Global Solution Thread

[fabijo]

This is a thread to discuss and share what we are finding out from the world leaders as to what "coordinated" efforts they will be taking to stabilize the world's economies.

[fabijo]

From Bloomberg.com

October 10, 2008
Berlusconi Says Leaders May Close World's Markets
http://www.bloomberg.com/apps/news?pid=20601087&sid=aP5mpMUORBWM


Italian Prime Minister Silvio Berlusconi said political leaders are discussing the idea of closing the world's financial markets while they ``rewrite the rules of international finance.''

....

Berlusconi didn't give any details about what kind of rules leaders were looking to change, except to say that leaders are ``talking about a new Bretton Woods.''

The Bretton Woods Agreements were adopted to rebuild the international economic system after World War II in a hotel in Bretton Woods, New Hampshire. The aim of the agreements was to establish a monetary management system, initially by pegging currencies to gold. The IMF was set up later to help manage the international financial system.

[fabijo]

The New American
http://www.thenewamerican.com/economy/commentary-mainmenu-43/437

October 20, 2008
Global Financial Regulatory Body on the Way?

With the European Union leading the way, the internationalists are preparing to exploit the recent global financial turmoil to hold a "second Bretton Woods" and radically restructure the world's entire international financial system. The first Bretton Woods international conference in 1944, lest we forget, ended up saddling the world with the International Monetary Fund, the World Bank (known formally as the International Bank for Reconstruction and Development), and the General Agreement on Tariffs and Trade (GATT).

[fabijo]

From the European Commission website
http://ec.europa.eu/news/economy/081016_1_en.htm

October 16, 2008
EU summit – financial crisis dominates talks



EU leaders call for overhaul of international financial system.

The reform must be “all-encompassing” and should include more international supervision, a global “early warning” system for crisis and worldwide regulatory standards to ensure transparency and accountability, the leaders said.

The EU has called for an international summit on the crisis. Commission President Jose Manuel Barroso and French President Nicolas Sarkozy are meeting with US President George W. Bush this weekend to discuss the idea.

So, they met at Camp David. They are scheduling a worldwide summit in November.

[fabijo]

Bloomberg.com
http://www.bloomberg.com/apps/news?pid=20601087&sid=apjqJKKQvfDc&refer=home

October 19, 2008
ECB's Nowotny Sees Global `Tri-Polar' Currency System Evolving


European Central Bank council member Ewald Nowotny said a ``tri-polar'' global currency system is developing between Asia, Europe and the U.S. and that he's skeptical the U.S. dollar's centrality can be revived.

``What I see is a system where we have more centers of gravity'' Nowotny said today in an interview with Austrian state broadcaster ORF-TV. ``I see for the future a tri-polar development, and I don't think that there will be fixed exchange rates between these poles.''

The leaders of the U.S., France and the European Commission will ask other world leaders to join in a series of summits on the global financial crisis beginning in the U.S. soon after the Nov. 4 presidential election, President George W. Bush, French President Nicolas Sarkozy and European Commission President Jose Barroso said in a joint statement yesterday.

[fabijo]

The world economic summit is now scheduled for Nov 15, in Washington, D.C. with the G-20. Lots of world leaders are showing up on such short notice. I hope D.C. won't be too crowded that week!! :nuts: I mean, it will only be 11 days after elections!

Press Briefing by Press Secretary Dana Perino
http://www.whitehouse.gov/news/releases/2008/10/20081022-2.html



Q Will the President-elect be there?

MS. PERINO: As I've said, we will look for his input after the election. But I think it's too early to say. We don't know what that President will want or not want to do, and so we'll just leave that open for now. But just to say that the President does anticipate and look forward to seeking the President-elect's input as we move forward.


Q A number of the European allies have said what's needed is a wholesale rewrite of the rules under which financial markets operate. Does the President think that's needed?

MS. PERINO: I think that we -- I think that everybody will come with their ideas, and the President recognizes that every country is going to have a responsibility, but not every country is going to have the same solution. So there will be a lot of people coming forward with recommendations and ideas. There's lots of financial experts in all of these countries, and we have some in our own country. We'll come with our own recommendations, and they'll come with theirs, and that's what you would expect of a meeting of this kind. So I think it's too early to say what will come out of it.


Q So, do you foresee any kind of system of global financial regulation coming out of this? Is that ruled in or ruled out?

