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Neither the FED nor US Government Can Print “Trust”

Politics / US Politics Apr 01, 2022 - 03:54 PM GMT

By: Raymond_Matison

Politics

In this period of great economic, financial, monetary and geopolitical uncertainty, Borge Brende, the current president of the World Economic Forum, stated that countries need to prepare for the next crisis today.  Mr. Brende more importantly stated that “We have to focus on rebuilding trust. There is a lot of lack of trust”.  That is a very insightful and timely observation.  Stateside and nearer to home, a recent University of Michigan survey notes that confidence in US government policies is at its lowest since 2014.    

At the same time, available statistics show that 84% of the people in China trust their government, while 81% of Indonesians and 79% of the people in India trust their governments. How does one explain, that those countries which the western world criticizes for being oppressive or lacking freedom, when polled rank higher in trust of their governments than western democracies?


The German based company Statista, collecting industry specific market and consumer data shows that trust of citizens in business around the world has a similar pattern to that of citizen trust in governments.  Eighty four per cent of Chinese citizens and 79% of India’s citizens trust business, while only 49% of Americans trust their businesses.   An important but difficult question to answer is whether American low trust in their business assessment is based on some unsatisfactory experience, and whether the high trust indicated by China and India may be based on citizens being fearful of expressing their real feelings?  We may never know for sure, but it seems credible that trust of citizens in the west in both business and governments has been declining for decades, is now very low, and because of recent actions risks imploding further.

Confidence or trust in the nation’s banks and currency

Most of the world’s past and present problems can ultimately be reduced to money and war.  Human history is largely a recounting of war, financed by a system of money creation which encourages and prolongs the savagery of wars.  Hence, since their founding over the last several hundred years, central banks have been responsible for managing each nation’s money and accommodating conflict, while politicians have been responsible for geopolitical policies which have brought forth wars.

Confidence in the currency is necessary for it to have value, and function as money, facilitate trade, and energize an economy.  Augustin Cartsens, the general manager of the Bank of International Settlements (the bank of central banks) declared in a speech delivered last month at Goethe University in Germany that the “soul” of money is trust in central banks.

How can people trust or have confidence in our central bank and politicians when they have repeatedly breached that trust historically?  For example, President Roosevelt in 1933 revoked, by executive order not Constitutional Amendment, its citizen right to hold and use the specific currency legalized by the nation’s founding Constitution - gold and silver?  How can trust in currency be maintained when the promise to exchange dollars held by foreign governments at $35 per ounce of gold has been forfeited?  How can trust be maintained when President Nixon in 1971 decreed that all gold backing to the currency would be removed, and the purchasing value of a dollar since then has declined between 85-98%, depending on the method of measurement?  Banks and governments now hold most of the gold, while people hold increasingly valueless paper currency.  Historical facts do not make a compelling case for trusting the Federal Reserve or government.  Indeed, legendary investor, economic and investment YouTube commentator, billionaire Jim Rogers pillories all central banks and governments stating that he does not trust the Federal Reserve nor any government.

How can people maintain trust or have confidence in our currency when our national debt has risen from $10 trillion in 2008 to over $30 trillion currently, while our unfunded liability stands by one recent credible estimate at $164 trillion.  Neither the unfunded liability nor the national debt can be paid back without catastrophic devaluation of the currency – which means high inflation or hyperinflation, impoverishing everyone.  Boston University economics professor Larry Kotlikoff in 2012 calculated that there was a shortage of $222 trillion in funds to honor all government’s existing obligations.  That number, in light of massive budget deficits and increases in national debt since then substantially understates that estimate of our government’s unfunded liability, making the government essentially bankrupt.

Former Congressman Ron Paul, author of the book “End the FED”, published in 2009, writes “It’s my own view that ending the FED would address the most vexing problems of politics of our time.  It would bring an end to dollar depreciation.  It would take away from the government the means to fund its endless wars. It would curb the government’s attacks on the civil liberties of Americans, stop its vast debt accumulation that will be paid by future generations, and arrest its massive expansions of the welfare state that has turned us into a nation of dependents.” 

