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Source link: http://archive.mises.org/11225/killing-the-currency/

Killing the Currency

December 11, 2009 by

That’s the title of my article at The American Conservative. It may smack of paranoid conspiracy theories to some readers, but as the principal in the Simpsons said when the students overheard him predicting that they had no future, “Prove me wrong kids, prove me wrong.” An excerpt:

The “Texas summit of March 2005″ refers to the “Security and Prosperity Partnership (SPP) of North America,” which came out of a meeting in Waco, Texas between President George W. Bush, Canadian Prime Minister Paul Martin, and Mexican President Vicente Fox. For the record, the federal government’s website has a special section devoted to refuting the (alleged) myths of the SPP, including the claim that the SPP is a prelude to a North American Union, comparable to the European Union. Yet despite the official protestations to the contrary, the global trend toward ever larger political and monetary institutions is undeniable. And there is a definite logic behind the process: with governments in control of standing armies, the only real check on their power is the ability of their subjects to change jurisdictions. By “harmonizing” tax and regulatory regimes, various countries can extract more from their most productive businesses. And by foisting a fiat currency into the pockets of more and more people, a government obtains steadily greater control over national–or international–wealth.

But if indeed key players had wanted to create a North American Union with a common currency, up till now they would have faced an insurmountable barrier: the American public would never have agreed to turn in their dollars in exchange for a new currency issued by a supranational organization. The situation will be different when the U.S. public endures double-digit price inflation, even as the economy still suffers from the worst unemployment since the Great Depression. Especially if Obama officials frame the problem as an attack on the dollar by foreign speculators, and point to the strength of the euro, many Americans will be led to believe that only a change in currency can save the economy

{ 8 comments }

Steve December 11, 2009 at 9:29 pm

Christ Bob. I was feeling a little down before I checked the blog. After reading your piece and the Hummel piece you linked I feel like stepping into traffic.

Bruce Koerber December 12, 2009 at 9:10 am

Alternative Options To The Destruction Of The Dollar.

When our vision becomes global then all the intrigues and schemes become more noticeable.
Purposeful destruction of the dollar using the Federal Reserve could appear to be just plain stupidity and it is true that Bernanke has the credentials of a hyperinflationist. But the dollar is not being destroyed without a broader scheme. The ego-driven are impelled to recognize that the age of nation-building is coming to an end and their lust is now to enter into the next stage of human civilization with their blood-covered hands in control of the reigns.

A classical liberalism world society is the peaceful, prosperous and just alternative to the totalitarian State of the ego-driven interventionists.

It is therefore very obvious what time it is that we are living in. We are at the crux of the transition. If we fail, another generation in the future will have to fight the battle since – inevitably – the forces of economic equilibrium will not rest until the world is a classical liberalism society.

Thanks to the Mises Institute (and ultimately Ludwig von Mises’ life work) we are probably ready and able to win this battle during this generation!

Deefburger December 12, 2009 at 10:13 am

It makes you wonder though. Why did North Korea do this currency swap right when U.S. officials were present to observe the fallout? It smacks of a test-run.

Are they planning to default on the dollar and replace it with the NorteAmericano or some other BS? Perhaps the new money will be offered as a card with RealID for the masses, instead of paper, ” ’cause it’s better!”

I can hear it already. “That’s a silly conspiracy theory!” But we’ve seen this kind of thing before. “We need a new currency to regain our dominance in the world market” or “We need a new system of payment to insure the reduction of the debt”. What ever. Any excuse that will fly in the media will be used to make such a change, if and when it comes.

There should be some indicators in the volume of gold and silver traded just prior to the announcement of the switch. They will probably buy gold and silver with dollars instead of short selling gold and silver as they do now. The accumulation of capital to “base” the new currency will be the goal. Right now they short sell gold and silver to boost dollar value. I would expect the opposite to happen so that they are re-issuing from a strong gold and silver position.

That move will also de-value the competing currencies, including the dollar, and push the weakened dollar into the foreign markets. Then they will re-issue, and pay down foreign debt with trades of those base assets, buy back foreign held dollars at a discount, make the foreign banks feel better, and then screw the American public with an off balance trade for paper, much like North Korea.

They’ll do it in response to any move by China or India, or Russia to establish an Asian Reserve Currency.

I would also expect the Obama Administration to execute a repeat of the FDR 1933 Gold seizure.