MS. PERINO: I don't believe that you'll have any details coming out of this meeting in terms of things that everyone agrees to at the first meeting. I think that what the goal is for this meeting is to identify the causes; note the progress to date that we've made working together in a coordinated fashion, which the President wants to continue; identify principles for reform; and then task the working groups to put meat on those bones and figure out what the principles will look like once they have more detail attached to them.

And the President is very clear that every country is going to have different ideas on how to do this in their own country. We've been able to take actions in our separate countries, but in a coordinated way, and that's been beneficial for the markets. We've started to see some stabilization and strengthening even while the markets absorbed some pretty tough news over the past few days.

[Miss_Piggy]

Scandal Hinders I.M.F.’s Role in Global Lending: http://www.nytimes.com/2008/10/22/business/worldbusiness/22imf.html (http://www.nytimes.com/2008/10/22/business/worldbusiness/22imf.html)

[James48843]

Scandal Hinders I.M.F.’s Role in Global Lending: http://www.nytimes.com/2008/10/22/business/worldbusiness/22imf.html (http://www.nytimes.com/2008/10/22/business/worldbusiness/22imf.html)

From the article:



Mr. Strauss-Kahn has issued an apology to staff members and to the woman with whom he carried on the brief relationship. The fund’s executive board has hired a law firm to investigate the charges against him, and hopes to make a decision after it receives the firm’s report by the end of the month.

We have a major world financial crisis, and somebody's worried about who can and can't keep their pants on ? ? ?


Even King David had that problem......


Look, people are....Human. All fall short.

Now, let's get back to dealing with curing the world's banking crisis, ok?

[Miss_Piggy]

....
We have a major world financial crisis, and somebody's worried about who can and can't keep their pants on ? ? ?
Even King David had that problem......
Look, people are....Human. All fall short.
Now, let's get back to dealing with curing the world's banking crisis, ok?
James, put your wife on the phone. I want to talk to her about your perspective these days.

[fabijo]

James, put your wife on the phone. I want to talk to her about your perspective these days.

ROFL!! :laugh:

[Show-me]

The global solution is simple, make me the Supreme Ruler for life.



“When the people find they can vote themselves money, that will herald the end of the republic.” Ben Franklin

[XL-entLady]

James, put your wife on the phone. I want to talk to her about your perspective these days.
Too, too funny, Miss Piggy! Although I agree with James that we are talking magnitudes of difference in crises, I thought your reaction was absolutely priceless! :laugh:

Lady

[XL-entLady]

The global solution is simple, make me the Supreme Ruler for life.
When I voted earlier this week, I missed that "Supreme Ruler" section. Dang! You'd have had my vote for sure! :laugh:

Lady

[fabijo]

Let's look to China for the answer:

EU presses China to show leadership in crisis
http://www.reuters.com/article/forexNews/idUSTRE49M41B20081023?sp=true


The comments by European Commission President Jose Manuel Barroso set the stage for a two-day summit in Beijing of the 27 EU member states and 16 Asian countries covering the global downturn, climate change and international security.

"We need a coordinated global response to reform the global financial system. We are living in unprecedented times, and we need unprecedented levels of global coordination," Barroso said.


Diplomats said the commission, the EU's executive arm, and France, which currently holds the EU's rotating presidency, hope to win a commitment from China in particular to use its clout to help shape the reforms and tackle the economic imbalances at the root of the current meltdown.


Later, Barroso dangled the carrot of greater influence for Beijing on the world financial stage.

...

"We think China could and should have a greater voice in international financial institutions," Barroso said in a speech at a school for civil servants.

[fabijo]

Asian and European Leaders Urge New Financial Rules
http://www.washingtonpost.com/wp-dyn/content/article/2008/10/25/AR2008102500940.html


The Beijing meeting appeared to be a victory for Sarkozy, who has taken the lead in representing his European Union colleagues in pushing for an overhaul of the world's financial systems and the creation of a new "regulated capitalism" as soon as possible. Sarkozy has said such steps cannot wait until a new U.S. president takes office.

President Bush has said, however, that enacting ideas into law "must be a top priority for the next president and the next Congress."

Sarkozy said Asian leaders have joined their European counterparts in expressing a "willingness for the Washington summit to be a place where we make some decisions, and we have all understood that it would not be possible to simply meet and have a discussion. We need to turn it into a decision-making forum."