There are too many pithy observations and wisdoms in his book to list them all here (read the book), so we quote one final maxim from Ron Paul’s book: “The Federal Reserve should be abolished because it is immoral, unconstitutional, impractical, promotes bad economics, and undermines liberty.  Its destructive nature makes it a tool of tyrannical government.  Nothing good can come from the Federal Reserve.  It is the biggest taxer of them all.  Diluting the value of the dollar by increasing its supply is a vicious, sinister tax on the poor and middle class.”

Libor is the London Interbank offered rate, a reference interest rate among banks which was used to set interest rates on hundreds of trillions dollars of financial products worldwide including bonds, loans, and financial derivatives.  Member banks which submitted information for the calculation of the Libor rate were found to be submitting fraudulent rates for the purpose of manipulating the Libor rate and profiting on trades.  This interest rate manipulation was found to have taken place for more than a decade, and only was discovered because of a voluntary disclosure by a former trader.  Trust the banks?

As long as governments control money the issue of money, they also control the violence and wars occurring globally.  With the present Russian incursion into Ukraine, the U.S. has responded with a series of sanctions which are intended to penalize Russia for its actions.  However, its move to sanction or essentially seize dollars held by Russia’s central bank and instantly make them worthless is a weaponization of the global dollar currency which may have serious international blowback repercussions.

The U.S. dollar has been the global reserve currency for decades because of the trust that nations and central banks had in that currency.  America’s unilateral action to nullify Russia’s country’s central bank reserves dramatically reduces that trust, and raises the fear that other countries which accidentally or intentionally take actions that displease the United States could be sanctioned next.  Accordingly, this singular action may be the defining moment for the beginning of the deglobalization of the U.S. dollar as the world’s main reserve currency.  Once that trust has now been breached, and it cannot be restored.    

An erosion of trust in government

In 2013, the Guardian and The Washington Post published leaked documents by an initially anonymous source. The articles exposed a comprehensive government-run surveillance program that monitored communications records of law-abiding citizens. A companion program run through British intelligence channels tapped into as many as two hundred fiber optic cables monitoring 600 million communications on a daily basis – which shared this data with the NSA.  By hacking into routers and network backbones rather than individual computers they were able to access the communications of hundreds of thousands of computers and hundreds of millions of global emails and text messages on a daily basis.  As a consequence, these documents proved that the CIA has been collecting data on Americans without any oversight or congressional approval, which is illegal or unconstitutional.

Edward Snowden, who revealed our government’s illegal surveillance program, rather than receiving commendation from the government for pointing out its erroneous action, instead was served with a violation of the Espionage Act of 1917, and had to flee the country to avoid a politicized jury, and avoid jail for what many other citizens consider a heroic act.  This begs the question as to whether there is any criminal activity for which the government would apologize and stop – if it was revealed.  Thus far, even as several Senators just call for a public release of CIA’s surveillance program, it still remains classified.

Edward Snowden’s revelations demonstrate that trust in a benevolent or even a fair or moral government seems misplaced.  Explaining his actions, Snowden says: “I’m willing to sacrifice all of that because I can’t in good conscience allow the US government to destroy privacy, internet freedom and basic liberties for people around the world with this massive surveillance machine they’re secretly building.”  Certainly, such a secret surveillance program of the country’s citizens does not increase trust in government.

At the juncture of monetary and government incompetence and malfeasance, the Secretary of Defense, Donald Rumsfeld’s admission in 2001 that “we cannot locate $2 trillion of defense money” should be a wake-up call.  Specifically, on September 10, 2001 (one day before the 9/11 attack on the World Trade towers) Secretary Rumsfeld disclosed that his Defense Department was unable to account $2.3 trillion worth of transactions.  How much trust does that inspire?   However, the Office of the Inspector General had increased the unaccountable spending for the army to $6.5 trillion by 2015. Then an economics professor at Michigan State University (Mark Skidmore) found that $21 trillion had been unaccounted for from the Defense and Housing and Urban Development departments between the years 1998-2015.  Where is the missing money, where did it go?  That is not “pocket change” as that sum could pay off every mortgage in the country.  Trust?

