Will the U.S. Fed
become the world central Bank?
By Melvin J. Howard
Even with its deficits
the currency is still the reserve status. "It is the U.S. that is being
called upon to be the world central banker. It’s already providing unlimited
swap lines with Europe. Through the IMF funding emerging markets. Money isn’t
just a tool for buying goods and services. Money is a communication device. It is used all the time to influence beliefs. Of the roughly $3 trillion of
money moving around the world
every day, only about 2% is used
in the transaction of products and
services. The rest, the bulk, is
used in transactions where no products or services change hands! It is used in arbitrage, currency exchanges,
politics, legal issues,
agreements, control issues and so
on. A lot of times, the most powerful movements and agreements about money are changed or maintained
without your knowing. You would assume that you know about the most
significant movements of money,
but paradoxically those are the
ones they keep secret. Another
example would be the role of the
dollar in the recent U.S. wars.
Ever since the gold reserve was
forever abandoned under President Nixon, all oil has been traded in U.S.
dollars and the oil price has
been in U.S. dollars. This made
the U.S. dollar the world currency for energy
trading worldwide. Although the
U.S. freely prints U.S. dollars, other
countries must give the U.S.
their goods and services just to get dollars because
many countries also have debts to
the IMF, World Bank, and other
countries, they also must get U.S. dollars to
pay off their debts. So for debts
and energy, all countries must get U.S. dollars from the U.S., in exchange for their goods. Before the
Euro, the whole world was
practically, hooked onto one currency the
U.S. dollar. What does this mean in terms of dollars trade world trade?
It buys its imports at
some of the cheapest prices, has veto powers in all world trade bodies, and
dictates IMF and World Bank policies. Then
came the Euro, the new universal currency of
the European Union. Within a few
years, the Euro started to become a
competitor to the dollar in some areas.
The dollar started losing its monopoly power
in Sub-Saharan Africa, Middle
East, former Soviet Union, and Central Asia.
Then, Iraq became the first OPEC
country to start selling oil in Euros instead
of dollars. The U.S. dollar began to decline and the Euro gained 17% in value
since that Iraqi decision. Then,
Iran started to actively consider selling its
oil in Euros instead of dollars.
Because Iran is the second-largest OPEC oil producer,
this would have dealt another
blow to the dollar. But the U.S. Federal Reserve is still the governing authority
at the center of global finance. It is the prime financial institution of the
world's most powerful economy, overseeing the one global currency. But with the
growth of capital markets, the rise of currencies like the euro and the
emergence of China, the shift of wealth to Asia and the Persian Gulf. Our
economies are connected like has never been before is it time for a world
Central Banker? The United States have
swapped wons for greenbacks, allowing South Korean banks to fulfill local
demand for U.S. dollars, which had been starved by the freeze-up in the
inter-bank lending markets. Banks can then provide those greenbacks to their
local customers to allow them to carry out international business.
The money you use to buy
your groceries is part of the same
money that makes up all the money
in the world. It circulates in
that same global ocean of money,
just like a water drop is at some point part of the ocean and at another point a drop of rain, then a river,
then a shower. The money you use
is a tip of a very large iceberg
that is mostly hidden from view. You can
see the hidden part if you like,
but you have to make the choice to look at it.. The money you earn and use possesses
the same properties as the money used in the largest
international activities (trade,
control, politics, etc). You therefore
gain much from looking at these big events, because
they are reflected in your
personal small events. In other words, if you look
closely, you will notice that
your personal life and the world’s life are closely matched. You will notice that the things you experience in your life
are just micro versions, in a
different form and context but
same essence, of what is going on in the world.
You will notice that, in ways you
had never seen before, we are one we are entangled. The study of money is
fascinating I am not talking about the pure vanity of having it to buy your
bling and your new MTV crib. I am talking from a point like inflation and
varying the amount of money in the system creates depression. By simply
changing the amount of money in the economy,
and the interest rate, one can move the economy around in any direction chosen.
The principles of economics are
clear and simple, and all it
takes is to simply set the interest
rate and adjust the amount of money in the system and one can move the economy as they wish. This is the
power the Federal Reserve Bank
has. The flight to U.S.
treasuries has been overwhelming of which I predicted a while back. The swap
lines give a stamp of approval to each country of their good financial faith in
the U.S. but also sends a message to those left still trying to decide which
way to go. Being a friend of the U.S. still matters.
