“So-called
hard euro is lighter than oil, that is the reason why it floats”
From monetary system via dollar-dominans to floating nominal currencies
The dollar seceded from the gold
How USA dealt with its debts-increase
The US-world-reserve-role changing
Euro and its primery objectives
Fear of competition narrows the rationality
Two suppliers of internaitonal monetary means
The need for introduction of real currency rates
From monetary system via dollar dominans to floating
nominal currency rates:
The
international system of payments after WW2 that USA and Britain actual decided,
while the war was going on, in 1944 in Bretton Woods, New Hampshire, USA,
tranformed the dollar to a so-called reserve currency; most of the worldtrade
was agreed upon in dollars. Central banks all over the world kept a
considerable reserve amount of dollars in order to be able to protect the
national currency when too much imbalance in foreign trade occurred, and other
currencies were expected to be measured secured in terms of the dollarvalue.
The value of dollar was connected directly to the goldprice, $35 per ounce fine
gold. The dollar dominans in the world trade alone implied even larger dollar
reserves in the central banks all over the world. The Marshall Plan after the
war secured the rebuilding of Europe; but it actually did not cost USA a cent,
because the dollars (-bills) obviously are much cheaper to provide than other
goods and services. When dollars returned by the accounting for goods and
services in USA they made trade impacts on the American economy, otherwise they
did not. But almost none of them returned. At the same time USA could import
almost unlimited and pay with more dollars that did not return either. Large
amounts of dollars that piled up for example in consequence of the positive
result of the balances of trade were invested in interest-bearing and currency
secured American government bonds and other assets. With this system the
leading economic power was tempted to accept large deficits on balance of trade
equalized by missuse of the means of payment via this issuing of money. The
result was that US received the foreign goods for free. This arrangement
simply could not continue in the long run or could it? Without going into
details, inflation and state-debt was introduced as an obvious possebility
among the professional politicians, who did not worry particularily about
nation and tradition, and certainly did not know the hard conditions.
Devaluations on behalf of the nation, and the initiatives of the state itself
were also included in this dismantling, and devaluations in cooperation with
IMF came like af thief in the night in a row of cases, because the really
needed of necessity had to be done in time to prevent this vicious spiral to
continue in the nations: Finance crisis upon finance crisis around the globe.
It
was certainly not new phenomenons that were introduced by the Bretton Woods
System. At the peace conference, the Wienna Congress in 1815 and the bankructcy
of Denmark 1813 followed a devaluation of 90%. The collapsed monetary system
from 1944 that has not yet been replaced by a new one actually had some bad
temptation for the politicians built in depending on the character of the
leading figures. Of other decicing impacts in the long run the following have
to be mentioned:
The
domain of the dollar extends:
On the other
hand the arrangement was binding for USA, externally, in the world of realities
characterized by practical rebuilding of production-capacity, markets and
defending efforts under the Cold War. And the rest of the world could
redeem dollars at the goldsprice as required, granted that USA as an economic
superpower was able to secure the dollar-value settled in gold. USA was the
only country to guarantee and carry out the redemption of dollars for gold as
it had the largest gold-reserves. Western Europa quickly recovered, and the
growth lead to large European export surpluses that at the same time created an
dollar-accummulation in the export countries. As early as in the 1960s France
began to redeem dollars for gold, and others followed. At same time USA was
engaged in the Vietnam War and elsewhere. This brought the deficits on the
public finances in an uninflated heavenward flight of the time. In 1967 the
drain of the gold-reserves in USA and Bank of in England in Britain to a
critical point. That France and other Eruopean countries definitely according
to the agreement increased the redemtion of dollars for gold brought the dollar
under pressure, given that the goldprice measured in dollars continuing was
kept unchanged. It was expected that USA would devaluate the price of the
dollar in relatively to gold with a continuous bigger and bigger pressure from
the demand for gold, and also from USA’s deficit on the balance of trade plus
the still unfinanced war-deficits on the domestic public budget. At the same
time most of European countries gradually “dyed their money issuing in
dollar-green”, and they also began the inflationary growth that went into
stagnating production and employment with still higher inflation to end up with
a rate of short interest of 21%. This was indeed the characteristic economic
consequences of the welfare that substituted wealth in Scandinavia in the
1970s.
In 1971
Britain also began side by side with France to order redemtion of dollar for
gold. Instead of contnuing towards a predictable collapse of the market USA
left the redemtion of gold in august 1971. That actually meant that the
international monetary system built up a little on gold but much more on
dollars dismantled as forseen by almost everybody (among others the Norwegian
negociators in Bretton Woods), and the world changed to the system with floating
nominal rates of currency[1].You may
also call this international financial anarchy, if you have understood that the
grocer of that time could not sell the scales, and still claim to supply his
freshly ground weighed coffee.