To confirm that trust in banking and government is not a domestic issue but a global one, note that recently thousands of Freedom Convoy truckers in Canada have had their government freeze participant bank accounts.  President Trudeau ordered banks to freeze (essentially confiscate) the savings of people that government did not agree with.  Well, that should do a lot to inspire confidence in both banks and government – don’t you think?  Should politicians be able to destroy the livelihood of its citizens that it disagrees with?  Revealing to people worldwide that their bank accounts can be frozen instantly, based upon nothing more than the whims of politicians, is not a move to inspire confidence or trust in banks or politicians.

The future of our monetary system

With approximately 80% of all dollars in existence having been printed in the last two years, it should require little understanding of economics or monetary policies to recognize that the current value of the dollar – to use Jerome Powell’s word when referring to inflation - is “transient”.  It also means that the current purchasing value of the stock and bond markets must decline even as their nominal prices may remain the same or even advance.

Reflecting on the history of fiat money, one can infer that the days of trusting a centralized party to maintain a stable supply of a currency and its purchasing value have come and gone.  Why trust, when verification confirms that no government in history could be trusted!  It is not that any specific government is bad or corrupt; it is instead, that this is the nature of governments.  Quite simply, any government is interested first in continuing its existence, and second in its increasing power and control.   It is as if a genetic code influences its actions.

Currently, Saudi Arabia seems to be considering the settlement of oil sales to China in yuan.  Such an affirmative decision would immediately render the global petrodollar less valuable, quickly raising the cost of living for Americans as well as the cost of maintaining its global empire.  Since it would ultimately destroy the USD as the global reserve currency, and change the power structure of the world, no desperate action can be excluded as a possibility. Thus a color revolution or worse, could arise in Saudi Arabia’s future.

As stated previously, the militarization of the USD through sanctioning Russian central bank dollars could also backfire in a most unpleasant way.  Russia and China have become strong allies – and both countries hold large amounts of gold, and both also are large producers of gold.  It is entirely possible for them to introduce a gold backing to their currencies such that it would require a similar response from the US to maintain parity. Aside from the question whether the stated but unaudited and unencumbered (not leased) amount of gold is actually present at Ft. Knox and elsewhere, the new gold backing would limit USD issuance, and geopolitical action.  Unfortunately, the future of our nation is now totally dependent on the fate of our currency – both of which are declining.

In light of the recent dollar sanctions, countries around the world are forced to come to terms with the fact that the U.S. cannot be trusted, since anyone could be locked out of the SWIFT system for some imagined political reason.  To realize that countries and individual’s bank accounts can be frozen as in Canada, or anyone’s use of credit cards can be shut off - does not build trust.  China and Russia together hold most of the gold in the world and it should not be surprising that they want a voice establishing the next world order.  This is not good news for the continuing reign of the dollar, and accordingly, gold, silver, and cryptocurrencies are in ascendancy.  
 
Central banks of the world have been evaluating advances in blockchain technology and cryptocurrencies, and responding currently through inadequate regulation as how to encourage adoption yet maintain control over cryptocurrencies, money issuance, speed up domestic payments and international remittances and settlements.  The United States surely has preferences as to how to deal with and control private currencies that are not debt issued, but because these currencies and their transactions are international in scope and global in confirmation, they cannot easily be controlled by a single nation.

Historical examples of government geopolitics

Global geopolitical positioning and duplicity is practiced by all country governments aspiring to compete in the game “global empire”.  Author John Koster in his 2012 book “Operation Snow” notes that “Smedley Butler, a retired Marine general who had twice been awarded the Congressional medal of Honor, observed in his 1935 book, War Is a Racket, that recent  U.S. Naval maneuvers looked like an attempt to provoke a war with Japan.”  Japan definitively attacked China, and U.S. in Hawaii; what is not as well known is the fact that the U.S. had shut off oil imports to Japan via an embargo.  Further, Roosevelt “authorized a freeze on Japanese assets in the United States that would make it difficult but not impossible for the Japanese to purchase oil.”  “Roosevelt’s restriction on Japan’s oil supply shifted Japanese planning into high gear.  War was now the only alternative to economic strangulation and political revolution.”

