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Magda Hassan
02-25-2009, 12:55 PM
Economic Freefall A Blessing in Disguise

By Jon Ronnquist February 23, 2009

"Information Clearing House" --
-- One thing we should not overlook when taking in the impact of the current economic situation is that it is both inevitable and invaluable in equal measure. That there was no escaping the consequences we are now facing has been a well known fact among those in the know for many years. If anything, it is amazing that we have staved it off for so long. For this we have the hard working men and women of the real world to thank, who toiled on in the name of pride, dignity and responsibility until the burden of debt simply became to great to bear.

A cursory understanding of the “pre-collapse” financial system and the inescapable debt trap it lays in the path of the majority who seek to survive within it, points clearly to the end we have now met. And while it is indeed tragic on an individual level, for the world at large this may well be a blessing of unprecedented proportions.

As economies stagnate and the production level of superfluous commodities shrinks, so too does the havoc that this reeks on the environment through unsustainable consumption of natural resources and heavy pollution. Whether we like to admit it to ourselves or not, prior to this forced deceleration there was no real hope of any timely or significant solution to the problem. Nothing short of a decrease in demand was going to interfere with the reckless consumer frenzy and the deadly impact it was having on the planet we call home. We were borrowing the earth into oblivion and neither conscience nor understanding looked likely to force an end to it. To say that a million unemployed Chinese is a tragedy when their entire activity consisted of flooding the world with cheap useless toys, is exactly the kind of short sighted and blinkered view that got us into this mess in the first place.

I suppose we could have waited for the oil to run out, and judging by the way we were prepared for the money to run out, it really would have been a case of oil one day and none the next. Luckily money, unlike oil, is relatively easy to replace or replenish. A savvy economist, of which there are sadly still none at the reigns, could reconstruct the monetary system in such a way as to make it more useful and user friendly than that which we are burdened with today.

The real tragedies which loom on the horizon are the artificial cost this economic situation will have on the lives of real people and the dangerous possibility that we will not take advantage of this opportunity to restructure not only the monetary system, but the entire economy, its infrastructure, energy needs and sustainability. The plague has effectively run its course, run out of steam if you like. What we are faced with now is a genuine opportunity for convalescence. Even in this age of extensive corruption of government, this chance is surely not entirely lost. We can clearly see the old school fighting to hold on despite the impotency of their efforts to borrow the economy out of debt. This idea is so fundamentally flawed that it is hard to see how the effected populations stand by and watch as the new US administration sells their children and grandchildren to the Federal Reserve.

The idea of printing more money has merits if done prudently and for the right reasons, but printing it as debt will of course only exacerbate the already hopeless situation. The fact that such a small percentage of the vast sums of money being printed into the US economy are pledged to creation and improvement of infrastructure is worrying. Taking the US as the example, the following course of action would seem prudent:

1. Pass legislation to safeguard all home owners against foreclosure and eviction on the grounds that human rights take precedence over all other concerns.

2. Introduce a “new” US dollar as a strictly national currency, not tied to any exchange rate mechanism other than to the “old” US dollar, with limitations.

3. Issue it from the Treasury, ignoring the Fed and existing banks, which can fend for themselves with the currency they have rendered worthless. Issue the new currency through state and local banks all under the direction of the US Treasury in the form of long-term interest free loans.

4. Issue loans to individuals and institutions producing essential goods and services (food, medicine, energy, etc) as a priority to stave of any humanitarian crisis. Where needed allow repayment in the forms of goods and services under federal and state programs for food, energy and medical aid.

5. Extend loans to individuals and institutions investing in green technology and to existing enterprises which are seeking to modernize and shift to the production of essential commodities.

6. Use the currency to invest directly into large scale infrastructure projects across the country on a scale sufficient to begin job creation on a level that will visibly turn around and then increase employment figures.

7. Make the new currency legal tender for the payment of debts and mortgages held in old currency at an exchange rate that realistically reflects fair value. This will force a transition and shift in property value without creating negative equity. Say for arguments sake one new to ten old. Private banks will clamour for new currency as it is the only one worth anything.

