and pride in our country.
Daily Bell: Are you optimistic about the West's economy?
Hugo Salinas-Price: Without the Gold Standard, we are at a dead end. A very dangerous place to be.
Daily Bell: Is America headed for a depression or hyperinflation? How about the EU?
Hugo Salinas-Price: I think the US is already in a Depression, but the Media are keeping the news from the people. If Bernanke's creation of massive amounts of money ever gains traction by the money filtering down to the people, then inflation will take hold, and Bernanke will not be able to stop it, try as he may. The Genie will be out of the bottle!
Europe is in for a bunch of trouble. I do have a suspicion that the EU was deliberately attacked by US Finance. Certainly, Europe dug its own grave with their version of funny money, although they kept up appearances pretty well until given a strong push by the rating agencies. Perhaps the European Monetary Union will fall apart and the euro may disappear as things unravel.
Daily Bell: Will the EU and the euro survive?
Hugo Salinas-Price: The euro is a fiat money construct and is destined to fail eventually. The EU was a good idea, but based upon sand. I remember that von Mises wrote that the Austrian Empire, which was a collection of nations with different languages, religions and customs, was held together by the gold coin of the Empire. When that went, the Empire was doomed. I suspect that unless the EU wakes up and initiates a move to a European Gold Standard, they too are doomed. The buying of gold in Europe is a signal that instead of being fought or ignored, it should form a part of planning for the future of Europe.
Daily Bell: What's the biggest problem in the world economically today?
Hugo Salinas-Price: Without a doubt, the enormous "structural problems" which the economists talk about – imbalances of trade, where some countries export lots of stuff and other countries buy quantities of that stuff but have nothing, or little, to sell to the exporting countries – this problem has caused China for instance, to accumulate enormous "reserves" of dollars and euros, while the US and the West in general have lost their industries. This is the main problem in the world today and it cannot be remedied without the Gold Standard.
Only through the Gold Standard can the world achieve peace and harmony in economic relationships. Only the Gold Standard can prevent a huge country like China, from devastating the industries of the "developed world".
Daily Bell: Is that the biggest problem in South America and Central America too?
Hugo Salinas-Price: I certainly do think it is the biggest problem today. However, I wouldn't go so far as to say it's the only problem. People have different sets of values, you know. Not everyone everywhere wants to live in a suburban home with two cars, grass in the front yard, two kids that are going to go to college, etc. etc. Strange as it may seem, some people in this world – and they are not a few – prefer to live simple lives, working only when they have to and perhaps as little as possible. "Work" is not such a great thing everywhere. Some people like to be what we call, lazy. They like to take a nap in a hammock after lunch.
So the idea of a world-wide middle class with a similar standard of living must be an illusion founded on misconceptions about people. There is great deal of harm done by "Improvers", who are always thinking of ways to improve upon what people actually want if they are let alone.
Give them sound money, and let each work out his Destiny, I say. A couple of years ago, a poll was taken to find out who are the happiest people in the world. Guess what? Mexico was Numero Uno!
Daily Bell: Any English books or articles you have written that you recommend?
Hugo Salinas-Price: I have not written any book in English – the readers I write for are Mexicans and I really have no business talking about the rest of the world, including the US. If I translate some of my articles into English, it is because I feel a few people may be interested in what is, after all, a unique project with no similarity to anything being proposed in the rest of the world.
You can find my articles in English at my website, www.plata.com.mx. Thank you so much, for taking an interest in my opinions!

Hugo Salinas-Price comes across as thoughtful and gracious soul – someone who truly has the good of his country in mind in many ways. His is certainly a life well-lived. He has built a national Mexican company from the bottom up, provided for his family and then spent his mature years engaged in a great struggle to introduce sound money into the economy of his native land. In fact, given the sensibleness of his endeavor (which grows closer to success in our opinion every year) you would think that his campaign to create a legal and circulating silver dollar in Mexico would already have borne fruit.
Given the shape of the Mexican economy and of paper money in general, Price's monetary solution makes sense. Silver is the money of the people, just as gold has traditionally been the money of bankers and the wealthy. Silver has traded in a ratio with gold for millennia, and thus bi-metallism has been the monetary standard of choice for many cultures and countries. Historically, this is provable and seems reasonable to us here at the Bell, but such is the decrepitude of modern understanding of money that the Internet is assaulted a thousand times a day with elaborate monetary plans featuring all kinds of money stuff and strategies.
Essentially, money over the millennia has proven to have four characteristics:

