Though the gold standard is not used presently anymore, the gold standard mentality seems to be alive and well. Paul Krugman calls that phenomenon “misguided monetary mentalities” in his October 12 column in the New York Times. He quotes economic historian Peter Temin who has argued that that mentality is a key cause of the Great Depression. According to Temin this mentality is not just a belief “in the sacred importance of maintaining the gold value of one’s currency, but a set of associated attitudes: obsessive fear of inflation even in the face of deflation; opposition to easy credit, even when the economy desperately needs it, on the grounds that it would be somehow corrupting; assertions that even if the government can create jobs it shouldn’t, because this would only be an”artificial” recovery.”
Gold is being considered becoming part for about 50% of the value of the new SDR, the rest of which would be constituted by a basket of some two dozen currencies unlike the few currencies that currently make up the SDR.
In Tierra system gold would be liberated from its monetary role: it would not be a monetary mantle anymore that would cover a nation’s currency. Large amounts of gold would become available for the many other uses of gold: jewelry, space, industry, medallions, trophies, etc. Its commodity price would come back to normal levels, rather than the present $1060 level which is even predicted by some to go up to the $1500 and even the $2500.
So, taking the “misguided monetary mentalities” of a past gold standard into a 21st century that is plagued by the climate crisis could mean to transition into a carbon standard that would present a monetary pathway to solving the climate crisis.
At first glance this movie might not have a strong relationship with the Tierra Monetary Paradigm. However, by looking at its underlying economic analysis and its proposals to deal with the economic crisis this relationship becomes clear and places the Tierra paradigm in its American political context, an important dimension for the acceptance of the Tierra both in the US and abroad.
In last instance, the present economic crisis can be considered a crisis of the prevailing economic system of capitalism, which still enriches the few, impoverishes the many and imperils the planet. As such the movie addresses the fundamental cause of the many heart-renting instances of the social impact of the economic crisis. It is also points to the more immediate cause of the crisis by showing up the failures of the banking system which is portrayed by greedy bankers without, however, going into detail of the systemic failures such as the ever declining financial regulatory regimen.
His solution to this capitalist and economic crisis is to demand, in his own unique way, transparency from banks and corporations and a return of their ill-begotten billions of US tax dollars. By driving an armored money truck to Wall Street banks and demanding the return of the stolen billions, he used his bullhorn and his canvas bag with the dollar sign, at the same time proclaiming that he was to make a citizen arrest of the Board of Directors of those banks. Besides making playfully those points, he soberly interviewed people who were greatly impacted, such as the widow whose dead husband’s insurance of about $1.5 million was paid to his company. It, unbeknownst to her and like other major corporations, had taking out a life insurance on him, the so called “dead peasants” insurance that makes their employees more valuable dead than alive.
He also interviewed the workers of the Republic Windows and Doors factory in Chicago who were owed their wages and severance pay by their employer which was taken over by Bank of America after closing it down. They fought for nine months showing what people power can do. The same can be said about the home owners in a Florida town who banded together in LIFFT and managed to have one of their members stay in their foreclosed home. He also showed the decrease in wages by showing compensation of airlines pilots. He let President Roosevelt make his point of the need for an economic bill of rights by showing a Saturday radio address—rights that US assistance after WWII helped to implement in the constitutions of Germany and Japan.
His discussion with Congresswoman Marcia (Marcy) Kaptur of Ohio led to the conclusion that a financial coup had taken place after the vote of the House of Representatives which was nullified by a backroom deal with its leadership with Secretary Paulson, Chairman Bernanke, NY Federal Reserve Bank president Geithner and Speaker Pelosi. This courageous member of Congress and former urban planner is one of the few who is able and dares to ask the hard questions to policy makers such as Fed chairman Bernanke. This episode shows the power of the financial elites both within and without the government, where the line between the two becomes ever closer. It is correct to call Goldman Sachs Government Sachs, given that most of the top officials in the US Treasury department have been recruited from that investment firm that, in order to receive the protection of the Federal Deposit Insurance Corporation changed its legal status to one of a holding company.