OPEC is a cartel that agrees upon a common
oil price and distribute quotes of production-capacity among each other. OPEC
was founded by Iran, Irak, Saudi Arabia, and Venezuela September 1960 (later on
more countries joined) with the clear objective to “coordinate and unite” the
oil policy in the member countries. After the Teheran Conference 1971 (where
the price-settle-initiative was tranfered from the oil companies to the
exporting governments) the buyer’s market for oil closed down. Now the need for
a floating dollar rate emerged, if the economic worldpower USA - still with
trade deficits - should not lose ground. October 1973 OPEC sent price on the
oil to the sky with rise of 400%, and at the same time imposed an embargo that
forbid shipping of oil to every country that had supported Israel in the “Yom
Kippur War” against Egypt, and OPEC reduced the production with 25%. USA had
previous reached an informal agreement with Saudi Arabia that the country could
invest in USA, if USA assisted Saudi Arabia develop its economy. Apart from the
tremendous oil prices-rises – there was another smaller one in 1979 – there was
nothing catastrophic in the oil countries requiering more for their oil, when
the reserves were limited. The profits earned by sale of oil accounted in
dollars floated into bank accounts in Britain and USA, when the OPEC-countries
simply could not find a better investment for the petrodollars right away. The
problem arising was to allocate the money back into the productive circulation
– recycle petrodollars -, now that the West rode on wave of combined stagnation
and inflation at the same time. This new phenomenon – the Philip-Curve moved,
but not until reality gave inspiration to loosen the premises of the theory -
was caused by issuing of money-units, irreversible increases in wage rates and
deficit on the public budget. [The reason why was not the oilprice rises even
though that was persistently claimed (for 10-15 years) - if not it could be
claimed that so-called crisis followed from the heavenward fligt of the oil
prices had to be renamed to the normal state. So-called
euro-dollar-bonds were issued and became the guarantee foundation for private
lending from private banks to the Third World with the Bretton Woods
organizations - IMF and the World Bank – in a the role as mediators. The
developing countries could not provide money to the more expensive oil from
other sources[2].
Petrodollar were the foundation of a huge number of
hopeless lending-arrangements, and thereby also the propellant for at lot of
debt-crises in the 1980s, and in the 1990s also among more developed nations in
Latin America, Asia and Europe. Who created the risks, and who transferred these risks, and who had to
bear the resposibility in the end?
In February 1945 USA
made an agreement with the Saudi king about military protection of Saudi
Arabia, if USA was given priority to the oil sources of the country. Even
though the oil occurences were nationalized in 1976 ARAMCO (an association of
Arabic and American companies) was controlling the production and the markets
for oil outside Saudi Arabia. Surplus of petrodollars was invested in American
government bonds. This market is obviously a power potentiale in the hands of
the world’s leading millitary power. An example: In 1980 Iran’s and Libya’s
assets in USA was confiscated, and recently organzations dealing with
international terrorism suffered the same fate.
With the organization of IMF - International Monetary Fonds - a link
in the international monetary- and ledingsystem, it often was a merciless fight
of debt collection against weak founded states in the Third World. It was
underlined from a few sources that the yearly new borrowing in Western Europe
actually was bigger that the total debt of the developing countries in the
1970s. If we take the question of creditworthiness: the single states that
decided the agreement of the Bretton Woods System paid in money, but most were
given guarantees[3] in the foundations of IMF on behalf of the nations' taxpayers, and in accordance
to how large an economy the nations represented, so the responsibility for the
many lending-dispositions in private banks, particulary to the states in the
developing countries was rather often in quite another place than the
initiative. How these lending-arrangements and other international arrangement
was established, you can among others read in Frederick
K. Listers 'Decision-Making Strategies
for international Organisations: The IMF Model', Denver, USA 1984.