(1) durability (value),
(2) divisibility (malleability),
(3) transportability, and
(4) noncounterfeitability (serviceability)

As free-market economist Murray Rothbard has famously pointed out, money evolved from a competition featuring different kinds of money stuff. Gold and silver (and to a lesser extent copper), precious metals often found together, were not appointed by a committee or king. The market itself determined the choice of money historically – and in fact money has manifested itself in other forms as well – beads, salt, sugar even large, carved rocks. But ultimately and over and over, the market itself has chosen gold and silver as the money of choice.
We have often observed in these modest pages that a gold (or silver) backed currency would prove most attractive if some country were to step forward and issue it. In fact, were Iceland or Greece or some other nation currently struggling with the ruinous ramifications of mercantilist fiat money to simply back the national currency with gold, many difficulties would be reduced or eliminated. (Of course, a country would need to find the gold to begin with, but that is a separate question.)
In the best of all worlds, of course, a country and a ruling class will not mandate the composition of money nor control its circulation. The market itself would decide on the composition of money, the kinds of banking that was demanded and even the level of fractionality with which money would circulate, if any. In fact, money really is a pretty simple issue once the market itself is re-involved. In a laissez-faire money economy, interest rates would fluctuate regionally, no doubt, the supply of money would vary from region to region and even inflation or deflation rates would be variable.
What we have today, of course, is much different. The powers-that-be have taken the various paraphernalia of money – its banks, bills and issuance – and gradually hollowed them out, offering instead an imitation that provides a historical representation but none of the control or value. Even government mints, which used to stamp gold and silver, today work overtime stamping what in the past would have been considered slugs – any kind of non-precious metals.
From our point of view it is only a matter of time until some nation, some group or even some region re-introduces currency backed by precious metals – or even, as Price hopes, beings to circulate the metal itself as a national money. If Price has his way, Mexico will be the first major modern country to do this. We wish him well in this important quest. When Mexico does begin to circulate its Libertad, others countries will soon follow. The benefits will be clear and fairly immediate.

http://www.thedailybell.com

Pulling the pension plug

Vox Day

The Founding Fathers understood the inherent risks of democracy. This is why they did not establish a proper democracy in America, but rather a strictly limited form of representative democracy in a republican structure. They did this in fear of the tyranny of the majority and to place a limit upon the momentary passions of the general public.
However, it has become clear that limited representative democracy has evils of its own that are arguably more pernicious than the vagaries of unlimited democracy. As American history demonstrates, representative democracy rapidly devolves into an system where various interest groups band together and form a kleptocracy wherein the government is little more than a mechanism for transferring wealth from the people to the interest groups.
It is unlikely, for example, that the American people would have voted for the TARP bailouts or the government-guaranteed profits that the Wall Street banks have enjoyed since 2008. However, their so-called representatives did because they were more beholden to the banks than to the voters whose interests they supposedly represent.
The same process has been at work at the state and local level for many years. Politicians have colluded with the government unions to consistently funnel vast sums of public money to bureaucrats, teachers, police and prison guards. Both the politicians and the government unions win; the unions ensure the politicians get elected and the politicians see that the unions get their oversized salaries and overstuffed pension plans. The loser, of course, is the taxpayer, whose interests are wholly unprotected and whose collective pockets have been picked for literal decades.
Neither the greed of the unions nor the ambition of the politicians has known any bounds, which is why Americans find themselves in this peculiar state where the 80 percent of the private labor force that is still employed full time finds itself with lower salaries and smaller pensions than the government employees they are forced to fund. Even worse, the private labor force is now going to be held liable for unfunded pension payments for those government employees whose contractual arrangements are so sweet that they are often making more money in retirement than when they were employed.
This goes well beyond ideology. Even the liberal media's standard bearer, the New York Times, was appalled to discover that New York is home to several ex-government employees who retired in their 30s whose pensions now pay them more than $100,000 a year. This is legal, contractual and totally unconscionable. No retired policeman can reasonably claim to have ever put his life on the line to the extent that a Marine Corps private making one-quarter as much while stationed in Afghanistan or Iraq does.
Unfortunately, the increasingly useless Supreme Court has decided that while premarital contracts and business contracts are essentially meaningless and subject to ex post facto modification, government pension contracts are inviolate. This means that there is absolutely no way that the various state and local governments facing pension-related financial issues can hope to make up their funding shortfalls through spending cuts, tax increases or economic growth.
There is only one way out, and that is bankruptcy. Naturally, this will be vehemently opposed by a wide range of powerful interest groups, ranging from the police and teachers unions to the state and municipal bondholders. But the sooner bankruptcy is filed, the sooner the situation can be resolved and the sooner the public leeches can be removed from the taxpayers' backs.
Unions may have served a purpose long ago, but it is abundantly clear that government unions are a clear and lethal danger to the public purse. Following the series of state and local bankruptcies, government unions must be banned to prevent a repetition of the same financial insanity.
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Vox Day is a Christian libertarian opinion columnist and author of "The Return of the Great Depression." He is a member of the SFWA, Mensa and IGDA, and has been down with Madden since 1992. Visit his blog, Vox Popoli, for daily commentary and spirited discussions open to all.

