World leaders pledge action to reform financial system - November, 2008

The international summit held in Washington DC over the weekend was perhaps the year's biggest news development, yet it received very little coverage by the main-stream news media in the US. The representatives of the world's twenty largest economies converged onto Washington DC to discuss the serious financial crisis plaguing the world; Russian president addressed the Council on Foreign Relations... Yet there has been scant news coverage of this important event. I wonder why...



World leaders pledge action to reform financial system

G20 agree action plan to revive global economy:

Expectations low for G20 summit:

What can we expect from G20 summit?:

November, 2008

World leaders pledged at a summit in Washington to restore global economic growth and start work on reforming financial regulation. Leaders of the G20 nations, which account for 90% of the world's economy, agreed at Saturday's summit to reform the World Bank and International Monetary Fund to improve their effectiveness in helping emerging economies through the credit crunch. Although leaders hailed progress at the talks, concrete agreements will have to wait until a follow-up summit, scheduled for April 2009, likely to be held in London. A joint summit communique said: "We are determined to enhance our cooperation and work together to restore global growth and achieve needed reforms in the world's financial systems." "We must lay the foundation for reform to help to ensure that a global crisis, such as this one, does not happen again. After the talks, World Bank President Robert Zoellick said: "What matters now are the follow-up actions." French President Nicolas Sarkozy stressed that the vast and complex issues discussed at the summit "cannot be resolved in three weeks," but welcomed the U.S. approach to the crisis, saying: "The U.S. administration has accepted to move on subjects where historically all U.S. administrations refused to move." "Never before have Anglo-Saxons agreed to subject rating agencies to oversight and regulation," he said. Acknowledging failings in global financial regulation, the G20 statement said: "Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions." President George W. Bush, who leaves office in January, said the participants had agreed to modernize financial regulation, making markets more "transparent and accountable." The outgoing leader hailed the summit as "very successful." President-elect Barack Obama's transition team released a statement saying the future leader was ready to work with other G20 countries to tackle the credit crisis when he takes office. He called the summit "an important opportunity to seek a coordinated response to the global financial crisis."


Medvedev proposes reform of global finance system

Medvedev goes to Washington:

Medvedev warns against unilateralism:

Russian President Dmitry Medvedev called on Saturday for the reorganization of the global financial system, including the establishment of an international regulatory commission, a presidential aide said. "To make the process of reform as effective as possible, the president suggested the creation of an international commission of independent, influential experts - financial gurus," Arkady Dvorkovich told journalists at the G20 summit in Washington. He said the first part of the summit had been completed, with 14 people, including Medvedev, having had their say. "The key aspects he [Medvedev] drew attention to were that as regards the reasons for the financial crisis, no analogies with the past would work. This is not the Great Depression ... it's a global crisis of the 21st century," Dvorkovich said. The presidential aide said Medvedev emphasized that the present structure of the global financial security is inadequate, and that new financial institutions are needed to meet present demands. "The system of the international financial architecture will have to be rebuilt to make it open, fair, efficient and legitimate," Dvorkovich said. Medvedev also told the meeting that Russia supported the declaration due to be adopted at the end of the summit. "We back the declaration - it shows most of the problems. It takes into account all that worries us now," Medvedev told G20 leaders. Dvorkovich also told journalists that the leaders had not reached an agreement on transforming the G20 into a wider forum. "There are as yet no plans to transform the forum of finance ministers and central bank heads into a regular forum of leaders of the G20 countries," he said. The aide said this meant that the G20 should be where questions of reforming the global financial structures are decided, while the Group of Eight leading industrial countries should remain the forum for issues of world security. Dvorkovich also said the Russian president had called on G20 summit participants to help the world's poorest countries overcome the financial crisis. "It is important to work together to provide all the countries most affected by the crisis, the poorest countries, with resources through the IMF and other international and regional organizations," the aide said, adding that all the summit participants were united on the issue. Dvorkovich said the next G20 summit would be held not later than April 30, 2009. "After the first half of the summit, there is consent that global problems demand global solutions. The participants expressed the readiness to hold the next summit not later than April 30 next year," he said. The G20 comprises 19 of the world's largest economies plus the European Union.