How USA dealt with its debts-increase:
About 70% of world trade is contracted in
dollars. Oil is the most important good in the world, all countries have to get
oil, and if they do not have oil they have to buy it, for dollars. That has
been the reality for the last 40 years. Recycling of petrodollars have simply
been the price that USA have requiered of the oil producing countries for
having USA to tolerate an oil exporting supplying-cartel OPEC since 1973. For
about two decades USA’s deficit on balance of foreign trade has increased most
of the time. Today it amounts to about 25% of the American Gross Net Production
(GNP) or about $2.5 (European) billions or $2.5 (American) trillions. In 1988
the balance of trade was in balance, and at this time USA was a creditor
nation. Since 2002 the yearly public deficit has been $450-600 (American)
billions, or 4.5-6.0% of GNP compared with 1.3% of GNP in 2000, when both
federal and the states’ deficits are incounted. Russia and Asiatic central
banks in China, South Corea and Japan have bought American government bonds and
other assets in accordance with more than 60% of the total public domestic deficit,
for more than 1 trillion the last three years to keep up the dollar against
Asiatic currencies that actually reduces the domestic issuing of monetary means
substantial compared with what it must have been without the Asiatic demand and
everything equal. It also appears from the fact that inflation is apparently
still under control (in spite of the fact that inflation has a delay before it
reach full strenght), and the employment is rising substantial in the fall of
2004. November 24th 2004 the dollar hit the lowest point compared
with Yen for the last 9 years and the lowest point compared with Swiss francs
for the last 4 years. China began selling dollars of a substantial amount
November 27th 2004.
In the first half of 2004 more than $201
billions assets were bought up by foreign central banks. Of these are $180
billions American government bonds. In Japan are large parts of the bonds
placed as security for Japanese banks that otherwise would have gone
bankruptcy, more below. In the case China, it is the result of a large new
export of price-competing goods to USA, for example outsourced American, and
also Chinese productions that result in the large accumulation of dollars. They
are invested in American government bonds and real investments outside China.
The currency rate of Chinese yuan is linked to the dollar rate - and this is
not just an implication of the buy up of government bonds. This means that the
yuan without the US-bonds perhaps would have been in the same boat as USA, when
the dollar may fall further. A still continuing fall of about 20% or more of
the dollar would lead to a fall in the stock market prices, and also lead to
higher dividends, when foreign entries move investments away. 40% of the
American government bonds are owned by foreigners, like 25% of the business
bonds, and 13% of the US ordinary shares. Behind the placement of the US-debt
you also have to take into consideration that China’s demand for energy for the
industrial sector is expected to be dubbled in the next 15 years, and the
Chinese demand for electricity is expected to dubble in the next 10 year, and
to be multipied with four before 2019. Until now USA has been the only country that
can increase its purchasing-power on the world market by issuing more
dollar-notes. The US-import is about 50% or in dollar-terms or $310 billions
more produced produkts than USA export (yearly). That put the country in a
special situation, characterized by both power and vulnerability. Without this
central, very peculiar status of the dollar and a consequent and constant flow
of capital-investments from the whole world, the country would quickly heel
over in a catastrophic crisis of balance of payments.
The US-world-reserve-role changing:
From
November 2000 Iraque began to settle its oil sale in euro, and at the same time
it converted the reserve-foundation “Oil for Food” with $10 billions to euro
after an agreement with UN. Between 2001 and February 2003 almost the entier
Iraqi oil export was paid in euro, about $30 billions. In the same period the
euro increased relatively compared with dollars with 30%. Saddam Hussein had
already offered concessions of oil extration to France, China, Russia, Brasil,
Italy and Malaysia. Saddam Hussein had until then only used Eruopean banks to
the limited sanction program, “Food For Oil”. He awarded the Palestinians with
1 billion euros in 2000. A short time later EU awarded the Palestinians with 90
million euros as a subsidy to show its friendship with the Arabic World, if
Israel canceled its payments at that time. A few days later the European
Investment Bank made an agreement to lent Syria 75 million euros after eight
year with sanctions of have been shut out from making businesses with this
country. A little earlier, August 2000, EU donated 1.7 million euros as a
subsidy to Eritreans, Etiopeans, Somalis and repatriated asylum seekers from
Yemen after the war with Etiopia and famine. Subsidy from EU in euros again: not
long ago the Italian Prime Minister Berlusconi proposed an European version of
the “Marshall Plan” which he characterized as a generous act to rebuild Europe.
He proposed to give the Palestinians a help of a value of 6.2 billion euros in
a period of five years.[These last things are included to characterize the
motives and the understanding of the situation among the promoters.] From
November 2000 to November 19th
2004 dollars decreased relatively to euro with 34.5%, from
December 1st 2002 to November 19th 2004 with about 23.5%.
A lower rate of dollar made the dubbled result, by lowering the enormous
deficit on the balance of payments (an improved balance of trade and an
improved balance of the flow of investments), and improve the competitiveness
of the exporters that would result in higher investment, and higher employment
in these exporting businesses. I addition a lot is pointing in the direction
that the petrodollar adventure has ended caused by the increasing import in the
oil producing countries, and the reduction of the relative share of OPEC in the
total oil export.
