PAPER GOLD
But the Fabian turtle was crawling inexorably toward its
destination. In 1970, the IMF created a new monetary unit called the SDR, or Special Drawing Right. The media optimistically described it as 'paper gold,' but it was pure bookkeeping wizardry with no relationship to gold or anything else of tangible value.
SDRs are based on 'credits' which are provided by the member nations. These credits are not money. They are merely promises that the governments will
'assets' which then become the 'reserves' from which loans are made to other governments. As we shall see in chapter ten, this is almost identical to the bookkeeping sleight-of-hand that is used to create money out of nothing at the Federal Reserve System.
Dennis Turner cuts through the garbage:
SDRs are turned into loans to Third-World nations by the creation of checking accounts in the commercial or central banks of the member nations in the name of the debtor governments. These bank accounts are created out of thin air. The IMF creates dollars, francs, pounds, or other hard currencies and gives them to a Third-World dictator, with inflation resulting in the country where the currency originated....
Inflation is caused in the industrialized nations while wealth is transferred from the general public to the debtor country. And the debtor doesn't repay.
When the IMF was created, it was the vision of Fabian Socialist John Maynard Keynes that there be a world central bank issuing a 1. John Maynard Keynes,
2. Dennis Turner,
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reserve currency called the 'bancor' to free all governments from the discipline of gold. With the creation of SDRs, the IMF had finally begun to fulfill that dream.
GOLD IS FINALLY ABANDONED
But there was still an obstacle. As long as the dollar was the primary currency used by the IMF and as long as it was redeemable in gold at $35 per ounce, the amount of international money that could be created would be limited. If the IMF were to function as a true world central bank with
On August 15,1971, President Nixon signed an executive order declaring that the United States would no longer redeem its paper dollars for gold. So ended the first phase of the IMF's metamorpho-sis. It was not yet a true central bank, because it could not create its own world currency. It had to depend on the central banks of its member nations to provide cash and so-called credits; but since these banks, themselves, could create as much money as they wished, from now on, there would be no limit.
The original purpose had been to maintain fixed rates of
exchange between currencies; but the IMF has presided over more than two hundred currency devaluations. In private industry, a failure of that magnitude might be cause for going out of business, but not in the world of politics. The greater the failure, the greater the pressure to
TRADE DEFICITS
The topic of trade deficits is a favorite among politicians, economists, and talk-show hosts. Everyone agrees they are bad, but there is much disagreement over what causes them. Let's have a try at it.
A trade deficit is a condition that exists when a country imports a greater value of goods than it exports. In other words, it spends more than it earns in international trade. This is similar to the situation of an individual who spends more than he earns. In both 92 THE CREATURE FROM JEKYLL ISLAND
cases, the process cannot be sustained unless: (1) earnings are increased; (2) money is taken out of savings; (3) assets are sold; (4) money is counterfeited; or (5) money is borrowed. Unless one of these occurs, the individual or the country has no choice but to decrease spending.
Increasing one's earnings is the best solution. In fact, it is the only solution for the long haul. All else is temporary at best. An individual can increase his income by working harder or smarter or longer. A country does it the same way. But it cannot happen unless private industry is allowed to flourish in a system of free-enterprise. The problem with this option is that few politicians respect the dynamic power of the free-enterprise system. Their world is built upon political programs in which the laws of the free market are manipulated to achieve politically popular goals. They may desire the option of increasing the nation's income by increasing its productivity, but their political agenda prevents that from happening.1
The second option is to obtain extra money out of savings. But there are virtually no governments in the world today that have any savings. Their debts and liabilities exceed assets by a large margin. Likewise, most of their industries and their citizens are in a similar position. Their savings already have been consumed by government.
The third option, the selling of assets, also is not available for most countries. By assets, we mean tangible items other than merchandise which is normally for sale. Although these, too, are assets in the broad meaning, in accounting methodology, they are classified as inventory. The only
