More on the end to the Gold Standard...

The Specter of Protectionism
Death of the Gold Standard
The world has already experienced a tragic deflationary spiral once, which transpired during the turbulent years between the world wars. Up until then, the gold standard was in place nearly everywhere. People could exchange their money for a predetermined amount of the precious metal. Prices and exchange rates remained relatively stable for many years, and global trade flourished. But after the outbreak of World War I, the system didn’t work anymore because the national economies had drifted too far apart.

The widespread poverty and unemployment that came with the Great Depression finally forced the countries to make a radical transition. On Sept. 20, 1931, the UK dropped the gold standard. Within just a few months, the pound had lost nearly a third of its value against the dollar. This produced the desired effect: The British economy recovered quickly.

But the UK had revitalized its economy at the cost of its neighbors who had stuck to the gold standard, meaning that their currencies became relatively expensive. Economists call this type of protectionist policy “beggar thy neighbor.” The reaction came quickly. In the spring of 1933, the US unpegged the dollar from gold — and the US currency plummeted by 40 percent. Additional countries in the so-called gold bloc followed suit, and in the end, 25 countries had abandoned the gold standard.

Birth of a New System
Nobody could win this race, and it pulled down the entire world economy. Between 1929 and 1933, the volume of world trade fell from $3 billion to $1 billion. In order to put an end to this currency chaos, representatives from 44 countries attended a conference in Bretton Woods, New Hampshire, in July 1944. They agreed to a new currency structure that was to ensure a regulated system of world trade. This system was designed to make it impossible to use currencies as weapons in global competition.

The dollar was chosen as an anchor and, from then on, the other currencies were moored to it. The US committed itself to converting the reserves that every country held in US currency to gold at a fixed price of $35 per ounce. The system collapsed in 1971 when the US could no longer maintain this commitment: It had printed too many dollars to pay for the Vietnam War.

Since then, there have been no more established rules, and everything is done according to the law of the jungle. So far, the US has been the strongest player. Thanks to the dollar, the world’s undisputed reserve currency, the Americans have been able to live beyond their means for decades. They have been able to amass excessive debts — because there is always someone who is willing to foot the bill.

Nowhere to Flee to
Although the value of the dollar has fallen over the past decades, the decline has been much less than what would have been economically justifiable. As long as the US is seen as a comparatively secure country, other nations will continue to place their reserves in dollars, thereby bolstering the US currency. But how long can the US continue to be seen as an economically secure country, if it fails to bring its government debt under control and keeps trying to solve its economic problems by bringing down the value of its currency?

The US still benefits from the fact that China and other emerging economies cannot shift their dollar reserves to other currencies without causing themselves massive damage. Not to mention the fact that there is nowhere to flee to — after all, not even the euro offers a safe haven.

Private investors can flee, though. They are increasingly viewing major currencies with mistrust and purchasing gold as a result. The price of the precious metal continues to set new records. Last week, it soared to over $1,300 (€943) a troy ounce, meaning that it has more than quadrupled in price since the turn of the millennium. Now that the financial crisis has led to a sovereign debt crisis, it is becoming increasingly clear just how fragile the foundation of the world economy is — and why new regulations are urgently needed.

Not surprisingly, there are increasing calls for a second Bretton Woods and a new world economic system with established rules. This is a recurring topic at G-20 summits.

The Role of China
The big unknown variable in such a future system is the role played by China. No new approach will last long if it doesn’t include the yuan, also known as the renminbi. The crucial question is whether China is prepared to gradually allow its currency to float more freely.

Up until now, the country has been unprepared to take this step — despite assurances made by the Chinese leadership on June 19 that it would end the fixed exchange rate with the dollar. The strong revaluation of the yuan that the Americans had hoped for has not occurred. Since then, it has only risen in price against the dollar by approximately 2 percent. China’s central bank continues to steer its “people’s currency” within a very narrow range.

The Chinese see the pressure from Washington as an attack on their sovereignty. It is true that experts in the Chinese central bank are debating the advantages that would come with an exchange rate reform, in order to free China from its dependency on exports. But if the communist leadership made too many concessions to the US, it would have to fear an enormous outcry from the patriotic Chinese public.

From the Chinese point of view, only a cautious revaluation would be an option. The Chinese want to avoid at all costs suffering the same fate as their neighbor Japan. After caving in to pressure from the US, in 1985 the former Asian superpower agreed to increase the exchange rate against the dollar. Within one year, the value of the yen had increased by some 60 percent. In order to balance out the negative consequences of the revaluation for the country’s export industry, the Bank of Japan lowered interest rates to nearly zero, thereby triggering a huge speculative bubble on the stock exchange and the real estate market. Even today, Japan has still not recovered from the prolonged crisis that ensued.