John Perkins, author of “Confessions of an Economic Hit Man” published in 2006 writes: “Economic hit men (EHMs) are highly paid professionals who cheat countries around the globe out of trillions of dollars.  They funnel money from the World Bank, the U.S.  Agency for International Development (USAID), and other foreign “aid” organizations into the coffers of huge corporations and the pockets of a few wealthy families who control the planet’s natural resources.  Their tools include fraudulent financial reports, rigged elections, payoffs, extortion, sex, and murder.  They play a game as old as empire, but one that has taken on new and terrifying dimensions during this time of globalization.  I should know, I was an EHM”

In his book Mr. Perkins points out that “Jaime Roldos, president of Ecuador, and Omar Torrijos, president of Panama, both just died in fiery (airplane) crashes. Their deaths were not accidental.  They were assassinated because they opposed that fraternity of corporate, government, and banking heads whose goal is global empire.”  Other countries who bought into the proposed infrastructure programs, paid for them in less deadly but significant ways.

Iran was the first Muslim country to establish a democracy and elect President Mohammad Mossadegh through a national election.  However, the USA through its CIA was responsible in 1953 for deposing Iran’s democratically elected president. Stephen Kinzer, in his book “All the Shah’s Men” published in 2008 states, “With this unanimous vote the United States gave its final go-ahead for Operation Ajax”, a coup plot approved by President Eisenhower.  Also “Allen Dulles approved the dispatch of $1 million to the CIA station in Tehran, for use ‘in any way that would bring about the fall of Mossadegh’.”   

In Vietnam, the United States had allied itself with desperate effort of the French regime
to hang on to the remnants of their empire.  By 1959, a new war for Vietnam had begun,
a war that the Vietnamese called “the American war”.  On August 2, 1964 North
Vietnamese patrol boats allegedly attacked the Maddox, a U.S. destroyer operating in
the Gulf of Tonkin.  In his book “The Secret Sentry” published in 2009, author Matthew
M. Aid writes “So President Johnson, Secretary of Defense McNamara, and the JCS
appear to have cherry picked the available intelligence, in this case SIGINT from NSA,
in order to justify a decision they had already made to launch strikes against North
Vietnam.  On the second day of the alleged attacks, Captain Herrick of the Maddox was
debriefed and he said that he had seen no boats, no boat wakes, no ricochets of boats,
no boat gunfire and no torpedo wakes – nothing but black sea and American firepower”.

Saddam Hussein, President of Iraq from 1979-2003, had allegedly been an “asset” of
the CIA which helped Hussein to overthrow the then existing government and establish
Hussein as Iraq’s leader in 1968.  Saddam nationalized the Iraqi Petroleum Company,
selling its oil for U.S. dollars.  When he first announced intentions to sell oil also in Euros, within a couple of years Iraq was invaded on the lie that Iraq held weapons of mass destruction.  Saddam was sentenced to death and executed in December 2006.

America’s war in Afghanistan started after Osama Bin Laden’s organized attack on Manhattan’s twin towers, an Arab who presumably operated out of Afghanistan.  The U.S. led invasion eventually lasted over twenty years, but in 2021 the Biden administration withdrew its troops allowing the Taliban to once again control the country.  Our involvement in Syria, Libya and other middle-east countries has been largely not a battle to bring democracy to these countries, but rather to control the flow of oil and gas.  Visiting Wikipedia’s site for “color revolutions” will list more than a dozen countries in which dissatisfied citizens have formed groups, often with the assistance of the NED (National Endowment for Democracy), to overthrow or depose country leaders which have not been aligned with American interests, in order to elect leaders which America approves.  The presence of the NED in such countries raises compelling questions.

Recent foreign policies

Venezuela has one of the largest oil reserves in the world, so how can this nation be poor? When oil prices rise, so do government programs, but when the global oil price is maneuvered lower, debt is incurred to continue such programs. However, diminished oil revenues may not cover servicing the debt, and default follows.  Humanitarian politics of helping the poor appears as socialism, which solicits change in leadership by capitalist interests.  In the 2018 presidential vote which Maduro won with a 67.8% vote, the United States called the vote fraudulent and recognized Juan Guido president. President Maduro’s forces prevailed, as President Trump imposed a total economic embargo against Venezuela. Currently, President Biden, after closing the Keystone pipeline and depressing domestic oil production now recognizes President Maduro as Venezuela’s legal leader, and the U.S. is trying to import oil from Venezuela.  This reality is more interesting than a great fiction book.