Iraque
has the second-largest known reserves of oil among the nations of the world.
45% of EU’s oil import comes from oil sources of the Middle East, 80% of Japan’s
comes from the Middle East, that has 60% of the world’s known reserves. USA is
not dependent on those oil sources. The shift to petroeuro that is mentioned by
few is predicted to have huge effect only if Great Britain and Norweigh
introduce euro that would result in North See “Brent” and the Norwegian oil
supply being settled in euro. Shortly after Iraque’s move, Jordan began
bilateral agreements with Iraque. August 2002 Iran converted more than the half
of its currency reserves in Forex Reserve Fund to euros, and China also began
to convert some of its currency reserves from dollar to euro. At the same time
Russia dubbled the stock the Russian Central Bank of euro to 20% of the total
$48 billions. An Iranian senior speaker of the oil industry Javad Yarjani
noticed in a speech to the Spanish Ministry of Finance that “it was possible
with a increasing trade between the Middle East and the European Union, and
that it could be suitable to settle prices in euro. This would create more ties
between these blocs of trade with an increasing trade, and at the same time
promote a very needed European investment in the Middle East.”
The
British Empire was brought on even keel via the need for Britain to import
food, when the domestic agriculture was driven out by the industri. The
American Empire may be brought on an even keel via the need for USA to import
manufactured goods, when the domestic production was driven out by the
financial services.
While
the dollar has decreased since 2000 the price of oil settled in dollars has
increased. The euro-price of crude oil remained almost the same in the four
years period. It just don’t seem logic that this result should occur of simple
by chance, and it does not seem to be a surprise either that others could begin
supplying a dominant reserve currency. The money plans of EU has not been held
entirely top secrete. It is most likely to be a result of considerations of
thoroughly planning and design. It also seems as if OPEC react to the dollar
depreciation in a most natural way; by increasing the oil price precisely to
the point in accordance with the lost they would had to bear is removed.
The rate of Japanese yen has decreased 5-7%
a year compared with euro from 2001 to 2004, notice, a relative decrease to
dollar of about the half. This means a yearly depreciation that makes Japanese
products more expensive in Japan, and the country is far from being
selfsufficient with food and energy. Japan has stagflation and did not get
through the last stockshare-bubble-crash in Asia in 1997, because the banks in
Japan continued to throw new money after bad money with guarantee of the
government, mostly based on American government bonds. February 10th
2002, Observer notes: Japanese consumers flock round the banks to convert the
quickly depreciating yen to gold bars. There is fear for the banksystem to
collapse, when the deposit guarantee of the government is being removed in
Mars. We wrote in 1999 that Japan-government tried to reuse the Japanese
economic policy from 1920-1927: to issue billions of yennotes and new credits
with which the banks bad loans could be bought up, the assets then had to be
overestimated much like in the Weimar Republic in Germany. Now it unfortunately
was I the period 1920-1927, where Japan handled precisely the same problem just
as wrongly as now in the late 1990s that it would have the one to refer to, if
we had to learn from experience. It is not true that history repete without
further. But if leading figures use the same false way thinking on the same
problem (for example as an act of bad faith), then the superstitious are
tempted to believe that history repete.[And it is not totally false, apart from
the fact that ignorance’s blind fate must be classified in categories of
belonging to an earlier or the coming middle age.] Such a incomprehensible
policy was really carried out, also concentrating at negative rates of
interests and guarantee of the state for the banks to get the prices to rise
“by stimulating the production in this way” in the misunderstood Keynesian way.
The falling yen has really got helplessly stuck in a debt trap. The public debt
is $5 trillions, a little less than the debt of USA that November 19th
2004 got its borrow-limits increased to $6.4 trillions. More state-debt is
continuing contacted at still higher settled prices, even though it just
increases the debt. The debt trap is closed, and there is no easy way out.
