Blogging from the Bog

   All the things we talked about in this series of articles are historic and history can be a great teacher.  Two events happened over the weekend.  One was a reflection on Ireland’s independence and we celebrated the 92nd anniversary of the Easter Uprising, the other event is current and history in the making.  This second matter concerns the Bear, Stearns & Company bailout and the fact that the Federal Reserve, or the Central Bank for America, will interject $30 billion into the company, additionally candidate Clinton is asking the Fed to "make available" a further $30 billion to the public sector to help with the mortgage crisis.  Before we continue, have a quick look at this post by Purple Frog to see what a billion really is!  You’ll be amazed!

   There were patriotic speeches made from Dublin this weekend and one quoted the words of the men of the 1916 Uprising, that they wanted  "…a Sovereign and Independent Free State…" for Ireland.  Little did those courageous men know that within one life-time Ireland would choose to give up this sovereignty and independence voluntarily for a new master.  No control of currency, no control of borders, laws and leadership transferred off the island, and Ireland’s ability to take it’s place in the world usurped by strangers in Brussels who rule the European Union.  The petty squabbles about the right-to-life and neutrality issues pale in comparison to the economic ramifications of the Lisbon Treaty for once the absolute control of wealth is handed over to Brussels we will follow the Pied Piper of Profit like good little mice.  Within the Lisbon Treaty there is no provision that guarantees that the European Central Bank will remain independent of political control!  President Sarkozy of France has criticized this independence and wishes to change it’s mandate.

   Ireland has forfeited it’s right to control her own economic future.  Previously in this series we mentioned Central Banks, these are institutions that control the ebb and flow of available currencies either by sovereign governments or agencies contracted by these governments.  Ireland’s founding fathers freed us from being subjects of the Crown; but, now we have become subjects of the Coin.  The European Coin.  The European Central Bank.

   Technically the European Central Bank is not a member of the International Monetary Fund, it doesn’t have to be, all it’s member states are.  We saw, that in order to be a member of this elite banking club, all members must base their currency valuations on fiat currency, the taxabilty of it’s population, a.k.a. slavery to debt.  Ireland’s population, and the States’ ability to extract taxes from them, gave Ireland’s currency a value when we surrended our Punts for Euros.  In order to maintain these levels the ECB will insure that the rate of tax collected remains at these transition levels.  Although England is a member of the European Union it was smart enough not to give up it’s sovereignty as regards to it’s economic freedom.  The Bank of England is also a central bank; but, it is one that is owned and under control of the government.  The Federal Reserve System is a consortium of twelve banks, owned privately, and under contract to the US government to provide an economy by which the politicians can conduct foreign and domestic policy.

   President John F. Kennedy, who was a great student of history and an admirer of Thomas Jefferson and Benjamin Franklin, tried to give back to the American people the right to control their own destiny.  In June 1963 he signed Executive Order Number 11110 which would take back the power of the Federal Reserve System and restore true "freedom and democracy" to the government "of the people" after it was taken away 50 years prior.  He was killed within five months, draw your own conclusions.  That Executive Order is still awaiting Presidential implementation for the brave soul who, while occupying the Oval Office, will dare to confront the Money Machine. 

   The ECB is currently fighting the temptation to lower interest rates and thus expanding the M1 money supply.  It is under pressure from the US Central Bankers who are continually lowering theirs while they are printing all this new money for Bear Stearns and the mortgage bailout if Hillary has her way.  This is a battle within the Money Machine that the ECB will lose.  All these billions that the Fed is interjecting into the economy costs the tax slaves dearly, the combination of lower interest rates and more money in the system is hyperinflation which is expanding the money supply thus lowering values.  The world economy has only one way to go, down.

   In conclusion of this series we know what we have always known, that people are the true wealth of the world, and that there are those out there who are trying to steal this wealth.  In simple terms we can fight this Money Machine by staying out of debt, vote NO to the Lisbon Treaty, be informed…be aware…be alert…help one another…and question everything!

