All posts by administrator

Clifford Taylor Fleischbein has been in full-time self-employment since 1975 earning revenue as a entrepreneur consultant, with the most recent passage of twenty years generating income from On-demand services for Information technology consulting, Database Management, Marketing, Change Management, and Customer relationship management job projects.

Italian Altar Boy Confession

Priest-and-young-boy-confession

‘Bless me Father, for I have sinned. I have been with a loose girl.’

The priest asks, ‘Is that you, little Dominic Savino?’

‘Yes, Father, it is.’

‘And who was the girl you were with?’

‘I can’t tell you, Father. I don’t want to ruin her reputation.’

“Well, Dominic, I’m sure to find out her name sooner or later so
you may as well tell me now. Was it Tina Minetti?’

‘I cannot say.’

‘Was it Teresa Mazzarelli?’

‘I’ll never tell. ‘

‘Was it Nina Capelli?’

‘I’m sorry, but I cannot name her.’

‘Was it Cathy Piriano?’

‘My lips are sealed.’

‘Was it Rosa DiAngelo, then?’

‘Please, Father, I cannot tell you.’

The priest sighs in frustration. ‘You’re very tight lipped, and I admire that.  But you have sinned and must atone.  You cannot be an altar boy for the next four months.  Now, you go and behave yourself.’

Joey walks back to his pew, and his friend Franco slides over and whispers, ‘What’d you get?’

Joey says: ‘Four months vacation and five good leads.’


 

A parable to meditate on
for our politically correct society

An old man, a boy and a donkey were going to town.

The boy rode on the donkey, and the old man walked.

As they went along they passed some people who remarked:

“What a shame, the old man is walking, the boy is riding.”

The man and boy thought maybe the critics were right, so they changed positions.

Later they passed some people who remarked:

“What a shame, he makes that little boy walk”.

So they decided they’d both walk.

Soon they passed some more people who remarked:

“They’re really stupid to walk when they have a decent donkey to ride.”

So they both decided to ride the donkey.

They passed some people who shamed them by saying:

“How awful to put such a load on a poor donkey.”

The boy and the man figured they were probably right, so they decide to carry the donkey.

As they crossed the bridge, they lost their grip on the donkey, the donkey fell into the river and drowned.

The moral of the story:

If you try to please everyone,
you might as well kiss your ass goodbye.

 

Have a nice day!

The Federal Reserve System and 12+1 Symbolism

Fed-Reserve-seal“A Federal Reserve Bank is a regional bank of the Federal Reserve System, the central banking system of the United States. There are twelve in total, one for each of the twelve Federal Reserve Districts that were created by the Federal Reserve Act of 1913.”  – From Wikipedia

The number twelve frequently occurs among ancient peoples, who in nearly every case had a pantheon consisting of twelve demigods and goddesses presided over by The Invincible One, who was Himself subject to the Incomprehensible All-Father.  This use of the number twelve is especially noted in the Jewish and Christian writings.  The twelve prophets, the twelve patriarchs, the twelve tribes, and the twelve Apostles – each group has a certain significance, for each refers to the Divine Duodecimo, or Twelvefold Deity, whose emanations are manifested in the tangible created Universe through twelve individualized channels.” 

-Manly P. Hall, The Secret Teachings of All Ages

In the ancient mysteries there is a ritualistic procession which describes the path from confusion and despair to enlightenment and exultation.  This process places the individual, or groupings of individuals, such as nations, on a journey of hardship and suffering, only to come out the other end liberated and illuminated.

It is perhaps symbolic of the birth into the material world and onset of suffering and confusion which ensues.  When the righteous path is followed through life the spirit is able to rise up out of the ashes of despair and ignorance, and become one with the universal power of creation.

Or so the story goes.

In the song Carry on Wayward Son, the band Kansas sings:

Once I rose above the noise and confusion, just to get a glimpse beyond this illusion, I was soaring ever higher, but I flew too high.”

Patience with the process of initiation in this life is a key element of the journey itself.  When we reach too high, and too far, we falter and fall victim to the entrapments of the false self.  Most stumble through this life never realizing that life itself is an initiation.

When we come to understand, and accept the reality that life is an initiation, the pieces begin to fit and purposeful meaning fills our hearts and minds with a quiet wisdom which does not need to be spoken.

Borrowing from Thomas Armstrong and his Human Odyssey: Navigating the Twelve Stages of Life, we find that each of our lives can be segmented into the following categories:

  1. Pre-birth: Potential
  2. Birth: Hope
  3. Infancy (Ages 0 to 3): Vitality
  4. Early Childhood (Ages 3 to 6): Playfulness
  5. Middle Childhood (Ages 6 to 8): Imagination
  6. Late Childhood(Ages 9 to 11): Ingenuity
  7. Adolescence (Ages 12 to 20) : Passion and Rebellion
  8. Early Adulthood (Ages 20 to 35): Enterprise
  9. Midlife Ages (Ages 35 to 50): Contemplation and Seeking
  10. Mature Adulthood (ages 50 to 80): Benevolence
  11. Late Adulthood (Age 80+): Wisdom
  12. Death and Dying: Life and Knowing, otherwise Gnosis

The obvious and immediate pattern which jumps out at us is that each subsequent period in the procession becomes longer in duration, when measured in years, or orbits around the Sun.  Each period also becomes deeper and richer in experience. But only when we’re paying attention.

Whether Armstrong intended this as a structural component of his thesis is not known, but I would like to add my own thesis – that consciousness is not allegorically static, in that consciousness perceives each period within the same volume of space. Or each period takes up the same volume of conscious space as the period before and the period after.

Allow me to explain.

When we’re children the days pass as fast as a dragonfly.  But as we age the days, months, and years are perceived to be moving at an ever quicker pace.  Life speeds up and goes by faster and faster as we get older and older.

But is time really speeding up?  Or is this the way consciousness breaks down and perceives each of the twelve periods in a person’s life cycle procession?

The older we get the longer each period lasts in years.  But if consciousness can only perceive each period in the same volume of space, then it is conceivable that as each period becomes longer in years, consciousness will perceive that period in the same volume of space as the ones which came before it.  Thus, time appears to be speeding up.

The other obvious point which can be made from Armstrong’s life structure is that each of the twelve segments make up the one whole.  Each segment contributes to the completion of the Great Work.

This structure of twelve segments, or channels, making up the one whole, can be found throughout history and different cultures.  It is as if consciousness subliminally understands the meaning of this structure and we work it into all human frameworks and machinations.

Pythagorean philosophy considered the dodecahedron to be the foundation of the material world.  A dodecahedron is a twelve faced symmetrical geometric solid.  All twelve sides make up the one whole solid.

12-sided-dodecahedron

In order to accept that this concept of twelve plus one has real symbolic meaning, I offer the following:

  • Twelve Signs of the Zodiac (procession of the Sun)
  • Jesus and 12 disciples
  • King Arthur and the Twelve Knights of the Roundtable
  • Twelve tribes of Israel
  • Twelve apostles spreading the church
  • Twelve kings of Israel
  • Twelve old testament prophets
  • Twelve great patriarchs
  • Twelve judges of Israel
  • Twelve brothers of Joseph
  • Twelve knights of Charlemagne
  • Twelve followers of Quetzalcoatl
  • Twelve followers of Buddha
  • Twelve Bedesmen
  • Zeus and twelve Olympians
  • Pan and twelve Lupercal Priests
  • Romulus and twelve sons
  • Odin and his twelve holy and ineffable names
  • Alexander and his twelve Cheders
  • Twelve great adventures of Izubar of Ancient Babylon
  • Hercules and his twelve labours
  • Himmler and his twelve SS knights
  • Twelve Masonic signs of recognition
  • Twelve months of the year
  • Twelve hours of the day
  • Twelve hours of the night
  • Twelve inches in a foot
  • Twelve days of Christmas
  • Twelve grades in school
  • Twelve jurors
  • Twelve notes before the octave
  • Twelve in a dozen

There are endless more, but let’s not forget the twelve Knights Templar who escaped arrest in 1307 and made their way to Switzerland with the famed treasure.  Followed by twelve more, just like day follows night.

Each of the above stories are symbolic and allegorical tales which provide hints on the path and procession of our individual initiation in this life cycle – the completion of the Great Work. As such, each segment within the twelve has occult significance.  The word occult is loaded with misunderstanding, and should be considered a process of thought.  Each of the twelve segments creates a thought field.

In all cases the twelve are combined to make the one whole.  This whole is the 13th and purposeful dodecahedron, which is represented as the completion of a process and the attainment of the whole.  Hercules had to complete his twelve labours to ascend further.  King Arthur and the twelve knights went on a quest to find the Holy Grail. The Grail was said to have held the blood of Christ.  Christ and the twelve disciples describe a process which is meant to help us understand the ascent of consciousness and the completion of the cycle.

Like the Sun completing its cycle through the Zodiac.

After twelve hours of night the Sun rises.

Oh, I almost forgot, the Holy City has twelve foundations and twelve gates.  The Tree of Life bears twelve fruit.

Moving on.

The Federal Reserve (you thought I’d never get to it) is structured in the same allegorical and symbolic way which has been described above.  There are twelve Federal Reserve Districts with Federal Reserve Banks.  They are:

  1. Boston
  2. New York
  3. Philadelphia
  4. Cleveland
  5. Richmond
  6. Atlanta
  7. Chicago
  8. St. Louis
  9. Minneapolis
  10. Kansas City
  11. Dallas
  12. San Francisco

And of course all twelve make up the Federal Reserve itself.  Just like the Sun acts as the 13th culmination of the twelve with dominion over the whole Earth, the Federal Reserve has dominion over wealth accumulation.

In the picture which accompanies this post, we see the Federal Reserve Gold Symbol Seal embedded in the wall of the Federal Reserve Bank of Kansas.  This symbol shows a bird sitting above twelve stars.  We can assume that the twelve stars represent the twelve district banks and the bird represents the Federal Reserve System as a whole.

This close up picture of the seal gives us a better image of the stars and the bird.  The bird can be interpreted as the American eagle, but can just as easily be interpreted as the phoenix, the mystical bird which rises from the ashes of its previous self.  Regeneration.

Fed-Reserve-seal-12-stars

But that is not all it represents.  If it was all that innocuous than the above information would not exist.  The reality and frequency of twelve plus one throughout history and vastly different cultures is not a coincidence.

Manly P. Hall wrote in The Secret Destiny of America:

“Philosophy teaches that the completion of the great work of social regeneration must be accomplished not in society but in man himself.”

Do you see?

Once I rose above the noise and confusion, just to get a glimpse beyond this illusion, I was soaring ever higher, but I flew too high.”

Quotes from Friedrich Hayek: The Road to Serfdom

Friedrich-Hayek“Probably it is true enough that the great majority are rarely capable of thinking independently, that on most questions they accept views which they find ready-made, and that they will be equally content if born or coaxed into one set of beliefs or another. In any society freedom of thought will probably be of direct significance only for a small minority. But this does not mean that anyone is competent, or ought to have power, to select those to whom this freedom is to be reserved. It certainly does not justify the presumption of any group of people to claim the right to determine what people ought to think or believe.”

― Friedrich Hayek, The Road to Serfdom


“It is true that the virtues which are less esteemed and practiced now–independence, self-reliance, and the willingness to bear risks, the readiness to back one’s own conviction against a majority, and the willingness to voluntary cooperation with one’s neighbors–are essentially those on which the of an individualist society rests. Collectivism has nothing to put in their place, and in so far as it already has destroyed then it has left a void filled by nothing but the demand for obedience and the compulsion of the individual to what is collectively decided to be good.”

― Friedrich Hayek, The Road to Serfdom


“Our freedom of choice in a competitive society rests on the fact that, if one person refuses to satisfy our wishes, we can turn to another. But if we face a monopolist we are at his absolute mercy. And an authority directing the whole economic system of the country would be the most powerful monopolist conceivable…it would have complete power to decide what we are to be given and on what terms. It would not only decide what commodities and services were to be available and in what quantities; it would be able to direct their distributions between persons to any degree it liked.”

― Friedrich Hayek, The Road to Serfdom


“It is one of the saddest spectacles of our time to see a great democratic movement support a policy which must lead to the destruction of democracy and which meanwhile can benefit only a minority of the masses who support it. Yet it is this support from the Left of the tendencies toward monopoly which make them so irresistible and the prospects of the future so dark.”

― Friedrich Hayek, The Road to Serfdom


“Freedom to order our own conduct in the sphere where material circumstances force a choice upon us, and responsibility for the arrangement of our own life according to our own conscience, is the air in which alone moral sense grows and in which moral values are daily recreated in the free decision of the individual. Responsibility, not to a superior, but to one’s own conscience, the awareness of a duty not exacted by compulsion, the necessity to decide which of the things one values are to be sacrificed to others, and to bear the consequences of one’s own decision, are the very essence of any morals which deserve the name.”