Japan which regardless is an important industrial nation is also a substantial
importer of oil. Japan’s surplus of trade from sails of cars and other products
was used to import oil settled in dollars. The surplus was invested in American
interest bearing government bond and other assets. The government of Japan owns
15% of the American Treasury assets. G-7 was founded to secure Japan and
Western Europe within the dollar system. From time to time in 1980s statements
about the three currencies - dollar German mark and yen - emerged from different
Japanese sources that they should divide the world’s role of reserve under the
floating nominal currencies. Until now the dollar remained the dominating. Euro and European Union: European Union with common compulsory
money units, and a constitution is being established among EU’s 25
member-states now. That it is difficult to obtain adequate consensus among the
Europeans about the common compulsory money unit is perhaps unnecessary to
state. To establish an European monetary union right now, where all European
countries are indebted more than ever - apart from perhaps two European
countries outside EU -, dominated by unsatisfactory activity and employment
anywhere in EU, and even negative growth in the three leading countries,
France, Germany and Italy for the second, perhaps for a third year is more than
a feat; it is an artificial, ideological construction. The national currency
sovereignity has been abolished in the eurozone. The objective is obviously
price stability and growth in the eurozone. For years we were lead to
understand - in the open - that the currency reform guaranteed price-stable
growth, even though the rules about the new currency in the Maastricht-treaty
(for example: article 104C) tells something quite different; particulary concerning
the newinvented, partly inconsistent and irrelevant so-called claims of convergency
that can be overruled, if the Council of Ministers does not estimate the
offence to been substantial. The countries - France and Germany - that put
these claims into the treaty were the first to offence the rules about
deficits, and the relative magnitude of state-debt compared with GNP - they did
not even honor this selfchosen claim either without several manipulations with
the respective budgets (redemtion of gold and seeling of pension duties) in
both the countries, Germany and France, when they invite other countries to
qualify for joining the monetary union on the same conditions. In 2004 it
continues in Germany with selling of the pension duties of the civile mail-servants. Euro and its primery objectives: To assume the common compulsory money unit in
any way should reflect the real economic in EU, and serve the union we obvious
have misunderstood. Corresponding to Spain’s fatal administration of the gold
extracted in Latin America in 1500s it looks as if the euro in the best
Mercantilistic way via trade settled in euro for example oil from the Middle
East is meant to generate the moment that created change in a Europe with not
less than 20% unemployed (official 9%) or expelled, and an enormous state-debt
that you no longer can make an unambiguous sketch of. Jean Monnet - one of the
founding fathers of project - exactly claimed in the 1950s that the compulsory
monetary unit would be used to make the union real in full scale. It was the
form, before the contents that counted, we can conclude. If for example one
of the Maastricht claims of convergence about the magnitude of the state-debt
that must not exeed 60% of GNP should have meant anything serious, between the
half and two thirds of countries could not have met this claim without to
accept crises of stability. So much can be extracted of those real informations
that are released time after time. Apart from Mercantilism that according to
history ended with the Napoleonic wars stability and development cannot be
measured as an index of prices or some procent-figure. Or when some
quantitative standards have been registered, then you can talk about a stable
currency (with reference to the five Maastricht-claims of convergence).
Stability include the dynamics of the capital formation, security of the
investment process, economic growth, education and new technology and high
productitiy in a state to claim that its leaders have taken the voters and the
nation seriously. All this cannot be obtained or be calculated as some simple
static concept. France and the most of the other countries were against the
so-called stability pact that could have secured that the central bank acted
like the old German Bundesbank, and kept the reins tight, but from quite
another starting point. It was decided at the summit of Dublin in December 1998
to drop the stability pact, and France made too large deficits on the public
finances in both 2002 and 2003 compared with the Maastricht provisions. The
struggle about who should point out the president of ECB (European Central
Bank) ended with France. The German Bundesbank was out of step with the German
political, financial and industrial elite. But the bank was very popular in the
German public opinion. Therefore the politician Helmuth Kohl was very hard
pressed between the German and the French Establisment. The French
socialists had built in their claims to the subsequent treaties. Now Kohl has
gone, and the new German kanzler is a centralist himself. EU has in return
recommended a German as leader of IMF. Kohl also had to eat that there were no
more talk about pure automatic sanction against a country that makes continuing
deficits. Now the claims is activated (according to Maastricht-treaty) when 2/3
of the weighed votes in the actively participating EMU - countries vote for
sanctions. France also got approved that a so-called stability-council,
and at the same time a directly political rolle built into the monetary policy
so that for example guiding lines for the euro currency have to be fomulated
politically now. In addition to introduce the pure
(economic) stability pact without order in the member-states’ economies would
lead to real political instability. If the amount of money and credit cannot be
debated in the whole eurozone, because it has to be decided by a hard ECB, the
consequences would be so terrifying hard in some parts the union that political
instability would inevitable be the result. Italy and Greece are obvious
examples. To defect this you can then introduce the more
well-going countries to hand over “some surplus” from the public finances or
“commit themselves to this in advance” (but the problem is that no state can or
will do so) to the bad-going Italy, Belgium, Greece, Portugal and Poland. This
means on plain English that the public expenditures have to be controled euro
by euro in the whole eurozone. This is common financial policy. On that
assumption every extravagant expenditure, and a lot more will certainly be
stoped. If you should judge by the falling D-Mark and the
rising Italian lira in 1997-1998, the markets had to have the impression that a
soft euro was being established. There was a completely unknown but collosal
amount of lira that should have an eternal determined rate in euro in July
1998. How this could happen without a soft euro, would be intereting to have
explained, and there were lots of other problems pointing in the same
direction. Already in 1996 you could foresee that the euro would
be a so-called junk-currency - that was what the speculators called it -, if
Germany, France and Britain should take over the Italian enormous mountain of
debt. This would lead to result that ECB had to guarantee the solvence of both
Italia, Belgium, and all the other heavily indebted member countries, for
example Greece, and the countries that could be expected to join EU in the
Eastern Europe at that time. In this way an alliance would be created that
would press ECB, and get it to act as if it still controled the monetary policy
without really doing this. That was what happened. Real EMU-stringency after
the book multiplied by three or four is what should be expected, if we assume
economic stability should succeed in the present situation - without a
strong lever from outside. But this would imply the lost of political
stability as the relations are and may be expected to develop, and the
disappointment with the whole project would lead to even more resistance
against the project. That is the reason why they still act as if. Fear of competition narrows the rationality: Globalization means the unlimited mobility
of markets included the capital market. The globalization will destroy the
democratic society and the welfare state, many maintain. The only reason why is
lack of an international monetary system that would have prevented the worst.