   The sovereignty of any nation lies in it’s ability to set and control it’s own borders, provide protection and security for it’s inhabitants, maintain a legal system for domestic disturbances, and provide a government that can transfer power from one political group to another if need be, and function with other nations relevant to trade, diplomacy, and even war.  Sovereign nations also need a monetary system that is recognized internally as well as externally to insure the smooth transfer of goods and services that it produces or wishes to procure.

   These governments can have complete control over their monetary system or they can assign the responsibilities to another organisation.  Throughout history a major factor in each country’s national identity has been in having it’s own currency and the ability to have that currency recognised outside of it’s borders.  Back in the day when money was money, that is the coin was not a symbol of wealth but the wealth itself in it’s weight in gold, recognition and acceptance was not a problem.  Today it is.  When foreign currencies drifted into the neighbouring King’s coffers they simply melted down the metals, along with any bracelets or rings recently acquired during the plunders of war, and created new coins with the emblems of the King or country on them.  Winning wars was profitable in those days, especially for countries with few natural resources.

   Look at the edge of a 50 cent Euro coin, do you see the ridges and lines?  The €1 and €2 coins have them too, plus stars, but are not as easily seen.  Today there is no real need for these markings they are simply habit, or tradition.  When money was money though those markings were very important.  The first coins had smooth edges, like the Euro copper coins, and it was easy for anyone who held one of these ancient coins to file a little dust off for themselves!  These ridges and identifying markers were placed on the gold and silver coins to maintain trust until real money was disbanded altogether.  During the early 1940’s, when America had entered the war, copper was in big demand.  One penny’s weight in copper became more valuable than the penny.  What happened then?  The government seized all the copper pennies and issued steel ones.  Less than ten years before that, during the Depression, the value of privately held gold, in the shape of jewelry, coins, and bullion far out weighed the value of all the deflated dollars floating about in the country.  So, what did they do?  They confiscated the gold and made it illegal to own any!  At that time gold reserves backed the American currency in such a way that for every dollar in circulation there was supposed to be one dollar of gold in the vaults, the dollar value was fixed, known as the Gold Standard, and gold was $35 an ounce.  In one fell swoop they collected all the known wealth in the possession of the individual and paid them off with nearly worthless paper.  Through hyperinflation then, just like now, there was an expanded money supply which devalued the circulating currency.  Why go to the expense of war when you can plunder your own?

   Colonialism, imperialism, and the obvious conquering of sovereign nations for booty or natural resources has gone out of fashion.  Wars are too expensive, the chances are too great, publicity too closely scrutinized, and the profits are too small for governments to openly continue this practice.  But, the money manipulators, who are not elected nor subjected to media criticisms, have a vested interest in government policy.  During all the wars, depressions and recessions of the previous century it became obvious that the traditional methods concerning wealth, currency distribution, and sovereignty were becoming absolete.  The money machine decided, outside of and above the realm of politics, to institute a new monetary standard.  Thirty years after the gold seizure and penny swap the stage was set for the final coup, the dollar broke it’s ties to gold.

   The International Monetary Fund is a consortium of national banks.  Some of these banks are regulated directly by the governments they serve, others are not, but they all have one thing in common.  Their currency cannot be backed up by gold.  To join the club a nation must have another source of wealth more precious than gold.  What is more precious than gold?  You!  You, your family and your friends.  This used to be called slavery; but, now it is given a name we can feel comfortable with, fiat currency.  Fiat currency is the new wealth of nations, it is described as a demand by the government for the people to pay taxes and that the demand is seen to be enforcible.

   In order to protect the value of the US dollar, and to keep it’s existence in demand, a deal was struck with the oil producing countries.  The dollar would be used as the currency for buying oil, not just by the United States but by everyone.  This is known now as the petrodollar.  If Japan buys oil from Kuwait it must do so in US dollars so that it creates a demand for the dollar to be held by Japan.  If Japan ever wants or needs a barrel of oil it must give Kuwait $140, and to do that Japan needs to keep some American currency in reserve, in it’s own vaults, this has created a false demand for the dollar.  All the oil importing countries have to keep some physical dollar currency at it’s disposal, if all this money came back to the States it’s economy would collapse.  What rounded off this deal with the oil producing nations is that after the purchase in dollars was made the revenues from the sale of this oil would be deposited/invested in the US.  The circle is complete right?  Well, not quite, there are a few loose ends.

