Thursday, July 17, 2014

Finding the money for major infrastructure upgrades

Today, Ellen Brown writes an incredible essay about the investment giants Black Rock and PIMCO suing the major to-big-to-fail banks.  These are the same banks that have run roughshod over elected governments and terrorized the leaders of superpowers in recent years so this suit represents a clash of the titans.

In the midst of the speculation about what might happen if such a suit would lead to a bankruptcy of a major bank that would then bring down the whole financial system, Brown injects a note of reality into such speculation.  The reality is that there is almost no catastrophe easier to contain than one in the credit system.  Since the whole system is nothing more than folks reprogramming each other's computer chips, a credit meltdown can be contained by simply pushing some other buttons.  Compare this to solving the problems caused by Peak Oil—those cannot be solved by pushing different buttons.  Not. Even. Close.

We will need $trillions to climb out of the mess we find ourselves.  And finding those trillions is just a start—they must be spent wisely.  I will leave it to Ellen and other visionaries to find the money—this blog is dedicated to ensuring that all that money doesn't just buy a lot more of the same.
Black Rock and PIMCO Sue Banks for $250 Billion

Did the Other Shoe Just Drop?

by ELLEN BROWN  JULY 16, 2014


Phoenix Rising

In a thought-provoking March 2014 article called American Delusionalism, or Why History Matters, John Michael Greer disagrees. He notes that historically, governments have responded by modifying their financial systems:

Massive credit collapses that erase very large sums of notional wealth and impact the global economy are hardly a new phenomenon . . . but one thing that has never happened as a result of any of them is the sort of self-feeding, irrevocable plunge into the abyss that current fast-crash theories require.

The reason for this is that credit is merely one way by which a society manages the distribution of goods and services. . . . A credit collapse . . . doesn’t make the energy, raw materials, and labor vanish into some fiscal equivalent of a black hole; they’re all still there, in whatever quantities they were before the credit collapse, and all that’s needed is some new way to allocate them to the production of goods and services.

This, in turn, governments promptly provide. In 1933, for example, faced with the most severe credit collapse in American history, Franklin Roosevelt temporarily nationalized the entire US banking system, seized nearly all the privately held gold in the country, unilaterally changed the national debt from “payable in gold” to “payable in Federal Reserve notes” (which amounted to a technical default), and launched a series of other emergency measures. The credit collapse came to a screeching halt, famously, in less than a hundred days. Other nations facing the same crisis took equally drastic measures, with similar results. . . .

Faced with a severe crisis, governments can slap on wage and price controls, freeze currency exchanges, impose rationing, raise trade barriers, default on their debts, nationalize whole industries, issue new currencies, allocate goods and services by fiat, and impose martial law to make sure the new economic rules are followed to the letter, if necessary, at gunpoint. Again, these aren’t theoretical possibilities; every one of them has actually been used by more than one government faced by a major economic crisis in the last century and a half.

That historical review is grounds for optimism, but confiscation of assets and enforcement at gunpoint are still not the most desirable outcomes. Better would be to have an alternative system in place and ready to implement before the boom drops.

The Better Mousetrap

North Dakota has established an effective alternative model that other states might do well to emulate. In 1919, the state legislature pulled its funds out of Wall Street banks and put them into the state’s own publicly-owned bank, establishing financial sovereignty for the state. The Bank of North Dakota has not only protected the state’s financial interests but has been a moneymaker for it ever since.

On a national level, when the Wall Street credit system fails, the government can turn to the innovative model devised by our colonial forebears and start issuing its own currency and credit—a power now usurped by private banks but written into the US Constitution as belonging to Congress.

The chief problem with the paper scrip of the colonial governments was the tendency to print and spend too much. The Pennsylvania colonists corrected that systemic flaw by establishing a publicly-owned bank, which lent money to farmers and tradespeople at interest. To get the funds into circulation to cover the interest, some extra scrip was printed and spent on government services. The money supply thus expanded and contracted naturally, not at the whim of government officials but in response to seasonal demands for credit. The interest returned to public coffers, to be spent on the common weal.

The result was a system of money and credit that was sustainable without taxes, price inflation or government debt – not to mention without credit default swaps, interest rate swaps, central bank manipulation, slicing and dicing of mortgages, rehypothecation in the repo market, and the assorted other fraudulent schemes underpinning our “systemically risky” banking system today.

[snip] more
Is a larger version of the Bank of North Dakota what the BRICS countries are attempting?  We soon shall see.  As someone who knows more than a little about the operations of the Bank of North Dakota, I would remind people that it works mostly because it is staffed from top to bottom by scrupulously honest people.  All the BRICS countries suffer from persistent and chronic corruption.  And it only takes a little corruption to sink a public bank.  Those who would argue that it would be nearly impossible for a BRICS development bank to do a worse job than the IMF have a point.  But my point is that done right, these new institutions could usher in an era of genuine and sweeping prosperity.