[fabijo]

Now this one is classic.

U.S. has plundered world wealth with dollar: China paper
http://www.reuters.com/article/GCA-CreditCrisis/idUSTRE49N1XX20081024


The United States has plundered global wealth by exploiting the dollar's dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday.


"The U.S. dollar is losing people's confidence. The world, acting democratically and lawfully through a global financial organization, urgently needs to change the international monetary system based on U.S. global economic leadership and U.S. dollar dominance," he wrote.

[Silverbird]

Now this one is classic.

U.S. has plundered world wealth with dollar: China paper
http://www.reuters.com/article/GCA-CreditCrisis/idUSTRE49N1XX20081024

Sureeee China, can I invest in some Yuan? KThanks. You don't even have to be the leading currency, Signed USA.
Hrmm, not getting an answer. Hello? hello?
P.S. Forget what we said earlier, holding dollars is good, really. Really. It's your policy, right?

[fabijo]

Ok, this is not necessarily economy related, except indirectly. Here's the other worldwide emergency that will probably be hitting headlines over and over again once the elections are done and once all the world has their economic summit.

Ecological credit crunch potentially more damaging than financial crisis, says WWF
http://www.telegraph.co.uk/earth/main.jhtml?xml=/earth/2008/10/29/eawwf129.xml


The Earth's natural resources are being used up to 30 per cent faster than they can be replaced in a reckless environmental spending spree, according to a WWF report. As a result half the countries in the world are in ecological debt and unless the trend is reversed by 2030 it will take the equivalent of two planets to keep pace with demand.


The recent downturn in the global economy is a stark reminder of the consequences of living beyond our means. But the possibility of financial recession pales in comparison to the looming ecological credit crunch.

[Silverbird]

Not from the WWF, it won't be headlines. Greenpeace makes more noise and hasn't gotten many backers. Anyway, if we are smart about it, we can conserve energy and work on alternatives and make $$ while we upgrade our infrastructure.

[fabijo]

If the goal is to create a new currency, what would you be doing if you were one of the big banks?

How about hoard as much currency as possible? How do you do that? You sell everything you have. Sell stocks, commodities, assets... anything. Because the changeover period is going to be the most profitable. When you change over from the old currency to the new one, you've got the best chance of getting in at the best prices if you do it at the beginning.

This could explain the nutty markets right now. There is a big cash harvest happening. First, there was a huge selloff, getting loads of cash. Since there's more cash to be had, you've got to manipulate the markets a little by throwing some cash into it, then selling your stocks and commodities to end up with more cash.

We're probably going to be seeing this over the next few months as we get closer and closer to the new monetary system which will be announced.

[Silverbird]

Ok...you mean a re-issuance of the dollar??? I think that WILL lead to global depression with all the holdings of the current dollar out there around the world. I can't think of any way that's going to happen...

[Show-me]

I'm telling you it is easy, me, Supreme Ruler, problems solved.

[fabijo]

Silverbird, with the way every world leader is talking, that's the only thing I see coming. By next year, we'll see where it goes. The best way to get tighter regulation is to have an international database tracking who has what money and where it goes. We won't have rapid growth in the value of assets, but we'll have stability. By next year, we'll have plenty of citizens around the world convinced that this is the way to go.

And I bet the best way to convince us is to hear big bankers, Bernanke, and Paulson speaking against it. After they screwed us all with their big ideas, we'll be convinced that we need to do the opposite of what they say.

[Silverbird]

I'm telling you it is easy, me, Supreme Ruler, problems solved.You mean signing statements, and "emergency" spending that must be done if you are a Patriot, right? sigh. Some of the paths shown recently really scare me, they can flip back radical from both parking lots (left/right) with no oversight. "And thus democracy dies...to thunderous applause"

[fabijo]

It's all coming together. First, the European Commission, then France, then China and Asia, now Russia. They're all meeting with us in two weeks to discuss an international financial reform.


Russian leader outlines global finance reform plan
http://www.reuters.com/article/marketsNews/idUSLV31388620081031


"The new financial system should have common sources based on many global financial centres and many reserve currencies," he was quoted as saying.

Russian officials see lax regulation and a breakneck pursuit of profits in the United States as the main cause of the global financial crisis.


Medvedev said he would propose to the summit that the world economy reduce its reliance on the U.S. dollar (good-bye dollar) as the main reserve currency.