   Since the demand for oil has risen there are new oil producing countries that were not originally locked into this arrangement, most notably Canada, Mexico, Venezuela, Russia, Iran, Iraq and Norway.  Norway invests heavily overseas with it’s petro-profits and is deemed no threat, Russia is spending it’s gains on improving domestic infrastructure, again no threat.  Canada and Mexico are the largest suppliers of oil to the US.  In order to protect these resources in the face of a diminishing dollar there are plans to conquer Canada and Mexico in the form of a treaty that will create the North American Union with the amero as the common currency.  Iran and Venezuela have been making noises about ceasing to use the dollar for it’s petrol sales and instead switch to the Euro.  Diplomatic sabre rattling kept them quiet for a time.  In 2000 Saddam Hussein made the leap from petrodollar to euro-petro and because of this he reaped a 17% bonus to his profits because of the exchange rates at the time.  This was not deemed satisfactory and his country was invaded, two months after the invasion Iraq was back on the petrodollar.  That was five years ago.  Iran has just begun to use Euro’s instead of US dollars and Venezuela has since put their transition policies on hold, for now…

Ahmadinejad of Iran and Chavez of Venezuela

   Economics is not a very exciting field of study, neither is it an exacting science.  It is the analysis of past events and trends over long periods of time to try and predict future, short term, events.  It’s a fool’s errand, and much like trying to drive a car by only looking in the rear-view mirror, you will want good insurance coverage in the process.  Really, the best that can be hoped for, with economics as with life, is that we can learn from our mistakes.

   I would much rather watch a magician than listen to an economist!  We know that all wars throughout history were fought for economic reasons, we know the golden rule is: He who has the gold makes the rules, and we all know that when our neighbour is out of work it is a recession; but, if we are out of work it is a depression.  Show me instead a rabbit that comes out of an empty hat!

   In the previous post, The Money Machine $2, we saw how the sleight-of-hand money manipulaters can make profits by shifting cash around fast enough to give everyone a loan of the same money.  The only thing better than that of course is to make money out of nothing!  This isn’t alchemy, the Midas touch, or theft, at least not under current usuary laws.  This is about making money where there was none before, at least none of theirs!

   I knew someone once who won a very large lawsuit and when the settlement was made the cheque was given to the offices of the legal team.  The client was never told the settlement had come into the possession of the law firm for six weeks, between the jigs and the reels it was another six weeks before the client received monies due, less of course the legal fees.  For 120 days the money sat in the law firms bank account receiving simple interest to the tune of $700 per day, money from nothing, at a loss to the client of $84,000.

   Take a look at your Eircom bill, mine has a Bill date of 27 February.  Included on this bill are phone call charges up to 27 Feb and rental from 28 Feb to 27 Apr.  The rental charges are prepaid for the next two months at a cost of about €40.  There are a minimum of one million phone bills with honest customers giving Eircom €20 million a month to play with, do you think that money is stacked up like phone books in a leaky old shed somewhere?  They are making a million a month on our money!  Sheer genius I tell ya!

   In a large city bank a computer programmer set up a simple and compound interest scenario that the bank ran on their computers to calculate the amounts due their depositors.  Even simple interest rates are not simple, that is they can often extend to fractions dozens of digits long after the decimal point.  Since the monetary system only includes cents and not tenths or hundredths of a cent the calculations were truncated at the fourth digit after the decimal point and rounded up.  If you had an account there and your interest was processed on your deposit the amount owed to you might look like this: €12.39514603.  The €12.3951 would be rounded up to €12.40 and you would have made that income on your deposit.  But the truncated part of the original solution had to be dealt with, and as it really didn’t exist at all, the programmer decided that the €0.00004603 should be put in an account with his name on it.  After hundreds of thousands of interest calculations for the banks customers were truncated and added into your man’s account he began to collect a tidy sum.  He generated money that never existed, poof from thin air!  Magic!

