Loose Money and a Need in Universal Currency

Today, we happen to live in a world, where about 85% of world trade is paid for with the US dollar, a fiat currency. It is not like it does not have an intrinsic value — it does, but this value is basically provided by goods produced outside of the US. Even from the time of the Bretton-Woods agreement in 1944, when, to all appearances, the US dollar had a fixed gold content and was valued at $35 per troy ounce, in fact, it worked as the Eurodollar, backed by the entire volume of the European trade. Obviously enough, the relatively puny gold reserves in the US banks wouldn’t cover the value of all the printed dollars, if they were called back all at once. This became apparent, when the US had to back out of the Bretton-Woods agreement in 1968, since it could not cover its obligations with gold, when the faith in its economy started to falter.

After some uneasy recession-tinged time, the reaganomics managed to fix the problem of the insufficient content of the fiat US currency by hitching it to oil, which served as the next gold. From the 1980s, the gold content of the Eurodollar was changed to the oil content of the Petrodollar, backed by the compact with the Saudis. However, even the Saudi oil also was soon dwarfed by the increasing volume of the international trade within the rapidly globalizing world. Today, in fact, the fiat dollar is being backed by the production of the entire dollar-trading world. However, even though this production was indeed monetized in this rather unusual way, by separating production and consumption, there was no institutional foundation under this arrangement, which could be compared with the Bretton-Woods or even the agreement with the Saudis.

Thus, the immense amount of the US dollars, which was performing in fact an increasingly valuable and necessary service of monetizing the entire global production, had to find a domestic foundation as its de-facto collateral. Which it did, by creating a series of bubbles. as a collateral for the fiat dollar as the de-facto universal currency were used highly illiquid US assets, starting from the Internet-based companies during the Internet bubble of the 2000s and ending with the US mortgages, ranging from half-built McMansions to ordinary houses, which in no way had any value as collateral on the international market.

This shows that the current problem cannot be solved by the vaunted bailout, inasmuch dramatic its sum and circumstances. In the best case, it will end by printing more money or US treasuries, which would then have to find some real value for their international buyers to hold themselves upright.

The root of the problem is much bigger than just monetary difficulties, which can be sorted out by a clever design without changing the foundation of the current world order. One country, however large, cannot serve as the source of 85% of the  currency covering the international exchange trade. In its day, at the start of the 20th century, this, at considerable pain, was found out by Britain. The British Empire controlled most of the global trade of the time, including such necessities as rubber and nitrates. However, even before World War I, which taxed its resources heavily, and as early as in 1913, the British banks held less gold  than, for example, the banks in Germany. Gradually, in the course of two world wars, the British empire was dwarfed by the rising US, which pushed it aside as the world dominant in 1944 with the signing of the Bretton-Woods agreement.

Today, there is no single country able and willing to assume both the burden and the perks of dominating the huge globalizing world. Apparently, the US itself is also too overstretched, just as it was the case with the British empire in the first half of the 20th century. Perhaps, the time has come to think of new global mechanisms, able to support the trade flow in the globalizing world by helping to monetize its production.

A good starting point would be to consider the ideas of J. Stiglitz on introducing a universal currency and creating mechanisms of sovereign bankruptcy. We should always keep in mind the turbulent start of the 20th century and try to avoid its repetition amplified by about an order of magnitude. The globalizing world at the start of the 20th century had population in hundreds of millions. Now, we are speaking billions.
my contact e-mail is badalien00@gmail.com

the current financial crisis and its meaning in the context of globalization

I think that, in order to understand the ramifications of the current financial crisis,  we should look at a much larger picture: liquidity, credit etc and their current functions. this broader outlook might also explain, why the US system didnt collapse as yet and what might happen in our future.