"They should be based on a harmonised system, not like the one we have now when those who use the rules of continental Europe feel unhappy about the Anglo-Saxon model," he said. "We need common, formalised rules which will be used without allowances for national rules." he said.

"The building of the new system should be carried out on the basis of new conventions," Medvedev said. "For that we will need an international accord."

[Silverbird]

It was inevitable they would complain, relying on the U.S. $ as the sole currency for conversion has resulted in a massive worldwide fubar. But it's not like there hasn't been warning before, remember controlled exchange rates (resulting in a U.S. financial rebellion)? The question is, will it go past the rhetoric this time? Russia's hardly one to talk, no one's interested in the Ruble. That's two countries with problematic currencies, China, who controls all of its currency, and Russia, who's currency is a bigger FUBAR than the dollar, complaining and calling for currency reform - but they aren't the ones who can (Russia) or will (China wants to control its currency) implement anything so that's just popcorn throwing at the movie screen.

Until I hear something from one of the economies with a real currency worth banking on (literally), this is just noise to me.

[Minnow]

It was inevitable they would try this, relying on the U.S. $ as the sole currency for conversion has resulted in a massive worldwide fubar. But it's not like there hasn't been warning before, remember controlled exchange rates (resulting in a U.S. financial rebellion)? The question is, will it go past the rhetoric this time? Russia's hardly one to talk, no one's interested in the Ruble.


I believe there is already someone in place to "take care" of this in a timely manner.

http://www.bbc.co.uk/cult/xfiles/images/173/csm01.jpg :laugh:;)

[fabijo]

It was inevitable they would try this, relying on the U.S. $ as the sole currency for conversion has resulted in a massive worldwide fubar. But it's not like there hasn't been warning before, remember controlled exchange rates (resulting in a U.S. financial rebellion)? The question is, will it go past the rhetoric this time? Russia's hardly one to talk, no one's interested in the Ruble. That's two countries with problematic currencies, China, who controls all of its currency, and Russia, who's currency is a bigger FUBAR than the dollar, complaining and calling for currency reform - but they aren't the ones who can implement anything so that's just popcorn throwing at the movie screen.

Good point about the ruble and the yuan. But we've also got Europe asking for it, and they definitely have a strong currency. One of the EC peeps said that Europe is working together with Asia and the Americas to build a trilateral currency. I believe I posted that story somewhere in this thread.

[fabijo]

Ah, yes. Here's the post. I'd say the Euro is a currency worth banking on.

http://www.tsptalk.com/mb/showpost.php?p=189388&postcount=5

[Silverbird]

Ah, yes. Here's the post. I'd say the Euro is a currency worth banking on.

http://www.tsptalk.com/mb/showpost.php?p=189388&postcount=5
Hrmm. Ok...well it's not going to be "Asia", most likely, just Japan. South Korea is the next in line after Japan, and I think they aren't ready. Taiwan, the next after Korea...well we know what China would say! Too small of a country anyway. It will be interesting to see what Canada and India do. That would add another Asia, but could you imagine China's loss of face? Looks like no Dubai (whatever their currency is called) or Middle east/Africa in the meeting members so they are not in the game.

A basket of currencies is actually more realistic. But I hope this doesn't mean constant rebalancing of the mix.

[Frixxxx]

Hrmm. Ok...well it's not going to be "Asia", most likely, just Japan. South Korea is the next in line after Japan, and I think they aren't ready. Taiwan, the next after Korea...well we know what China would say! Too small of a country anyway. It will be interesting to see what Canada and India do. That would add another Asia, but could you imagine China's loss of face? Looks like no Dubai (whatever their currency is called) or Middle east/Africa in the meeting members so they are not in the game.

A basket of currencies is actually more realistic. But I hope this doesn't mean constant rebalancing of the mix.
Can you imagine the power of the overseer of this boondoggle? I mean whoa, how would they decide who gets to run it? A guy from Japan determines the world market rates? Ouch! The influence alone kinda reminds me of why the United Nations was put together: To make this a happier world! I don't see this happening anytime soon!!:blink:

[Silverbird]

Can you imagine the power of the overseer of this boondoggle? I mean whoa, how would they decide who gets to run it? A guy from Japan determines the world market rates? Ouch! The influence alone kinda reminds me of why the United Nations was put together: To make this a happier world! I don't see this happening anytime soon!!:blink:The only way this works is with a basket made up of agreed upon percentage of each base currency (:laugh: stop laughing) that stays the same until enough votes to change it (:toung: stop laughing) go through. It also will make the exchange rates between the basket currencies constant by its very nature (the apples and pears in the basket cannot be jumping in and out if it's going to be a medium of exchange). Which is why I'll believe it when I see it.

