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July 16, 2021 | Global Leaders Want to Reshape the Financial System

Is an American author of books and articles on economic and financial subjects. He is the founder and president of Agora Publishing, and author of the daily financial column, Diary of a Rogue Economist.

Liquidity… liquidity everywhere… and not a drop to drink.

– The Lament of the Ancient Mariner
(adrift on a sea of fake money)

YOUGHAL, IRELAND – When the Nixon Administration cut the link between the U.S. dollar and gold, it didn’t write a new chapter in monetary history; it simply repeated a sad, old one.

It took the dollar from something natural – a vernacular money, developed over thousands of years of trial and error… to something unnatural, established by decree in 1971.

Many times have nations experimented with this “fiat” currency. Never, as far as we know, did the story end well.

Reshaping the Financial System

But from the authorities’ point of view, the advantage of this new wampum was that it would give them more “liquidity.” That is, they could print as much of it as they wanted.

Since then, the dollar has lost about 85% of its value – compared to the goods and services it is meant to measure. Against its old companion, gold, it has lost 96% of its value.

Creating new money can be extremely profitable. So it’s not surprising that others are trying to elbow their way into the trade. The Epoch Times reports:

Concerns Surround IMF Plan to Flood World With Liquidity

A controversial plan to boost global liquidity means the days of the U.S. dollar being the undisputed king of the international monetary system may be coming to a close, experts told The Epoch Times.

The Biden administration-backed International Monetary Fund (IMF) proposal to issue an unprecedented $650 billion U.S. dollars’ worth of new “Special Drawing Rights” (SDRs) this year alone will also help re-shape the international financial system.

That is more than twice the total amount of SDRs created by the IMF throughout its entire history.

The SDR is a sort of proto-global currency, based on a basket of leading currencies, dubbed an “international reserve asset” by the IMF.

In other words, the IMF is taking it upon itself to give the world more of what it least needs – money – exactly when it least needs it, just at the beginning of a major, international inflation.

Problem With Inflation

But the trouble with trouble is that it starts as fun. And the fun continues… for a while. People are happy to get the new money.

Alas, each new note competes with existing notes for the same goods and services.

That’s the problem with inflation – it increases demand without increasing supply.

Prices rise. The money – old and new – falls.

Those new dollars make the people who get them richer… but leave everybody else worse off than ever. They face rising prices with no extra money to pay them.

Transforming the Economy

But the IMF is not the only one getting in on the “new money” scam.

Here’s RTE reporting on Wednesday:

The European Central Bank is expected to take the next step towards a “digital euro” today by launching the project’s exploration phase, but questions remain about potential pitfalls and benefits for euro zone citizens.

The move comes as the coronavirus pandemic has hastened a shift away from cash, and as central bankers around the world nervously track the rise of private cryptocurrencies like bitcoin.

A digital euro would “complement cash, not replace it,” the ECB has stressed.

“Complement” is the key word, as in “in addition to.” The ECB has already created almost $4 trillion in new money since January 2020. And ECB chief Christine Lagarde recently told reporters that she has no intention of unplugging the printing press.

“As the pandemic passes,” said Ms. Lagarde, “we need to shift the focus from preserving the economy to transforming it. This will require us to redirect spending by both public and private sectors towards the green and digital sectors of the future.”

Translation: Forget the coronavirus; we’re not going to stop our money-printing… not as long as we have such great new boondoggles to finance!

More Liquidity

Yes, central banks no longer think their role is to maintain the security of the money system, or to protect the value of the currencies of which they are the custodians, but to use their printing presses for whatever damned fool thing they want.

Oh, dear, Dear Reader… we almost swoon, thinking of the glorious future made possible by… more liquidity!

All together, central banks and central governments worldwide have flooded the world with some $27 trillion in stimulus since March 2020.

And there are still other forms of liquidity coming onstream. Cryptocurrencies, for example. Cryptos claim to be money, too. As they grow in number and value, the flood waters rise.

Who knows where the cryptocurrencies will end up? But right now, they are being used as money. If you bought a few bitcoins 10 years ago, for example, you now have a lot more purchasing power… just as if you had earned more money.

And now, like the Ahr and Nahma rivers in Germany, cryptos overflow their banks. At last count, the total buying power of the cryptoverse was some $1.3 trillion.

Drowning in Liquidity

Stock market gains, too, represent a flood risk.

At the bottom of the 2008-2009 financial crisis, U.S. stocks had a total value under $10 trillion. Now, they’re almost $50 trillion.

Are companies really five times as profitable? Of course not. Most of that gain comes from “money”… “liquidity”… benjamins… dinero… moolah that pushes up stock prices – by some $40 trillion.

Now, the world is up to its neck in “liquidity.”

Next week, we’ll look at how all this money disappears.

Hint: It will not be orderly.

Stay tuned…




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July 16th, 2021

Posted In: Bill Bonner's Diary

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