right now, we have tremendous global trade, at least 80% of which is in the dollar zone. this means that the currency of a single country was used to pay for most of the global trade. however, the latter is much bigger than the former, which creates such insane numbers as  $60 trillion etc, supported in fact by the 80+% of goods produced in the world, which are totally out of the US control. for a time, the dollar worked in the quality of the Petrodollar, created by an agreement between Reagan and the Saudis. then, the need in collateral was covered by the so called Internet bubble. When it, in its turn, also exploded, the need in collateral had to be covered by something else. Since nothing on this scale could be found in the US, that meant the need in creating “smoke and mirrors”, with collateral, which amplified itself after going through middlemen, the more the merrier. welcome, the housing bubble and the related SIVs, CDOs, credit swaps etc, which built $60 trillion of “value” on basically such a shaky foundation as the US housing market. this shows the systemic vulnerability of the globalization, based on unequal exchange between the sides.

however, i wouldn’t be looking for an evil intent. even though greed indeed run high as it often does, this seems to be a systemic feature experienced at this time of the lifecycle by many of the earlier globalizing empires. for example, Britain used to control most of the world trade, not allowing, for example, sales of goods with defense potential (including rubber) to such countries as the US or Germany. in 1913 however its bank assets were dwarfed by what was contained in banks of Germany. it would take three decades between two world wars and including the Great depression to get from the end of coal era, dominated by Britain, anf the start of the oil era, which would, in the future, be dominated by the US. Britain, of course, would be totally dwarfed in comparison to the US, while the shift also changed practically every facet of life.

In my works, I show that a technological, social, financial etc shift of even greater magnitude may be waiting in our future, as the US-style, oil-based economy fails in fulfilling the needs of the rapidly globalizing world, which is already much greater than it can be reasonably controlled from the US.

if you want to learn more e-mail me at 4112lucy@gmail.com.       

Should Israel exist?

When discussing such weighty matters, as should
Israel exist or not, one should keep in mind the entire picture and see the alternatives. What we currently have is a region waiting to be developed and, first and foremost, fed with real food, preferably grown locally.In my opinion, and I am not a Jew, Israel holds a unique promise as a possible growth engine for the entire
Middle East region. It has agricultural technologies to live off the desert. True, they are still based on irrigation and water is in short supply and the use of communal water by
Israel is one of the stumbling blocks in its relati
onships with its Arabic neighbors. However, their technologies are quite sophisticated in reducing the overall amount of water spent. Also, the use of GPS and customized care for plants opens the path towards new agriculture of small series along with robotics.One would ask why should we be so interested in new ways of raising food. After all, despite all the pictures of starving children in
Africa and elsewhere, growing sufficient amounts of food does not seem to present any problem. It is rather selling it that is difficult. I would counter that agriculture was and continues to be the most important economic activity of the man, especially on the brink of a new era, when many more new c
onsumers from the developing world strive for the comforts we learned to take for granted.If one looks at the start of any distinct historic era, from the first civilizati
ons of 3500 BC and up to the modern mass society, it is easy to see that each of them evolved in its own geoclimatic zone by finding a way to feed off it. Even the US that is more often related to huge plants in Detroit, could start its meteoric growth only after it built an appropriate infrastructure of rural electric stati
ons (to pump the Ogallala aquifer to water fields) and roads (to deliver its products to the market in the most efficient way). Local food production becomes even more important today, with the need to feed the emerging world according to prevalent nutritional standards.Thus, the experience developed in
Israel could become crucial in domesticating the arid and extreme zone of Middle East and take advantage of its other riches than solely oil.I think the future of the entire region depends on
Israel’s and Arab ability to find a mutually beneficial business model. The time, when it was possible to extinguish entire peoples to take hold of their land holdings, as it happened, for example, with the native Americans in the
US, is gone. As the latest war amply showed, forceful, pushup methods may backfire. This applies both to the Israelis and the Arabs. Instead, they should understand that they in fact present two parts of an equation and can be mutually beneficial, instead of being hostile. No one says that a start of an era was ever peaceful take for example, the ancient
Greece. Its famed trireme has its roots in the penteconter, a black swift ship, which was mostly used for pirate and other hostile activities as described by Homer. Nevertheless, out of such inauspicious roots
Greece turned into the cultural and economic engine of the then world, when its culture and technologies were disseminated by the, surprise, surprise, military means, by the victorious armies of Alexander the Great.Just as the Greeks and the oriental peoples that came into contact with them, not necessarily by peaceful or voluntary means, came out of the encounter enriched both economically and culturally, the time has come for both the Israelis and the Arabs stop nursing their hurts and start c
onsidering mutually beneficial deals. First and foremost, Israel, as more technologically advanced should join forces with the Sunni Muslims looking for better ways to invest their profits by starting to domesticate the inhospitable envir
ons of the
Middle East through developing a brand new agriculture suitable for the region. By feeding its multitudes it would find a better way to coexist with them. Satisfied people wouldn’t be so eager to pick a fight and follow the lead of their militants.It is not an easy program and, according to historic precedents, might take the better part of half a century. the sooner it is started, the better.