voxday.blogspot.com

The Markets vs. Bernanke

Michael Pento

Who should investors listen to; the markets or the Fed? One says we are in for a double dip recession, the other just raised GDP forecasts.

The head of our central bank Benjamin S. Bernanke has a perfect track record for predicting economic outcomes. Unfortunately, his track record is only perfect due to its 100% inaccuracy. The Fed Chairman once assured investors that the subprime housing crisis was contained and would not bring down real estate prices or affect the overall economy.

Then, after being proven completely wrong by the near collapse of the entire global economy, Mr. Bernanke moved to an emergency Federal Funds target rate of 0-25 bps and has held it there for 17 months. And even though the economy has posted three straight quarters of growth, has shown no inkling to provide American savers with a decent return on their money deposited in banks.

Now we find the Federal Reserve once again proving it has an unlimited aptitude for ineptness by actually raising their G.D.P. forecast from a growth range of 2.8%-3.5% to 3.2-3.7%. That’s correct; Federal Reserve officials raised their U.S. growth estimates for 2010 and lowered forecasts for unemployment and inflation, according to minutes of the Federal Open Market Committee meeting on April 27-28. They left their 2011 forecast unchanged at 3.4 percent to 4.5 percent. Fed officials’ forecast for the average unemployment rate in the last quarter of 2010 fell to 9.1 percent to 9.5 percent versus 9.5 percent to 9.7 percent estimate made in January.

However, contrary to the Fed’s predicted trend of improvement in employment numbers and economic data, on Thursday we saw first time claims for unemployment jump by 21,000 to 471,000 in the week ended May 15th. The four-week moving average also climbed to 453,500 last week from 450,500. Additionally, the Index of Leading Economic Indicators during the month of April saw a .1 percent decrease. That dip in the Conference Board’s outlook for the next three to six months followed a revised 1.3 percent gain in March and was the first decline for the index in a year.

Meanwhile, sovereign debt contagion threatens to dismantle the Euro currency as Eurozone borrowing costs may become intractable if interest rates continue to rise. China is busy trying to pop their property bubble at the same time the Shanghai Composite Index is down 21% in 2010. Not to be outdone, Australia has collapsed their resource sector by imposing a 40% tax on the earnings of mining companies.

The threat of a metastasizing government debt default crisis similar to the credit crisis of 2008 has sent crude oil prices tumbling from over $85 a barrel to $68 in a matter of weeks. Dr. Copper has plummeted from $3.60 a pound in April to $2.93 as of this writing. But none of that matters to the Fed or gives them pause to reflect on their ebullient outlook.

It doesn’t take superhuman predictive powers to have the ability to look at markets. What is it that Mr. Bernanke and company look at other than the rear view mirror when making prognostications about growth, unemployment and inflation? We have given the most incredibly powers to the Federal Reserve; namely, to dictate a target rate for the cost of money. But we have allowed to be appointed at the Fed a group of individuals who not only cannot accurately assess a given series of data but also have chosen to completely ignore markets.

The CRB Index is trading at its lowest level since October of 2009 and is telling investors that the global economy is in the process of slowing. But the Fed is stacked with academics that have never had to earn a living by predicting economic and market directions. Their failure to listen to the message of markets is the key reason they have such a miserable record of making accurate projections. For the betterment of the nation, the next appointment to serve at the Fed should be someone from the trading pit and not from Princeton.