The total mobility of capital undermine the abilities of the states to
regulate. Especially the concern for the labor market: Untercuting and cutbacks
have to absorbe what threats to disappear of jobs, among other things by
outsourcing. The globale markets of financing are not subject to a regulating
mechanism of competition, and they causes crisis upon crisis - Asia, Mexico,
Russia and Latin America. The crises will become deeper caused by the
paper-mountain of the state-debt that widening the difference between nominal
and real values in every community in the long run. And because you have
chosen to sell the tape measure instead of using the tape to measure with
according to its purpose. It gets worser when all the leaders of the states
continues to borrow net more and more. The crises tighten the social pressure
with requirements of cutbacks. The pressure of the crises either lead to the
dismantling of the welfare states or change them into linked defending blocs
(currency blocs like euro, dollar, yen or renminbi-zones) or relapse to the old
enemy-pictures that characterized the national states earlier, perhaps a
combination of both scenaries. With the dismantling of the democratic founded
national- and social state the globalization releases itself at last, because
the politicians cannot stand for that the populations/the voters of their
countries have to bear heavier and heavier burdens just to offset the worst. Euro-Union is the prototype of this development. Its
bad hidden dubble-motive is a) fear of the dollar-dominans and –competition and
b) fear of the united Germany with matching D-Mark-regime. Fear
always build on a false analysis. The US-dollar does not threaten the European
market shares of the world trade, but Europe’s lack of knowledge, technique and
initiative, especially Europe’s inertia when comes to reforms and renewels. The
hardness and the strenght of the D-mark did not prevent the development and the
integration of Europe, but the since “Maastricht” the aim was abolishment of
the D-mark, and that has then happened. The explanation was that D-mark should
have driven the countries in the eurozone (now) into a tight negative
development against reforms and with social limitations. Alone these fallacies
and false assumption do not allow any realistic expectations about a hard euro.
The inflation was programmed in advance. It is perhaps possible to blow more
air into it by leting it float in oil at the beginning, but the collapse is
then going to be even bigger. All member countries are deeply indebted, and all
of them run with deficits. The
national governments lost their instruments of management right at the
beginning of the euro (currency rate, interest rate, amount of money and
flexible budget). They can no longer secure the values of the money, and
regulate the labor market, and the social- and ecological standards that the
same policians had introduced. Differences of structure and of competition will
with governmental suspension be equalized by the market. The battlefield number
one is the labor market now, and the social and ecological systems. The labor
market suffers from the diminishing of the middle class, the wage rate and
social cost competition originate from the workers in the southern and eastern
EU-povety-zones, and an inevitable liquidation of the decided national
union-wage rates and the minimumstandards of the social level till now. The
market sweeps them away, the employers uses more and more their potential of
threat that is to move their productions to especially favourable (wage rate,
social- and ecologic cheap) EU-zones. Wage rates, social standards and claims
of environment in Euroland have to be harmonized downwards. It is the naive
imagination of socialdemocrats, the folk socialists and unions that these
things must be better after they have signed the Maastricht-treaty. In
Euro-Union the social policy has resigned forever – and it is happening with
full accept of the socialdemocrats, the folksocialists and unions. Euro-Union is not the remedy against the
employment crisis of globalization. There is nothing special about this globalization;
that is an apophthegm; international competition is the right word. Euro-Union
strengthens the power of the capital, and helplessness of the state in the role
where nothing real can be done to the unemployment without to have the needed
instruments. It is a progress towards the 19th century (here the
instrument of ruling were searched too), not towards the 21st
century. Euro-Union is not even a counterbalance against the unsocial tendenses
in the globalization, as the incompetent analysers from the left maintain; it
strengthens them further. It simply forces the working life towards the monetary
commandos. The European Central Bank (ECB) has to pursue the totally same
policy in the 12 different structure countries, without the possebility to
resort to the equalizing of the nominal currency rates. To prevent the capital
from leaving the eurozone the central bank will have to increase til interest
rate; but this decreases the activity and rises the unemployment further. Such
an union must end in the conflicts among the states, from which there is no no