how to survive in the world with diminishing resources and growing appetites?

The gloomy daily news show that we are entering yet another Malthusian squeeze. As early as in 1798 the guy has found out that resources are limited (indeed), while people tend to multiply as so many rabbits. thus, the reasoning goes, sooner or later there must be a correction: people either die, of wars and famines, or stop multiplying voluntarily. and indeed we see as both of these scenarios are currently unfolding: the latter in the Western world, the former in the developing countries. So, all is gloom and there is no exit or salvation.

meanwhile, this is obviously wrong — despite occasional bloodbaths, people managed not only to greatly multiply since Malthus’ times, but also significantly improve their lot. So, there must be a solution to the Malthusian paradox, which is especially important nowadays during the crunch period, when we need to know how to escape or, at least alleviate it.

the solution can be found easily as soon as we look at historic maps. since the start of written history some 6-7 thousand years ago, civilization spread around by domesticating ever new distinct geoclimatic zones as soon as the older ones were exhausted.

We can name 6 such zones as to this date, corresponding to traditional historic periods. 1. Civilization started in the tiny area of great rivers’ deltas, uniquely suitable for irrigation agriculture. 2. Then, the center of development moved to the classic
Mediterranean, which grew rich on marketable cultures, to compensate for its soils unsuitable for wheat, but perfect for growing the olive and the vine in its arid climate. 3. After the collapse of Rome, we see the gradual rise of the medieval
Europe, which cleared its forests to till its heavy but fertile clay soils. 4. After the ecological catastrophe of the 1348 Black Death related to the deforestation of
Europe, the center of growth moved to the northern shores, with animal husbandry and fishing substituting for and stretching scarce grain. The growth of market economy led to trading in items that previously could be collected in the forest (i.e. timber) and led to the development of the sturdy “frame-built” ship able to sail the
Atlantic. As a side benefit the
Americas were “discovered” with the great influx of gold and silver specie leading to the marketing boom. 5. On the next stage,
England compensated for its lack of wood and rivers, the prime resources of the previous Age of Exploration by developing its unique model based on coal. it also pursued land improvement as the so called coppice woods (the source for renewable timber) could now be cleared off for sheep-grazing meadows. The British colonialism used this model of land improvement for the so called agrarian colonialism, with “white” settlements all over the world within the temperate climate zone. 6. The mass societies of the 20^th Century broke through the barrier of temperate climate that previously restricted the man-farmer. The agriculture in this new zone of the extreme climate, first and foremost, in the
US, was based on irrigation using the Ogallala Aquifer and an excellent system of roads to deliver its products to the market based on oil. The
USSR was less successful with its Virgin lands, presumably because of the lack of sufficient artesian water sources.

so, as we see, there is hope, even as the geoclimatic zone of the mass market agriculture dependent on oil seems to be exhausted. All we need to do is to find the next promising geoclimatic zone, with its unique resource and start domesticating it.

that wouldn’t be too easy. Domestication of a new zone is a difficult and trouble fraught process. fortunately enough, the past provides a good road map, as each zone, inasmuch unique must pass through the same stages, not unlike birth, maturity and death of a living being.

i analyzed these stages and will write about them in my future blogs. I feel that it is very important to start a wide discussion of it as we are swiftly approaching the period homologous to world war I the likes of which took place at the start of each new historic period.