Copyright © 2010 Michael Pento

Bio: With more than 16 years of industry experience, Michael Pento acts as senior market strategist for Delta Global Advisors and is a contributing writer for GreenFaucet.com. He is a well-established specialist in the Austrian School of economic theory and a regular guest on CNBC and other national media outlets. Mr. Pento has worked on the floor of the N.Y.S.E. as well as serving as vice president of investments for GunnAllen Financial immediately prior to joining Delta Global.

Michael Pento | Senior Market Strategist, Delta Global Advisors, Inc. Phone: 800-485-1220 | Email

www.deltaga.com

Insider Trading Is Perfectly Legal – But Only For Members Of The U.S. Congress The Economic Collapse

Did you know that insider trading is perfectly legal in the United States? Well, not for 99.9% of the population. It is actually only a very small percentage of the population that can legally indulge in insider trading - the members of the United States Congress. In fact, a law that would ban insider trading by members of Congress has been stalled for years on Capitol Hill. So why wouldn't lawmakers in Washington D.C. want to apply the same rules to themselves that apply to the rest of us? After all, how are we supposed to respect the integrity of those "serving" in Congress when they are playing by an entirely different set of rules? The American people aren't stupid. They can see what is going on. The truth is that there is a reason why approval ratings for Congress are at an all-time low.

The sad thing is that this issue has gotten very little attention in the mainstream media. Nobody seems really that upset about it. But it is a travesty that our lawmakers can legally make trades in the open market based on inside information that they have gained by being in positions of authority. As the Wall Street Journal recently explained, they can generally make all the money they want off of insider information without any fear of prosecution because "insider-trading laws generally do not apply to lawmakers, leaving them free to trade on nonpublic information."

But members of the U.S. Congress are generally in a greater position to influence the fortunes of individual companies than almost anyone else. For example, certain members of the U.S. Congress may know that certain legislation is going to be introduced that would have a dramatic impact on the economic fortunes of a particular industry or corporation. What would stop those members of Congress from making very profitable trades in the marketplace based on that information?

Nothing. Nothing at all.

So, is there any evidence that members of Congress have been involved in this sort of activity?

Well, there is at least one study that seems to indicate that members of the U.S. Congress have been much more successful in the stock market than members of the general public....

A 2004 study of the results of stock trading by United States Senators during the 1990s found that that senators on average beat the market by 12% a year. In sharp contrast, U.S. households on average underperformed the market by 1.4% a year and even corporate insiders on average beat the market by only about 6% a year during that period. A reasonable inference is that some Senators had access to - and were using - material nonpublic information about the companies in whose stock they trade.

Of course Congress could stop all of this by simply passing a law that bans insider trading by our lawmakers.

But they refuse to do it.

Instead, it is likely that our "leaders" will continue to make millions of dollars by betting against the U.S. economy and very few people will even raise an objection.

In the upcoming Wall Street sequel, Gordon Gekko makes a statement that seems very appropriate for the world in which we now live....

"Someone reminded me I once said 'Greed is good' - now it seems it's legal"

theeconomiccollapseblog.com

The Global Economic Crisis, The Great Depression of the XXI Century.

The Global Economic Crisis, The Great Depression of the XXI Century. Preface by Michel Chossudovsky and Andrew Gavin Marshall

The following text is the Preface of The Global Economic Crisis. The Great Depression of the XXI Century, Michel Chossudovsky and Andrew Gavin Marshall (Editors), Montreal, Global Research, 2010, which is to be launched in late May.

Each of the authors in this timely collection digs beneath the gilded surface to reveal a complex web of deceit and media distortion which serves to conceal the workings of the global economic system and its devastating impacts on people's lives.

The complex causes as well as the devastating consequences of the economic crisis are carefully scrutinized with contributions from Ellen Brown, Tom Burghardt, Michel Chossudovsky, Richard C. Cook, Shamus Cooke, John Bellamy Foster, Michael Hudson, Tanya Cariina Hsu, Fred Magdoff, Andrew Gavin Marshall, James Petras, Peter Phillips, Peter Dale Scott, Bill Van Auken, Claudia von Werlhof and Mike Whitney.