Russia's Medvedev speaks on foreign policy in Washington

Medvedev's speech at US Council on Foreign Relations:

Russia will respond to the U.S. missile defense plans for Europe if the U.S. steps are unacceptable for Moscow, President Dmitry Medvedev said Sunday. "We would act only in response and only if the [U.S. missile defense] program continues in a variant unacceptable for us," Medvedev said after the G20 economic summit, while speaking to the Council on Foreign Relations in Washington. Washington recently said it had provided new proposals to ease Russia's concerns over the planned deployment of 10 U.S. interceptor missiles in Poland and a tracking radar in the Czech Republic, which the George Bush administration has said are needed to counter possible attacks from "rogue" states such as Iran. Russia, which says the missile defense system is a threat to its national security, has indicated it will not address the U.S. proposals until after president-elect Barack Obama is inaugurated as U.S. president in January. Medvedev announced last week the possible deployment of Iskander-M short-range missile systems in the country's Kaliningrad exclave, sandwiched between Poland and Lithuania on the Baltic Sea. However, the Russian leader said in an interview with France's Figaro newspaper published on Thursday that, "We could reconsider this response if the new U.S. administration is ready to once again review and analyze all the consequences of its decisions to deploy the missiles and radar facilities." Medvedev also told the council that Russia hopes relations with the U.S. will improve under Obama. Medvedev proposed on Sunday creating a forum uniting European countries, international organizations and NATO to discuss possible threats to security. Speaking about Russia's tense relations with Georgia, Medvedev told the council that his country is ready to deal with Georgia but not with the Mikheil Saakashvili regime. "We are ready to build relations with Georgia but not with the current regime," the Russian leader said. In early August, Russia fought a brief war with Georgia over South Ossetia after Georgian forces attacked the republic in an attempt to bring it back under central control. On August 26, Russia recognized South Ossetia and Abkhazia, the other Georgian breakaway republic, as independent states. Abkhazia and South Ossetia broke away from Georgia following the collapse of the Soviet Union in the early 1990s amid armed conflicts that claimed thousands of lives.


Russian national debt lowest of all G20 countries

Russian President Dmitry Medvedev can look around the summit table on Saturday knowing his government has less debt than any other G20 country, according to the Guardian newspaper. The British paper put Russia's debt at $76 billion - less than 1% of the United States' $8.4 trillion. As a percentage of gross domestic product, Moscow's situation is not quite as rosy, but President George Bush would probably take a national debt running at 6% rather than 60% of GDP. But by that measure, Japan may be in even worse shape - its $7.45 trillion public debt is more than 1 1/2 times the country's GDP. But Japan has spent so much of the last decade or so in economic difficulties that maybe the country has grown used to it. Things could hardly be more different in Britain, where a decade of almost uninterrupted growth has come to a grinding halt. But the $1.2 trillion debt is still less than half of GDP. The other three European members of the G8 are in even worse shape. They all owe more than half their GDP. Italy, with the lowest GDP of the three, has the highest debt according to the Guardian, at $2.19 trillion. Next is Germany with $2.07 trillion, followed by France at $1.63 trillion. Of the so-called BRIC countries, China's $580 billion debt is hardly daunting at less than a fifth of GDP, while Brazil's $590 billion is still less than half its GDP. India, on the other hand, is up there with the United States with a public debt of $637 billion totaling more than 60% of its 2007 GDP. Down the bottom of the Guardian chart with Russia are Saudi Arabia, owing $91 billion, and South Africa, with a debt of $88 billion.


The G-20 Economic Summit Won’t Change the "Financial Crime Scene"

The G20 is meeting today in Washington , D.C. , to discuss the world financial crisis, its causes, and what can be done about it. But this won’t help the people of the U.S. who have been victimized by their own financial system. The stated objectives are to find ways to stabilize and reduce speculation in the financial markets and make financial transactions more transparent, more efficient, and more international in scope. But this is also a revolt by the nations of the world against over-reliance on the U.S. dollar as the world’s reserve currency. What we are likely to see over time is a multi-currency regime that includes the Euro and one or more Asian currencies as well. But the conference will not address the real causes of why the world is heading into a global recession or why the U.S. economy in particular is in such dire straits. Nor will the meeting lresult in redress of the staggering level of bankers’ criminality abetted by the U.S. government in the creation of the financial bubbles whose collapse is underway. The real problem is that the world is locked into a debt-based financial system run by the world’s banks, where the only way currency can be entered into circulation is through lending. It’s been massive amounts of completely irresponsible lending which have leveraged the bubbles against much smaller amounts of tangible value.