help to find - if the euro-union is not rebuilt to a transferunion or an
federal state with public equalizing between old and new member states,
something like the patchwork USA or the German Federal Republic, but without
the D-mark. When the transmission of these models show themselves impossible or
they meet resistance the question arises: Are there alternative models that can
save the world peace? As it runs now: Europe and Arabic world has already begun
to cooperate economical, as it was forecasted in North-South-Dialog from 1968
and the European-Arabic Dialog from the midd 1970s. Egypt, Jordan, Marocco and
Tunesia decided last year to establish a zone of free trade[4], and Algeria,
Libanon, Mauretanien, the Palestinian authority and Syria are being invited to
join this big zone of free trade. Egypt is expected fully admited in this group
of free trade. However EU has negociated with 12 Miditerranean countries as a
part of the so-called Barcelona-Process about cooperation between EU and its
neighbors around the Miditerranean towards south. The aim in the long run with
this Barcelona Process is to establish tighter bond of trade and social
questions as well as of political kind. This will lead to the creation of the
Euro-Miditerranean-Freetrade-Zone consisting of 27 countries in 2010. It is possible that the European
productions in future may be transferred to North Africa, the Middle East and
Eastern Europe, until they come up, and we are put totally down. It is a
question if the populations submit to that.
Two suppliers of internationale monetary means: With
the last European-monetary move - if it is an experiment of establishing of the
euro as a possible reserve currency or currency for price-settling to some
extent in line of the American dollar - no real lift of Euro-Union will happen.
“If the occasion should arise there would be to ice cream booths on almost the
same bathing beach. The difference to the metaphor is that the booths are
supplying monetary means to be able to live on the products of other countries
instead of supplying more ice creams, and employ its own working force to
produce more products and more services. The climate of investment is far
better in the dollarzone of the beach, and the other products and services are
far more competitive in the dollarzone. The European Central Bank is organized
to prevent euro from falling; it has no means to prevent euro from rising. If
ECB are going to issue more subsidy-euros that are covered by the real economy,
the economy is further twisted. The deficits on the public finances in the two
leading countries of euro-union are of the same magnitude, when compared
relatively with GNP, like the corresponding in USA, about 4% against 4,5-6%.
But here you have to take into consideration that the whole here is threathened
by deflation, if the euro increases 20% further, because the growth in the
three leading countries in the eurozone is close to zero. The dollarzone can
expect a tremendous improvement of its tradebalance. If this zone is perhaps
going towards a more sound value of the dollar, it tempting to propose the
single lacking arrangement. A common instrument to prevent crisis upon crisis,
deeper and deeper, and at the same time secure that the monetary means are used
to what truly is their only useful aim. The classical economists, for example
David Hume and John Stuart Mill proved in the 1700s that without order in the
monetary relations, there will not be any order in the markets of products.
Without an international order of money and credits that is in the interest of
the big trading countries, it will go wrong. The need for introducing of real currency rates: The ruling monetary system until 1971 was
not the agreement that the chief-negociator of England maintained for a long
time was best to be chosen. To protect against crises and inflation J. M.
Keynes showed an internationalt emission-agency with an international monetary
unit that was not fully negotiable. It could be bought for gold, but not the
other way round. Only if the states of their free will stop the
inflation-orgies and the state-borrowing or devaluate (by compulsory) or let
the money amount and the credit be ruled by others, it is possible bring
harmony into the international system of payment, Keynes maintained. The
incitament to speculation is removed at the same time. A monetary measuring
instrument without banknotes to determine real currency rates, and it is
certanly not suitable to force out national currencies. Real currency rates are the present
nominal currency rates corrected for inflation. We have seen in the last half
of 1900s that inflation is a distinctly harmful phenomenon. If inflation had
made a country’s products lesser competitive, the country could just devaluate
the nominal currency rate relatively to all other countries, and in this way
benefit by the lower price of its export products, and higher prices of the
import products; the exhange-relations to other countries has then been
changed. Regardless if this trafic had to be repeated to have any effect -
except for inflation - it was the way countries used to go not long time after
The Second World War and the reparation.