― Friedrich Hayek, The Road to Serfdom


“Everything which might cause doubt about the wisdom of the government or create discontent will be kept from the people. The basis of unfavorable comparisons with elsewhere, the knowledge of possible alternatives to the course actually taken, information which might suggest failure on the part of the government to live up to its promises or to take advantage of opportunities to improve conditions–all will be suppressed. There is consequently no field where the systematic control of information will not be practiced and uniformity of views not enforced.”

― Friedrich Hayek, The Road to Serfdom


“Few people ever have an abundance of choice of occupation. But what matters is that we have some choice, that we are not absolutely tied to a job which has been chosen for us, and that if one position becomes intolerable, or if we set our heart on another, there is always a way for the able, at some sacrifice, to achieve his goal. Nothing makes conditions more unbearable than the knowledge that no effort of ours can change them; and even if we should never have the strength of mind to make the necessary sacrifice, the knowledge that we could escape if we only strove hard enough makes many otherwise intolerable positions bearable.”

― Friedrich Hayek, The Road to Serfdom


“It is not difficult to deprive the great majority of independent thought. But the minority who will retain an inclination to criticize must also be silenced….Public criticism or even expressions of doubt must be suppressed because they tend to weaken pubic support….When the doubt or fear expressed concerns not the success of a particular enterprise but of the whole social plan, it must be treated even more as sabotage.”

― Friedrich Hayek, The Road to Serfdom


“The word ‘truth’ itself ceases to have its old meaning. It describes no longer something to be found, with the individual conscience as the sole arbiter of whether in any particular instance the evidence (or the standing of those proclaiming it) warrants a belief; it becomes something to be laid down by authority, something which has to believed in the interest of unity of the organized effort and which may have to be altered as the exigencies of this organized effort require it.”

― Friedrich Hayek, The Road to Serfdom


“One need not be a prophet to be aware of impending dangers. An accidental combination of experience and interest will often reveal events to one man under aspects which few yet see.”

― Friedrich Hayek, The Road to Serfdom


The-Road-To-Serfdom-Book“The state should confine itself to establishing rules applying to general types of situations and should allow the individuals freedom in everything which depends on the circumstances of time and place, because only the individuals concerned in each instance can fully know these circumstances and adapt their actions to them. If the individuals are able to use their knowledge effectively in making plans, they must be able to predict actions of the state which may affect these plans. But if the actions of the state are to be predictable, they must be determined by rules fixed independently of the concrete circumstances which can be neither foreseen nor taken into account beforehand; and the particular effects of such actions will be unpredictable. If, on the other hand, the state were to direct the individual’s actions so as the achieve particular ends, its actions would have to be decided on the basis of the full circumstances of the moment and would therefore be unpredictable. Hence the familiar fact that the more the state “plans”, the more difficult planning becomes for the individual.”

― Friedrich Hayek, The Road to Serfdom


“We are ready to accept almost any explanation of the present crisis of our civilization except one: that the present state of the world may be the result of genuine error on our own part and that the pursuit of some of our most cherished ideals has apparently produced results utterly different from those which we expected.”

― Friedrich Hayek, The Road to Serfdom


“Our hopes of avoiding the fate which threatens must…[be to make]adjustments that will be needed if we are to recover and surpass our former standards…and only if every one of us is ready to individually obey the necessities of readjustment shall we be able to get through a difficult period as free men who can choose their own way of life. Let a uniform minimum be secured to everybody by all means; but let us admit at the same time that with this assurance of a basic minimum all claims for a privileged security for particular classes must lapse….”

― Friedrich Hayek, The Road to Serfdom


“Although we had been warned by some of the greatest political thinkers of the nineteenth century, by Tocqueville and Lord Acton, that socialism means slavery, we have steadily moved in the direction of socialism.”

― Friedrich Hayek, The Road to Serfdom


“Democracy is essentially a means, a utilitarian device for safeguarding internal peace and individual freedom. As such it is by no means infallible or certain. Nor must we forget that there has often been much more cultural and spiritual freedom under an autocratic rule than under some democracies and it is at least conceivable that under the government of a very homogeneous and doctrinaire majority democratic government might be as oppressive as the worst dictatorship.”

― Friedrich Hayek, The Road to Serfdom


“To act on behalf of a group seems to free people of many of the moral restraints which control their behavior as individuals within the group.”

― Friedrich Hayek, The Road to Serfdom


“There can be no doubt that the promise of greater freedom has become one of the most effective weapons of socialist propaganda and that the belief that socialism would bring freedom is genuine and sincere. But this would only heighten the tragedy if it should prove that what was promised to us as the Road to Freedom was in fact the High Road to Servitude. Unquestionably, the promise of more freedom was responsible for luring more and more liberals along the socialist road, for blinding them to the conflict which exists between the basic principles of socialism and liberalism, and for often enabling socialists to usurp the very name of the old party of freedom. Socialism was embraced by the greater part of the intelligentsia as the apparent heir of the liberal tradition: therefore it is not surprising that to them the idea of socialism’s leading to the opposite of liberty should appear inconceivable.”

― Friedrich Hayek, The Road to Serfdom


“What Tocqueville did not consider was how long such a government would remain in the hands of benevolent despots when it would be so much more easy for any group of ruffians to keep itself indefinitely in power by disregarding all the traditional decencies of political life.”

― Friedrich Hayek, The Road to Serfdom


“The fact that German anti-Semitism and anti-capitalism spring from the same root is of great importance for the understanding of what has happened there, but this is rarely grasped by foreign observers.”

― Friedrich Hayek, The Road to Serfdom


“But what socialists seriously contemplate the equal division of existing capital resources among the people of the world?”

― Friedrich Hayek, The Road to Serfdom


“Only if we understand why and how certain kinds of economic controls tend to paralyze the driving forces of a free society, and which kinds of measures are particularly dangerous in this respect, can we hope that social experimentation will not lead us into situations none of us want.”

― Friedrich Hayek, The Road to Serfdom


“In any society freedom of thought will probably be of direct significance only for a small minority.”

― Friedrich Hayek, The Road to Serfdom


“To produce the same result for different people, it is necessary to treat them differently. To give different people the same objective opportunities is not to give them the same subjective chance. It cannot be denied that the Rule of Law produces economic inequality—all that can be claimed for it is that this inequality is not designed to affect particular people in a particular way.”

― Friedrich Hayek, The Road to Serfdom


“From the point of view of fundamental human liberties there is little to choose between communism, socialism, and national socialism. They all are examples of the collectivist or totalitarian state …”

― Friedrich Hayek, The Road to Serfdom


“We can unfortunately not indefinitely extend the sphere of common action and still leave the individual free in his own sphere. Once the communal sector, in which the state controls all the means, exceeds a certain proportion of the whole, the effects of its actions dominate the whole system. Although the state controls directly the use of only a large part of the available resources, the effects of its decisions on the remaining part of the economic system become so great that indirectly it controls almost everything.”

― Friedrich Hayek, The Road to Serfdom


“at all times sincere friends of freedom have been rare,”

― Friedrich Hayek, The Road to Serfdom


“The main cause of the ineffectiveness of British propaganda is that those directing it seem to have lost their own belief in the peculiar values of English civilization or to be completely ignorant of the main points on which it differs from that of other people. The Left intelligentsia indeed, have so long worshiped foreign gods that they seem to have become almost incapable of seeing any good in the characteristic English institutions and traditions. That the moral values on which most of them pride themselves are largely the product of the institutions they are out to destroy, these socialists cannot, of course, admit.”

― Friedrich Hayek, The Road to Serfdom


“The young are right if they have little confidence in the ideas which rule most of their elders. But they are mistaken or misled when they believe that these are still the liberal ideas of the nineteenth century, which, in fact, the younger generation hardly knows. We have little right to feel in this respect superior to our grandfathers; and we should never forget that it is we, the twentieth century, and not they, who have made a mess of things.

If in the first attempt to create a world of free men we have failed, we must try again. The guiding principle that a policy of freedom for the individual is the only truly progressive policy remains as true today as it was in the nineteenth century.”

― Friedrich Hayek, The Road to Serfdom


“Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends. And whoever has sole control of the means must also determine which ends are to be served, which values are to be rated higher and which lower, in short, what men should believe and strive for.”

― Friedrich Hayek, The Road to Serfdom


“How sharp a break not only with the recent past but with the whole evolution of Western civilization the modern trend toward socialism means becomes clear if we consider it not merely against the background of the nineteenth century but in a longer historical perspective. We are rapidly abandoning not the views merely of Cobden and Bright, of Adam Smith and Hume, or even of Locke and Milton,5 but one of the salient characteristics of Western civilization as it has grown from the foundations laid by Christianity and the Greeks and Romans. Not merely nineteenth- and eighteenth-century liberalism, but the basic individualism inherited by us from Erasmus and Montaigne, from Cicero and Tacitus, Pericles and Thucydides, is progressively relinquished.”

― Friedrich Hayek, The Road to Serfdom


“In the first instance, it is probably true that in general the higher the education and intelligence of individuals becomes, the more their views and tastes are differentiated and the less likely they are to agree on a particular hierarchy of values. It is a corollary of this that if we wish to find a high degree of uniformity and similarity of outlook, we have to descend to the regions of lower moral and intellectual standards where the more primitive and “common” instincts and tastes prevail. This does not mean that the majority of people have low moral standards; it merely means that the largest group of people whose values are very similar are the people with low standards. It is, as it were, the lowest common denominator which unites the largest number of people. If a numerous group is needed, strong enough to impose their views on the values of life on all the rest, it will never be those with highly differentiated and developed tastes -it will be those who form the “mass” in the derogatory sense of the term, the least original and independent, who will be able to put the weight of their numbers behind their particular ideals.”

― Friedrich Hayek, The Road to Serfdom


“It seems to be almost a law of human nature that it is easier for people to agree on a negative programme, on the hatred of an enemy, on the envy of those better off, than on any positive task. The contrast between the “we” and the “they”, the common fight against those outside the group, seems to be an essential ingredient in any creed which will solidly knit together a group for common action. It is consequently always employed by those who seek, not merely support of a policy, but the unreserved allegiance of huge masses. From their point of view it has the great advantage of leaving them greater freedom of action than almost any positive programme.”

― Friedrich Hayek, The Road to Serfdom


“In this sense socialism means the abolition of private enterprise, of private ownership of the means of production, and the creation of a system of “planned economy” in which the entrepreneur working for profit is replaced by a central planning body.”

― Friedrich Hayek, The Road to Serfdom


“When the course of civilization takes an unexpected turn—when, instead of the continuous progress which we have come to expect, we find ourselves threatened by evils associated by us with past ages of barbarism—we naturally blame anything but ourselves. Have we not all striven according to our best lights, and have not many of our finest minds incessantly worked to make this a better world? Have not all our efforts and hopes been directed toward greater freedom, justice, and prosperity? If the outcome is so different from our aims— if, instead of freedom and prosperity, bondage and misery stare us in the face—is it not clear that sinister forces must have foiled our intentions, that we are the victims of some evil power which must be conquered before we can resume the road to better things? However much we may differ when we name the culprit—whether it is the wicked capitalist or the vicious spirit of a particular nation, the stupidity of our elders, or a social system not yet, although we have struggled against it for half a century, fully overthrown—we all are, or at last were until recently, certain of one thing: that the leading ideas which during the last generation have become common to most people of good will and have determined the major changes in our social life cannot have been wrong. We are ready to accept almost any explanation of the present crisis of our civilization except one: that the present state of the world may be the result of genuine error on our own part and that the pursuit of some of our most cherished ideals has apparently produced results utterly different from those which we expected.”

― Friedrich Hayek, The Road to Serfdom


“during war the market system is more or less abandoned, as many parts of the economy are placed under central control. Hayek’s fear was that socialists would want to continue such”

― Friedrich Hayek, The Road to Serfdom


“provisional.”

― Friedrich Hayek, The Road to Serfdom


“This is not the place to discuss how this change in outlook was fostered by the uncritical transfer to the problems of society of habits of thought engendered by the preoccupation with technological problems, the habits of thought of the natural scientist and the engineer, and how these at the same time tended to discredit the results of the past study of society which did not conform to their prejudices and to impose ideals of organization on a sphere to which they are not appropriate.”

― Friedrich Hayek, The Road to Serfdom


“Once you admit that the individual is merely a means to serve the ends of the higher entity called society or the nation, most of those features of totalitarian regimes which horrify us follow of necessity. From the collectivist standpoint intolerance and brutal suppression of dissent, the complete disregard of the life and happiness of the individual, are essential and unavoidable consequences of this basic premise, and the collectivist can admit this and at the same time claim that his system is superior to one in which the “selfish” interests of the individual are allowed to obstruct the full realization of the ends the community pursues.”