The GDP of the entire world is $55 trillion. This is dwarfed by speculative lending in the derivatives markets of ten times that amount--$525-$550 trillion. No nation has clean hands in this travesty. The governments of the world and the central banks have allowed it to come into being. Within the U.S. , reliance on money-creation through bank lending has been the problem since the creation of the Federal Reserve System in 1913. At that point the U.S. monetary system was privatized. The case has been the same with all the other nations which have private banking systems that control their central banks. The granddaddy is the Bank of England which dates from 1694. The creation of the Federal Reserve System marked the start of a century of world war. This is hardly a coincidence. Indeed, the central banking system encourages wars and lives off them, because it is war and the threat of war that is most profitable to a system where the more money governments borrow the more profits the banks make. All this started with World War I, which was largely financed by the British, French, German, and the U.S. banks. Events have continued in that vein through today, where the nations of the world are armed to the teeth and global finance capitalism tries to increase its control everywhere to the detriment of workers, national economies, and the environment.

To try to fix the crisis through bailing out the system, we are now seeing in the U.S. and Europe levels of government borrowing that have not been experienced since World War II. The purpose is to recapitalize a financial system that has destroyed itself through its own greed and folly. But all this does is defer the bill to future generations who have to pay the enormous compounded interest charges this borrowing entails. Interest on the national debt in the 2009 federal budget is over $500 billion. Every man, woman, and child in the nation is a victim of this crime. The situation is so bad that many people believe the U.S. may even be in danger of defaulting on its gigantic national debt sometime in 2009. Meanwhile, the failed financial system is dragging down the world’s producing economy with it, and the bailouts won’t change that situation. Combined with the financial crash has been a collapse in consumer “demand.” In other words, consumers, who are maxed out on their credit, no longer can borrow enough to keep the wheels of the economy turning. But the reason they must borrow for consumption is that earnings are not sufficient for people to buy what they need to live. This is why in the U.S. there has been an outcry, including with the Obama campaign, for new government job-creation programs. Every day there is another proposal by progressives for new government spending, which, of course, will have to be financed by even more government debt.

So when are we going to learn how to introduce purchasing power without debt? How did we ever come to believe that the only way to create money is through a bank inventing it out of thin air? In the past few weeks we have had a number of Nobel-prize winning economists chip in with their suggestions of what to do, but none have addressed the obvious question of what the alternatives may be to bankers’ debt-based currency. If we look at history, we see other ways governments have used their powers to create money. Indeed, until the Federal Reserve Act of 1913, the U.S. was a kind of laboratory of alternative methods of money-creation. If we go back to colonial days, the American colonies used a variety of means to introduce currency into circulation. In Virginia , plantation owners received tobacco certificates when they deposited their product at public warehouses. The certificates then circulated as currency. In Pennsylvania the government ran a land bank which paid cash to land-owners for liens on property. The interest paid for the costs of government without any taxation of citizens.

In Massachusetts, Pennsylvania, and elsewhere, governments spent paper money directly into circulation. The money received value by then being accepted by those governments, after it circulated within the economy, in payment of taxes. Other forms of currency were Spanish dollars, Indian wampum, and IOUs. There was also a flourishing barter trade. The system worked. By 1764, the American colonies formed one of the most prosperous trading regions on the planet. When asked why, Benjamin Franklin said it was because of colonial scrip—i.e., their paper money. When the British Parliament outlawed it through the Currency Act of 1764, an economic depression followed. It was the underlying cause of the Revolutionary War. During that war, the Continental Congress issued the famous Continental Currency. What likely caused that money to inflate was extensive British counterfeiting, not being used to excess by our national government. Once the nation became independent, a U.S. mint was founded so individuals could bring in gold or silver and have it stamped into coinage free of charge. New discoveries as with the California and Yukon gold rushes or better methods of extraction from ores resulted in economic booms. From then until coinage lost its value after the Federal Reserve System was established, precious metals were a major part of the U.S. monetary system that included not only coinage but also gold and silver certificates.


