G-20's Secret Debt Solution?

silverharp

treat it as a thought exercise, I cant imagine any of this happening, but given that the monetary system is broken in a big way I cant see that it will be business as usual for several years.




The G-20’s Secret Debt Solution
by Larry Edelson 11-13-08


If you think this weekend’s G-20 meetings in Washington are only about designing short-term fixes to the financial system and regulatory reforms for banks, hedge funds, brokers, mortgage companies and investment banks … think again.

Behind the scenes, a far more fundamental fix is being discussed — the possible revaluation of gold and the birth of an entirely new monetary system.

I’ve been studying this issue in great depth, all my life. And given the speed at which the financial crisis is unfolding, I would be very surprised if what I’m about to tell you now is not on the G-20 table this weekend.

Furthermore, I believe the end result will make my $2,270 price target for gold look conservative, to say the least. You’ll see why in a minute.

First, the G-20’s motive for a new monetary system: It’s driven by and based upon this very simple proposition …

“If we can’t print money fast enough to fend off another deflationary Great Depression, then let’s change the value of the money.”

I call it …


The G-20 may propose devaluing all currencies, including the U.S. dollar and the euro.
“The G-20’s Secret Debt Solution”

It would be a strategy designed to ease the burden of ALL debts — by simultaneously devaluing ALL currencies … and re-inflating ALL asset prices.

That’s what central banks and governments around the world are going to start talking about this weekend — a new financial order that includes new monetary units that helps to wipe clean the world’s debt ledgers.

It won’t be an easy deal to broker, since the U.S. is the world’s largest debtor. But remember: Debts are now going bad all over the world. So everyone would benefit.

Fed Chairman Ben Bernanke … Treasury Secretary Paulson … President Bush … President-elect Obama … former Fed Chairman Paul Volcker … Warren Buffett … and central bankers and politicians all over the world agree a new monetary system is needed.


So they’ll start hashing out the details to get the new financial architecture deployed as quickly as possible.

If you think I’m crazy or propagating some kind of conspiracy theory, then consider the historical precedent …

To end the Great Depression in 1933 Franklin Roosevelt devalued the dollar via Executive Order #6102, confiscating gold and raising its price 69.3%, effectively kick starting asset reflation.

Only this time, it won’t be just the U.S. that devalues its currency. The world is too interconnected. Instead, the world’s leading countries will propose a simultaneous and universal currency devaluation.

This time, they will NOT confiscate gold. There would be riots all over the globe if they even mentioned the “C” word.

But they don’t have to confiscate gold. Here’s one scenario …

They cease all gold sales and instead, raise the current official central bank price of gold from its booked value of $42.22 an ounce — to a price that monetizes a large enough portion of the world’s outstanding debts.

That way, just like in 1933, the debts become a fraction of re-inflated asset prices (led higher by the gold price).

And this time, instead of staying with the dollar as a reserve currency, the G-20 issues three new monetary units of exchange, each with equal reserve status.

The three currencies will essentially be a new dollar, new euro, and a new pan-Asian currency. (The Chinese yuan may survive as a fourth currency, but it will be linked to a basket of the three new currencies.)

The new fiat monetary units would be worth less than the old ones. For instance, it could take 10 new units of money to buy 1 old dollar or euro.

New names would be given to the new currencies to help rid the world of the ghost of a system that failed. Additional regulations and programs would be designed and implemented to ease the transition to a new monetary system.


The IMF would be at the center of the new monetary system.
The International Monetary Fund (IMF) would implement the new financial system in conjunction with central banks and governments around the world.

Keep in mind that the IMF is already set up to handle the transition, and has had contingency plans allowing for it since the institution was formed in 1944.

Included in the design and transition to a new monetary system …

A. A new fixed-rate currency regime. Immediately upon upping the price of gold and introducing the new currencies, a new fixed exchange rate system would be re-introduced. The floating exchange rate system would be tossed into the dust bin along with the old currencies.

This would kill any speculation about further devaluations in the currency markets, and drastically reduce market volatility.

B. To sell the program to savers and protect them from the currency devaluation, compensatory measures would be enacted. For instance, a one-time windfall tax-free deposit could be issued by governments directly to citizens’ accounts, or, to employer-sponsored pensions, to IRAs, or Social Security accounts.

Income taxes may subsequently be raised to pay for the give-away, or a nominal global type of sales tax could be enacted to help pay for the new system and the compensatory measures.

C. Additional programs would be designed to protect lenders and creditors. Lenders stand a much higher chance of getting paid off under the new monetary system — but with a currency whose purchasing power would now be a fraction of what it was when the loans were originated.

So programs would have to be designed to help lenders offset the inflationary costs of their devalued loans, probably via the tax code.

Naturally, all this is a bit more complicated than I’ve spelled out above. But that gives you a big-picture outline of what the plan could look like. And I think major changes like these are going to be set in motion at this weekend’s G-20 meetings in Washington.

Would they work?

