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I have been studying and gathering a lot of information on what is actually going on on YOUR planet. I have been doing so for over a decade and think it's important that you know how we got to where we are now.

it is also important that you know where we are likely to go in the short to medium term. I will not speculate on the long term as there are too many variables and unknowns.

I say your planet because well, actually it is. It's your responsibility to take care of the bits of it you occupy and the bits of it which you use as a source for the things you consume.

Now, I am not suggesting some socialist take over of the planet where we all share in each others labour and goods.

Far from it.

So, here's the story so far...

You have been led to believe by those that you democratically elected to be your government, wherever you are in the world, that they know best and that they are working with your best interests at heart.

You have become dependent on the beliefs that have been fostered by your government. Now I am not saying that government per se is a bad thing. I believe it is sensible to manage those resources that we are all using every day to make our lives more comfortable.

Here's where the problem begins though. Because those who are voted into power are puppets to financial masters who control the global banking system.

The world economy

The European Central Bank, the Federal reserve , the Bank of England and Bank of Japan are papering over the cracks by printing billions and eventually trillions of their respective currencies. Please note that I did not say money.

Bank notes and digital stuff in your account are merely claim cheques for money.

This all started way back when goldsmiths offered to store gold or silver for you in return for a small fee. They kept your gold in their vault / strongroom and you were given a paper receipt for it.

After a while they noticed that you didn't come and see your gold very often so they decided to create more receipts for your gold and to lend these bits of paper to other people and also to get some interest or payment in return for this service.

They were still reasonably restrained about this as they couldn't just make millions of these notes as to do so would result in a devaluing of these receipts because there was still only your gold to back up the value of that receipt. They also didn't have the means to distribute these receipts like they do now.

I will refer to these receipts from now on, as "currency."

So by creating more notes backed by a fixed amount of true value  (ie: your gold ), you get a currency that is worth less, as each currency note is merely a claim on the percentage of that gold reserve that it represents.

So to maintain the value of a currency it is useful for it to be backed by hard assets. Gold , silver or in the case of the US dollar...oil.

More on that later.

Until 1913 when the US federal reserve bank was formed all money in the USA was "coined by congress and a dollar was equal to 1 ounce of silver. Only the congress had the legal right to create money.

All bank notes were backed by Gold which at that time had a set value of US$20 per ounce. So you could take a 20 dollar note and go to a bank and exchange it for 1 oz of pure gold.

Shortly after the formation of the US federal reserve in 1913, convertibility of paper money into gold was stopped. Incidentally 1913 was also the year that income tax was introduced into the United States.

 Devaluation of currencies

Between 1913 and the present day the purchasing power of the US$ was devalued by 97% through inflation. That is to say that a 2012 US dollar buys what 3 cents did in 1913.

This loss of purchasing power was brought about through inflation caused by excessive currency creation.

At this point it is useful to define what inflation is. Inflation is the loss of purchasing power of a currency through excess production of that currency. So it's like all those receipts the goldsmiths wanted to print and lend to other people backed by your gold that they had in their vault.

So Zimbabwe is the most recent example of inflation.

A very extreme form of inflation known as hyperinflation.

At the beginning of the year 2008, one Zimbabwe dollar bought a loaf of bread. By the end of that year one hundred trillion Zimbabwe dollars ($100,000,000,000,000,000) bought you absolutely nothing because inflation was raging at 6 sextillion percent.

If that was expressed numerically it would look like this.

6,000,000,000,000,000,000,000 % per annum.

That's a six followed by 21 zeros.

By November of 2008 Zimbabwe abandoned it's dollar and is currently using US$ for transactions.

This hyperinflation came about as a direct result of money printing. The US federal reserve just committed to unlimited money printing. So did the European Central Bank.

 

The Bank of China, Bank of England, Bank of Japan and the Australian Reserve Bank have all either commenced money printing or announced they are going to start doing so.

Here's why...

At the end of WW2 the USA was made the global reserve currency for the whole planet. The US dollar was backed by gold and could be exchanged for gold bullion by central banks. This was known as the Bretton Woods system of International financial exchange. The US dollar was as good as gold.

All commodities were valued in US dollars which meant that if any country wanted to buy something they first had to buy US dollars to carry out the transaction.

This gave the USA an extreme advantage as if they wanted to buy something they just had to turn on the printing press.

Voila !

Instant global currency.

As a result of the Vietnam war the USA printed more dollars to pay for the war than it had gold to back that printing with.

This meant that the global reserve currency was losing purchasing power.

Countries that were selling goods to the US or any one else for that matter were being paid with a currency which was losing purchasing power.

Switzerland and France lost confidence in the dollar and sought payment for their reserves of US$
France wanted to cash in it's US dollars for gold and the USA did not have sufficient reserves to pay them.

So on August 15th 1971 President Richard Nixon took the dollar off of convertibility with gold and the worlds currencies were then "floating."

This was ok for a while but it caused other issues for the global reserve currency. It had nothing of value backing it any more, except the ability of American industry to produce products and services and the ability of US citizens to pay taxes.

In 1974 the USA entered into an agreement with Saudi Arabia to supply it with weapons and military protection from Israel ( or anyone else ) in return for pricing all of it's oil sales in United States dollars and holding all excess oil sale proceeds in US debt securities.

By 1975 every country in OPEC was in on the deal. The USA had effectively recreated the demand for US dollars as with the Breton Woods agreement.

To buy oil which has been the greatest stimulus to technological advancement in the history of humanity, you had to first get US dollars.

Oil allowed industrial scale agriculture and transportation networks to be formed cheaply and effectively. Food could be grown by a few people and some machines and no longer required large amounts of physical input from man or animals.

Farms could be located miles from where the food was consumed. In fact you can now grow food in other countries where different climates allow different types of produce to be grown. And it could all be transported to your local score for a price you can afford.

It also allowed the USA to go on a spending spree and a money creation binge funded by every other country on the planet.

The need for fiscal responsibility was removed as there was no longer any requirements for the currency to be backed by gold. The USA could just print money from thin air. and as you now know, money printing leads to inflation. Remember that inflation is simply the loss of purchasing power of the currency. It is not rising prices. It is diminished purchasing power.

This means it costs less to purchase goods or services that are denominated in a devalued currency.

So if you are exporting to other nations and it costs less for your goods or services because your currency has less value, then all things being equal you should be able to sell more than someone who has a more expensive currency.

So back to why every major economy has committed to money printing.

Modern economies rely on exports to pay for things they consume and buy. For other nations or people to buy what you produce, then you have to keep the cost of buying your goods or your currency as competitive as possible.

Remember that you need US dollars to buy oil to grow your economy with. The oil you use to run tractors to grow your food and transport it to the stores. So you get your dollars by selling your stuff to the USA or to someone else who has sold stuff to the USA and who can pay you in dollars.

To effectively sell your goods they must be competitively priced . ie : as cheap or cheaper than your competitors...

So to do that you devalue your currency and you do that by printing currency.

This has several effects. Some of these effects are desirable in the short term but totally disastrous in the long term.
In the short term it keeps the economy on the rails and the train moving along the tracks towards economic growth.

But there are limits to economic growth ahead because it is constrained by energy and the costs of that energy. To create a mine to extract iron ore or copper uses energy. To process and then transport the finished goods also needs energy.

 

 

 

TO BE CONTINUED...in the next installment I will discuss the reasons why we need a constant growth economy and also why this will come to a grinding halt at some point in the near future

Transforming Leaders