Despite the diversity of viewpoints and perspectives presented within this volume, all of the contributors ultimately come to the same conclusion: humanity is at the crossroads of the most serious economic and social crisis in modern history. For details on the book click here. The book can be ordered directly from Global Research

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The Global Economic Crisis. The Great Depression of the XXI Century Michel Chossudovsky and Andrew Gavin Marshall (Editors)

Montreal, Global Research Publishers. Centre for Research on Globalization (CRG), 2010.

ISBN 978-0-9737147-3-9 (416 pages) PREFACE In all major regions of the world, the economic recession is deep-seated, resulting in mass unemployment, the collapse of state social programs and the impoverishment of millions of people. The economic crisis is accompanied by a worldwide process of militarization, a "war without borders" led by the United States of America and its NATO allies. The conduct of the Pentagon’s "long war" is intimately related to the restructuring of the global economy.

We are not dealing with a narrowly defined economic crisis or recession. The global financial architecture sustains strategic and national security objectives. In turn, the U.S.-NATO military agenda serves to endorse a powerful business elite which relentlessly overshadows and undermines the functions of civilian government.

This book takes the reader through the corridors of the Federal Reserve and the Council on Foreign Relations, behind closed doors at the Bank for International Settlements, into the plush corporate boardrooms on Wall Street where far-reaching financial transactions are routinely undertaken from computer terminals linked up to major stock markets, at the touch of a mouse button.

Each of the authors in this collection digs beneath the gilded surface to reveal a complex web of deceit and media distortion which serves to conceal the workings of the global economic system and its devastating impacts on people’s lives. Our analysis focuses on the role of powerful economic and political actors in an environment wrought by corruption, financial manipulation and fraud.

Despite the diversity of viewpoints and perspectives presented within this volume, all of the contributors ultimately come to the same conclusion: humanity is at the crossroads of the most serious economic and social crisis in modern history.

The meltdown of financial markets in 2008-2009 was the result of institutionalized fraud and financial manipulation. The "bank bailouts" were implemented on the instructions of Wall Street, leading to the largest transfer of money wealth in recorded history, while simultaneously creating an insurmountable public debt.

With the worldwide deterioration of living standards and plummeting consumer spending, the entire structure of international commodity trade is potentially in jeopardy. The payments system of money transactions is in disarray. Following the collapse of employment, the payment of wages is disrupted, which in turn triggers a downfall in expenditures on necessary consumer goods and services. This dramatic plunge in purchasing power backfires on the productive system, resulting in a string of layoffs, plant closures and bankruptcies. Exacerbated by the freeze on credit, the decline in consumer demand contributes to the demobilization of human and material resources.

This process of economic decline is cumulative. All categories of the labor force are affected. Payments of wages are no longer implemented, credit is disrupted and capital investments are at a standstill. Meanwhile, in Western countries, the "social safety net" inherited from the welfare state, which protects the unemployed during an economic downturn, is also in jeopardy.

The Myth of Economic Recovery

The existence of a "Great Depression" on the scale of the 1930s, while often acknowledged, is overshadowed by an unbending consensus: "The economy is on the road to recovery".

While there is talk of an economic renewal, Wall Street commentators have persistently and intentionally overlooked the fact that the financial meltdown is not simply composed of one bubble – the housing real estate bubble – which has already burst. In fact, the crisis has many bubbles, all of which dwarf the housing bubble burst of 2008.

Although there is no fundamental disagreement among mainstream analysts on the occurrence of an economic recovery, there is heated debate as to when it will occur, whether in the next quarter, or in the third quarter of next year, etc. Already in early 2010, the "recovery" of the U.S. economy had been predicted and confirmed through a carefully worded barrage of media disinformation. Meanwhile, the social plight of increased unemployment in America has been scrupulously camouflaged. Economists view bankruptcy as a microeconomic phenomenon.

The media reports on bankruptcies, while revealing local-level realities affecting one or more factories, fail to provide an overall picture of what is happening at the national and international levels. When all these simultaneous plant closures in towns and cities across the land are added together, a very different picture emerges: entire sectors of a national economy are closing down.

Public opinion continues to be misled as to the causes and consequences of the economic crisis, not to mention the policy solutions. People are led to believe that the economy has a logic of its own which depends on the free interplay of market forces, and that powerful financial actors, who pull the strings in the corporate boardrooms, could not, under any circumstances, have willfully influenced the course of economic events.