Yes. They would help avoid a repeat of the deflationary Great Depression. But don’t expect even a new monetary system to put the U.S. or the global economy back on track toward the high rates of real growth that we’ve seen over the last several years. That’s simply not going to happen. Not for a while.

Where do you keeping getting all this from?

silverharp

Deleted User wrote: »

Where do you keeping getting all this from?

I must have too much time on my hands, ha! , seriously though you are watching financial history being made before your eyes, whatever happens over the next couple of years you'll be boring your kids and grandkids for years to come!

silverharp

Mish did a good hatchet job of th G20 meeting

G-20 Summit Blames Buyers of Poison Apples


Hopes were high that the G-20 summit would issue a statement on US dollar hegemony, currency fluctuations, a new world order, a return to a gold standard, or make some other earth shattering statement. I predicted the summit would be a complete waste of time. Let's take a look.

Bloomberg is reporting G-20 Calls for Action on Growth, Regulatory Changes.


In a statement after a five-hour summit in Washington, the Group of 20 urged a "broader policy response" to spur growth, including potential interest-rate cuts and fiscal stimulus.
My Comment: Wonderful. The US is at 1% and Japan at .3% with every other country on a Mad Race To ZIRP. It did not help Japan or the US and it will not help spur growth anywhere else either.

The group set a March 31 deadline for recommendations on tightening accounting standards, strengthening derivatives markets and increasing oversight of hedge funds and debt-rating firms.
My Comment: Gee let's see. We postponed mark to market accounting, did nothing about off balance sheet accounting, and are blaming hedge funds for loose lending practices at banks.

"There was a common understanding that all of us should promote a pro-growth economic policy," U.S. President George W. Bush said. U.K. Prime Minister Gordon Brown said "there is a clear determination on the part of world leaders in every continent to take necessary action to move economies out of this difficult period."
My Comment: The understanding (or rather the misunderstanding) was that the meeting would actually accomplish something other than sing the praises of pro-growth economic policy.

With no clear promise to cut taxes and interest rates together, markets may be disappointed, said Carl Weinberg, chief economist at High Frequency Economics Ltd. in Valhalla, New York. "This isn't a strong action statement on addressing the matters at hand."

Rather than coordinate action, nations should act "as deemed appropriate to domestic conditions," the leaders said in their statement.

My translation: Everyone will continue to do whatever it was they were doing before.

The group pledged not to erect new trade barriers, guaranteed more resources for the International Monetary Fund if needed and promised to meet again before May.

Tumbling stock markets and forecasts for a worldwide recession are intensifying pressure on the G-20 leaders to act, 15 months after the credit crunch began. The IMF predicts advanced economies will together contract next year for the first time since World War II.

My Comment: Another meeting before May? How exciting. Exactly what is another meeting supposed to accomplish other than issue another lame statement praising growth?

The G-20 leaders, representing 90 percent of the world economy, blamed the crisis on investors who "sought higher yields without an adequate appreciation of the risks."

My Comment: Banks and brokerage packages sold poison apples. The G-20 is blaming those who bought poison apples not those who knowingly sold poison apples.

Reaching agreement on what to do was difficult, French President Nicolas Sarkozy said after the meeting. "I'm a friend of the U.S. but it wasn't always easy," he said. "There were misunderstandings to overcome."

My Comment: Exactly what misunderstandings were overcome?

The statement papered over differences by recognizing that regulation is "first and foremost" a national responsibility, while at the same time demanding "intensified international cooperation" to oversee financial firms whose operations and problems cross national borders.

My Comment: "Papered Over" is right and not a single misunderstanding was overcome.

The leaders called for the creation of "supervisory colleges" for bank regulators around the world to better to coordinate oversight and share information about activities and risk-taking of international banks.

My Comment: They are going to create yet another college of useless bureaucrats that will not do a damn thing but receive outrageous pay for sharing information one can easily find on Bloomberg. Any information actually worth sharing will be hidden from public view just as it is now.

Capital standards should be raised, they said, particularly for banks' structured credit and securitization activities.

My Comment: This is a case of saying one thing and doing another as Compelling Banks To Lend At Bazooka Point and the Battle Over Bazooka Point Lending proves.

The leaders directed their finance ministers to work on recommendations for enhancing disclosure by investors and institutions, including hedge funds, of their financial conditions.

My Comment: Meanwhile Paulson and Bernanke are in a battle with Bloomberg because they are failing to disclose to investors exactly what they are doing with taxpayer money.

Debt-rating companies, which blessed many of the products that have since gone into default, should be registered, and oversight of their actions strengthened to ensure they provide unbiased information and avoid conflicts of interest.

My Comment: This is more useless nonsense. Exactly what good would it do to register Moody's, Fitch, and the S&P. The big three were blessed by the SEC and that is what the problem is. It's Time To Break Up The Credit Rating Cartel.

Accounting standards should be harmonized around the world, the group said, and regulators should consider whether current rules properly value securities, particularly complex, illiquid products, during times of stress.

My Comment: This sounds suspiciously like a move away from mark to market accounting to more mark to fantasy accounting.