The grossly weakened dollars will finally match the balance sheets of the banks holding real estate asset loans with inflated amounts, and they will begin completing the foreclosures because on paper, the numbers jive and they can move the asset without showing a loss. The Currency re-issue will also require the outstanding loans, the ones already in existence, as well as the ones “saved” by the current negotiations to fix a lower mortgage and interest, to be re-drawn in the new currency, with better interest and terms for the banks.

Another indicator would be a doubling or tripling of Gas and Oil prices domestically. Devalue the current currency first, then re-issue and buy back at cost.

Retailers will succumb to indecision about pricing and will “auto-inflate” when converting to the new “stronger” currency. This will create a sort of bubble in the retail market. The only conversion yardstick being the now rapidly weakened dollar and inflated dollar prices on goods. Bringing those numbers down after having to bump them up will disrupt the retail economy overnight. People will tend to price things not at parity but slightly above parity, causing inflation that no one can see.

This might actually be the point. Much of the money supply pumping inflation that will occur when the real estate assets are released from bank bondage could be hidden in the disparity inflation that would occur in the retail market after a currency re-issue! We’ll be screwed again and not know it. Pricing on taxes and goods will appear to be lower, when in fact they’re higher.

Enough Saturday morning speculative fun. If I keep going like this, I’ll scare myself.

Just watch the price and volume of the commodities and monetary metals markets. A sudden doubling or tripling “crisis” will be the signal to sell dollars, and hide your gold!

Remember that the “base” will be baseless. The base assets, the gold and silver etc, will not be tied to the currency. They will only be the new “reserve” that the fractional reserve system will be based on. The currency will be issued as a float.

Ribald December 12, 2009 at 7:04 pm

As much as I like to indulge in speculation, there are certainties which undermine the idea that the US is going to switch currencies by the preemptive action of the government.

First of all, if there’s going to be a switch, it will be known far in advance of its occurrence, both to ameliorate hostile political factions (do you think the Republicans would assent to it?) and to make the case that the dollar is going to crash at some future date (and delicately enough not to cause that crash by admitting its possibility). Foreign relations would suffer a huge blow when many allies using the dollar as their main currency find that their economies are going to be disrupted too. They would have to be part of the currency negotiations too. So many people would have to know about the plan to change currencies that secrecy would be nearly impossible to maintain. If anything has characterized government secrecy in the last decade, it’s been huge leaks.

If the dollar is going to crash, I think we can safely say that it will be a surprise to the government (and most of the developed world) and not part of a plan to create a regional currency.

Bob Murphy December 12, 2009 at 9:36 pm

Ribald wrote:

Foreign relations would suffer a huge blow when many allies using the dollar as their main currency find that their economies are going to be disrupted too. They would have to be part of the currency negotiations too.

Exactly. That’s why it alarmed me back in July when the Russian president showed off what he called the “united future world currency” at a press conference. And he wasn’t holding up a Ben Franklin.

Bryan Caplan December 12, 2009 at 10:18 pm

I’m a sucker for a Simpsons reference, Bob. Unfortunately, I’m not in a position to “prove you wrong” by changing policy. But I’m happy to bet you that the U.S. won’t have double-digit inflation anytime in the next five years. Interested?

Fallon December 12, 2009 at 10:36 pm

Prof. Caplan,
Could you clarify the terms of the bet? The Austrian definition of inflation is the increase in the money supply. The rise in prices or relative loss of purchasing power is the consequence of inflation. What do you mean by inflation?

Given the Austrian definition of inflation and the Fed’s recent unprecedented massive expansion of reserves, it might mean little change in nominal prices yet still a massive loss in purchasing power over the next few years. If the bet was based on nominality the odds would be in your favor.

Cheers

Vanmind December 13, 2009 at 4:41 pm

“Fortunately they still have the same problem. The Canadians will never go for it now.”

That’s where the “security” part of the SPP aims to undermine liberty. Recall that Canada and the US signed an agreement by which either country can send troops across the border to “help” in times of “emergency.” Well, most of the backlash against that agreement stemmed from Americans not wanting Canadian troops on their soil (reasonable enough), but the true threat lies in the opposite direction — some trumped-up emergency in Canada that would allow US troops to head north in significant numbers. It’d be like Austria in the late 30′s, annexed for the “greater good” of the totalitarian super-state.

All the criminals need is pretext, a false-flag event. Anyone coming up for the Olympics? I’d advise against it.

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