What has happened during the Bush administration has been the greatest crime against the public interest in U.S. history. Its effects are only starting to be evident. Of course in the face of so many disasters, the credit markets have imploded, and governments don’t know what to do except recapitalize and restructure them but without taking action to address the deep systemic problems with the producing economy. And while the Europeans may have blown the whistle on U.S. excesses through the G20 meeting, this country still faces disaster. Yes, Wall Street is killing Main Street , and no one has come up with an answer except suggestions for the bailouts and some New Deal-type programs in an environment that is much worse even than in the 1930s. For one thing, most of what we consume today is produced abroad. For another, family farming has been ruined. In a pinch, our nation could no longer even feed itself. But the amazing thing is how easy it would be to salvage the situation if the government took the simple step of treating credit as what it really is—a public utility like clean air, water, or electricity, not the private property of the banking system. In fact the banking system and the politicians they own have stolen and abused this fundamental piece of the social commons. Banks have no legal right to work against the public interest. Every single bank that has ever existed has operated under a public charter. The Constitution gives Congress—i.e., the people’s representative government—authority to regulate interstate commerce. It also gives Congress the right and responsibility to control the monetary system. So why doesn’t Congress do it? Why does Congress sit passively and stare when Federal Reserve chairmen such as Alan Greenspan or Ben Bernanke sit before them and mumble nonsense about markets and interest rates and inflation and the rest of a made-up system whose main result is to funnel the wealth of the economy upwards into the hands of the financial elite? In my writings I have advocated several measures Congress could take immediately to remedy the catastrophe we are facing:

1. Congress could authorize direct expenditure of government funds for legitimate public expenses, as was done with the Civil War-era Greenbacks. Contrary to bankers’ propaganda, the Greenbacks were not inflationary then and would not be inflationary now, because they would be backed by tangible economic production of goods and services. What has been inflationary has been the debt-based currency which, since it was introduced in 1913, has caused the dollar to lose 95 percent of its value. Greenback-type spending is contained in the proposed American Monetary Act, developed by the American Monetary Institute.

2. Congress could authorize a national infrastructure bank that would be self-capitalized and would lend money into existence to state and local governments at zero percent interest. Legislation for such a bank has been introduced by Congressman Dennis Kucinich.

3. Congress could authorize dividend payments to citizens as advocated by the Social Credit movement founded by Major C.H. Douglas of Great Britain decades ago as a means of monetizing the net appreciation of the producing economy. Dividends exceeding $1,000 a month could be issued from a national dividend account without recourse to taxation or borrowing. Such a concept is related to the Alaska Permanent Fund which paid over $3,200 to each state resident in 2008 and to the concept of a basic income guarantee advocated by proponents of the negative income tax in years past.

4. Congress could utilize dividend payments once they were spent, possibly in the form of vouchers for necessities of life like food and housing, to capitalize a new network of community savings banks that would provide low-cost credit to home purchasers, students, small business people, and local farms.

I worked in the U.S. Treasury Department for 21 years and learned first-hand the history and operations of public finance in the U.S. I have seen the disastrous results of the debt-based financial system and how it has driven our nation, government, and people into bankruptcy. I have also seen how these simple measures of monetary reform would be easy to implement and would begin to turn the situation around within weeks or months. All it takes is political will and a determination to challenge the death-grip the financial elite has had on our economy for a century. We can be quite certain that these vital issues will not be addressed by the summit of the G20 meeting in Washington today. If anything, these meetings are likely to render the grip of private finance on the peoples of the world even tighter than before. But sooner or later change must come. For the immediate future people could fight back by doing everything possible to get out of debt, convert their cash reserves to tangible holdings, and start their own local currency and barter systems. But for real change, a monetary revolution is required.


Russia: Pushing the Ruble


Russia and its former Soviet neighbors are meeting to discuss a proposal to carry out energy transactions in rubles instead of U.S. dollars. The plan theoretically offers an economic benefit to importer states, but they might not go for it given the political strings attached.


National bank chiefs and finance ministers from the Commonwealth of Independent States (CIS) — which includes Russia, Belarus, Moldova, Armenia, Azerbaijan, Kazakhstan, Uzbekistan, Tajikistan and Kyrgyzstan — are meeting Nov. 17 to discuss the possibility of using the Russian ruble for payment of energy deliveries from Russia. This initiative has been on the table for some time, but now Moscow is pushing the plan in order to prop up its own currency and solidify its control over other CIS countries. Currently, Russia accepts energy payments in U.S. dollars from its export customers and then converts the money to rubles. However, Russia tacks on a hefty fee for the currency conversion, making energy imports from Russia just that much more expensive. The offer on the table is to allow importers of Russian energy (at least within the CIS) to pay in rubles, which Moscow says will help eliminate that costly conversion fee for those states.



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