The leaders said executive compensation should be managed to "avoid excessive risk-taking," while stopping short of calling for any caps.

My Comment: This is clearly another useless statement.

Warning against protectionism as a way to fight recession, the G-20 vowed not to raise any trade barriers for the next year. They also said they will seek ways by the end of the year to conclude the Doha round of trade talks that collapsed in July.

My Comment: Trade talks have collapsed every year for a decade. The US and EU are primarily to blame.

Leaders will meet again before the end of April, most likely in London, when a new American administration is in office.

My Comment: Why bother?

Heads of emerging-market nations said the G-20 should now replace the Group of Eight as the forum for addressing economic issues.

Brazilian President Luiz Inacio Lula da Silva said the G-8 has "become a group of friends" and there's "no sense in making political and economic decisions without the G-20 countries."

What sense is there in adding more to the group? The odds that 20 can agree to something when 8 cannot is zero. With that let's take a look at the top ten accomplishments of the summit.

G-20 Top 10 Accomplishments


10: President Bush said "There was a common understanding that all of us should promote a pro-growth economic policy."


09: U.K. Prime Minister Gordon Brown said "there is a clear determination on the part of world leaders in every continent to take necessary action to move economies out of this difficult period."


08: The group agreed to not cap executive pay.


07: The group sang the praises of low interest rates.


06: The group will work on recommendations for enhancing disclosure while hinting it would allow the continuation of mark to fantasy accounting.


05: The group called for rating agencies to be registered even though rating agencies in the US are already sponsored by the SEC.


04: The group called for the creation of "supervisory colleges" who will not do anything thing but receive outrageous pay for sharing information one can easily find on Bloomberg.


03: Argentina, Australia, Brazil, China, India, Indonesia, South Korea, Mexico, Saudi Arabia, South Africa, and Turkey complained "the group of friends" otherwise known as the G-8 would not let them in whenever the G-8 got together to party. The above listed countries are saying to the G-8 "please don't throw a party without us."


02: The all inclusive group of 20 friends agreed to throw another party in April.


01: Drum roll please..... The number one accomplishment of the G20 meeting was to blame hedge funds and the buyers (not sellers) of poison apples for the financial crisis.

Top 5 Things G-20 Ignored


05: US Dollar Hegemony.


04: Micro-Mismanagement of interest rates by the Fed and Central Bankers.


03: Spending run rampant in US authorized by Congress. Same thing in other G-20 countries.


02: Of immediate concern is the Collapse of Trade, Letters of Credit, and Baltic Dry Shipping. Please see Yet More Trade Finance Worries (Not for the Fainthearted).


01: Fractional Reserve Lending run rampant, leverage, excessive credit creation, and unsound fiat currencies. In other words the G-20 ignored discussing the very cause of the problem we are now facing.

LightningBolt

Deleted User wrote: »

Where do you keeping getting all this from?

http://globaleconomicanalysis.blogspot.com/

halkar

Someone must have tipped Iran. They already started

digitally-yours

This news is rubbish.

Its one of those viral emails doing rounds on trading desks.

The chances in the short term are of gold falling and not rising.

I was expecting the gold to prove a very good hedge in these times but it has disappointed.

The gold has stayed stable but the return on investment in the past 6 0r 8 months on gold has been poor

Baird

That also appeared on Alphaville.
Complete and utter rubbish, baseless and unfounded fantasy article.

dietcola

I agree gold has not been the be all and end all of the hedge fund... india has now reduced its gold intake due to the world economic crisis... also i believe people have had the same idea, placing money into gold as the risk in the markets increased, hence the price rise per oz, now everyone is holding on to thier bullion as a source of debt management the price has stablablised or even dropped a little.... same goes for steel, copper however has been increasing in value for the past few months and is now at a very respectable prices....

i recently bought a roof off a factory where the steel inside weighed in at over 400tonnes, at £500 per tonne there was great potential for a profit there! now the trick is to wait and see what this downturn will churn up!

silverharp

dietcola wrote: »

I agree gold has not been the be all and end all of the hedge fund... india has now reduced its gold intake due to the world economic crisis... also i believe people have had the same idea, placing money into gold as the risk in the markets increased, hence the price rise per oz, now everyone is holding on to thier bullion as a source of debt management the price has stablablised or even dropped a little.... same goes for steel, copper however has been increasing in value for the past few months and is now at a very respectable prices....

i recently bought a roof off a factory where the steel inside weighed in at over 400tonnes, at £500 per tonne there was great potential for a profit there! now the trick is to wait and see what this downturn will churn up!

I wouldnt compare gold to other commodities, it is a monetary asset, and looking back over various points in history it tends to do poorly (versus other commodities)in a credit expansion and does better in a contraction. If you divide gold by a commodity index it is perfroming better now then when everyone thought the dollar was going to collapse.

dietcola

indeed...

shame about the dollar, im worried about the future of the pound... scary beans!

then again more millionaires are made in times of poor economies than when times are good....