Without making his movie into a doctoral dissertation, I would have liked him to have included a few visuals of the impact of the US caused economic crisis on the world, particularly on developing countries, and flash some UN footage on the screen, showing how it stands up to G20 with its “unholy trinity” of the IMF/WB/WTO. With his quick mind and overabundant imagination, he could even have made some outstanding visual references to the climate crisis that is impacting and being impacted by the capitalist and economic crisis.
All in all, the movie shows many impacts sides of the economic crisis and ways to people are fighting back—issues that are not often covered in the main electronic and print media.
It is my intention to send this post to his website and recommend that he does his next movie about the international connections of his earlier three movements, including a discussion about transforming the international monetary, financial, economic systems by way of the introduction of a carbon-based international reserve currency such as the Tierra.
The US dollar is under pressure. The Guardian 6 October report that various nations in the East are discussing to denominate oil prices away from the dollar may not be fully accurate, but as John Browne of Euro Financial Capital pointed out in his Currency Cabal post it is only a question of when not of if the dollar is dethroned from its privileged position. Iran has announced that it is not going to sell its oil using the dollar; an intention that also seems to have been part of Iraq’s plan in the past. Given that China and, to a lesser extent, other BRIC Countries are advocating moving away from a nationally-based reserve currency and given that the UN Stiglitz commission in June has also advocated a supranational reserve currency, it has become time for the Obama Administration to present a plan rather than to let the dollar and the international monetary system that is still upon it and the US Federal Reserve System slide.
It has become time for the Obama Administration to apply its New Foundation theme (philosophy?) to the domestic and international monetary scene. It is time for the US Congress to reclaim its constitutional right and obligation to control the nation’s purse, which includes control of its money creation and supply. It is the Congress’ right and obligation to start a national debate about the role of the Federal Reserve System and whether the US banking system is to be relieved from its money creation function in its use of fractional reserve banking. It is even time for the US Supreme Court to weigh in about the constitutionality of the powers of the Federal Reserve System that have greatly increased during the present economic crisis.
One of most astute observers of the monetary situation in the US, both in terms of its population, Congress, Supreme Court, Federal Reserve System and past administration is Ron Paul. His effort to end the Fed or at least to have a Transparency Act is legendary. His national (international?) petition on the Campaign for Liberty website has almost 85,000 signatures. Personally, I believe that his economic theory based upon 1974 Nobel Prize Winner Friedrich von Hayek and his followers in the Ludwig von Mises Institute is not up to the demands of the 21st century and that monetary theorists like Robert Mundell and Joseph Stiglitz,, Nobel Prize winners in 1999 and 2004 have stronger scientific relevance. It is their interpretation of Keynes together with the ones of Sidelsky and Miskin that I consider the best interpretations for monetary policy makers.
Another member of Congress—they are very few and far between—who is familiar with monetary matters is Dennis Kucinich who, with the assistance of the American Monetary Institute, is going to introduce shortly the American Monetary and Financial Security Act. Though I agree with their main purpose to reclaim the money creation function from the privately-owned banking system in the US I think that its adoption of a certain supranational reserve currency does not go far enough. It is here that I want to see the Obama Administration come forward to presents its Monetary New Foundation Approach or MNFA.
This MNFA would integrate not only the currency, financial and economic crisis with the century long challenge of the climate crisis. Rather than basing its new supranational currency on the SDR with some or no gold content, the MNFA would take a transformational step by basing the new reserve currency on a carbon standard. It is a commodity standard unlike the synthetic SDR because CO2 is a gas, a commodity in gaseous form. It is the avoidance of CO2 that forms the basis of this standard, expressed in a carbon value of the billions of carbon emissions permits that would be equally allocated to adolescents and adults in the world. The carbon-based international reserve currency of this MNFA that has been introduced as the Tierra by me this year would be used to balance the carbon accounts in a nation’s balance of payments.
There are ethical, monetary, financial, economic, commercial and global governance reasons why that the Tierra and its transformative paradigm in monetary economics which, in turn, is part of sustainability economics, should become the cornerstone of the MNFA of the Obama Administration.
Before this monetary policy is pursued for both domestic and international purposes it is incumbent on the Obama Administration not to have the dollar slide and not to have it sailed into a perfect storm of monetary chaos, both domestically and internationally. Thus, as a transitional measure, the Obama Administration is to cooperate with its newly made international friends to carefully plan the transition of the dollar into a SDR regime, fully aware that this is a temporary condition. Pursuing such monetary cooperation and establishing a planned transition into the SDR regimen would be one of the possible accomplishments that could make the award of the Nobel peace not only deserved, but earned.
