ANTIESTABLISHMENTARIAN

If you’re wondering why I have been posting infrequently, it is because I am constantly getting locked out of my own blog. And I just don’t have the time to t ry to figure out why this keeps happening. Then, all of a sudden, without explanation, it starts working again.

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The UN is once again calling for a new “reserve currency,” only this time they have a plan. They want it to be IMF special drawing rights. Now, if you know what SDR’s are, then you know that it is the equivalent of PayPal, which is not a currency. Here is the description of SDR’s right from the horse’s mouth:

The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions. In addition to its role as a supplementary reserve asset, the SDR, serves as the unit of account of the IMF and some other international organizations. (See? PayPal )

Now, if you can make any sense out of that, you are pretty damn smart. Actually, its a defunct system that attempted to prevent the drain of gold from national treasuries; it didn’t work. The way its devised today is basically the “basket of currencies” approach. Its used for such obscure things as international settlement of postal accounts between nations. Sexy, huh? And can you see more than $3 trillion per day in transactions going through that system? Not a snowball’s chance in hell.

A major problem with “basket of currencies” idea is that it further removes penalties for monetary mismanagement as a result of concealing individual values in averages. It has all the negative attributes of socialism. If nations are monetarily irresponsible now, this will make them even more so. Moreover, it will concentrate power in the hands of who ever ends up controlling this system. For ultimately somebody has to make critical value decisions, decisions that today are made by a fairly free market.

What would ultimately happen is that every nation who’s currency was part of that basket of averages, would end up going hog wild in printing money because the inflationary effects would be protected or muted by that basket of averages, but the whole freaking basket would go right to hell in the proverbial hand basket. Try putting brain in gear before mouth in motion.

The reason why this is NOT going to happen is that the faults of such a system are painfully obvious and when push comes to shove ( and there will surely be a lot of that), nobody will want to take a chance on it. The current system is subject to Churchill’s comment about democracy: its a terrible system and the only good thing about is that every other system is worse.

If people don’t like the dollar, they should stop trading in it, but they don’t. Why? Because they don’t trust any other currencies either, so they prefer the devil they know over the ones they don’t. They DO trust the degree of transparency from the Fed, but they surely would NOT trust the ECB nor Beijing, nor Tokyo because they have NO transparency, so they bitch and moan, make a lot of noise and complain, but in the end they will not move away from the dollar.

Nobody is forcing China to accept payment in dollars. So why do they? If you can answer that question, you’ll understand why I say China is now in deep doo-doo.