― Friedrich Hayek, The Road to Serfdom


“The complete collapse of the belief in the attainability of freedom and equality through Marxism,” writes Peter Drucker, “has forced Russia to travel the same road toward a totalitarian, purely negative, non-economic society of unfreedom and inequality which Germany has been following. Not that communism and fascism are essentially the same. Fascism is the stage reached after communism has proved an illusion, and it has proved as much an illusion in Stalinist Russia as in pre-Hitler Germany.  No less significant”

― Friedrich Hayek, The Road to Serfdom


“What is called economic power, while it can be an instrument of coercion, is in the hands of private individuals never exclusive or complete power, never power over the whole life of a person. But centralised as an instrument of political power it creates a degree of dependence scarcely distinguishable from slavery.”

― Friedrich Hayek, The Road to Serfdom


“The most effective way of making people accept the validity of the values they are to serve is to persuade them that they are really the same as those which they, or at least the best among them, have always held, but which were not properly understood or recognised before.”

― Friedrich Hayek, The Road to Serfdom


“when security is understood in too absolute a sense, the general striving for it, far from increasing the chances of freedom, becomes the gravest threat to it.”

― Friedrich Hayek, The Road to Serfdom

The BIG Short

Anyone, who give a care about how money and the financial system (think, Wall Street) work in America must watch this documentary movie about how the Banksters, Politicians, and Wall Street crooks frauded the citizens of the Unites States of America:

The-Big-Short-Movie

The Big Short (2015)

Then, read some of the other materials provided on this web site as well as anything written by Senator Ron Paul.

Happy trails in doing your research, and I pray you can sleep well at night after learning the truth about what has been done to We The People over the last 70+ years.   Then, get MAD and vote and demand REFORM to our American money system.

Research Study Concludes: The US Government is an Oligarchy

Report by researchers from Princeton and Northwestern universities suggests that US political system serves special interest organisations, instead of voters.

Source: http://www.telegraph.co.uk/news/worldnews/northamerica/usa/10769041/The-US-is-an-oligarchy-study-concludes.html

washington-capitol

The report, entitled Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens, used extensive policy data collected from between the years of 1981 and 2002 to empirically determine the state of the US political system.

After sifting through nearly 1,800 US policies enacted in that period and comparing them to the expressed preferences of average Americans (50th percentile of income), affluent Americans (90th percentile) and large special interests groups, researchers concluded that the United States is dominated by its economic elite.

The peer-reviewed study, which will be taught at these universities in September, says: “The central point that emerges from our research is that economic elites and organised groups representing business interests have substantial independent impacts on US government policy, while mass-based interest groups and average citizens have little or no independent influence.”

Researchers concluded that US government policies rarely align with the the preferences of the majority of Americans, but do favour special interests and lobbying organisations: “When a majority of citizens disagrees with economic elites and/or with organised interests, they generally lose. Moreover, because of the strong status quo bias built into the US political system, even when fairly large majorities of Americans favour policy change, they generally do not get it.”

The positions of powerful interest groups are “not substantially correlated with the preferences of average citizens”, but the politics of average Americans and affluent Americans sometimes does overlap. This is merely a coincidence, the report says, with the the interests of the average American being served almost exclusively when it also serves those of the richest 10 per cent.

The theory of “biased pluralism” that the Princeton and Northwestern researchers believe the US system fits holds that policy outcomes “tend to tilt towards the wishes of corporations and business and professional associations.”

The study comes in the wake of McCutcheon v. Federal Election Commission, a controversial Supreme Court decision which allows wealthy donors to contribute to an unlimited number of political campaigns.

Modern recipes for financial crises

James McAndrews: Modern recipes for financial crises

Remarks by Mr James McAndrews, Executive Vice President and Director of Research of the Federal Reserve Bank of New York, at the University of Iowa, Iowa City, 4 December 2015.

 

Original presentation is on the Federal Reserve Bank of New York’s website: Slides (PDF).

The author wishes to thank Tobias Adrian and Thomas Eisenbach for helpful discussions and comments on the text of the speech. The views expressed are those of the author and do not necessarily represent the views of the Federal Reserve Bank of New York or of the Federal Reserve System.

Introduction

Franklin Delano Roosevelt, in his first fireside chat on March 12, 1933, cogently explained the mechanisms that led to the complete collapse of the banking system in the United States earlier that month:

“First of all, let me state the simple fact that when you deposit money in a bank, the bank does not put the money into a safe deposit vault. It invests your money in many different forms of credit – in bonds, in commercial paper, in mortgages and in many other kinds of loans. In other words, the bank puts your money to work to keep the wheels of industry and of agriculture turning around. A comparatively small part of the money that you put into the bank is kept in currency – an amount which in normal times is wholly sufficient to cover the cash needs of the average citizen. In other words, the total amount of all the currency in the country is only a comparatively small proportion of the total deposits in all the banks of the country.

“What, then, happened during the last few days of February and the first few days of March? Because of undermined confidence on the part of the public, there was a general rush by a large portion of our population to turn bank deposits into currency or gold – a rush so great that the soundest banks couldn’t get enough currency to meet the demand. The reason for this was that on the spur of the moment it was, of course, impossible to sell perfectly sound assets of a bank and convert them into cash, except at panic prices far below their real value. By the afternoon of March third, a week ago last Friday, scarcely a bank in the country was open to do business. Proclamations closing them, in whole or in part, had been issued by the Governors in almost all the states. It was then that I issued the proclamation providing for the national bank holiday, and this was the first step in the Government’s reconstruction of our financial and economic fabric.”1

Roosevelt understood the recipe for a banking crisis: fractional reserve banking and an undermined confidence by the public in banks, which led to widespread runs on banks. In turn that led to panic prices on bank assets and bank closures. During the Depression, the basic elements for the prevention of banking panics were put in place or strengthened: an extensive and well-designed system of federal deposit insurance, broad access by banks to the discount window, and sound supervision of banks.2

After 1933, the United States did not experience another major broad financial crisis for 74 years, until 2007. Even through significant macroeconomic upheavals, and the savings and loan crisis of the 1980s, the Continental Illinois failure in 1984, the Long-Term Capital Management crisis of 1998, and the dot-com crash in the early 2000s, a widespread financial crisis did not occur. Although the savings and loan crisis was very costly to taxpayers, for the most part the system of deposit insurance, discount window access, and supervision prevented runs and large spillovers into the real economy.

The bank runs during the Great Depression have been the subject of extensive research. Economic theory provided increasingly compelling explanations for the mechanisms that lead to bank runs. The widely cited work by Douglas Diamond and Philip Dybvig in 1983 explained the economic logic behind why banks exist and what makes them vulnerable to runs. In their model, banks fund illiquid assets with liabilities payable on demand and provide an important form of insurance for depositors. So long as the demand of depositors for currency withdrawals are relatively uncorrelated, the bank provides a safe place for housing one’s savings while earning a rate of return higher than that available to people simply by storing currency. However, coordination failure, such as an instance when everyone thinks that everyone else will withdraw their deposit today, can give rise to instability and lead to bank runs. That general theory has been extended in many ways. One of the lessons of that work is that deposit insurance (backed by the government’s money creation power) and discount window access can mitigate or even eliminate bank runs.

So why did we experience a crisis in 2007, one in which we in the United States did not observe widespread instances of depositors lined up outside of their banks demanding currency?3 During the decades from 1933 to 2007, and especially since the rapid growth of the market intermediated financial system in the 1980s, the financial system in the United States has grown in complexity and in reliance on financial institutions that aren’t commercial banks. Those institutions intermediate corporate bond markets, money markets for short-term credit, stock markets in which firms can issue equity claims, and derivative markets. All of these markets rely on non-banks such as dealers, finance companies, insurers, and many other types of specialists. It is important to recognize that the financial crisis of 2007-09 in the United States did not include widespread runs on bank deposit accounts, the hallmark of the crisis in the early 1930s. However, there has been a growing recognition that the financial system as a whole can be fragile beyond banks, and that runs can occur on a wide range of financial intermediaries. So what is a modern recipe for a financial crisis?

Menu

What is a financial crisis?

First, let’s define a financial crisis. There are many types of financial crises including currency crises in which the value of a country’s currency plummets, as happened in Iceland in 2008 along with its major banking crisis; fiscal crises in which a country’s government defaults on its debt or has the debt restructured, as happened in Greece in 2010 and 2014; and general financial crises, often called banking crises, which occurred in several parts of the world in 2008-09.4 What is a banking crisis, specifically? The economists Luc Laeven and Fabián Valencia (2012) have a clear definition, but similar definitions have been offered by other researchers:

A banking crisis is defined as systemic if two conditions are met:

  1. Significant signs of financial distress in the banking system (as indicated by significant bank runs, losses in the banking system, and/or bank liquidations)
  2. Significant banking policy intervention measures in response to significant losses in the banking system.

To be clear, and to apply this definition to the U.S. crisis in 2007-09, I’ll expand it from the banking system to the financial system more broadly, as many financial firms that experienced distress during the most recent crisis weren’t licensed as banks. It may seem odd to include policy interventions to be counted as a sign of a financial crisis, but when deposit insurance and lender of last resort services are available, a crisis may not kick off a bank run. That means the government must intervene to keep the stress from worsening, and so extraordinary action by the government can itself be a gauge of the severity of a crisis. Laeven and Valencia review the frequency of financial crises around the world and count 147 crises since 1970.

What problems are caused by a financial crisis?

The clearest outcome of a financial crisis is a loss of output – in other words, a severe and long-lasting recession. Using the same dataset they used to identify crises, Laeven and Valencia found that in advanced-economy nations, the median cumulative decline in output accompanying a financial crisis was 33 percent of annual gross domestic product, or one-third of an economy’s output for a year. In addition, the median growth in government debt was 21 percent of GDP, and the median fiscal cost of the crisis-related spending was 3.8 percent of GDP.

Other studies confirm these grim statistics. Reinhart and Rogoff (2009) point out that recoveries from financial crises are weaker and slower than recoveries from recessions that don’t accompany a financial crisis. Employment growth is slower during recoveries from financial crises, and the associated higher unemployment can have long-lasting effects on a whole generation of young workers who sustain long spells of joblessness. There are many other maladies that come along with financial crises.

Ingredients

Several economic researchers agree that one crucial ingredient in creating the vulnerabilities that can foster a financial crisis is a buildup of debt.5 In particular, a “credit boom,” that is, a high and fast-growing ratio of credit to GDP, is one of the precursors to a financial crisis. Other, somewhat less reliable precursors include a prior financial liberalization or deregulation, housing price booms, and external imbalances (in practice, large inflows of capital from outside the country).

The complication is that while most financial crises have been preceded by a credit boom, not all credit booms have been followed by a financial crisis. In fact, a credit boom has been followed by a financial crisis in only about 30 percent of the cases.6 Consequently, there are good booms, which don’t end in a crisis, and bad booms, or “booms gone wrong” that do end in a crisis. Given that credit booms often accommodate the real and pressing needs of a growing economy, simply preventing credit booms, if that were even possible, could have the effect of choking off desirable growth and thus be more costly for society over the longer run.

Nevertheless, it is difficult a priori to distinguish good and bad booms, and, furthermore, to determine the mechanisms that generate crises when the economy has become vulnerable to one, that is, when the economy has high debt, a weakening macroeconomy, and other such elements. Even so, as previous studies have indicated, debt growth shifts the conditional distribution of economic outcomes to put more weight on events in which debtors must unexpectedly cut back their spending plans to repay debt, a vulnerability that is not present in the absence of debt. Therefore, as I’ll explain later, forward-looking comprehensive supervision of the financial system is a key element in attempting to distinguish a healthy expansion of credit from a more dangerous and fragile buildup of debt.

Recipes

In what follows, I’ll outline recent findings on some of the possible mechanisms that can generate a modern financial crisis, one that is not characterized, like the U.S. banking crisis in 1931-33 by depositors demanding currency from their banks. In particular, I’ll focus on two strands of research that identify mechanisms that can amplify small initial disturbances in the economy to produce significant financial distress. My review is selective, as I don’t aim to cover all the possible factors that researchers have suggested can contribute to financial crises, but instead to focus on two topics that reveal some of the main mechanisms at play.

The first mechanism is the procyclicality of financial intermediary leverage; banks and other financial intermediaries, notably broker-dealers, increased their leverage during the growth years of the 2000s, issuing increasing amounts of debt, but little equity. But as financial volatility increased in 2007, they began to deleverage, a process that produced stresses for many institutions and people throughout the economy, much like the distress caused by classic bank runs.