8. Legislate to ensure private banks in possession of new currency are barred from lending it under a fractional reserve system and cap interest rates on it’s lending to the public.

9. In proportion to an increase in domestic production, allow foreign holders of old dollar reserves to exchange them for new at the fixed rates of exchange and in limited quantities to guard against a resurrection of the US dollar becoming an instrument of international finance. Limit the amount of currency allowed to exist outside the US, ensuring the national economy can match the value existing with production capacity.

It may sound over simplistic and overoptimistic, but the basic idea is sound and I don’t see any other way of turning this crisis into a golden opportunity. There will be poverty and on a huge scale. That cannot now be avoided. But the question we must consider is whether or not we will allow that poverty to become a permanent fixture or a temporary inconvenience.
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The point is very simple. The US Dollar has ceased to perform its function as a national currency. It has been abused, overprinted, overspent and over hoarded and now will soon loose value and thus any practical use as a means of trade facilitation both within and outside the US. As for notes and bonds and the bullshit returns promised by the US, they are what they are, junk. Most buyers of these have been fooled at least twice now so shame on them. Every holder of Dollar reserves is party to the problem and would have been aware on some level of its vulnerability. The Dollar, like bad mortgages and the instruments created out of them, is itself a toxic asset. Buying currency is like buying stock and value is never guaranteed. In fact it was the arrogance of institutions seeking to guarantee such values for short term profit that has led to the second wave of fallout.

My point is that the Dollar should be replaced on new terms and conditions. By tying a new currency to the old at a forced rate of exchange a host of problems are addressed. The new currency would be tied to a fixed index of essential commodities such as staple grains, cotton, livestock, etc as a value standard. Property values would then be fixed against this currency and mortgages repayable in it at those values. This would essentially force a re-mortgage on all existing property debt and with fixed rates of interest over affordable terms and would both stop the trend in foreclosures and detoxify assets associated with them over time. By fair property value I’m talking about the days when a Janitor could own a home outright before he retired.

Foreign dollar reserves would not simply be exchanged en masse but exchanged in limited quantities based on the economies ability to satisfy demands made on it with the new currency by holders. A cap on foreign dollar reserves in the new currency would mean that a nation holding large reserves would have to spend what it has exchanged within the US economy before exchanging more. This gives the US a chance to make good on it’s own promises through actual trade without the risk of a run that would collapse any emerging effort to rebalance existing trade discrepancies.

As for the current national debt. This is one area where the US really should say tough shit to the rest of the world, the way it has been for so long on every other topic. The portion of the debt held by foreign governments can be made good on as described above. The portion held internally can be exchanged in the same way for new money. After all, a Dollar worth a Dollar is better than ten worth nothing. Everybody has to take a bite of the shit sandwich. And quite fairly, those who wasted the most time daydreaming about money for nothing get the biggest bite.

As for the fed and its vaults full of promissory notes from the Treasury, tough luck, they’re not worth the paper they’re printed on. In this game the fed is just another bank full of toxic assets and when it goes bankrupt the buck stops and frankly who gives a shit? It’s the end of the rainbow, the biggest con in history and so good riddance to bad rubbish. Buy the building back for a new Dollar and start the presses rolling.
Jon Ronnquist | 02.23.09 - 2:24 pm |

David Guyatt
02-25-2009, 02:47 PM
2. Introduce a “new” US dollar as a strictly national currency, not tied to any exchange rate mechanism other than to the “old” US dollar, with limitations.

Oh great idea - nice way to go. Have a two-tier money system, one for overseas use and one for domestic use. Just like the Russian Rouble circa 1970-80's. In a few years American citizens will be trading at a black market rate for blue jeans and vodka.

This idea was, in fact, raised a decade or two ago during the Reagan Administration with the introduction of the so called "Rainbow" dollar (unless I'm very much mistaken anyway).