There must a possibility for countries to make
inflation for limited periods, caused by some structural or developing matters
that have to be arranged. Such a possibility must excist, but in such way that
other countries are not harmed by this inflation. The country that need
inflation have to devaluate at once in advance. It is easy to incount inflation
into the currency rate. By this are all other countries protected against inflation,
and also against deflation, where the negative growth can lead to standstill,
if the right monetary intervention are not carried out in time, as we saw it
the 1920s and 1930s. No national currency must be brought into the
international monetary system. We have had a much similar system under the
so-called gold-coin-basic that was especially connected to the appearance of
industralism, its early development, and the worldtrade via City, London.
Goldstandard (a looser system) became the pivotal point, but the gold was at
the same time a good of trade and therefore it did not have a settled value in
itself, but the price was decided by supply and demand from the central banks,
lastly a politically decided. An international monetary unit a little corresponding
to the ECU – originaly the voluntary European currency unit emitted from an
independ organ; it could be exchanged when needed, but for the present aim just
a unit of account. A unit of account in an published, settled amount, and at a
settled price, an account and reserve unit. No saleable instrument that get
impacts from any supply or demand. And international arena where both debitor
and credit have to pay interest on loans with the new reserve unit as
guarantee, so we prevent lending out at random, and if it does go wrong,
ordinary people should not be cheated every time, and it should also prevent
crises of finances from overturn one deloping or misinformated country, one
upon the other. You can call it a nationalbank of the world as a foundation for
the international trade. It is simplicity that everyone can understand: we
cannot control the national/international markets of currency from a national
central bank, if the international montary unit is for sale, and thereby has
become a multi-lend of all national currencies. I
knew that when I was 21 years old in 1971, and USA ”left the gold” as it was
expressed, but selfconfidence grow with experience. I learnt little of
economics that offered me a more solid ground to argue from. And
we perhaps have to go through another catastrophe before the leaders
understand, what their predecessors did definitely wrong, or were lead to make
definitely wrong from their in many respects marionet positions. Supplementary
readings: Economics
of Tide: Big
recessions and recoveries in the 20th century : http://www.lilliput-information.com/tida.html
(part 1) Big
recessions and recoveries in the 20th century (including the role of
private company with anonymous ownership): http://www.lilliput-information.com/tidb.html
(part 2) Goldstandard
in all combinations: Gold
as an international unit of account for values - a historical statement: http://www.lilliput-information.com/gol1/gol1.htm
(part 1) Gold
as an international unit of account for values - a historical statement: http://www.lilliput-information.com/gol2/gol2.html
(part 2) Keynesianism,
the misused of J. M. Keynes theories: J.
M. Keynes’ theories, the moment that actual inspired the last dependence: http://www.lilliput-information.com/keyne.html November 27th 2004,
M. Sc. (Economics)
Joern E. Vig, Denmark,
[1] We remember how the nominal rates of currency
sometimes were devaluated by one country or a group of countries at the same
time. We were sure it must be some kind of advanced swindle with the values. We
wondered that the other countries accepted it, but we did not fully understood
the consequence of fraud then, to all of us.
[2] Other arguments than the need for working capital
were certainly used.
[3]The roles were exchanged from the beginning, The World Bank was no bank, but a foundation, and the foundation was a bank, so let's describe the first: ”With a share capital of $10 billion distributed among 100,000 shares that should be taken over by the member-states participating in the maintenance of the bank (mine: that certainly was not a foundation neither from the beginning or later on). Admission to this was given to states, that were members of The International Monetary Foundation, but later on other states were given admission too. That was the reason why only $9.1 billion of share capital was supplied at the founding meeting. 20% of the capital should be paid in, of which one tenth in gold (in reality then just 2%), occupied countries could postpone a quarter of payment in gold for 5 years. The main task of the bank was via (mine: private) lending or guarantees to promote the reparation after the war og hereby contribute to the delopment of the international trade and increase the productivity and living standards in the long run. Direct lending should be effected, if the borrower could not achieve a private loan or a gurantee on fair conditions. The management of the bank should be organized after the same principles as the principles in the International Monetary Foundation." The former Danish Prime Minister Viggo Kampman wrote so as a civil servant in 1944. The italicized originates from the present author.
[4]Free-trade-considerations usually result in more than free trade, when we look behind the political
rhetoric, and let the experience count.