Enlightened Economics

Economics for an Enlightened Age

• Out of the Ashes. A Global Central Bank!

Posted by Ron Robins on March 12, 2008

Our financial overseers will create a world central bank in the next few years. Growing higher consciousness in the world will enable it to become a reality. This bank will have a mandate to monitor, regulate, and maintain global currency, credit, and debt issuance. It will ensure that growth of these activities roughly matches global economic output. It will come about as the chaos and inadequacies engendered in our present monetary system become evident to everyone and a world central bank seen as the best solution.

Individuals and groups in financial markets everywhere, lacking inner fulfillment, have demonstrated inordinate greed resulting in reckless financial games and gambling – are bringing the financial system to its knees.

Such mismanagement in the financial system, I believe, will require the new world central bank to disallow banks everywhere from continuing in unfettered debt creation and speculative excesses. In search of ever higher returns, banks created overly lax lending standards, highly leveraged loans, obscure financial entities bearing major financial risks unconsolidated in their financial statements, and generally ran down the quality of their assets and reserves to unsafe levels.

‘Shadow banking’ system larger than conventional banking
All the while an even bigger, massively leveraged, totally unregulated, thinly capitalized, ‘shadow-banking’ system was allowed to balloon by bank regulators. And it is now in the process of imploding! Bill Gross, managing director of PIMCO, the world’s largest bond fund, said this recently about the shadow banking system: “Our modern shadow banking system craftily dodges the reserve requirements of traditional institutions and promotes a chain letter, pyramid scheme of leverage, based in many cases on no reserve cushion whatsoever.”

Due to the enormous growth of irresponsible central bank and banking activities globally, plus the vast, mushrooming credit creation of the shadow banking system – the world’s money supply is expanding out-of-control.

Unprecedented money supply growth creates inflation as bad as 1970s
Globally we see that, “China [is] registering an 18% plus growth in money, India 22.4% a year growth, Singapore 14%, Britain up by 12.3%, Western Europe 11.5%, Australia 16%, Canada 13%, and Saudi Arabia 22%!” So says The Mogambo Guru, Richard Daughty. These are ‘broad money supply’ figures. John Williams of www.shadowstats.com shows the US broad measure of money supply, as of early February 2008, increasing at annual rate of 16.8%. (The US Federal Reserve stopped publishing this measure in March 2006 claiming it costs too much to produce. Many economists suspect that they just wanted to hide the ramping-up of the US money supply.)

Even Marketwatch’s chief economist, Irwin Kellner, is concerned about US money supply growth. He said recently, that, “The rate of growth for highly liquid funds which the St. Louis Fed calls MZM [i.e. physical money, checking and money market accounts, etc.]… soared by an annual rate of 22.7% between December 24, 2007 and February 18 of this year.” He adds, “… it has created a whole lot of inflation.”

The link between an expanding money supply and inflation is firmly established. As the Bank of England’s Governor, Mervyn King quoting a highly respected study, said, that “Over the 30 year horizon 1968-98, the correlation coefficient between the growth rates of both narrow and broad money, on the one hand, and inflation, on the other, was 0.99.” Thus in the words of Milton Friedman, the recently deceased Nobel Economics prize winner, “… inflation is always and everywhere a monetary phenomenon.”

In the US, consumer price inflation using the politically biased, understated, consumer price index (CPI-U) is in January 2008 up 4.3% from a year earlier. But using the CPI methodology as of 1980, it is almost hyperinflationary at close to 12%! Inflation in China is now running at 8.7%, while in the EU and the UK, though more moderate at 3.4% and 3.1% respectively, it is picking-up significantly and well above their respective central bank targets.

The foregoing suggests that the present global monetary and financial system is reaching a state of extraordinary instability. The danger is the possibility of rapidly growing, unstoppable inflation culminating in a hyperinflationary episode such as is now occurring in Zimbabwe. Or, a threat of a deflationary bust similar to the Great Depression.

Higher consciousness the only real answer
The only real answer to such economic threats is higher global consciousness. This, I am convinced, will gain traction. (See my post, The Missing Ingredient In Economics — Consciousness!). In future years, this higher consciousness will, amongst other things, first manifest itself by allowing our financial overseers to see the need for, and create, a world central bank.