The second mechanism I’ll review is the role played by the private sector in creating money-like assets, such as repos, commercial paper, and other short-term and ostensibly safe assets. When able to issue such assets, private issuers pay a very low interest rate, as others in the economy demand the apparent safety that those assets provide. That situation gives the private financial sector strong incentives to issue money-like claims. However, the excessive issuance of such instruments can lead, at some point, to a loss of confidence in them. In turn, that can reduce demand for these instruments and lead again to a rapid deleveraging by the issuers of these instruments. Much like the case that F.D.R. discussed for banks in the 1930s, the runs on these short-term debt instruments can lead to fire sales of assets by the institutions that were relying on the issuance of money-like instruments to finance their portfolios – and those sales cause distress for many others throughout the economy.

Procyclical leverage of financial intermediaries

In a series of papers, Tobias Adrian and coauthors have made a number of findings about the behavior of financial intermediaries, that is, banks, broker-dealers, and other financial companies, and how their leverage varies over time. So rather than focusing on the debt burden of the government, or households, or nonfinancial corporations, this line of work focuses on the debt burden of the financial sector itself.7 It is important to mention that, in a series of studies, Atif Mian and Amir Sufi have proposed a complementary mechanism in which they focus on the increase in household debt as a strongly predictive factor in explaining the depth of the recession associated with the financial crisis.8 Across the United States, regions in which household leverage was fueled by more aggressive lending tended to have larger subsequent busts. Hence the procyclicality of household and financial sector leverage were tightly intertwined.

The first and central finding is that financial intermediary balance sheet growth is highly procyclical. This finding is broadly consistent with how we think banks operate and the role they perform in providing financing to households and firms: As the economy expands, banks find more potentially profitable projects to which to lend, and also find it relatively easy to attract more funding, as households and businesses have more savings to invest. A more cautionary finding is that the size of bank balance sheets tends to forecast aggregate economic volatility. Consequently bank lending booms may portend more mixed economic outcomes.

Other studies in this vein suggest some of the mechanisms that might be behind the greater future volatility. First, banks have procyclical leverage: lending booms by banks are financed by debt, not equity. Consequently, the increased leverage of banks can result in a deterioration of the quality of bank lending through a type of moral hazard that can occur if debt becomes too easy for the banks to raise or if volatility in financial markets is suppressed. Another finding by Adrian and his coauthors is that banks’ incentives and ability to lend becomes highly sensitive to financial market volatility. When the economy is in the upside of the cycle, volatility and other measures of risk may be low precisely because of the abundance of debt financing, masking the level of underlying risk in the economy, which may lead to excessive, and eventually unsustainable, growth in bank lending.

The procyclical leverage of banks is associated with other features of the financial economy and its dynamics. For example, the leverage of financial intermediaries influences the pricing of assets: once again, this feature can impart procyclicality to asset pricing. When risk measures are low during a growth and boom phase of the cycle, asset prices tend to be supported, but during the contractionary phase, asset prices can drop, with risk premia rising, which, in turn, can lead to further contractions in credit by lenders, resulting in a negative feedback loop that can amplify the initial shock to asset prices.

Finally, the procyclical leverage of financial intermediaries is tied to systemic risk, suggesting that the leverage of financial intermediaries is a key factor behind economy-wide financial crises. Once again, a potential “macroprudential” regulator – one that is attempting to reduce the risk of a financial crisis but also attempting to stabilize the macroeconomy – would face a risk-return tradeoff: Allowing a buildup in financial intermediary leverage as the economy grows can assist in achieving macroeconomic objectives such as full employment, but risks a more severe downturn if such leverage growth becomes excessive. Making those judgments is inherently difficult.

The benefit of being a money issuer

Society demands money for many purposes. Money provides a good way for people to store value safely, and it can be used as a means of exchange. These are classic and enduring features of money. For the purpose of this talk, by “money” I mean a broad definition of money – what some would call “money-like” assets that can provide the monetary functions of storing value and serving as a medium of exchange. Those include both short-term government debt and short-term borrowing by financial intermediaries, especially borrowing that is designed to be extremely safe, such as repurchase agreements, or repos.

A repo is a fairly modern instrument that I’ll describe in a bit more detail, as repos played an important role in the buildup of intermediary leverage and the issuance of private-sector money-like instruments during the lead-up to the crisis of 2007-09. A repo is a sale of a security with an agreement to buy it back on a later date (the most common term for a repo is overnight, but the term can be for a longer period, such as one-month as well). The difference in the purchase and sale prices constitutes a rate of interest paid by the institution that is borrowing the money (or selling the security). The advantage of the sale and resale arrangement is that, in the event that the borrower does not return the money it owes, the party that purchased the security can keep it, avoiding the costs, delays, and uncertainty associated with making its claim in bankruptcy court; these advantages are confined to certain types of securities and has been allowed by supporting legislation.

Repos are just one such way that a private intermediary can provide a high degree of safety to its lenders, and others include asset-backed commercial paper, money market mutual fund shares, and auction-rate securities. However these private money-like assets are created, those that succeed in providing that elusive money-likeness confer significant benefits on their creators. A now widely confirmed finding regarding the issuance of money-like assets is that they can be issued at lower interest rates than other types of debt, saving the issuer from greater interest expense.

That result comes in two steps. First, a number of studies show that short-term Treasury bills (which are a publicly provided type of money-like asset) enjoy a “liquidity premium,” especially when the supply of Treasury bills is relatively low.9 Short-term Treasury bills can provide various money-like services for larger institutions because they are so safe. Deposit insurance is limited (currently it is limited to deposits of $250,000) so large institutions that want to hold funds safely for short periods cannot find that safety directly with bank deposits. Instead, short-term Treasury bills can provide a convenient way for large institutions to hold wealth in a safe form. Because the Treasury bills are short-term, their prices don’t experience much variation, and they are easily transferred and used as collateral. Hence, they provide those features of money I mentioned earlier, namely a good store of value and a means of exchange.

A second finding from these studies is that when the U.S. Treasury issues relatively smaller amounts of Treasury bills, the private-sector issuance of money-like assets increases, taking advantage of the liquidity premium that large institutions are willing to pay for their safety and convenience. So when the government funds itself with relatively more long-term debt, firms fill the resulting gap by issuing more short-term debt.10

In related work, Jeremy Stein (2012) points out that, notwithstanding their private benefits, there are systemic risks involved when the private sector creates money-like assets. For many reasons, if private intermediaries run into difficulty issuing those assets or in rolling over their short-term debt, then they must deleverage abruptly. In fact, the crisis of 2007-09 was characterized by runs on all four of the money-like instruments I mentioned earlier, namely repo, asset-backed commercial paper, money market mutual fund shares, and auction-rate securities. Those runs can lead to selling off the loans or securities that were financed by the issuance of those instruments and also may initiate fire sales.

A fire sale is caused when assets are sold at a time when many of the likely buyers of those assets do not have the capacity to purchase them, leading to severe downward price adjustments. These price movements create additional problems for other financial sector players, as the declining value of the securities that were sold often means that the value of the securities that they hold are also marked down, reducing their ability to obtain or retain financing to hold their portfolio of securities. This can lead to additional sales, worsening the fire sale conditions, in a negative feedback loop that amplifies the initial shock to the financial sector.

The emphasis on fire sales when private intermediaries encounter difficulty rolling over their short-term debt is complemented by research that posits that the role of banks is to create and preserve liquidity of their money-like liabilities such as deposits, repos, and other short-term debt.11 In normal times, these instruments are very safe and it is believed by people and institutions that invest in them that no special monitoring of those instruments is needed. Consequently, investors remain ignorant of the precise condition of the intermediary to whom they are lending, or of the securities that back their loan. However, once conditions worsen, suddenly the nature of the debt changes, in that the people and institutions that hold the debt realize they must expend resources to monitor their borrower. But, at that point, they are not in a good position to monitor that firm, so they simply refuse to extend the loan to it when the loan comes due, greatly amplifying the initial cause of the need to monitor further. This has the effect of the old-style bank run: suddenly the financial intermediary is caught short of the ability to finance its portfolio, and must reduce its indebtedness quickly, again, possibly triggering fire sales and creating negative externalities to others.

Setting the table

Classic and modern crises

In the financial crisis that initiated the Great Depression, we saw a classic banking panic. At the peak of an economic expansion, a stock market crash signaled a revision to growth expectations, or possibly a change in the willingness of people to assume risk. Around the country many banks (whose deposits were not insured) experienced difficulty in meeting depositors’ withdrawal demands, and bank runs began to occur, at first sporadically. In these runs, depositors formed lines stretching from teller windows to outside the bank, clearly indicating to the public that the bank was in distress. Bank runs waxed and waned for a few years prior to the generalized runs that preceded F.D.R.’s declaration of a bank holiday. F.D.R. explained well the consequences of a bank run: the banks that were run could only close their doors, or sell their assets at panic prices. Either of those actions conferred negative externalities on the economy more broadly. With the closure of a bank, the community lost access to credit and to a safe place into which it could deposit its paychecks and savings. The knowledge about borrowers and their creditworthiness was lost, and even if other banks would expand their business, that loss of information was costly to the efficiency of the economy, and in notable research Ben Bernanke (1983) measured the very negative effect that bank closures had on economic performance.

In the U.S. financial crisis of 2007-09, there were no widespread bank runs: in general depositors did not line up at their bank and request their deposits, even for banks that were widely reported to be in poor financial condition. This is likely the case because of the widespread understanding of U.S. federally insured deposit insurance, which protects depositors’ funds up to the current limit of $250,000, and the presence of the discount window, by which banks can increase their cash holdings to meet withdrawal demands without having to sell assets at panic prices.12

However, the financial crisis of 2007-09 manifested another type of run on banks as well as non-banks, a run on the short-term, non-deposit debt issued by the intermediaries. This is a point made clearly by Gary Gorton (2012). These runs weren’t clearly and easily visible to the public, and this fact impeded the quick understanding of the severity and potential consequences of the run that was underway.

I’ve outlined two strains of thought that provide models for us to understand the mechanisms that amplify what might initially be small shocks into large and dangerous events for the economy: the procyclical leverage of financial intermediaries and their sensitivity to measures of financial risk, such as volatility, and the potential for private intermediaries to issue money-like instruments. When the economy is vulnerable to a financial crisis – that is when the levels of debt are high and the macroeconomy is at or past a peak, and in some cases, a housing boom is ending – then financial intermediary leverage and the issuance of money-like debt instruments can become excessive. Such excess can lead to a rapid scramble to deleverage – that is, to reduce levels of debt, causing fire sales and failures of financial intermediaries, which, in turn, confers further distress on the financial economy and the working of the macroeconomy generally, as important sources of credit are blocked from reaching households and firms.

In essence, I’ve argued that there are two views of the mechanisms that could lead to a crisis: one is about excessive leverage or the scarcity of loss-bearing capacity that builds up in an expanding economy and the other is about the excessive provision of liquidity in the private sector, or excess private money creation. Of course, liquidity and leverage go hand in hand: Private money creation enables firms that issue it to take on high leverage, both in the financial and the nonfinancial sectors. Part of the puzzle of the crisis of 2007-09 was that the excessive leverage and private money creation took place outside of commercial banks, and outside of firms that were subject to broad consolidated supervision – in the “shadows” as some have put it. It is important that we recognize that in the modern era the conditions for a financial crisis can be created by nonbanks.

A lesson of the crisis of 2007-09 was that financial crises, modern ones, do not have to be characterized by lines from bank teller windows in which depositors are withdrawing cash, or even be centered in banks. Instead, in a more market-oriented, in contrast to bank-oriented financial system, different sources of stress come to the fore. While employing a different recipe, the flavors of the crises are the same: financial intermediaries, through having overextended credit or engaged in an over-reliance on the issuance of short-term debt, or in the midst of a general panic, have difficulty in raising funds and are forced to sell off positions abruptly, putting further downward pressure on prices, worsening the situation systematically.

Preparing for (unwanted) guests

In response to the 2007-09 crisis, the policies of the Federal Reserve were focused primarily on liquidity injections, which can be thought of as replacing the privately created money that was being withdrawn from circulation as intermediaries delevered. The U.S. Treasury and the Federal Deposit Insurance Corporation extended guarantees for money market mutual fund shares, issuance of certain types of debt by bank holding companies and unlimited amounts of deposits in transactions accounts of commercial banks. Later, with the passage of the TARP legislation, the federal government addressed the excessive leverage and shortages of loss-bearing capacity through the injections of capital in October 2008 and in April 2009 in conjunction with the Supervisory Capital Assessment Program, or stress test of the major U.S. bank holding companies.