President Lukashenko, president of Belarus has been in office since 1994, and by some accounts is seen as a dictator.  However, after coming to power he created a state where its largest enterprises became state owned resulting in relatively little wealth disparity among citizens, which built great political support from working people. Yet over years, his economy has not developed rapidly, as his strongest economic ties are with Russia, and popular support has been diminishing.  When he claimed winning elections in 2021, there were huge protests claiming that the vote was fraudulent.  Lukashenko announced on television that he and his children were targets of an assassination plot approved by the top leadership of the U.S.   Among those apprehended as allegedly planning a military coup was a Belarussian born lawyer who also is a citizen of the U.S.  So is the problem the economic leadership of an aging president, corruption, or a color revolution?  All three?

In 2020, the New York post published a picture of Karim Massimov, the former head of Kazakhstan’s security forces standing next to President Biden, and “close friend” and business partner Hunter Biden.  Massimov has been arrested and charged with treason for starting a violent coup.  Kazakhstan is a fabulously rich nation in oil, uranium, and other natural resources.  Tengiz, its largest producing oil field, is 50% owned and operated by Chevron – so there are direct U.S. interests there.  Its geographic location is key to China completing its Belt and Road project through Russia to Europe.  The increasingly violent uprising caused its present president Tokayev to request help from the Collective Security Treaty Organization (CSTO) to quell the riots.  Russia responded sending several thousand troops for peacekeeping, and departed once the opposition had subsided.   A NED color revolution, or legitimate people’s uprising due to an increase in gasoline prices?

By 2014 the U.S. State Department had spent $5 billion to depose Ukraine’s democratically elected, but Russia friendly President Victor Yanukovych and replace him with their choice of a more Western friendly leader.  Their ultimate goal was to have Ukraine become a member NATO.  Completely forgotten was President Bush’s and Secretary of State James Baker’s promise to Soviet Union’s President Gorbachev, that if he allowed the unification of east and West Germany, “we will not move one inch eastward”.  As the threat to Russia’s national security escalated by Ukraine seeking to become a member of NATO, Russia drew a “red line” and found it necessary to invade Ukraine.  Is this naked Russia aggression for its own sake, or an echo of Japan’s need to strike lacking a different choice?   Violating prior promises clearly has global consequences.  Concerned for its national security, Russia deeply cares whether Ukraine joins NATO, why should the all-powerful U.S.?

Insight

Transparency of government is crucial to keeping it honest and accountable.  It is also crucial for maintaining trust of the nation’s people.  Lacking trust, institutions wither away, monetary systems collapse, and governments perish.  What is the state of trust by America’s citizens in its institutions such as education, management of health epidemics, the tabloid press, television news media, social network censorship, citizen surveillance, free speech, the U.S. dollar as a store of value, the Federal Reserve, and our government’s geopolitical/military policies.  Restoring faith and trust in the old system is no longer feasible, as new systems will arise from the eventual ashes of the old.  This is perhaps where the new technology of transparent and self-auditing blockchain and non-liability and privately based crypto currencies will be key.
 
The following insightful observation was found in the internet, but the person to attribute it to was not to be found.  Nonetheless, this great observation has value to common citizens, politicians and national leaders alike: 

“When the government views itself as superior to the citizenry, when it no longer operates for the benefit of the people, when the people are no longer able to peacefully reform their government, when government officials cease to act like public servants, when elected officials no longer represent the will of the people, when the government routinely violates the rights of the people and perpetrates more violence against the citizenry than the criminal class, when government spending is unaccountable and unaccounted for, when the judiciary act as courts of order rather than justice, and when the government is no longer bound by the laws of the Constitution, then you no longer have a government ‘of the people, by the people and for the people’.”

Raymond Matison

Mr. Matison was an Institutional Investor magazine top ten financial analyst of the insurance industry, founded Kidder Peabody’s investment banking activities in the insurance industry, and was a Director, Investment Banking in Merrill Lynch Capital Markets.   He can be e-mailed at rmatison@msn.com

Copyright © 2022 Raymond Matison - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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