   These are only amatuerish attempts at performing money magic.  In the next post we will discuss the professionals. 

   In the first post of this series of articles, on The Money Machine, we explored the importance that trust has in the success of our monetary systems and we used a bank card as both a metaphor for the money supply and as a symbol of our own personal wealth.  Continuing with these themes is useful in reasoning out what happened during the recent local bank crisis.  There are several types of banks; but, the local one, as opposed to the Bear, Stearns & Co. failure, was a bank that had private depositors. 

   When we borrow money from a bank we consider ourselves in debt, likewise when we deposit money into a bank debt also occurs, only this time the bank is in debt to us.  We pay back our loans and they honour our cheques and when we insert our bank cards into the ugly teller machines money comes out, thus establishing trust.  Since we are rational beings we know that a piece of plastic or a book full of little slips of paper are not the real wealth but symbols of the wealth that we control.  But, since everyone else is playing this little game and we have developed a relationship of trust, coupled with years of experience that this system works, we are happy enough to go along.  Only deep down we know that banks are in the business of giving our money away in the hopes that they will make a profit, and experience tells us that for the most part they are competent at this.  We trust them.

   Banks make their profits by loaning out money, they know that there are people out there who want cash so bad that they will pay extra just to get their hands on it.  The only problem standing in the banks’ way is that they don’t have any money of their own, so they borrow it from us.  We loan the banks our cash, for say 3% interest, and they take it because they know people who will pay 4% to acquire it.  This is how the dollar dance begins.  Cash money, or M1, is a lot of things to a lot of people; but, one thing that it is not is stationary.  Like any long-haul trucker or taxi driver will tell you, they don’t make money standing still.  Neither does cash.  As fast as we bring our money in through the front door of a bank it is sent out again, on loan.  The more they have to loan the more profit they make.  Simple.

   A conservative bank may lend out 80% of the money their customers have deposited in personal accounts.  The balance being reserved for cash and cheque transactions, money transfers to other banks, and customer withdrawals.  With the onset of credit cards, electronic transfers, direct debits and the rolling over of long term retirement plans, banks began to realise that only 5% of their cash reserves were needed day-to-day for actual physical exchanges.  As much as 15% of the money in their control was sitting on the shelves collecting dust!  They correctly figured that by lending out this money they could increase their profits by 18.75% with little or no risk.  Since borrowing money on credit has become so easy in recent years banks found that even though every penny available was out on loan there were still people willing to borrow more if the bank could only get their hands on some.

   Not only do banks borrow from us they borrow from other larger banks at a discount rate which enables them to make a little more profit.  After this bank to bank borrowing, with each one taking their little cut, goes on for a while two things can happen, interest rates can rise to slow the pace and money becomes scarce, or the Central Banks can expand the money supply simply by printing new notes.  If the supply of money became scarce this would curtail the amount of loans and thus profits the bankers were hoping to make!

   Money is a commodity, it is governed by the laws of supply and demand, just like any of the other marketable goods.  In the rush for profits in a fast growing economy some banks may lend out not only the 5% reserve mentioned previously but money not even under their control.  How can they do this?  Have you ever had to wait "5 working days" for a cheque to "clear" from one bank to the other?  Now you get the idea.  If cash standing still makes no profit; but money on the move brings in revenue, then that suggests the faster you move the money around the greater the profit you can make.  When money gets scarce these lending institutions may raise the 5 working days for a cheque to clear to seven or ten or beyond, these banks have a cash flow problem and hopefully for the account holder it is only temporary.