Ultimately, the 2007-09 crisis was about both leverage and liquidity in the financial system as a whole, and not only in the tightly supervised sector of banking firms. This suggests that official sector efforts should aim at forward-looking monitoring of financial vulnerability that take both leverage and maturity transformation into account, and to broaden supervision to include broader coverage of the financial sector. In addition to many other efforts, the Federal Reserve is conducting tests of exactly that sort through its capital and liquidity assessments, the Comprehensive Capital Analysis and Review, or CCAR, and the Comprehensive Liquidity Analysis and Review, or CLAR. CCAR is the Federal Reserve’s annual process for evaluating capital adequacy of large and complex financial firms under normal and stressed conditions. CLAR is the Federal Reserve’s annual, horizontal exam to evaluate the liquidity position and liquidity risk management practices of those firms. CCAR and CLAR are applied to bank holding companies, firms that now include many of the broker-dealers and other nonbank intermediaries involved in the market-based system of intermediation. Both of these forward-looking assessments attempt to gauge the vulnerability to a crisis by examining the capital and liquidity resources the largest bank holding companies have to withstand the stresses that accompany a severe economic downturn.

References

Adrian, Tobias, and Hyun Song Shin. 2008. “Liquidity, Monetary Policy, and Financial Cycles.” Federal Reserve Bank of New York Current Issues in Economics and Finance 14, no. 1 (January).

Adrian, Tobias, and Hyun Song Shin. 2010. “Liquidity and Leverage.” Journal of Financial Intermediation 19, no. 3: 418-437.

Adrian, Tobias, and Hyun Song Shin. 2014. “Procyclical Leverage and Value-at-Risk.” Review of Financial Studies 27, no. 2 (February): 373-403.

Adrian, Tobias, and Nina Boyarchenko. 2012. “Intermediary Leverage Cycles and Financial Stability.” Federal Reserve Bank of New York Staff Reports, no. 567, August.

Adrian, Tobias, and Nina Boyarchenko. 2013. “Liquidity Policies and Systemic Risk.” Federal Reserve Bank of New York Staff Reports, no.661 (December).

Adrian, Tobias, and Nina Boyarchenko. 2014. “Liquidity Policies and Systemic Risk.” Federal Reserve Bank of New York Liberty Street Economics blog, April.

Adrian, Tobias, Nina Boyarchenko, and Hyun Song Shin. 2015. “The Cyclicality of Leverage.” Federal Reserve Bank of New York Staff Reports, no.743 (October).

Adrian, Tobias, Emmanuel Moench, and Hyun Song Shin. 2010. “Macro Risk Premium and Intermediary Balance Sheet Quantities.” International Monetary Fund Economic Review 58 (September): 179-207.

Adrian, Tobias, Emmanuel Moench, and Hyun Song Shin. 2014. “Dynamic Leverage Asset Pricing.” Federal Reserve Bank of New York Staff Reports, no. 625 (December).

Adrian, Tobias, Erkko Etula, and Tyler Muir. 2014. “Financial Intermediaries and the Cross-Section of Asset Returns.” Journal of Finance 69, no. 6 (December): 2557-96.

Baldwin, Richard, et al. 2015. “Rebooting the Eurozone: Step 1 – Agreeing a Crisis Narrative.” Vox, November 20, http://www.voxeu.org/article/ez-crisis-consensus-narrative.

Baldwin, Richard, and Francesco Giavazzi. 2015. “The Eurozone Crisis: A Consensus View of the Causes and a Few Possible Solutions.” Vox, September 7, http://www.voxeu.org/content/eurozone-crisis-consensus-view-causes-and-few-possible-solutions.

Bernanke, Ben S. 1983. “Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression.” American Economic Review 73, no. 3: 257-76.

Borio, Claudio, Mathias Drehmann, and Kostas Tsatsaronis. 2011. “Anchoring Countercyclical Capital Buffers: The Role of Credit Aggregates.” International Journal of Central Banking 7, no. 4 (December): 189-240.

Carlson, Mark, et al. 2014. “The Demand for Short-Term, Safe Assets and Financial Stability: Some Evidence and Implications for Central Bank Policies.” Board of Governors of the Federal Reserve System Finance and Economics Discussion Series, November.

Dang, Tri Vi, Gary Gorton, and Bengt Holmström. “Ignorance, Debt and Financial Crises.” Working paper, 2012.

Dang, Tri Vi, Gary Gorton, and Bengt Holmström. “Opacity and the Optimality of Debt for Liquidity Provision.” Working paper, 2009.

Diamond, Douglas W., and Philip H. Dybvig. 1983. “Bank Runs, Deposit Insurance, and Liquidity.” Journal of Political Economy 91, no. 3 (June): 401-19.

Dell’Ariccia, Giovanni, Deniz Igan, Luc Laeven, and Hui Tong.2015. “Policies for Macrofinancial Stability: How to Deal with Credit Booms?” Paper prepared for the Economic Policy Meeting, Central Bank of Luxembourg, October.

Gorton, Gary B. Misunderstanding Financial Crises. 2012. New York: Oxford University Press.

Gorton, Gary B, Stefan Lewellen, and Andrew Metrick. 2012. “The Safe-Asset Share.” American Economic Review: Papers and Proceedings 102 (May): 101-06.

Gorton, Gary B., and Guillermo L. Ordoñez. “Good Booms, Bad Booms.” 2015. Society for Economic Dynamics working paper.

Greenwood, Robin, Samuel Hanson, and Jeremy C. Stein. 2010. “A Gap-Filling Theory of Corporate Debt Maturity Choice.” Journal of Finance 65, no. 3 (June): 993-1028.

Greenwood, Robin, Samuel Hanson, and Jeremy C. Stein. 2010. 2015. “A Comparative-Advantage Approach to Government Debt Maturity.” The Journal of Finance 40, no. 4 (August). 1683-772.

Krishnamurthy, Arvind, and Annette Vissing-Jorgensen. 2012. “The Aggregate Demand for Treasury Debt.” Journal of Political Economy 120, no. 2: 233-67.

Krishnamurthy, Arvind, and Annette Vissing-Jorgensen. 2015. “The Impact of Treasury Supply on Financial Sector Lending and Stability.” Journal of Financial Economics 118, no. 3 (December).

Kristoff, Kathy M., and Andrea Chang. “Federal Regulators Seize Crippled IndyMac Bank.” Los Angeles Times, July 12, 2008, http://articles.latimes.com/2008/jul/12/business/fi-indymac12.

Laeven, Luc and Fabián Valencia. 2012. “Systemic Banking Crises Database: An Update,” IMF Working Paper no. 12/163.

Meltzer, Allan H. A History of the Federal Reserve, Volume 1: 1913-1951. 2003. Chicago, IL: University of Chicago Press.

Mian, Atif R., and Amir Sufi. 2010. “Household Leverage and the Recession of 2007-09.” IMF Economic Review 58, no. 1: 74-117.

Mian, Atif R., and Amir Sufi. House of Debt: How They (and You) Cause the Great Recession, and How We Can Prevent It from Happening Again. 2014. Chicago, IL: University of Chicago Press.

Reinhart, Carmen M., and Kenneth Rogoff. This Time is Different: Eight Centuries of Financial Folly. 2009. Princeton University Press.

Reinhart, Carmen M., and Kenneth Rogoff. 2011. “From Financial Crash to Debt Crisis.” American Economic Review 101 (August): 1676-706.

Sastry, Parinitha. Forthcoming. “The Political Origins of Section 13(3).” Economic Policy Review, Federal Reserve Bank of New York.

Schularick, Moritz, and Alan M. Taylor. 2012. “Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870-2008.” American Economic Review, 102, no. 2 (April): 1029-61.

Stein, Jeremy. 2012. “Monetary Policy as Financial Stability Regulation.” Quarterly Journal of Economics 127 (February): 57-95.


1 Franklin Delano Roosevelt, “Fireside Chat on Banking,” March 12, 1933. Transcript available from University of California, Santa Barbara, American Presidency Project,http://www.presidency.ucsb.edu/ws/?pid=14540.

2 Congress greatly broadened the lending powers of the Federal Reserve Banks in 1932 and again in 1933. The Federal Deposit Insurance Corporation was created in 1933. See Meltzer (2003) and Sastry (forthcoming).

3 IndyMac did experience a run in which depositors were, in some instances, unable to withdraw their deposits as their branch closed for the day. See Kristoff and Chang, “Federal Regulators Seize Crippled IndyMac Bank,” Los Angeles Times, July 12, 2008, http://articles.latimes.com/2008/jul/12/business/fi-indymac12.

4 Recently, a group of economists agreed to and published a “consensus narrative” of the causes of the eurozone financial crisis, focusing on the external imbalances across countries within the eurozone, which led to a sudden stop in lending, and the flow of capital, across those countries. See http://www.voxeu.org/article/ez-crisis-consensus-narrative and http://www.voxeu.org/content/eurozone-crisis-consensus-view-causes-and-few-possible-solutions.

5 See Borio, Drehmann, and Tstsaronis (2011), Schularick and Taylor (2012), and Reinhart and Rogoff (2011).

6 See Dell’Ariccia, Igan, Laeven, and Tong (2015), and Gorton and Ordonez (2015).

7 See Adrian and Shin (2008, 2010, 2014), Adrian, Boyarchenko, and Shin (2015), Adrian, Moench, and Shin (2010, 2014), Adrian, Etula, and Muir (2014), and Adrian and Boyarchenko (2012, 2013, 2014).

8 See Mian and Sufi (2010, 2014).

9 See Greenwood, Hansen, and Stein (2010, 2015), Krishnamurthy and Vissing-Jorgensen (2012), and Carlson et al. (2014).

10 This finding is further supported by the finding that the share of safe assets in the economy has been relatively steady since the 1950s. Others confirm those results and show that the substitution of privately-created short-term debt for the Treasury’s supply of short-term debt has been a consistent feature of the U.S. financial system since 1875. See Gorton, Lewellen, and Metrick (2012), and Krishnamurthy and Vissing-Jorgensen (2015).

11 See Dang, Gorton, and Holmstrom (2009, 2012).

12 Prior to October 3, 2009 the FDIC limit on deposit insurance was $100,000, but was raised on that day to $250,000, for a temporary period. The Dodd-Frank Act made the expansion in the insurance limit permanent.

Gun Control: The Presidential Speech You Want To Hear

In this segment of his Virtual State of the Union, the Virtual President talks about why politicians want to talk about gun control rather than crime control, and delivers the factual evidence and historical truths that make the case for the Second Amendment self-evident.

Gun ownership

Why should ordinary citizens own a gun?

Because owning a police officer is too expensive.  Time and time again, statistics show that the that law enforcement arrives usually just in time, to draw the chalk outline around your body.

Why do some states have a mandatory waiting period, after purchasing a gun?

Some states, such as Illinois and others, have a mandatory “cooling off period” when purchasing a firearm.  We do not support this. As a former Illinois resident, I can personally attest to the fact that nobody went back to retrieve their firearm after the mandatory wait, and said “I’m not mad anymore.”  This is just another silly restriction that some liberal states impose, to create more useless restrictions.

Open carry / Concealed carry

Why do some states allow ordinary law abiding citizens to carry a firearm?

I say why not!  The key word is law abiding. 49 of 50 states currently have legislation for citizens to train, qualify, and carry a firearm. As an American, our second amendment guarantees us this freedom, and we will fight to keep it.

Which is better? Open carry or concealed carry?

Ahhh, yes, the age old debate.  Open carry is a deterrent. Concealed carry gives you the element of surprise. Given both options, I carry concealed, but that’s just my personal preference.  There’s advantages and disadvantages to both. If you do open carry, you do have to be much more alert to your “personal space” and surroundings.  We support both methods 100%.

https://www.facebook.com/ResistTyrannyAmerica

Post Modern F-idiots: What Happens If You Pay With a Two-Dollar Bill ?

The following is a true story. It amused the hell out of me while it was happening. I hope it isn’t one of those “had to be there” things, but the world today just has too many Fricken Idiots for my liking.

On my way home from the second job I’ve taken to get my mind off the lawsuit I’ve had with my sister, I stopped at Taco Bell for a quick bite to eat. In my billfold was a $50 bill and a $2 bill. That was all the cash I had on me.   So, I figured that with a $2 bill, I could get something to eat and not worry about people getting twisted over my purchase.  Boy — was I wrong:

two-dollar-bill

Me: “Hi, I’d like one regular plain burrito please, to go.”

Server: “Is that it?”

Me: “Yep.”

Server: “That’ll be $1.04.. eat here?”

Me: “No thanks, it’s “TO-GO” [I hate effort duplication]

At this point I open my billfold and hand him the $2 bill. He looks at it kind of funny and . . .

Server: “Uh, hang on a sec, I’ll be right back.”

He goes to talk to his manager, who is still within earshot. The following conversation occurs between the two of them:

Server: “Hey, you ever see a $2 bill?”

Manager: “No. A what?”