[Frixxxx]

Hrmm......It will be interesting to see what Canada and India do.
A basket of currencies is actually more realistic. But I hope this doesn't mean constant rebalancing of the mix.
I've seen what's in their baskets and they bite and are poisonous!:laugh:

[Silverbird]

I've seen what's in their baskets and they bite and are poisonous!:laugh: Our snake hasn't been that nice either. I think it says "Don't Tread on Me"

[fabijo]

The suggestion from most of the countries involved is to come up with a basket of currencies. When the Euro was introduced, each country's currency was weighted compared to the economies of each country. That's how they decided on an exchange rate from their local currency to the Euro. It only took two months for every country to adopt the Euro.

As for the world-wide regulation body, that is definitely being worked on now and will be decided on very shortly. Even if no mention of a new currency comes out after the November 15th world summit, a new regulating body is certainly going to be announced.

I'm betting that by this time next year, we'll either be transitioned to the new world currency or we will be in the process.

[fabijo]

Now it's looking like we won't find out much about the November 15th meeting until Wednesday.

http://www.whitehouse.gov/news/releases/2008/11/20081110-2.html

Q Will there be a seat at the table at the forthcoming economic conference for the incoming administration?

MS. PERINO: We've been in contact with the Obama team on a whole host of issues, and one of them is on the economic summit that's taking place this Friday and Saturday. They have indicated, I believe, that they don't plan to attend. But we are keeping them updated on all of that. And in addition to that, just so that you know, I think on Wednesday we'll be able to bring in a couple of experts to preview for you here -- an on the record, maybe off-camera briefing -- so that you'll have some information leading up to that Friday/Saturday meeting.

[fabijo]

Finally, a little bit of guidance from the Administration on what the U.S. is thinking, along with the rest of the world.

November 12, 2008

Press Briefing by Daniel Price and David McCormick on the Summit on Financial Markets and the World Economy
James S. Brady Press Briefing Room
http://www.whitehouse.gov/news/releases/2008/11/20081112-4.html

Some notable quotes.

First, from Daniel Price on the structure of today's briefing:


I will provide an overview of kind of the structure of the summit and what some of our objectives are and how we think it will go. And then Dave will take the podium to run through a number of those areas where we believe there is sufficient common ground that leaders may be in a position to take some near-term decisions and some near-term actions.

Then, he is quick to clarify:

The process is not about moving to a single global regulator.

But, moving on to David McCormick's words. Remember, his purpose is to speak about where the U.S. has common ground with the leaders of the G20. By the way, they said the G20 represents about 90% of the world's GDP. Here's Dave:


And then finally, there's been a great deal of coordinated monetary policy, and certainly that's something that will be addressed, as well, within the context of the broader macroeconomic overview.

So those I suspect will get a fair amount of attention. In addition, there will also be, as Dan described, a focused discussion around the reform agenda. And it's an ambitious reform agenda. There's been a lot of work already, but those are important steps on a much more significant path of reform.


And then finally, in the area of reinforcing international cooperation, there's really two strands of discussion that I suspect will be touched on. One is the core missions and competencies of the international financial institutions: How do they need to reform? How can we ensure that in the future there's a great representation of the key players in the international economy? How should their governance structures be reformed to reflect the global economy as it exists today; how can it be more effective, more transparent? So there's a whole reform agenda around the international financial institutions that I expect will be touched upon.

Fab's note: Since they're saying this summit is "the first of a series of meetings to discuss efforts to deal with the present crisis," the reform agenda will only be touched upon at this meeting.

One of the areas that I suspect you'll hear a bit about is the role of the Financial Stability Forum (website: http://www.fsforum.org/ ) and the IMF, and how to ensure that they are integrated in terms of their respective roles. There's been some talk about expanding the role of the FSF, and that's certainly an area that we have believed over time that the FSF needs to be expanded to reflect better the key financial centers around the world.