The relentless and fraudulent appropriation of wealth is upheld as an integral part of "the American dream", as a means to spreading the benefits of economic growth. As conveyed by Michael Hudson, the myth becomes entrenched that "without wealth at the top, there would be nothing to trickle down." Such flawed logic of the business cycle overshadows an understanding of the structural and historical origins of the global economic crisis.

Financial Fraud

Media disinformation largely serves the interests of a handful of global banks and institutional speculators which use their command over financial and commodity markets to amass vast amounts of money wealth. The corridors of the state are controlled by the corporate establishment including the speculators. Meanwhile, the "bank bailouts", presented to the public as a requisite for economic recovery, have facilitated and legitimized a further process of appropriation of wealth.

Vast amounts of money wealth are acquired through market manipulation. Often referred to as "deregulation", the financial apparatus has developed sophisticated instruments of outright manipulation and deceit. With inside information and foreknowledge, major financial actors, using the instruments of speculative trade, have the ability to fiddle and rig market movements to their advantage, precipitate the collapse of a competitor and wreck havoc in the economies of developing countries. These tools of manipulation have become an integral part of the financial architecture; they are embedded in the system.

The Failure of Mainstream Economics

The economics profession, particularly in the universities, rarely addresses the actual "real world" functioning of markets. Theoretical constructs centered on mathematical models serve to represent an abstract, fictional world in which individuals are equal. There is no theoretical distinction between workers, consumers or corporations, all of which are referred to as "individual traders". No single individual has the power or ability to influence the market, nor can there be any conflict between workers and capitalists within this abstract world.

By failing to examine the interplay of powerful economic actors in the "real life" economy, the processes of market rigging, financial manipulation and fraud are overlooked. The concentration and centralization of economic decision-making, the role of the financial elites, the economic thinks tanks, the corporate boardrooms: none of these issues are examined in the universities’ economics programs. The theoretical construct is dysfunctional; it cannot be used to provide an understanding of the economic crisis.

Economic science is an ideological construct which serves to camouflage and justify the New World Order. A set of dogmatic postulates serves to uphold free market capitalism by denying the existence of social inequality and the profit-driven nature of the system is denied. The role of powerful economic actors and how these actors are able to influence the workings of financial and commodity markets is not a matter of concern for the discipline’s theoreticians. The powers of market manipulation which serve to appropriate vast amounts of money wealth are rarely addressed. And when they are acknowledged, they are considered to belong to the realm of sociology or political science.

This means that the policy and institutional framework behind this global economic system, which has been shaped in the course of the last thirty years, is rarely analyzed by mainstream economists. It follows that economics as a discipline, with some exceptions, has not provided the analysis required to comprehend the economic crisis. In fact, its main free market postulates deny the existence of a crisis. The focus of neoclassical economics is on equilibrium, disequilibrium and "market correction" or "adjustment" through the market mechanism, as a means to putting the economy back "onto the path of self-sustained growth".

Poverty and Social Inequality

The global political economy is a system that enriches the very few at the expense of the vast majority. The global economic crisis has contributed to widening social inequalities both within and between countries. Under global capitalism, mounting poverty is not the result of a scarcity or a lack of human and material resources. Quite the opposite holds true: the economic depression is marked by a process of disengagement of human resources and physical capital. People’s lives are destroyed. The economic crisis is deep-seated.

The structures of social inequality have, quite deliberately, been reinforced, leading not only to a generalized process of impoverishment but also to the demise of the middle and upper middle income groups.

Middle class consumerism, on which this unruly model of capitalist development is based, is also threatened. Bankruptcies have hit several of the most vibrant sectors of the consumer economy. The middle classes in the West have, for several decades, been subjected to the erosion of their material wealth. While the middle class exists in theory, it is a class built and sustained by household debt.

The wealthy rather than the middle class are rapidly becoming the consuming class, leading to the relentless growth of the luxury goods economy. Moreover, with the drying up of the middle class markets for manufactured goods, a central and decisive shift in the structure of economic growth has occurred. With the demise of the civilian economy, the development of America’s war economy, supported by a whopping near-trillion dollar defense budget, has reached new heights. As stock markets tumble and the recession unfolds, the advanced weapons industries, the military and national security contractors and the up-and-coming mercenary companies (among others) have experienced a thriving and booming growth of their various activities.