Server: “A $2 bill. This guy just gave it to me.”

Manager: “Ask for something else, THERE’S NO SUCH THING AS A $2 BILL.”

Server: “Yeah, thought so.”

He comes back to me and says:

Server: “We don’t take these. Do you have anything else?”

Me: “Just this fifty. You don’t take $2 bills? Why?”

Server: “I don’t know.”

Me: “See here where it says legal tender?”

Server: “Yeah.”

Me: “So, shouldn’t you take it?”

Server: “Well, hang on a sec.”

He goes back to his manager who is watching me like I’m going to shoplift.

Server: “He says I have to take it.”

Manager: “Doesn’t he have anything else?”

Server: “Yeah, a fifty. I’ll get it and you can open the safe and get change.”

Manager: “I’M NOT OPENING THE SAFE WITH HIM IN HERE.” [My emphasis]

Server: “What should I do?”

Manager: “Tell him to come back later when he has REAL money.”

Server: “I can’t tell him that, you tell him.”

Manager: “Just tell him.”

Server: “No way, this is weird, I’m going in back.”

The manager approaches me and says:

Manager: “Sorry, we don’t take big bills this time of night.” [It was 7-p.m. and this particular Taco Bell in Sacramento is in a well lighted indoor mall with 100 other stores all open.]

Me: “Well, here’s a two.”

Manager: “We don’t take those either.”

Me: “Why the hell not?”

Manager: “I think you know why.”

Me: “No really, tell me, why?”

Manager: “Please leave before I call mall security.”

Me: “Excuse me?”

Manager: “Please leave before I call mall security.”

Me: “What the hell for?”

Manager: “Please, sir.”

Me: “Uh, go ahead, call them.”

Manager: “Would you please just leave?”

Me: “No.”

Manager: “Fine, have it your way then.”

Me: “No, that’s Burger King’s catch-phrase, isn’t it?”

At this point he BACKS away from me and calls mall security on the phone around the corner.  I have two people STARING at me from the dining area, and I begin laughing out loud, just for effect.  A few minutes later this 45 year old-ish guy comes in and says [at the other end of counter, in a whisper]:

Security: “Yeah, Mike, what’s up?”

Manager: “This guy is trying to give me some [pause] funny money.”

Security: “Really? What?”

Manager: “Get this, a two dollar bill.”

Security: “Why would a guy fake a $2 bill?” [Incredulous]

Manager: “I don’t know? He’s kinda weird. Says the only other thing he has is a fifty.”

Security: “So, the fifty’s fake?”

Manager: “NO, the $2 is.”

Security: “Why would he fake a $2 bill?”

Manager: “I don’t know. Can you talk to him, and get him out of here?”

Security: “Yeah…”

Security guard walks over to me and says:

Security: “Mike here tells me you have some fake bills you’re trying to use.”

Me: “Uh, no.”

Security: “Lemme see ’em.”

Me: “Why?”

Security: “Do you want me to get the cops in here?”

At this point I was ready to say, “SURE, PLEASE,” but I wanted to eat, so I said:

“I’m just trying to buy a burrito and pay for it with this $2 bill.”

I put the bill up near his face, and he flinches like I was taking a swing at him. He takes the bill, turns it over a few times in his hands, and says..

Security: “Mike, what’s wrong with this bill?”

Manager: “It’s fake.”

Security: “It doesn’t look fake to me.”

Manager: “But it’s a $2 bill.”

Security: “Yeah?”

Manager: “Well, there’s no such thing, is there?”

The security guard and I both looked at him like he was a Fricken  idiot, and it dawned on the guy that he had no clue. (LOL)

So, I got my burrito for FREE and he threw in a small drink and those cinnamon things, too.   I think I’ll go get a whole stack of $2 bills just to see what happens when I try to buy stuff! (LOL).

If I got the right group of people, I could probably end up in jail but at least I’d get free food. (LOL)

Outlined with Undeniable Evidence: a Global Economic Reset Has Begun

Soure: Zerohedge

In my last article, I outlined the deliberately engineered trend toward the forced “harmonization” of national economies and monetary policies, as well as the ultimate end goal of globalists: a single world currency system controlled by the International Monetary Fund and, by extension, global governance, which internationalists sometimes refer to in their more honest public moments as the “new world order.”

The schematic for the new world order, according to the admissions of the internationalists, cannot possibly include the continued existence of U.S. geopolitical and economic dominance. The plan, in fact, requires the destabilization and reformation of America into a shell of its former glory. The most important element of this plan demands the removal of the U.S. dollar as the de facto world reserve currency, a change that would devastate our current financial structure.

I outlined with undeniable evidence the reality that major governments, including the BRICS governments of the East, are fully on board with the globalist agenda. There is no way around it; the BRICS, including Russia and China, have openly called for a global monetary system centralized and dictated by the IMF using the SDR basket. This same plan was outlined decades ago in the Rothschild-owned magazine The Economist. We are witnessing that plan being implemented in front of our very eyes today.

For the past couple of years, the current head of the IMF, Christine Lagarde, has used the phrase “global economic reset” often in her speeches and interviews. There is some (deliberate) ambiguity to this notion, but after sitting through hours upon hours of her most boring and repetitive discussions in globalist think tanks such as the Council On Foreign Relations, the consistent message is pretty straightforward. If anyone can stand to listen to this woman’s carefully crafted prattle and well-vetted half-truths for more than five minutes, I suggest they watch this particular speech given in January at the CFR:

Her message on the global economic reset is essentially this: “Collective” cooperation will not just be encouraged in the new order, it will be required — meaning, the collective cooperation of all nations toward the same geopolitical and economic framework. If this is not accomplished, great fiscal pain will be felt and “spillover” will result. Translation: Due to the forced interdependency of globalism, crisis in one country could cause a domino effect of crisis in other countries; therefore, all countries and their economic behavior must be managed by a central authority to prevent blundering governments or “rogue central banks” from upsetting the balance.

It’s interesting how the IMF’s answer to the failings of globalization is MORE globalization. In other words, Lagarde would argue that while we are in the midst of an international system, we are not centralized enough for such a system to succeed.

The IMF points out correctly that the economic situation around the world is not stable and could revert once again to the chaos of the initial 2008 crash. The Bank for International Settlements, the primary hub of central bank control, has also given numerous warnings this year on the potential for disaster, including in its latest quarterly report.

The warnings of the BIS in particular should not be taken lightly (some analysts are indeed taking them lightly). The BIS knows exactly when financial disasters will erupt because it wrote the central bank policies that created those same events. For example, in 2007, the BIS released a warning that perfectly predicted the elements of the derivatives and credit crisis in 2008.

What these globalist institutions will not tell you in a direct manner are the real causes and motivations behind the inevitable next stage in the ongoing destruction of the current economic system

The global reset is not a “response” to the process of collapse we are trapped in today. No, the global reset as implemented by central banks and the BIS/IMF are the CAUSE of the collapse. The collapse is a tool, a flamethrower burning a great hole in the forest to make way for the foundations of the globalist Ziggurat to be built. As outlined in my last article, economic disaster serves the interests of elitists.

When you look at these actions by the Federal Reserve and the U.S. government in particular, questions arise. Is it “stupidity” that is causing them to sabotage the golden goose? Is it hubris and greed? Their actions are clearly facilitating a program of incremental implosion, yet they continue to ignore the obvious. Why?

The people who ask these questions are operating on a false assumption; they have assumed that the international bankers and the puppet politicians they control have any interest in protecting the longevity of the U.S. The fact is they do not. They have no loyalty whatsoever to the U.S. system, nor do they see the U.S. as “too big to fail.” This is utter nonsense to globalists. Rather, they see each nation and central bank as a piece in a game, much like chess. Some pieces have to be sacrificed in order to gain a better position on the board. This is all that the U.S., the Federal Reserve and even the dollar are to them: expendable pieces in a larger game.

The U.S. is now experiencing the next stage of the great reset. Two pillars were put in place on top of an already existing pillar by the central banks in order to maintain a semblance of stability after the 2008 crash.  This faux stability appears to have been necessary in order to allow time for the conditioning of the masses towards greater acceptance of globalist initiatives, to ensure the debt slavery of future generations through the taxation of government generated long term debts, and to allow for internationalists to safely position their own assets.  The three pillars are now being systematically removed by the same central bankers. Why? I believe that they are simply ready to carry on with the next stage of the controlled demolition of the American structure as we know it.

Bailouts And QE:  The First Pillar Removed

The bailout bonanza was in part a direct intervention in the deflationary avalanche of the derivatives bubble, but also an indirect intervention in that it changed the psychological dynamics of the markets. As former Fed chairmans Alan Greenspan and Ben Bernanke have both hinted at in interviews and op-eds, one of the primary concerns of the central bank was the psychology behind higher stock prices.

Stock prices could be propped up by the Fed itself through proxy buyers using the printing press. Or the Fed could inject billions, if not trillions, of dollars into banks and allow them to run wild, artificially boosting investment while doing nothing to solve the existing dilemma of negative fundamentals.  Beyond this, the markets began to move on the mere words or edicts of Fed officials as algo-computers and the general investment world placed bets on rhetoric rather than reality; a dynamic which is now ending.

The bailouts also reanimated the cadavers of large corporations and banks, not just in the U.S. but in Europe, giving the illusion of life to the financial system while leaving Main Street to rot. In the meantime, quantitative easing measures provided a way to continue financing U.S. government debt at the expense of generations of taxpayers as numerous primary lenders began to abandon typical long-term bond purchases.

Furthermore, oil markets appear to have been directly inflated by QE intervention. It is important to take note that oil prices remained extraordinarily high despite the continuous fall in global demand UNTIL the moment the Federal Reserve instituted the taper of QE3. Then, prices began to plunge.

In a September 2013 article, I predicted that the Fed, despite all common sense and the claims of banks like Goldman Sachs, would indeed follow through with the taper: a removal of the first pillar levitating the U.S. system.

I was, of course, called crazy at the time for this prediction by some people within the alternative economic community.

“Why in the world” they asked, “would the Fed taper QE when they can simply print to infinity and kick the can down the road perpetually?” Again, these people do not understand that America is under scheduled demolition by the international banks; it is not being protected by them.

The taper occurred in December of that year.

Near Zero Interest Rates:  The Second Pillar Nearly Removed

After the taper of QE, volatility not seen since 2008/2009 returned to the markets. And the public once again was reminded in sporadic moments that the recovery might not be real after all. Europe and Japan quickly stepped in with their own renewed stimulus measures, and Fed officials began using strategic media interviews to “hint” falsely that QE might return. Markets rallied, then fell dramatically, then rallied again, then fell again in a shocking manner. And this volatility has been the trend up until recently, when the question of the end of zero interest rate policy arose.

Again, very few people have ever asked or demanded the Fed end QE or ZIRP. There was never any legitimate public pressure on the fed to remove these pillars. The investment world has been essentially addicted like heroin junkies to assured gains for three years.  The war cry of the investment world has been BTFD! (Buy the f’ing dip) for quite some time; investors have come to expect and demand inevitable central bank intervention and fiat driven stock market rallies.  Yet, the Fed is ending the party anyway.

ZIRP is the only pillar left holding stocks in place. Without zero interest rates, and with even the most minor of .25 basis points added, cost-free overnight lending to banks and corporations will end. They will not be able to afford continued lending on the massive scale seen since 2009/2010. This means no more stock buybacks for dying companies like IBM or General Motors, among others. This means a considerable decline in the markets, declines which we have had a taste of in recent plunges in equities at the mere mention of interest rate increases.

In August in an article entitled ‘Economic Crisis Goes Mainstream: What Happen’s Next?’, I wrote:

“The Federal Reserve push for a rate hike will likely be determined before 2015 is over. Talk of a September increase in interest rates may be a ploy, and a last-minute decision to delay could be on the table. This tactic of edge-of-the-seat meetings and surprise delays was used during the QE taper scenario, which threw a lot of analysts off their guard and caused many to believe that a taper would never happen. Well, it did happen, just as a rate hike will happen, only slightly later than mainstream analysts expect.

If a delay occurs, it will be short-lived, triggering a dead cat bounce in stocks, with rates increasing by December as dismal retail sales become undeniable leading into the Christmas season.”

You can also read my analysis on the motivations behind a Fed rate hike as well as the theater surrounding their policies.

The cat seems to have finished its bounce and stocks are returning to volatility.  Retail sales so far for Black Friday weekend (including Thanksgiving) have posted a staggering 10% drop with online sales below expectations. Chain Store sales have recently crashed 6.3% week over week.  Plunging freight rates and global shipping indicate a severe lack of global demand and a terrible sales season ahead.  Janet Yellen, ignoring all negative economic signals as predicted, has all but declared a rate hike a given by Dec. 16.