My take on the whole thing... They're really looking at what immediate steps can be taken to address the current financial crisis. But they also are planning on working out some deal where each country will agree to run their financial institution under some common rules. So, no, there will not be a global financial regulator, but the countries of the world are planning on agreeing to have similar, if not the same, rules. I mean, we've got them telling us that an ambitious reform agenda is being pushed. I just wonder how ambitious they'll get.

[fabijo]

And here are some questions and answers posed during that briefing:


Q Do you think that Sarkozy and Gordon Brown have set the standards, the expectations too high, perhaps?

MR. PRICE: I actually think that there is a lot more common ground among countries who will be around the table than the rhetoric might suggest.

And I love the response to this question:


Q You were talking about fiscal stimulus, what about further coordinating monetary policy --

UNDER SECRETARY McCORMICK: Well, as you know, the Federal Reserve is independent. Of course they're independent! They create the money, so all debt is owed to them! :) The Federal Reserve has been in contact with central banks around the world and has at various points made decisions obviously independent of the Treasury, so I'll leave it at that.

And, finally:


Q There's been reports that there's a difference in regulatory philosophy between the Europeans and the Americans and the Canadians. Do you see any difference? And could you just very briefly outline what the American approach will be towards -- you know, the American philosophical approach towards future regulation?

MR. PRICE: Well, I invite Dave to answer, as well, but as I tried to say, I think there is far more common ground among those around the table than would appear by reading some of the press accounts. Work has been going on in a number of these areas already. There are additional areas that we need to focus on. And, well, different leaders have different styles as to how they characterize the task ahead. When it comes down to the substance of what needs to be done, I believe that there is enormous common ground.

Common ground with the Europeans? If you read back through this thread, you'll see what the Europeans are saying, including a tri-lateral currency between the Americas, Europe, and Asia.

[fabijo]

Ok, here's an email I just got:

The G-20's Secret Debt Solution
by Larry Edelson

Dear Subscriber,

If you think this weekend's G-20 meetings in Washington are only about designing short-term fixes to the financial system and regulatory reforms for banks, hedge funds, brokers, mortgage companies and investment banks ... think again.

Behind the scenes, a far more fundamental fix is being discussed — the possible revaluation of gold and the birth of an entirely new monetary system.

I've been studying this issue in great depth, all my life. And given the speed at which the financial crisis is unfolding, I would be very surprised if what I'm about to tell you now is not on the G-20 table this weekend.

Furthermore, I believe the end result will make my $2,270 price target for gold look conservative, to say the least. You'll see why in a minute.

First, the G-20's motive for a new monetary system: It's driven by and based upon this very simple proposition ...

"If we can't print money fast enough to fend off another deflationary Great Depression, then let's change the value of the money."

I call it ...

"The G-20's Secret Debt Solution"

It would be a strategy designed to ease the burden of ALL debts — by simultaneously devaluing ALL currencies ... and re-inflating ALL asset prices.

That's what central banks and governments around the world are going to start talking about this weekend — a new financial order that includes new monetary units that helps to wipe clean the world's debt ledgers.

It won't be an easy deal to broker, since the U.S. is the world's largest debtor. But remember: Debts are now going bad all over the world. So everyone would benefit.

Fed Chairman Ben Bernanke ... Treasury Secretary Paulson ... President Bush ... President-elect Obama ... former Fed Chairman Paul Volcker ... Warren Buffett ... and central bankers and politicians all over the world agree a new monetary system is needed.
The G-20 may propose devaluing all currencies, including the U.S. dollar and the euro.

So they'll start hashing out the details to get the new financial architecture deployed as quickly as possible.

If you think I'm crazy or propagating some kind of conspiracy theory, then consider the historical precedent ...

To end the Great Depression in 1933 Franklin Roosevelt devalued the dollar via Executive Order #6102, confiscating gold and raising its price 69.3%, effectively kick starting asset reflation.

Only this time, it won't be just the U.S. that devalues its currency. The world is too interconnected. Instead, the world's leading countries will propose a simultaneous and universal currency devaluation.

This time, they will NOT confiscate gold. There would be riots all over the globe if they even mentioned the "C" word.

But they don't have to confiscate gold. Here's one scenario ...

They cease all gold sales and instead, raise the current official central bank price of gold from its booked value of $42.22 an ounce — to a price that monetizes a large enough portion of the world's outstanding debts.