   If any bank takes risks like these sometimes they are going to have short falls, losses, or write offs to contend with.  These could be minor hiccups or full scale blunders with long lasting effects.  If the depositors of the bank in trouble lose their confidence and trust in the bank’s ability to handle their finances they will hardly be likely to stand around happy with a fistfull of plastic cards.  At this point they don’t want a symbol of their wealth they want the wealth itself, no more playing games, "show me the money", then there is a "run on the bank" for the peoples money held captive by the financial institution.  If enough depositors withdraw their cash the bank will collapse, no retail bank is immune to this, and luckily another source of revenue was injected to stop the panic, this time.  More coming soon…

   Even if you’ve never been to the United States, held any US currency in your hand, or have never even seen a US dollar bill, you are affected daily by this instrument of "legal tender".  The modern world economies are linked, intertwined, and closely related.  A simple example of this might be explained by tourism.  Currently the USD is only worth about 65% of what it was 5 years ago, 1euro will buy you $1.50 in the US.  A great time to visit the States; but, not a year to expect a lot of American tourists to come here on holidays!  Our economy relies more heavily on them coming here than does their economy rely on us.  So, what are the implications and why does this happen?

   The history and evolution of money or currencies is both fascinating and complex.  The long and the short of it is this: Instead of exchanging a sack of grain for four chickens at an ancient market, and to simplify multiple exchanges of an infinite variety of goods, some genius decided to mint coins of precious metals of varying values to expediate commerce.  It was a brilliant idea that brought a quicker, less cumbersome, and far reaching method of supplying goods and eventually services to individuals, groups, and governments.  There was faith in the value and wealth of these coins as they were made of gold or silver and could be weighed.  If you took a €100 note back to ancient Egypt no one in their right mind would give you so much as a peanut for this piece of paper.  How did our currency get from precious to paper?  Trust.

   At another stage of the monetary system evolution paper certificates were issued instead of the bulky and heavy coins to further speed up the exchange of goods and services.  At any time the certificate could be brought to a gold or silver trader and you could swap the paper for the heavy stuff.  In a sense you can still do this today.  Bring ten $100 US bills to a dealer and he will give you one ounce of gold, no questions asked.  The only time a problem would arise is if everyone took their hundred dollar bills and tried to cash them in for gold.  If that happened the traders would run out of gold after only 10% of the paper money was turned in!  What then is the other 90% of the paper worth?  Trust works both ways, you trust that the paper has value and the governments trust that you all won’t try to exchange it at once!  Sounds a bit like a pyramid scheme doesn’t it? 

   Consider your bank card.  As a piece of colourful plastic it has little intrinsic value; but, it’s value to you is represented by the fact that it can access huge (hopefully!) quantities of cash.  You have confidence that with that little worthless card you can approach any bank machine and withdraw some of the money you have in reserve.  Your bank card is worth only what you have backed it up with in a reliable form of wealth and you trust you can access it.  If there is no money to back up your card, or if that account has been closed, your bank card’s only value is as a bookmark pageholder.  It may look exactly like Bill Gate’s bank card; but, you know damn well they are different.  Well dollars, euros, yens, pesos, and rubles are exactly the same as bank cards and as this post is running exceedingly long I will publish this topic in a series to further share my thoughts on the Money Machine.  Stay tuned! 

   The Stock Markets around the world are taking a hammering due to a lack of confidence in financial institutions.  ISEQ, the Irish stock exchange, was closed today for the holiday; but, the plummeting share prices in world markets have sent the traders back to their desks.  At 12:00pm, about the time the Dublin parade started, the ISEQ was down 500 points, just over 6% of it’s total value.

   Fear and greed are the motivating factors behind major movements on market prices and fear was instilled in investors after the Bear,  Stearns & Co. (NYSE: BSC) failure in the U.S. over the past few days.  Many who viewed the Northern Rock failure as an indicator are hinting that this second bank collapse is the forerunner of a domino effect.  The only confidence gained from President Bush’s speech over the weekend was that those who thought he was an economic eejit have full confidence that they were right.  Full of platitudes and empty of substance Bush’s speech, to the Economic Club of New York, and the prospect of bewildered leadership did nothing to drive these investment professionals back to the New York Stock Exchange to start buying again.

   Confusing the issue even further was the sudden cut in the discount rate announced on Sunday.  The private individuals and small investors who have had easy access to stock offerings, which has driven the average share prices unusually high in the past two decades, will be the worst hit as they are not as flexible as the shakers and movers of large portfolios.  Few are immune to the current financial panic and the largest group of victims will, of course, be the average Joe and Jane Soap’s who are depending on pension funds. 

