For nearly a decade, Alan Greenspan and Ben Bernanke and their colleagues in effect encouraged a free banking system to flourish beyond their reach and ken. Now along with Treasury Secretary Henry Paulson – former Chief Executive of Wall Street financial giant Goldman Sachs – they are trying to solve their Wall Street cronies’ cash flow problems. Whether they succeed or not, the underlying bankruptcy of the United States economy will not go away. Faced with that intransigent reality, the US financial pharisees seem content to just go on creating more dollars – forever.
Wars cost money: don’t ask where from
In 2002, Dick Cheney is reported to have responded to former Treasury Secretary Paul O’Neill’s fiscal concerns by saying, “Reagan proved deficits don’t matter.”(2) His stupid remark only reminds us that all those Reaganite billions dedicated to Star Wars were the ancestors of the billions now funding war in Iraq and Afghanistan and the hundreds of US military bases around the world. Where do all those dollars come from?
The US government draws cash against its credit with the Federal Reserve. Since the government is broke and US savings are minimal, the credit is mostly based on government IOUs in the form of Treasury bonds. So long as the US Treasury can find enough customers to buy their IOUs, the Federal Reserve can credit those amounts to the US government’s account. That seems to be the origin, for example, of all those pallet loads of dollars shipped to Iraq to be, sweetly and with due patriotic decorum, disappeared (3) and, perhaps more importantly, left conveniently unmeasured.
Holders of US dollar IOUs will never get repaid their original value because the deliberately inflated supply of dollars devalues the currency. Ron Paul was trying to talk about that to the unforthcoming Alan Greenspan. In 2006, the Federal Reserve issued this release, "On March 23, 2006, the Board of Governors of the Federal Reserve System will cease publication of the M3 monetary aggregate. The Board will also cease publishing the following components: large-denomination time deposits, repurchase agreements (RPs), and Eurodollars." (4)
Global dollar glut
The Federal Reserve’s European market-rigging partners treat M3 more kindly. The Czech National Bank has written about M3′s usefulness in Europe for central banks’ balance sheets: "The liabilities side of the consolidated balance sheet of the euro area Monetary Financial Institutions provides the basis for the calculation of monetary aggregates (M1, M2 and M3). The liability breakdowns on the consolidated balance sheet of the MFI sector allow different degrees of moneyness to be distinguished." (5)
On a charitable view, the Federal Reserve has conceptually leap-frogged old-fashioned, so-last-century Europe. If counting money has turned into arguments about moneyness and central banks cannot count all the things that may be money any more, why not stick to what they can count and stop worrying? On the other hand, does a gang of cynical, sober, elegant-suited gangsters like the Federal Reserve Board deserve to endlessly float through life without facing an auto-da-fé at some point? It may be possible that the Federal Reserve governors are smarter than their European market-fixing partners. Or it may be they are just more intellectually dishonest and smug.
Financial analyst Henry Liu wrote back in 2005 of "a global dollar glut caused by the Fed printing money to feed the gargantuan US appetite for debt."(6) A couple of financial analysis web sites (7) have tried to reconstruct the M3 measure of US money supply and find that is growing annually at well over 10%. That probably means the US Federal Reserve and the US Treasury have worked together with other important financial actors to produce levels and varieties of moneyness that are probably not fairly reflected in the Federal Reserve balance sheet. Come back Enron, all is forgiven.
Poor cash flow? Attack somebody….
Henry Paulson moved from being Chief Executive of Goldman Sachs to head the US Treasury, the Federal Reserve’s partner in dollar creation. Components of M3 like institutional money market funds, repurchase agreements, deposit certificates over US$100,000 and Eurodollars involve powerful Wall Street financial actors and overseas entities. The same people that created and crashed their very own shadow free banking system now work in concert with the Federal Reserve and important foreign players processing around US$4 trillion beyond the official US dollar M2 money supply figure of about US$7 trillion.
The moneyness perspective puts a different gloss on the wars in Iraq and Afghanistan, all those hundreds of overseas US military bases and on military aid for sinister gangster States like Colombia, Egypt and Israel. Over a million Iraqis may have died in large measure to help US financial institutions’ cash flow. Through a moneyness lens, the US Drugs Enforcement Agency looks like a sub-department of the Federal Reserve regulating conditions to facilitate the flow of narco-dollars into tax havens for later recycling into financial markets. A monetary view categorically turns foreign "aid" in general and developing country debt in particular into cynically manipulated, humdrum components of a global, dollar-processing moneyness engine.
All the media duplicity, all the false, skewed reporting of international affairs, is the propaganda corollary of funny-money high finance working relentlessly against any chance of a true and fair view of world affairs. The Bush regime and its corporate finance and media hangers-on have no loyalty to the people of the United States. Their loyalty is to the moneyness of their narcissism and greed. The corporate plutocracy will make sure no future US administration will be very different.
At the end of his 2005 article, Henry Liu asked "What kind of logic supports the Fed’s acceptance of a 6% natural rate of unemployment to combat phantom inflation while it prints money without reserve, thus creating systemic inflation to bail out reckless private speculators to fight deflation created by a speculative crash?" With something like that process now taking place in Europe as well as in the United States, one can plausibly accuse the militaristic logic of ailing Western Bloc imperialism. Even now, in Washington and in the European capitals, the calculators are busy working out the moneyness of things like war in Lebanon, Syria and Iran, the eventual annihilation of Palestine and intervention in Venezuela.
toni solo lives in Central America – articles archived at toni.tortillaconsal.com
1. "Why the Monetary Transparency Act must require the Federal Reserve to publish an overall money supply statistic", American Monetary Insitute, May 16, 2007
2. "Taxing", John Cassidy, New Yorker, January 26th 2004.
3. "How the US sent $12bn in cash to Iraq. And watched it vanish", David Pallister, The Guardian, February 8th 2007.
4. Federal Reserve Statistical Release, November 10th 2005, revised March 9, 2006
5."The balance sheets of the Monetary Financial Institutions of the euro area" Czech National Bank, 2008 (http://www.cnb.cz/en/statistics/money_and_banking_stat/mbs_harmonisation/mbs_harmonisation_balancesheets.html)
6. "The Wizard of Bubbleland. Part 2: The repo time bomb" Henry C K Liu, Asia Times Online, September 29th, 2005
7. Shadow Government Statistics (http://www.shadowstats.com/alternate_data) and World of Possible Financial Futures (http://www.nowandfutures.com/key_stats.html)