That way, just like in 1933, the debts become a fraction of re-inflated asset prices (led higher by the gold price).

And this time, instead of staying with the dollar as a reserve currency, the G-20 issues three new monetary units of exchange, each with equal reserve status.

The three currencies will essentially be a new dollar, new euro, and a new pan-Asian currency. (The Chinese yuan may survive as a fourth currency, but it will be linked to a basket of the three new currencies.)

The new fiat monetary units would be worth less than the old ones. For instance, it could take 10 new units of money to buy 1 old dollar or euro.

New names would be given to the new currencies to help rid the world of the ghost of a system that failed. Additional regulations and programs would be designed and implemented to ease the transition to a new monetary system.
The IMF would be at the center of the new monetary system.

The International Monetary Fund (IMF) would implement the new financial system in conjunction with central banks and governments around the world.

Keep in mind that the IMF is already set up to handle the transition, and has had contingency plans allowing for it since the institution was formed in 1944.

Included in the design and transition to a new monetary system ...

A. A new fixed-rate currency regime. Immediately upon upping the price of gold and introducing the new currencies, a new fixed exchange rate system would be re-introduced. The floating exchange rate system would be tossed into the dust bin along with the old currencies.

This would kill any speculation about further devaluations in the currency markets, and drastically reduce market volatility.

B. To sell the program to savers and protect them from the currency devaluation, compensatory measures would be enacted. For instance, a one-time windfall tax-free deposit could be issued by governments directly to citizens' accounts, or, to employer-sponsored pensions, to IRAs, or Social Security accounts.

Income taxes may subsequently be raised to pay for the give-away, or a nominal global type of sales tax could be enacted to help pay for the new system and the compensatory measures.

C. Additional programs would be designed to protect lenders and creditors. Lenders stand a much higher chance of getting paid off under the new monetary system — but with a currency whose purchasing power would now be a fraction of what it was when the loans were originated.

So programs would have to be designed to help lenders offset the inflationary costs of their devalued loans, probably via the tax code.

Naturally, all this is a bit more complicated than I've spelled out above. But that gives you a big-picture outline of what the plan could look like. And I think major changes like these are going to be set in motion at this weekend's G-20 meetings in Washington.

Would they work?

Yes. They would help avoid a repeat of the deflationary Great Depression. But don't expect even a new monetary system to put the U.S. or the global economy back on track toward the high rates of real growth that we've seen over the last several years. That's simply not going to happen. Not for a while.

Instead, I'm talking about a massive asset price reflation, negative real economic growth in the U.S. and Europe — but continued real GDP gains in Asia.

The Big Question: What gold price would be legislated to reflate the U.S. and global economy?

I can't tell you what gold price the G-20 would ultimately agree to. But here's what they will be looking at ...

* To monetize 100% of the outstanding public and private sector debt in the U.S., the official government price of gold would have to be raised to about $53,000 per ounce.

* To monetize 50%, the price of gold would have to be raised to around $26,500 an ounce.

* To monetize 20% would require a gold price a hair over $10,600 an ounce.

* To monetize just 10%, gold would have to be priced just over $5,300 an ounce.

Those figures are just based on the U.S. debt structure and do not factor in global debts gone bad. But since the U.S. is the world's largest debtor and the epicenter of the crisis, the G-20 will likely base their final decision mostly on the U.S. debt structure.

So how much debt do I think would be monetized via an executive order that raises the official price of gold? What kind of currency devaluation would I expect as a result?

I would not be surprised to see the G-20 monetize at least 20% of the U.S. debt markets. THAT MEANS ...

* Gold would be priced at over $10,000 an ounce.

* Currencies would be devalued by a factor of at least 12 to 1, meaning it would take 12 new dollars or euros to equal 1 old dollar or euro.

The return of the Gold Standard?

"But Larry," you ask, "how could this be accomplished when we no longer have a gold standard? Further, are you advocating a gold standard?"

My answers:

First, you don't need a gold standard to accomplish a devaluation of currencies and revaluation of the monetary system.

By offering to pay over $10,000 an ounce for gold, central banks can effectively accomplish the same end goal — monetizing and reducing the burden of debts, via inflating asset prices in fiat money terms.

Naturally, hoards of gold investors will cash in their gold. The central banks will pile it up. At the same time, other hoards of investors will not sell their gold, even at $10,000 an ounce. But the actual movement of the gold will not matter. It is the psychological impact and the devaluation of paper currencies that matters.