I was, yet again, called crazy for this assertion by some at the time; and to be clear, I could still be wrong. The Fed could pull a fast one and not raise rates, though the rhetoric coming from the fed today almost guarantees they will take action. Not raising rates doesn’t match with their past habits; they seem to be following the timing of the taper model perfectly. The point is, despite common assumptions within the alternative media, the Fed is not “trapped” and can do whatever it wants, including killing the markets if it benefits the greater goal of a global economic authority. With the ZIRP pillar gone, expect even more violent swings in stocks and general uncertainty and panic among day-traders and the public.

U.S. Dollar’s World Reserve Status:  The Third Pillar In Progress Of Removal

I’ve been writing about the loss of the dollar’s reserve status since 2008. And as I have always said, the removal of this final pillar is a process, not an overnight affair. The BRICS nations have been positioning themselves for years — China since 2005, the rest of the BRICS since at least 2010.

The delusion that some economic analysts have been under is that the BRICS were strategically vying for power by building their own unified banking institution in “opposition” to the IMF and the West. As I presented in my last article, this has proven to be completely false. They were in fact positioning to take their place as puppets within the new global paradigm taking shape. China has now joined the IMF’s SDR basket (as predicted); and Russia, along with the other BRICS, has openly called for the IMF to take control of the global monetary system.

China’s inclusion, I believe, will hasten the loss of the dollar’s market share of reserve status over the next year, along with other factors. Saudi Arabia has also brought the idea of a depeg from the U.S. dollar into the mainstream discussion. This action, which mainstream economists are calling a possible Black Swan, would end the dollar’s petro-status and result in catastrophe for the U.S. economy. The removal of the final pillar is well underway.

As I have stated in the past, the U.S. system as it stands does not necessarily deserve to survive, but then again, this does not mean that it should be sacrificed in order to breathe life into the monstrosity of global economic governance. Such a trade-off only serves the interests of a select group of elites, with the global reset ending in the mechanized multicultural suicide of sovereignty, leeching prosperity from the rest of us in the name of “collective progress.”

Globalists want us to believe there is no other option but their leadership, and they will create any measure of chaos in order to convince us of their necessity.

Global Money Reform (GCR) In The Making

HOW THE 13 NON-G7 MEMBERS OF THE G20 ARE RESHAPING THE WORLD

By JC Collins

Source: http://philosophyofmetrics.com/how-the-13-non-g7-members-of-the-g20-are-reshaping-the-world/

Power and influence are never willingly relinquished or surrendered.

G20-MembersSuch is the state of mind within the American geopolitical and socioeconomic complex. This paradigm of power is pronounced in both the reluctance of the US Congress to pass the supporting legislation for the IMF 2010 Quota and Governance Reforms, and the ongoing geopolitical turmoil in Eastern Europe and the Middle East.

As I have profusely written, the international monetary framework is in the process of transitioning to a multilateral construct which will be based not on the unipolar US dollar, but on a multi-currency reserve system, of which the dollar will still play an important role.

China themselves have called for such a system and have been working towards internationalizing the renminbi exactly for this purpose. The recent inclusion of the RMB into the Special Drawing Right basket of the International Monetary Fund is a huge step towards realizing this goal. Many have suggested that this move is largely symbolic and the SDR means very little in the larger global framework.

Though that may be so at this time, the addition of the Chinese currency into the SDR has more to do with the Chinese currency and less to do with the SDR. The SDR will become the reserve asset further down the road, but right now this is all about the renminbi and the liquidity market which will grow out of the internationalization.

The 2010 reforms which have yet to be implemented by the US will make China the 3rd largest shareholder of the International Monetary Fund. Under these quota and governance restructuring, Brazil, India, and Russia will also move into the top 10 shareholders of the IMF.

When we consider that these reforms will position 4 of the 5 BRICS members as top shareholders within the US dominated IMF, the reluctance of the Congress to support the G20 agreed upon changes becomes more understood.

But to think that the BRICS nations are intending on overthrowing the western dominated IMF and World Bank would be a mistake. Both China and India understand the importance of integrating into, and transforming, the already existing framework.

While both of those countries are playing softball with the west, it is Russia who has been forced to bat in a game of pro-ball with the United States. The geopolitical tension over Ukraine and Syria has shifted into a new phase of intensity. The US, well aware of the fact that they will lose geopolitical and socioeconomic power throughout the multilateral transition, are positioning themselves to retain as much influence as possible.

The vacuum which will be left behind will be filled with something. America, along with many European allies, are aware of the threat which both Russia and China present as potential stuffing in these geopolitical and socioeconomic holes. Having failed to subdue Assad in Syria, and after watching the once conquered Iraq make trade and economic agreements with China, a strategy of creating another Islamic Caliphate to fill the vacuum in the Middle East must have appeared like a viable alternative.

This explanation best fits the actions of the western countries, including G20 and NATO members, in funding and supporting the creation of such a caliphate. Russia, by directly entering the conflict against ISIS, has tilted the balance of power and gutted the western strategy. This will in turn force the hand of the US and its key European allies to sit down at the negotiating table or accept the inevitable loss of the geopolitical and socioeconomic monopoly which they have enjoyed for so many decades..

It is not a coincidence that this is all taking place in the lead up to the possible announcement by the Federal Reserve on December 16th regarding the first interest rate increases in ten years. This timeframe also correlates with the deadline for the implementation of the workaround to the 2010 Quota and Governance Reforms as defined by IMF Managing Director Christine Lagarde, which was established as December 15th.

Over the next few weeks the Asian Infrastructure Investment Bank (AIIB) and BRICS New Development Bank (NDB), along with the BRICS Contingent Reserve Arrangement (CRA), will be kicking off. All of these institutions are not meant to overthrow the western institutions of the IMF and World Bank, but integrate within that existing framework for the purpose of balancing the international monetary system.

The AIIB, NDB, and CRA will help establish and grow the renminbi liquidity market, which will work towards the goals of the multi-currency reserve system, as well as provide the financial assistance which will be required when the Fed begins the process of increasing interest rates.

The Bank for International Settlements has already warned of the negative effects such increases will have on the emerging economies, which also includes the BRICS countries. We are now entering the phase of the transition where liquidity will begin to shift and increased volatility will spread. Such matters are intended to be used as the raison d’etre and justification for the larger loss of sovereignty which this multilateral transition will entail.

The inability of the G20 to coordinate on, and implement the needed reforms to the international monetary system will be focused upon the G7 clique within the G20. NATO, which is being used as a tool of the G7, and in turn American geopolitical and socioeconomic interests, will experience a loss of influence in Europe and the larger Eurasian continent as a whole.

The destructive and unipolar nature of the western strategy will be unveiled, and the G20 will be injected with renewed energy. The focus will once again shift towards financial regulation, monetary and fiscal policies, expanded central bank swap lines, and the needed increase in IMF resources.

What we will witness in the coming months and years is the complete merging of the IMF, World Bank, AIIB, NDB, CRA, within the G20 construct. This construct will, from its inception, be subservient to the mandates and policies of the United Nations.

It has always been my contention that the world will not experience a major war over this transition of power and influence. The players all have too much to lose and the consequences are substantially greater than they were in the lead up to World War One and Two. This is not to say that a few players will not be thrown to the multilateral wolves, such as Turkey and Saudi Arabia, which are both likely closer to color revolutions of their own than many would like to consider.

Power and influence are never willingly relinquished or surrendered.

But coercion through counter geopolitical and socioeconomic strategies could allow for a somewhat peaceful transition. – JC

Basic Economics in One Lesson

Economics and Money TreeEconomics broadens out in a hundred directions.  Whole libraries have been written  on specialized fields alone, such as money and banking, foreign trade and foreign exchange, taxation and public finance, government control, capitalism and socialism, wages and relations, interest and capital, agricultural economics, rent, prices, profits, markets, competition and monopoly, value and utility, statistics, business cycles, wealth and poverty, social insurance, housing, public utilities, mathematical economics, studies of special industries and economic history.  But no one will ever properly understand any of these specialized fields unless he has first of all acquired a firm grasp of basic economic principles and the complex interrelationship of all economic factors and forces.  When he has done this by his reading in general economics, he can be trusted to find the right books in his special field of interest.

The first book I’d read would be: “Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics” by Henry Hazlitt.  I agree with Ayn Rand:

“It is a magnificent job of theoretical exposition.”

Having read this book, I strongly recommend that every American acquire some basic knowledge of economics, monetary policy, and the intersection of politics with the economy.  No formal classroom is required; a desire to read and learn will suffice.  There are countless important books to consider regarding economics, but the following are an excellent starting point:

  • The Law by Frederic Bastiat
  • Economics in One Lesson by Henry Hazlitt
  • What Has Government Done to Our Money? by Murray Rothbard
  • The Road to Serfdom by Friedrich Hayek
  • Economics for Real People by Gene Callahan

If you simply read and comprehend these relatively short texts, you will know far more than most educated people about economics and government.  You certainly will develop a far greater understanding of how supposedly benevolent government policies destroy prosperity.  If you care about the future of this country (America) arm yourself with knowledge and fight back against economic ignorance.    We disregard economics and history at our own peril.

Questions and Answers regarding I.M.F. 2015 SDR Review and inclusion of Chinese renminbi (RMB) currency

Q and A on 2015 SDR Review

November 30, 2015

IMF’s Executive Board Completes Review of SDR Basket, Includes Chinese Renminbi

The Executive Board of the International Monetary Fund (IMF) today completed the regular five-yearly review of the basket of currencies that make up the Special Drawing Right (SDR). A key focus of the Board review was whether the Chinese renminbi (RMB) met the existing criteria to be included in the basket. The Board today decided that the RMB met all existing criteria and, effective October 1, 2016 the RMB is determined to be a freely usable currency and will be included in the SDR basket as a fifth currency, along with the U.S. dollar, the euro, the Japanese yen and the British pound. Launching the new SDR basket on October 1, 2016 will provide sufficient lead time for the Fund, its members and other SDR users to adjust to these changes.

At the conclusion of the meeting, Ms. Christine Lagarde, Managing Director of the IMF, stated:

“The Executive Board’s decision to include the RMB in the SDR basket is an important milestone in the integration of the Chinese economy into the global financial system. It is also a recognition of the progress that the Chinese authorities have made in the past years in reforming China’s monetary and financial systems. The continuation and deepening of these efforts will bring about a more robust international monetary and financial system, which in turn will support the growth and stability of China and the global economy.”

The value of the SDR will be based on a weighted average of the values of the basket of currencies comprising the U.S. dollar, euro, the Chinese renminbi, Japanese yen, and British pound. The inclusion of the RMB will enhance the attractiveness of the SDR by diversifying the basket and making it more representative of the world’s major currencies. The SDR interest rate will continue to be determined as a weighted average of the interest rates on short-term financial instruments in the markets of the currencies in the SDR basket. Authorities of all currencies represented in the SDR basket, which now includes the Chinese authorities, are expected to maintain a policy framework that facilitates operations for the IMF, its membership and other SDR users in their currencies. The paper presented to the Board will be released soon.

Q1. What is the SDR?

The Special Drawing Right (SDR) is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. Its value is currently based on a basket of four major currencies (U.S. dollar, euro, Japanese yen, and pound sterling). The basket will be expanded to include the Chinese renminbi (RMB) as the fifth currency, starting on October 1, 2016 once the new basket of currencies takes effect.

SDRs are allocated to IMF members from time to time, based on each country’s quota in the Fund. A total of 204.1 billion SDRs have been allocated to date, most recently in 2009 when SDR 182.6 billion was allocated.

The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions.

In addition to its role as a supplementary reserve asset, the SDR serves as the unit of account of the IMF and some other international organizations. It is also used in the IMF’s financing arrangements with its member countries.

Back to top

Q2. What does an SDR review typically cover?

The composition of the SDR basket is typically reviewed every five years by the Executive Board to enhance the attractiveness of the SDR as a reserve asset. These reviews cover the key elements of the method of valuation of the SDR and seek to ensure that the valuation reflects the relative importance of currencies in the global trading and financial system. This includes the criteria used in selecting SDR basket currencies, the number of currencies in the basket, and the methodology for determining currency weights. The financial instruments comprising the SDR interest rate basket are also covered.

In the review concluded in November 2015, the Executive Board decided that the Chinese renminbi is determined to be a freely usable currency, effective October 1, 2016, and will then be included in the SDR basket as a fifth currency, along with the U.S. dollar, euro, Japanese yen and pound sterling. The weighting formula was also revised to address longstanding shortcomings.

Back to top

Q3. What are the criteria for SDR basket inclusion?

The current criteria for inclusion were adopted by the IMF’s Executive Board in 2000. They established that the SDR basket comprises the four (expanded to five, effective October 1, 2016) currencies that are issued by members or monetary unions whose exports had the largest value over a five-year period, and have been determined by the IMF to be “freely usable”.