   While stocks, housing prices, and pensions are losing their value, food, energy, and gold prices are skyrocketing.  Worldwide interest rates are out of balance and consumer spending is down.  Will it take a world recession/depression for us to figure out, "Where does the real, the true wealth, exist?"  

   The Saint Patrick’s Season is upon us.  It is no longer a one day event of celebrating the island’s famous Christian missionary; but, as evidenced by the Dail Diaspora, it is a two week political pilgrimage to the four corners of the earth.  Are these Missionary Ministers spreading the good news of Irish interests throughout the world or are they re-enacting Patrick’s banishment of the snakes from the land?  For these politicians "the Patrick’s" is not so much different than "the Christmas" except that they do it abroad, on a junket, and out of site of the electorate.

   The Irish culture is constantly being re-defined.  It is an ongoing process.  There is no costume, cuisine, or ritual custom that can be associated or immediately distinguished as Irish per se.  Most myths, legends, and folklore are viewed as embarassments of history that were held by the uneducated, superstitious, and impoverished.  The only "good old days" are the days of the Celtic Tiger.  When asked, most Irish will reply to the question, "What does it mean to be Irish?", with personality traits of individuals instead of unique descriptions of the group.  How would you define being Irish?  

   Is it Irish that a Minister of Finance claims to have no bank account and then we find out he has 20?  Is it Irish that the first Green Minister will preside over the "desecration of Tara" as quoted by Nobel Prize winner Seamus Heaney?  Is it Irish that we will let the politicians define our modern culture?  I hope not, thank goodness for traditional music and the renewed interest in the language!

   The events unfolding in eastern Chad and the Darfur region of Sudan this week are bringing to light the confusing nature of the EUFOR mission.  It is not surprising to think, that when military men stumble upon each other in the desert and see soldiers in strange uniforms, that bullets will fly, and they did.

   Two EUFOR personnel, of the French Special Forces, who were on a reconaissence mission were fired upon inside Sudan.  One made it out alive and one did not.  After apologies from EUFOR Command and the French government measures are being undertaken to recover the dead soldier from Sudanese officials.  Why were a special forces recon team "lost" and why would France apologise for a EUFOR border crossing?

   There are at least three missions going on simultaneaously within the borders of Chad and Sudan.  The one that the Irish military is involved in is EUFOR, a UN mandated peacekeeping force that is to secure humanitarian agencies, their aid workers, and refugee camps in eastern Chad and the Central African Republic.  This unit will have about 4,000 ground troops and support staff when it is fully deployed in May.  There are at least 14 countries participating in this exercise each wearing slightly different uniforms and use a common blue beret.

   This common blue beret is being used by UN forces in a separate mission inside the Darfur region called UNAMID.  The goal of this operation is similar to EUFOR’s mission; but, it is supposed to have the approval of the Sudanese government.  There are 8,000 UNAMID soldiers now on the ground in Darfur and 12,000 more on the way.  This group is an upgraded UN-AU (African Union) cooperative effort and has also sustained attacks from the regular Sudanese army in northern Darfur.  The recent attack was in the southern regions near the Chad, Sudan, and Central African Republic borders, and given the fact that Darfur is the size of France (or Texas), is it likely that these blue berets are still unknown by the Sudanese military and that the UN peacekeepers are considered hostile by them?  It’s about time that Sudan’s generals pass the word down through the ranks that they shouldn’t be shooting at blue hats don’t ya think?

   There is a third military mission being conducted, ostensibly in western Chad near the capital, called "Operation Epervier".  This is being solely run by the French Army, it has no UN mandate, no blue berets, and has been going on for 22 years.  They assist or deny military support for the government of Chad by whim and by chance.  They supported Deby’s predecessor against Libya in the 80’s then stood by while Deby overthrew that government in a coup in the 90’s.  They transported weapons purchased by Deby from Libya to prevent the recent armed rebellion in the capital and flew sorties of rebels and arms into N’Djamena to support Deby.  This is Sarkozy’s operation.