Second, I do NOT advocate a fully convertible gold standard. Never have. There isn't enough gold in the world to make currencies convertible into gold. It would end up backfiring, restricting the supply of money and credit.

What should you do to prepare for these possibilities?

It's obvious: Make sure you own some core gold, as much as 25% of your investable funds.

Also, as I've noted in past Money and Markets issues, you will want to own key natural resource stocks, and even select blue-chip stocks that will participate in the reflation scheme.

For more details and specific recommendations to follow, be sure to subscribe to my Real Wealth Report.

Best wishes,

Larry

[Silverbird]

That's not what I'm hearing on my end, I heard we are still stuck being the base currency. Gold, sigh, well if this happens we may have to find a substitute in electronics, we have too many people trying to illeagally diffuse it out of circuit boards using a nasty chemistry mix (creates a toxic gas that can travel for miles) as it is. And all those not so friendly out of control nations in Africa that happen to have gold in the ground will break out into little internal wars over mines again.

[fabijo]

Parts of a speech by Ben Bernanke today in Frankfurt, Germany:
http://www.federalreserve.gov/newsevents/speech/bernanke20081214a.htm


I am pleased to be here in Frankfurt today to celebrate the 10th anniversary of the euro. The euro’s introduction was a remarkable achievement. As an academic, I did a bit of consulting for the European Monetary Institute, the European Central Bank’s (ECB) predecessor, on monetary transmission mechanisms; I thus played a part, albeit an extremely small one, in this grand project. I mention this only as a reminder that the creators of the euro drew on monetary expertise from around the world, an early example of the international cooperation that has since proven to be one of the hallmarks of the ECB. Indeed, the run-up to the euro’s establishment and the experience of the past decade have been associated with an unprecedented degree of policy coordination among the sovereign states within the euro area, including cooperation in the areas of fiscal and regulatory policies as well as monetary policy.

The current financial crisis and global economic slowdown likewise have been an occasion for unprecedented international policy coordination, within Europe but also globally. (hint hint) For example, in its regulatory capacity, the Federal Reserve has worked closely with regulators and supervisors from a number of European nations, and we are active participants in the international Financial Stability Forum and the standard-setting bodies operating under the aegis of the Bank for International Settlements. My focus today, however, will be cooperation in monetary policy and, especially, in the meeting of the liquidity needs of our increasingly globalized financial markets.

[fabijo]

The U.S. Dollar is Gonna be Around for a Long, Long, LONG Time
by Jack Crooks 11-15-08
http://www.moneyandmarkets.com/the-us-dollar-is-gonna-be-around-for-a-long-long-long-time-28037


The global financial system revolves around U.S. dollar-based credit and U.S. capital markets. I do not believe a whole new international financial architecture will be constructed overnight.

Could dialogue at this meeting stir things up? Absolutely …

Who knows? The U.S. dollar could fall from World Currency Status or even be totally eliminated in the next 40-50 years. A lot can happen through man’s ultra-sophisticated market process in that amount of time.

But I don’t think that this weekend’s meeting is going to produce anything that structurally alters the future of currencies.

[fabijo]

Declaration of the Summit on Financial Markets and the World Economy
http://www.whitehouse.gov/news/releases/2008/11/20081115-1.html


We commit to implementing policies consistent with the following common principles for reform.


Strengthening Transparency and Accountability
Enhancing Sound Regulation
Promoting Integrity in Financial Markets
Reinforcing International Cooperation
Reforming International Financial Institutions



In consultation with other economies and existing bodies, drawing upon the recommendations of such eminent independent experts as they may appoint, we request our Finance Ministers to formulate additional recommendations, including in the following specific areas:


Mitigating against pro-cyclicality in regulatory policy;
Reviewing and aligning global accounting standards, particularly for complex securities in times of stress;
Strengthening the resilience and transparency of credit derivatives markets and reducing their systemic risks, including by improving the infrastructure of over-the-counter markets;
Reviewing compensation practices as they relate to incentives for risk taking and innovation;
Reviewing the mandates, governance, and resource requirements of the IFIs; and
Defining the scope of systemically important institutions and determining their appropriate regulation or oversight.



In view of the role of the G-20 in financial systems reform, we will meet again by April 30, 2009, to review the implementation of the principles and decisions agreed today.