The post of October 10 entitled the CASE FOR THE TIERRA presents the ethical, monetary, financial, economic, commercial and global governance reasons why all these reasons together can make a solid case for the Tierra to become the cornerstone of the MNFA of the Obama Administration.
In summary, the Tierra system which reflects a paradigm shift in monetary economics presents a pathway, not a blueprint, to solving the present economic and climate crises, or, in longer time frame perspective, to solving the financial and ecological indebtedness among nations in the global North and South. Its Keynesian orientation presents the role of government as leading and enabling in contradistinction to Hayekian orientation that considers government to play a minor role in subservience to the free market system. While the cap-and-share approach and its equitable allocation of carbon emissions permits is the primary pillar of the Tierra Monetary Paradigm, a secondary pillar is its emphasis of having the money creation function removed from a privately owned banking system and their central banks to the public sector. This means that rather than pursuing their regulation they would become utilities without the exorbitant privilege of a fractional reserve system. The latter would spend money into circulation for real economic activities without creating debt and even charging interest. In a transitional phase these public banks such as they are in operation in North Dakota and Alberta Canada would operate in a diversified financial services structure where they cooperate rather than compete with their privately owned counterparts and other community-controlled financial institutions.
The US dollar is under pressure. The Guardian 6 October report that various nations in the East are discussing to denominate oil prices away from the dollar may not be fully accurate, but as John Browne of Euro Financial Capital pointed out it is only a question of when not of if the dollar is dethroned from its privileged position.
Unlike Ron Paul who is in his End the Fed have very particularly ideas on the way forward, Britisher Browne is basically silent about the future except to say that gold “will resume its reserve role in some capacity, boosting its price considerably.” Others have suggested that gold constitute about 50% of the basket of currencies that will make up the SDRs.
I agree that the US and particularly its Federal Reserve Bank, to which the world has outsourced its monetary policy, have been not been responsible as a reserve currency nation. Even the Obama Administration seems not to be willing to engage in making domestic and international monetary policy part of its New Foundation thinking and action.
Rather than going back to the gold standard, humanity is to go forward to a commodity standard that is based upon the avoidance of CO2. This 21st century commodity could anchor the nations’ currency, so that stable exchange rates are possible.
Besides this monetary case for a carbon-based international reserve currency such as the Tierra there is a strong ethical argument to be made. By having the carbon standard and its Tierra come into existence by the cap-and-share approach in which all adolescents and adults in the global North and South are given equal amounts of carbon emissions permits this transformed international monetary system is rooted in equity. Discussions are taking place of having UNEP Review “whole world” approaches such as the cap-and-share approachand consider their effectiveness towards the “nation by nation” approach that is now being used (rather ineffectively) in the climate negotiations. There is a global distributive and procedural justice struggle going on which, if appraised of the equitable Tierra monetary system that would support it. The ethical case for the Tierra Monetary Paradigm is a strong one, even stronger than its monetary, financial, economic and commercial and global governance case.
The financial case for the introduction of the Tierra as a reserve currency and later on as a vehicle currency can be found in the equitable infusion of liquidity in the world wide finance system. This liquidity that is not based upon loans and debt accumulation, would also greatly contribute to the financing of important infrastructure programs and of mitigation and adaptation measures during this climate crisis.
The economic case of the Tierra Monetary Paradigm is based upon the fact that the allocation of Tierras are directly going into the real economy where they can be spent either as reserves or as transactional funds to be used domestically or for the importation of necessary goods and services. The present monetary, financial, economic systems that enrich the few, impoverish the many and imperil the planet would not control those funds, so that they cannot make money out of the Tierras and set up a shadow financial system.
The commercial case for the Tierra and its fixed exchange rates is clear: international trade and tourism are able to plan based upon a price system that is anchored in stable currencies.
The global governance case for the Tierra Monetary Paradigm rests upon the establishment of a UN Monetary Board for the Tierra as a reserve currency and UN Central Bank for the Tierra as world vehicle currency. It would build upon the proposed Global Economic Coordination Council proposed by the UN Stiglitz Commission in June 2009. The IMF into which the dollar is cemented is considered not to be able to transform itself for this transformational carbon based approach. Its SDR is considered a transitional reserve currency till the time that active citizens and effective states evolve it into the Tierra currency.