The export criterion, which acts as a “gateway,” aims to ensure that currencies that qualify for the basket are those issued by members or monetary unions that play a central role in the global economy. This criterion has been part of the SDR valuation methodology since the 1970s.

The requirement for currencies in the SDR basket to also be freely usable was incorporated in 2000 to allow the currency selection criteria to formally reflect the importance of financial transactions.

The Decision adopted by the Board at the 2015 SDR Review reconfirmed the existing two substantive criteria (exports and freely usable) while expanding the size of the basket from 4 to 5 currencies effective on October 1, 2016. In doing so, the Board considered that a five-currency basket would be both more stable and more representative, while the administrative burden of a larger basket would be manageable.

Q4.How do you define a freely usable currency?

A “freely usable” currency is defined in the IMF’s Articles of Agreement as a member’s currency that the Fund determines is, in fact, widely used to make payments for international transactions, and is widely traded in the principal exchange markets.

The concept of a freely usable currency concerns the actual international use and trading of currencies, and is different from whether a currency is either freely floating or fully convertible.

A currency can be widely used and widely traded even if it is subject to some capital account restrictions (in the past, currencies such as the pound sterling and Japanese yen were determined freely usable when some capital account restrictions were in place). On the other hand, a currency that is fully convertible may not necessarily be widely used and widely traded.

The freely usable concept plays a central role in the IMF’s financial operations. In particular, members receiving Fund financial assistance have the right to receive such assistance in a freely usable currency. Indeed, IMF lending operations are, in practice, conducted in freely usable currencies or SDRs, and in the latter case, borrowing members have the right to exchange SDRs into freely usable currencies. In the financial operations context, the freely usable concept seeks to ensure that a member can use the currency received from the IMF either directly or indirectly (by exchanging it into another currency without disadvantage) to address a balance of payments financing need.

Q5. What was the focus and outcome of the 2015 SDR review?

The IMF recently concluded the quinquennial review of the SDR currency basket. As China continues to meet the export criterion for SDR inclusion, the review focused on assessing whether the Chinese renminbi (RMB) could be determined to be a freely usable currency, which is the other criterion for inclusion in the basket. This criterion requires an Executive Board determination that the currency is, in fact, widely used to make payments for international transactions and widely traded in the principal exchange markets.

The Executive Board at its meeting on November 30, 2015 decided that, effective October 1, 2016, the Chinese renminbi is determined to be a freely usable currency and will be included in the SDR basket, as a fifth currency, along with the U.S. dollar, euro, Japanese yen and pound sterling. The weights of the currencies in the SDR basket were also revised in line with a new weighting formula based on the value of the issuers’ exports, the amount of reserves denominated in the respective currencies that were held by other members of the IMF, foreign exchange turnover, and international bank liabilities and international debt securities denominated in the respective currencies.

Back to top

Q6. Why did the IMF staff recommend the inclusion of the Chinese renminbi into the SDR basket of currencies?

Increasing international use and trading. Since the last SDR review in 2010, the use of the Chinese renminbi (RMB) in international payments has risen substantially. In addition, RMB activity in foreign exchange markets covering two of the three major trading time zones has increased significantly and can accommodate transactions of the magnitude involved in IMF operations. This provided, in the judgment of staff, a basis for the RMB to be considered “widely used” to make payments for international transactions and “widely traded” in the principal exchange markets.

Operational considerations. While operational issues are not formal requirements for SDR inclusion, staff’s assessment that the IMF, its members, and other SDR users are now able to conduct operations in RMB without substantial impediments means there are reasonable assurances that IMF related operations can be conducted smoothly. This is the direct result of recent reforms implemented by the authorities, principally their decision to grant full access for official reserve managers and their agents to the onshore fixed-income and foreign exchange markets. The authorities have also undertaken key reforms to advance their broader agenda to support the international use of the RMB and strengthen macro-financial stability, such as full liberalization of domestic interest rates, steps toward a more market-determined exchange rate, and implementation of a new cross-border interbank payment system.

Complementary steps to enhance data disclosure. While data disclosure is not a formal criterion for a currency’s inclusion in the SDR basket, issuers of these currencies generally meet high transparency standards. The authorities have recently taken very welcome steps to increase data disclosure and enhance their commitment to multilateral data initiatives.

Back to top

Q7. Why did the Board support the inclusion of the Chinese renminbi in the SDR basket?

The decision on whether the RMB should be determined a freely usable currency and included in the SDR basket rested with the IMF’s Executive Board. Since there are no pre-set thresholds or benchmarks, the decision ultimately required policy judgment by the Executive Board, framed by the definition of freely usable under the IMF’s Articles of Agreement and informed by quantitative indicators.

The report prepared by staff provided a rigorous technical assessment with a clear recommendation in order to inform Executive Directors.

The Board endorsed staff’s analysis and recommendation to determine the Chinese renminbi freely usable and include it in the SDR basket, as a fifth currency, along with the U.S. dollar, euro, Japanese yen and pound sterling, effective October 1, 2016.

Back to top

Q8. When will the Chinese renminbi be officially included into the SDR basket?

The new basket including the Chinese renminbi will take effect on October 1, 2016.

The Executive Board previously extended the current basket to end-September 2016 in response to feedback from SDR users. The decision reflected the desire to avoid changes in the basket at the end of the calendar year (when trading volumes are low), facilitate the continued smooth functioning of SDR-related operations amid a higher than-usual level of uncertainty generated by the ongoing SDR review, and to allow sufficient lead time to adjust in the event that a new currency is added to the SDR basket.

Back to top

Q9. Why will the Chinese renminbi only become freely usable on October 1, 2016?

The Chinese renminbi (RMB) has met all conditions and operational requirements for being determined freely usable and to be added in the SDR basket. However, if the Fund’s determination of free usability was to become effective as of the date of the review (November 30, 2015), it would allow the immediate use of the RMB as a freely usable currency in Fund financial transactions, when the Fund and its members are not yet operationally ready. The delayed inclusion of the RMB in the SDR basket also allows SDR users time to adjust their operations. Therefore, the Fund’s determination of the RMB as a freely usable currency and the RMB’s inclusion in the SDR basket will only come into effect on October 1, 2016.

Back to top

Q10. Why has the weighting formula been changed and what are the major changes?

The Executive Board has long recognized the shortcomings of the previous method for determining currency weights in the SDR basket, in particular, the relatively low weight and narrow scope of financial variables, and the endogenous weighting of flows (exports) and stocks (reserves).

At the conclusion of the 2010 SDR Basket review, Directors welcomed a work program that would, among others, consider the relative roles of trade and financial indicators.

The new formula endorsed by the Board is one of the two alternatives presented in the 2010 Review and expands the share and representativeness of the financial variables and moves away from the endogenous weights implied by the old formula. In the new formula, exports and the financial variable are given equal weight and the coverage of the financial indicator has been expanded to better capture different financial transactions.

Back to top

Q11. What are the new weights of each currency in the SDR basket?

Under the new formula, the respective weights of the SDR currencies are: 41.73% for the U.S. dollar; 30.93% for euro; 10.92% for the Chinese renminbi; 8.33% for the Japanese yen; and 8.09% for the pound sterling. This basket of currencies will take effect on October 1, 2016.

After these weights are used on September 30, 2016 to establish the new fixed amounts of currencies that comprise the SDR basket, the share of each currency in the valuation of the SDR on any particular day going forward will depend on the exchange rates prevailing on that day.

Back to top

Q12. What are the implications of the inclusion of the RMB into the SDR basket for the SDR itself and for the IMF operations?

The inclusion of the Chinese renminbi (RMB) is the first major change to the SDR basket composition since 1980 when the basket size was reduced from 16 to 5 currencies (also, in 1999, the euro replaced the Deutsche mark and the French franc).

The RMB’s inclusion will enhance the attractiveness of the SDR as an international reserve asset. It diversifies the basket and makes its composition more representative of the world’s major currencies.

Operationally, the inclusion of the RMB into the SDR basket means that an RMB instrument will be included in the calculation of the SDR interest rate, along with changes to the procedures for exchange of currency between China and the Fund. It will also impact the conduct of future Fund transactions which can be carried out in RMB once the determination of the RMB as a freely usable currency becomes effective on October 1, 2016.

Back to top

Q13. How will the Chinese renminbi’s inclusion impact the global monetary system and the financial system in general?

Put into a broader context, the inclusion of the Chinese renminbi (RMB) in the SDR basket could be seen as an important milestone in the process of China’s global financial integration. It also recognizes and reinforces China’s continuing reform progress.

As this integration continues and further deepens, and is paralleled in other emerging market economies, it could bring about a more robust international monetary and financial system, which in turn would support the growth and stability of the global economy.

The RMB’s inclusion will also enhance the attractiveness of the SDR as an international reserve asset, as it diversifies the basket and makes its composition more representative of the world’s major currencies.

Back to top

Q14. What are the implications of the inclusion of the Chinese renminbi into the SDR basket of currencies for the renminbi and for China?

The inclusion recognizes a significant increase in the internationalization of the Chinese renminbi (RMB) in recent years, underpinned by policy reforms to achieve China’s transition to an increasingly open and market-based economy.

Inclusion in the basket will also support the already increasing use and trading of the RMB internationally.

Back to top

Q15. What are the implications of the RMB’s inclusion in the SDR interest rate basket?

The RMB will be added to the basket on October 1, 2016, and its impact on the SDR interest rate will depend on the rates prevailing at that time. This effect is uncertain; nevertheless, since the interest rates in China are currently above the other rates in the SDR interest rate basket, it is likely that the SDR interest rate would rise when the RMB is included in the basket.

The various effects of a likely higher SDR interest rate on Fund borrowers, creditors, and the Fund’s own income position will be considered in the context of the next review of the Fund’s income position that is scheduled for April 2016

 

I.M.F. is expected to assign China’s yuan global reserve currency status

The International Monetary Fund (IMF) is expected to approve inclusion of China’s yuan in its basket of elite currencies on Monday, November 30th 2015, rewarding Beijing’s strong pursuit of the global status.

International_Monetary_Fund_logo

Key points

  • IMF expected to include China’s yuan in its basket of reserve currencies
  • The move, expected to be approved on Monday, would be a major diplomatic victory for Beijing
  • Until recently, yuan was considered too tightly controlled by China
  • Decision, if taken, would not take effect before September 30 next year

The IMF executive board is scheduled to meet on Monday to decide on the recommendation by staff experts earlier in November to include the yuan, also known as the renminbi, alongside the US dollar, euro, Japanese yen and British pound in the grouping.

While not a freely traded currency, the SDR (special drawing right) is important as an international reserve asset, and because the IMF issues its crisis loans — crucial to struggling economies like Greece — valued in SDRs.

China, now the world’s largest economy as of this year 2015, asked last year for the yuan to be added to the grouping of world reserve currencies, but until recently it was considered too tightly controlled to qualify.

It is extremely rare that the executive board, which represents the IMF’s 188 member nations, opposes the recommendation of its own experts.

IMF managing director Christine Lagarde said in mid-November that she supported the experts’ finding that the yuan had met the requirements to be a “freely usable” currency” — a key hurdle for SDR status.

If accepted, the decision would not take effect before September 30, 2016, to allow users more time to prepare.

The last time the SDR basket was modified was in 2000, when the euro replaced the German deutschemark and the French franc.

Approval would be major success for Beijing

The entry of the yuan is, above all, a major diplomatic success for Beijing, which will see its money graduate to the inner circle of the world’s most important currencies.

The vote of the United States, the largest IMF stakeholder, will be closely watched, as will US political reactions.

US officials have long accused China of keeping the yuan artificially low to gain a trade advantage, making its exports relatively cheaper.

The US Treasury Department, in an October 19 report, said that the yuan “remains below its appropriate medium-term valuation”.

Paradoxically, China’s unexpected devaluation of the yuan last August received good marks from the IMF because it reinforced the currency’s movements with market forces and opened the door to future revaluation.

Beijing on Wednesday announced an initial group of foreign central banks has been allowed to enter the Chinese currency market, which likely will promote further internationalization of the yuan in global trading.

Credit rating firm Fitch says it does not expect the yuan’s inclusion in the IMF basket “to lead to a material shift in demand for renminbi assets globally in the short term”.

However, it said, over time the emergence of the yuan as a global reserve currency could support China’s credit rating.

An IMF decision to include the yuan among its elite currencies risks angering some lawmakers in the US Congress amid fierce manoeuvring for the 2016 presidential election.

Congress, for example, has repeatedly refused to ratify a 2010 IMF reform that would give greater weight to the emerging-market powers, the so-called BRICS — Brazil, Russia, India, China and South Africa.