BRICS establish $100bn bank and currency reserves to cut out Western dominance

RT July 15, 2014

The group of emerging economies signed the long-anticipated document to create the $100 bn BRICS Development Bank and a reserve currency pool worth over another $100 bn. Both will counter the influence of Western-based lending institutions and the dollar.

The new bank will provide money for infrastructure and development projects in BRICS countries, and unlike the IMF or World Bank, each nation has equal say, regardless of GDP size.

“BRICS Bank will be one of the major multilateral development finance institutions in this world,” Russian President Vladimir Putin said on Tuesday at the 6th BRICS summit in Fortaleza, Brazil.

The big launch of the BRICS bank is seen as a first step to break the dominance of the US dollar in global trade, as well as dollar-backed institutions such as the International Monetary Fund (IMF) and the World Bank, both US-based institutions BRICS countries have little influence within.

“In terms of escalating international competition the task of activating the trade and investment cooperation between BRICS member states becomes important,” Putin said.

Russia, Brazil, India, China and South Africa account for 11 percent of global capital investment, and trade turnover almost doubled in the last 5 years, the president reminded.

Each BRICS member is expected to put an equal share into establishing the startup capital of $50 billion with a goal to reach $100 billion. The BRICS bank will be headquartered in Shanghai, India will preside as president the first year, and Russia will be the chairman of the representatives. Each country will send either their finance minister or Central Bank chair to the bank’s representative board.

Membership may not just be limited to just BRICS nations, either. Future members could include countries in other emerging markets blocs, such as Mexico, Indonesia, or Argentina, once it sorts out its debt burden.

BRICS represents 42 percent of the world’s population and roughly 20 percent of the world’s economy based on GDP, and 30 percent of the world’s GDP based on PPP, a more accurate reading of the real economy. Total trade between the countries is $6.14 trillion, or nearly 17 percent of the world’s total.

The $100 billion crisis lending fund, called the Contingent Reserve Arrangement (CRA), was also established. China will contribute the lion’s share, about $41 billion, Russia, Brazil and India will chip in $18 billion, and South Africa, the newest member of the economic bloc, will contribute $5 billion.

The idea is that the creation of the bank will lessen dependence on the West and create a more multi-polar world, at least financially.

“This mechanism creates the foundation for an effective protection of our national economies from a crisis in financial markets," Russian President Vladimir Putin said.

The group has already created the BRICS Stock Alliance an initiative to cross list derivatives to smooth the path for international investors interested in emerging markets.

Russia has also proposed the countries come together under an energy alliance that will include a fuel reserve, as well as an institute for energy policy

"We propose the establishment of the Energy Association of BRICS. Under this ‘umbrella’, a Fuel Reserve Bank and BRICS Energy Policy Institute could be set up,” Putin said.

Documents on cooperation between BRICS export credit agencies and an agreement of cooperation on innovation were also inked.

Bringing emerging economies closer has become vital at a time when the world is guttered by the financial crisis and BRICS countries can’t remain above international problems, said Brazil's President Dilma Rousseff.

She cautioned the world not to see BRICS deals as a desire to dominate.

“We want justice and equal rights,” she said.

“The IMF should urgently revise distribution of voting rights to reflect the importance of emerging economies globally,” Rousseff said. more

BRICS sign deal on new development bank and monetary reserve

hc/kms (Reuters, AFP, AP, dpa) 15 JULY 2014

The leaders of the BRICS group of emerging nations have signed a deal to create a new development bank and contingency fund. Both are meant to act as counterweights to Western-dominated institutions.

Brazilian President Dilma Rousseff said setting up the currency reserve was a priority for the countries to protect themselves from crisis scenarios.

"It will be a kind of security net to increase protection for BRICS countries as well as other countries. It's a question of our security," she said at the summit in the Brazilian coastal city of Fortaleza.

"The development bank is to guarantee the means for investment in infrastructure," Rousseff added. The initial $50 billion in startup capital for the bank, equally shared between all five countries, is expected to grow to $100 billion.

The bank and the fund are meant as an alternative to the Western-run World Bank and International Monetary Fun (IMF), which BRICS nations say need more reform to give emerging nations more voting rights.

The other four leaders present were Russian President Vladimir Putin, Chinese President Xi Jinping,Indian Prime Minister Narendra Modi and South African President Jacob Zuma. The five countries make up 26 percent of the Earth's land surface and have nearly half the world's population.

The summit will continue Wednesday in Brazil's capital, Brasilia, with leaders from across South America. more


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