In summary, the Tierra system which reflects a paradigm shift in monetary economics is ready for further study and debate, knowing that it presents a pathway, not a blueprint, to solving the present economic and climate crises, or, in longer time frame perspective, to solving the financial and ecological indebtedness among nations in the global North and South. To orient this debate in respect to economic theories, it can be considered to be Keynesian in the way that Sidelsky and Mishkin have interpreting him, i.e. the enabling role of government. This interpretation stands in marked opposition to the AustrianSchool of Economists where the market system is considered to give direction. (Ron Paul’s End the Fed 2009 is based upon this approach as it is expounded by the Ludwig von Mises Institute.) In either approach we have Nobel Prize winners: Friedrich von Hayek in 1974 (together with Gunnar Myrdal) and RobertMundell and JosephStiglitz, respectively in 1999 and 2002. While the cap-and-share approach and its equitable allocation of carbon emissions permits is the primary pillar of the Tierra Monetary Paradigm, a secondary pillar is its emphasis of having the money creation function removed from a privately owned banking system and their central banks to the public sector. This means that rather than pursuing their regulation they would become utilities without the exorbitant privilege of a fractional reserve system. The latter would spend money into circulation for real economic activities without creating debt and even charging interest. In a transitional phase these public banks such as they are in operation in North Dakota and Alberta Canada would operate in a diversified financial services structure where they cooperate rather than compete with their privately owned counterparts and other community-controlled financial institutions.
On the surface that seems to be the case. The G20 at their fall 2008 Washington Summit asked to IMF to study a set of questions in preparation for its London Summit in April 2009. The G20 channeled over $500 billion to the IMF after the Summit and at the Pittsburg Summit on September 25 the G20 leaders reconfirmed their decision to use the IMF to assist the developing nations by pledging additional funds and making SDRs available. They also gave the BRIC countries a few percentage points more in the voting power at the IMF.
If the citizens of the rich countries knew how the international monetary system and the IMF loaning business work, they would demand a new institution. Let’s focus on the IMF loan operations. A seasoned international trade lawyer, Ross Buckley, was interviewed on September 23 on the PM program of the Australian Broadcasting Corporation.
STEPHEN LONG (PM): So you think that the International Monetary Fund which has garnered what, somewhere between $US500 billion and $US750 billion to supposedly help the poor countries is actually in a sense a stalking horse for the big global finance houses.
ROSS BUCKLEY: I think that's precisely what's going on. And the reason it's going on is not enough people understand it. There's a democratic deficit if you like at the international level. I don't think rich countries' media or population would allow this but at the international level that's exactly what's happening.
STEPHEN LONG: Well explain why you think that that is the case.
ROSS BUCKLEY: Well because these loans, there's certainly over $500 billion, as you say, of loans. These loans are made by the rich countries to the IMF. They will be conditioned upon the poor countries using them to repay the debt that's due.
So these loans will be used to repay loans that are currently outstanding by poor countries to commercial banks. So the money won't really touchdown in the poor countries. It will go straight through them to repay their creditors.
The IMF lends the money to the countries. The countries use it to repay loans they have to the banks. But the poor countries will spend the next 30 years repaying the IMF.
In a way, if you'd like to see it this way, it's really an increase in seniority of the debt. At the moment the debt is owed by poor countries to banks and if the poor countries had to they could default on that.
The bank debt is going to be replaced by debt that's owed to the IMF which for very good strategic reasons the poor countries will always service.”
Is there an alternative to the IMF? Yes, only if active citizens and effective governments are willing to transform, not reform, but transform the present international monetary system which is the glue to world’s financial and economic systems. This can be done by adopting a carbon-based international reserve currency that would replace the US dollar, euro and yen and a future RMB as reserve currencies. By adopting this new carbon-based reserve currency with its fixed rates of exchange and its carbon account in a nation’s balance of payments the G20 and the UN world would transform the monetary, financial, economic systems and produce an equitable, sustainable and, therefore, stable international system.
Two transformational, not reformist, changes have to be made in order for this new brave world to emerge.