In ages past central banks utilized gold to help create monetary order. A new world central bank might well find a role for gold again, but in an updated, modern form. I will write about this in another post.

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© Ron Robins, 2008.

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6 Responses to “• Out of the Ashes. A Global Central Bank!”

  1. Joyce said

    Why a global central bank to print paper money?
    Why not a system that can not be inflated by politicians and corruptible humans (essentially all of us)? Why not try a gold standard that we know works?

    Like

  2. pam said

    The world financial system will build itself and Babel will be whole once again. What an exciting time to live!
    Great thoughts thanks again!
    (If money was never “sold” via charging “interest”, what would happen?)

    Like

  3. John Pozzi said

    Dear Mr. Robins,

    The Global Reserve Bank (GRB) is a world central bank that supports a prosperous community of shareholders. The GRB produces GRB ecocredits equal to the shareholders value of Earth’s natural resources. GRB derives income from ecosystem impact charges on GRB accounts. GRB income pays for shareholders communications, ecosystem renewal and earns shareholders a sustainable income.

    I cordially invite you to review the GRB charter at grb.net.

    Sincerely,

    John Pozzi

    Like

  4. A Global Central Bank will be most effective if it’s part of a Global Monetary Union and if it manages a Single Global Currency.
    The goal of the Single Global Currency Assn. is a Single Global Currency, managed by a Global Central Bank within a Global Monetary Union by 2024. See http://www.singleglobalcurrency.org.
    The Single Global Currency will save the world about $400 billion annually in FX transactions costs. There will be no currency crises, and no currency risk and no global currency imbalances. See, also, my book, “The Single Global Currency – Commmon Cents for the World”
    The euro has shown the world how a monetary union can focus on monetary stability. The implementation of a Global Monetary Union will likely come from the creation and expansion of regional monetary unions, and their eventual merger.
    One question remaining will be the asset base, and my friend John Pozzi has proposed global resources to back up such a world financial system. Others favor gold, but most believe that the Single Global Currency will be a fiat currency, as are all the 141 currencies now used by the 192 members of the United Nations. The European Monetary Union already has 15 members, which will grow to 16 this coming January with the accession of Slovakia. If a Central Bank can manage the currency for 16 countries, why not 50 or 100 or 192?
    The financial leaders of the world should begin planning now for the Single Global Currency to be managed by a Global Central Bank within a Global Monetary Union.

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  5. The time for the U.S. dollar as world reserve currency has passed. National currencies should stay within national borders.

    For international trade there needs to be an international unit of exchange. Modeled after Special Drawing Rights of the International Monetary Fund, we would suggest starting with a trade-weighted average of all currencies in the world.

    Due to the importance to every nation of the value of the International Currency Unit (ICU), the calculation needs to be transparent. The only way to accomplish this is to have the ICU traded in the markets like any other currency.

    Internationally traded commodities such as oil and gold would be priced in ICUs.

    The ICU and national currencies would be fully interchangeable in the foreign currency markets.
    The ICU would not be printed money and would have no physical existence. It would simply be a unit of account designed to facilitate international trade and flows of wealth.

    National currencies need to continue so that each nation can control the monetary and fiscal policy appropriate for its needs.

    However, there would be no global monetary policy and so no global central bank is needed.

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  6. lobobreed said

    The above three commentators are absolutely wrong. We in America should never abandon the dollar, nor accept the validity of any Global Currency scheme for international trade. This would put Americans, and anybody else on the planet, at the mercy of governmental international banking organizations that can inflate that new world currency at will, just as the FED inflates our currency, and destroys billions of hours of saved labor which the laborers naively tie up in CD’s, to be inflated away by the Socialists.

    We need a precious metal backed dollar, and a severely curtailed government. We also need to abolish the income tax, and start running budget surpluses or at least neutral budgets. After the income tax is abolished, to be replaced by tariffs on products coming from dictatorships and perhaps some other head or sales taxes,along with massively cutting government spending, then we could legalize currency competition (one could use any vehicle, say Swiss Francs or cowry shells, to settle debts).

    But Socialism needs to continually inflate, so as to rob the producers to satisfy the perceived “needs” of the indolent and massive consumers of resources.

    Only a radically free-market Capitalism can save the world. — Silverwolf

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