The pressure on Japan also failed to bring the US much relief. American industries, particularly in the automotive sector, still couldn’t effectively compete with manufacturers like Toyota and Honda.

Looking for a Scapegoat?
So it is questionable whether a reevaluation of the yuan would do the Americans much good. Between 2005 and 2008, the Chinese currency gained 21 percent, but the US trade deficit remained at record high levels. The problem is that Americans don’t save enough — and they have difficulties selling their own products around the world. Even a devaluation of their own currency didn’t help the Americans. Since 2002, the value of the dollar has slipped by over 30 percent against the euro.

That should have actually fueled the export economy. Instead, the US now has trade deficits with at least 90 countries, meaning that it imports more from those nations than it exports to them. Does this mean that the Americans are merely looking for a scapegoat for their own economic failure?

Before sanctions can be imposed on China, the Senate has to approve the proposed legislation. “It’s important to recognize that we’re not going to have a trade war, we’re not going to have a currency war,” said US Treasury Secretary Timothy Geithner. That — assuming Geithner’s assessment is correct — is the good news. The bad news is that there will be no new regulations for the global currency system, either. And it will continue to remain unclear what role the yuan will play in the future.

The result? Unstable currency markets will remain, also in the future, a permanent threat to the global economy.

Prince and the 2007 Superbowl halftime show

I was clearly hopeful when I saw Prince perform the superbowl halftime show. Up til then I knew that the Watchtower had gotten their claws into him. When this aired I wanted to say, hallelujah, he knows they are full of shit. Well after that he continued to support the rumors he was following the religious practices of Jehovah's Witnesses.

I wanted to round up two things to commemorate this period. One was an article written by Jeneane Sessum which fell right in line with my thinking and the possible response from those on both sides of the JW fence. The other is the actual performance. So without further adue!

February 05, 2007

Did Prince Just Say Goodbye to the Jehovah's Witnesses?

Any music fan who watched the Super Bowl last night could rightly walk into work this morning and say, "Did you see the bears and colts play football during Prince's Concert?"

It was that good. And, at other levels, it was interesting too.

For any artist familiar with the restrictive, cultish tactics of the jehovah's witnesses, watching the halftime show at this year's Super Bowl represented a lot more than catching a great live concert by Prince. The entire performance was riddled with symbolism that could only leave current and former JWs doing double take after double take, wondering what Prince was trying to 'say'.

I think Prince's merging of All Along the Watchtower with Foo Figher's The Best of You, followed up by Purple Rain, performed while doning his classic symbol, his signature guitar magnified as it rippled against the night sky, full and phallic, larger than life against a ghostly white backdrop, was Prince's way of saying goodbye to the Organization, was Prince's way of saying, "you're not messin with me anymore."

Maybe I'm projectiong. Maybe not.

It's not a simple thing -- the passionate belief and seeking of Truth, the sacrifice of self, the heart vs the mind, all targeted by well-honed thought control vs the single thread of hope for what being human means: Freedom of thought. You kind of have to have been there to grok it.

What I think? That Artist giving that performance at that event, performing those songs that way, wearing that symbol on that stage -- I think he just said goodbye to the Watchtower.

And if he didn't, and they don't disfellowship him for that display, well--it only further demonstrates the hypocrisy of the JWs that makes for madness in those who've ever been shamed at a Kingdom Hall.

(Video Transcription)
Prince's Watchtower Medley
All along the watchtower,
Princes kept the view,
While all the women came and wept —
Their foot servants too.

Outside in the cold distance,
A wildcat did growl.
Two riders were approaching, and
The wind began to howl.

Are you gone and onto someone new?
I needed somewhere to hang my head
Without your noose
You gave me something that I didn’t have
But had no use

I was too weak to give in
Too strong to lose
My heart is under arrest again
But I’ll break loose
My head is giving me life or death
I will choose
I swear I’ll never give in
I refuse

Is someone getting the best, the best, the best, the best of you?
Is someone getting the best, the best, the best, the best of you?

Has someone taken your faith?
It's real, the pain you feel
You must
Confess

Is someone getting the best, the best, the best, the best of you?
Oh…

Is someone getting the best, the best, the best, the best of you?
Is someone getting the best, the best, the best, the best of you?

Is someone getting the best, the best, the best, the best of you?

I’ve got another confession my friend
I ain’t no fool.