War and the Economic Crisis

War is inextricably linked to the impoverishment of people at home and around the world. Militarization and the economic crisis are intimately related. The provision of essential goods and services to meet basic human needs has been replaced by a profit-driven "killing machine" in support of America’s "Global War on Terror". The poor are made to fight the poor. Yet war enriches the upper class, which controls industry, the military, oil and banking. In a war economy, death is good for business, poverty is good for society, and power is good for politics. Western nations, particularly the United States, spend hundreds of billions of dollars a year to murder innocent people in far-away impoverished nations, while the people at home suffer the disparities of poverty, class, gender and racial divides.

An outright "economic war" resulting in unemployment, poverty and disease is carried out through the free market. People’s lives are in a freefall and their purchasing power is destroyed. In a very real sense, the last twenty years of global "free market" economy have resulted, through poverty and social destitution, in the lives of millions of people.

Rather than addressing an impending social catastrophe, Western governments, which serve the interests of the economic elites, have installed a "Big Brother" police state, with a mandate to confront and repress all forms of opposition and social dissent.

The economic and social crisis has by no means reached its climax and entire countries, including Greece and Iceland, are at risk. One need only look at the escalation of the Middle East Central Asian war and the U.S.-NATO threats to China, Russia and Iran to witness how war and the economy are intimately related.

Our Analysis in this Book

The contributors to this book reveal the intricacies of global banking and its insidious relationship to the military industrial complex and the oil conglomerates. The book presents an inter- disciplinary and multi-faceted approach, while also conveying an understanding of the historical and institutional dimensions. The complex relations of the economic crisis to war, empire and worldwide poverty are highlighted. This crisis has a truly global reach and repercussions that reverberate throughout all nations, across all societies.

In Part I, the overall causes of the global economic crisis as well as the failures of mainstream economics are laid out. Michel Chossudovsky focuses on the history of financial deregulation and speculation. Tanya Cariina Hsu analyzes the role of the American Empire and its relationship to the economic crisis. John Bellamy Foster and Fred Magdoff undertake a comprehensive review of the political economy of the crisis, explaining the central role of monetary policy. James Petras and Claudia von Werlhof provide a detailed review and critique of neoliberalism, focusing on the economic, political and social repercussions of the "free market" reforms. Shamus Cooke examines the central role of debt, both public and private.

Part II, which includes chapters by Michel Chossudovsky and Peter Phillips, analyzes the rising tide of poverty and social inequality resulting from the Great Depression.

With contributions by Michel Chossudovsky, Peter Dale Scott, Michael Hudson, Bill Van Auken, Tom Burghardt and Andrew Gavin Marshall, Part III examines the relationship between the economic crisis, National Security, the U.S.-NATO led war and world government. In this context, as conveyed by Peter Dale Scott, the economic crisis creates social conditions which favor the instatement of martial law.

The focus in Part IV is on the global monetary system, its evolution and its changing role. Andrew Gavin Marshall examines the history of central banking as well as various initiatives to create regional and global currency systems. Ellen Brown focuses on the creation of a global central bank and global currency through the Bank for International Settlements (BIS). Richard C. Cook examines the debt-based monetary system as a system of control and provides a framework for democratizing the monetary system.

Part V focuses on the working of the Shadow Banking System, which triggered the 2008 meltdown of financial markets. The chapters by Mike Whitney and Ellen Brown describe in detail how Wall Street’s Ponzi scheme was used to manipulate the market and transfer billions of dollars into the pockets of the banksters.

We are indebted to the authors for their carefully documented research, incisive analysis, and, foremost, for their unbending commitment to the truth: Tom Burghardt, Ellen Brown, Richard C. Cook, Shamus Cooke, John Bellamy Foster, Michael Hudson, Tanya Cariina Hsu, Fred Magdoff, James Petras, Peter Phillips, Peter Dale Scott, Mike Whitney, Bill Van Auken and Claudia von Werlhof, have provided, with utmost clarity, an understanding of the diverse and complex economic, social and political processes which are affecting the lives of millions of people around the world.

We owe a debt of gratitude to Maja Romano of Global Research Publishers, who relentlessly oversaw and coordinated the editing and production of this book, including the creative front page concept. We wish to thank Andréa Joseph for the careful typesetting of the manuscript and front page graphics. We also extend our thanks and appreciation to Isabelle Goulet, Julie Lévesque and Drew McKevitt for their support in the revision and copyediting of the manuscript. Michel Chossudovsky and Andrew Gavin Marshall, Montreal and Vancouver, May 2010