First, the international community decides to adopt the cap-and-share approach to the remaining environmental space, so that each person on the planet of 15 years and older is allocated carbon emissions permits or domestic tradeable quota as proposed by the Tyndall Centre. These permits represent value based upon the carbon standard. Thus, liquidity is brought into the world economic system without forcing the US or other reserve currency nations to go into deficit and nations in the global North who are ecological debtors would transfer resources via their balance of payments to the ecological creditor nations in the global South. Their real financial debts can be nowpaid off without going further into debt.
Second, the present financial systems that are based upon privately owned banks which are given the exorbitant privilege of creating money and, to a great extent, controlling it has not only to be regulated as is proposed in the reformist option. The public authorities have to reclaim their right and responsibility of money creation and control and engage in debt-free banking. Why should governments borrow from their banks in order to bail them out? What happens to developing nations with the IMF as collector of debts, the same happens on national levels in industrialized nations where the private owned banking industry is bailed out by their central banks which, to a great extent, are also the collection agents for their banking system.
Economic imbalances in the nations’ financial balance of payments are, to a great extent, caused by an inadequate international monetary system that is based upon a national or regional reserve currency. This was recognized by the UN Stiglitz Commission’s report at the UN June 2009 Conference and avoided by the two G20 summits of 2009. As long as these deficit and surplus imbalances continue, as long as huge speculative capital flows slush around the globe without proper control and as long the free flow of capital is equated with freedom from sovereign control, the world financial and economic systems will be unstable and both people and planet will suffer.
Ecological imbalances where the global North has used up a substantial part of the Earth’s environmental space and continues to do this, often by wasteful consumerism, are as significant as economic imbalances. The main difference is that they are not recognized as such. Though a large part of humanity is finally becoming aware of the climate crisis the discourse is not framed in terms of ecological indebtedness and contrasted with financial indebtedness, let alone in terms of a search of an integrated solution.
There is a great urgency to integrate the economic and climate crises because the already unacceptable status of the present monetary, financial, economic systems that enrich the few, impoverish the many and imperil the planet is getting more unacceptable with ever great costs to people, species and planet.
This can be done not by re-forming but trans-forming the present monetary, financial, economic systems, starting with the international monetary system which is the glue of the other two systems. That monetary system’s crucial or pivotal element is the currency standard that determines exchange rates which in turn determine the stability of trade and investments activities. The lack of a viable international currency standard leads to currency speculation, particularly in a financial philosophy that equates free flow of capital with the absence of control by public authorities.
Keeping the US dollar, euro, yen or the RMB as reserve currencies keeps the instability in the international monetary system. They will always be connected with a national or regional currency that fluctuates. We cannot continue thinking in this way and we have to build on the works of Nobel Prize winning economists like Robert Mundell(1999) and Joseph Stiglitz (2001). We also have to start thinking in a “whole world” fashion rather than only nationally or regionally in both the economic and ecological fields.
Part of that “whole world” approach to solving our economic and climate problems is the acceptance of the cap-and-share approach where all individuals above 15 years of age are allocated their carbon emissions permits or domestic tradeable quota as proposed by the Tyndall Centre. Once this equitable decision is made, a carbon standard can be developed that would become the anchor of a transformed international monetary system. Nations can declare to a UN Monetary Board the parity of their currencies to this stable, non-national standard.
The moreI observe the unwillingness or inability of G20 nations to come to grips with their economic imbalances, particularly the establishment of a stable, non-national reserve currency, and the more I observe how the “party by a party” approach in the climate negotiations is not going to reduce the ecological imbalances and do the job of drastically reducing the greenhouse gas emissions, the more I feel the urgency of having the Tierra Monetary Paradigm considered as a realistic alternative to the reformist approaches in dealing with both the economic and climate crises.Perhaps the present recession and the extraordinary weather events of the last couple of decades are not devastating enough to make leaders consider transformational alternatives such as the Tierra Monetary Paradigm.
While the economic and ecological chairs are being rearranged on the Titanic, the planetary ship of Earth courses towards catastrophe. In the meantime, millions and millions of more people and other fellow creatures suffer and dozens of main ecosystems deteriorate,further increasing that suffering of all living beings.
THE INTERNATIONAL INSTITUTE OF MONETARY TRANSFORMATION