Libya’s Self-Sufficiency — Risk To Central Banks

8 April 2011 11:42

Libya’s Self-Sufficiency — Risk To Central Banks

April 15th, 2011

(snippet) From Information Clearinghouse

……..According to a Russian article titled “Bombing of Libya – Punishment for Ghaddafi for His Attempt to Refuse US Dollar”, Gaddafi made a similarly bold move: he initiated a movement to refuse the dollar and the euro, and called on Arab and African nations to use a new currency instead, the gold dinar. Gaddafi suggested establishing a united African continent, with its 200 million people using this single currency.

During the past year, the idea was approved by many Arab countries and most African countries. The only opponents were the Republic of South Africa and the head of the League of Arab States. The initiative was viewed negatively by the USA and the European Union, with French President Nicolas Sarkozy calling Libya a threat to the financial security of mankind; but Gaddafi was not swayed and continued his push for the creation of a united Africa.

And that brings us back to the puzzle of the Libyan central bank. In an article posted on the Market Oracle, Eric Encina observed:

One seldom mentioned fact by western politicians and media pundits: the Central Bank of Libya is 100% State Owned … Currently, the Libyan government creates its own money, the Libyan Dinar, through the facilities of its own central bank. Few can argue that Libya is a sovereign nation with its own great resources, able to sustain its own economic destiny. One major problem for globalist banking cartels is that in order to do business with Libya, they must go through the Libyan Central Bank and its national currency, a place where they have absolutely zero dominion or power-broking ability. Hence, taking down the Central Bank of Libya (CBL) may not appear in the speeches of Obama, Cameron and Sarkozy but this is certainly at the top of the globalist agenda for absorbing Libya into its hive of compliant nations.

Libya not only has oil. According to the International Monetary Fund (IMF), its central bank has nearly 144 tonnes of gold in its vaults. With that sort of asset base, who needs the BIS, the IMF and their rules?

All of which prompts a closer look at the BIS rules and their effect on local economies. An article on the BIS website states that central banks in the Central Bank Governance Network are supposed to have as their single or primary objective “to preserve price stability”.

They are to be kept independent from government to make sure that political considerations don’t interfere with this mandate. [Ron: REALLY?! So WHO decides monetary policy then? And on what criteria? And HOW will the population at large have ANY IDEA of what's goingon? ]“Price stability” means maintaining a stable money supply, even if that means burdening the people with heavy foreign debts. Central banks are discouraged from increasing the money supply by printing money and using it for the benefit of the state, either directly or as loans.[Ron: REALLY?! Sooo what exactly is the FED doing with its humungous bailouts?!].

In a 2002 article in Asia Times Online titled “The BIS vs national banks” Henry Liu maintained:

BIS regulations serve only the single purpose of strengthening the international private banking system, even at the peril of national economies. The BIS does to national banking systems what the IMF has done to national monetary regimes. National economies under financial globalization no longer serve national interests. [Ron: YES!].

… FDI [foreign direct investment] denominated in foreign currencies, mostly dollars, has condemned many national economies into unbalanced development toward export, merely to make dollar-denominated interest payments to FDI, with little net benefit to the domestic economies.

He added, “Applying the State Theory of Money, any government can fund with its own currency all its domestic developmental needs to maintain full employment without inflation.” The “state theory of money” refers to money created by governments rather than private banks. [Ron: YES!!].

The presumption of the rule against borrowing from the government’s own central bank is that this will be inflationary, while borrowing existing money from foreign banks or the IMF will not. [Ron: What utter garbage! Nobody borrows existing money from banks! Banks create the money out of thin air AND charge interest (usury) on it.]. But all banks actually create the money they lend on their books, whether publicly owned or privately owned. Most new money today comes from bank loans. Borrowing it from the government’s own central bank has the advantage that the loan is effectively interest-free. Eliminating interest has been shown to reduce the cost of public projects by an average of 50%. [Ron: Sooo, guess who pockets 50% of the cost of ALL public projects! And guess why the Rothschilds et al are sooo rich and everyone else is sooo poor!]

And that appears to be how the Libyan system works. According to Wikipedia, the functions of the Central Bank of Libya include “issuing and regulating banknotes and coins in Libya” and “managing and issuing all state loans”. Libya’s wholly state-owned bank can and does issue the national currency and lend it for state purposes.

That would explain where Libya gets the money to provide free education and medical care, and to issue each young couple $50,000 in interest-free state loans. It would also explain where the country found the $33 billion to build the Great Man-Made River project. Libyans are worried that North Atlantic Treaty Organization-led air strikes are coming perilously close to this pipeline, threatening another humanitarian disaster.

So is this new war all about oil or all about banking? Maybe both – and water as well. With energy, water, and ample credit to develop the infrastructure to access them, a nation can be free of the grip of foreign creditors. And that may be the real threat of Libya: it could show the world what is possible.

Most countries don’t have oil, but new technologies are being developed that could make non-oil-producing nations energy-independent, particularly if infrastructure costs are halved by borrowing from the nation’s own publicly owned bank. Energy independence would free governments from the web of the international bankers, and of the need to shift production from domestic to foreign markets to service the loans.

Found at: http://www.aldeilis.net/english/index.php?option=com_content&view=article&id=3082:libyas-self-sufficiency--risk-to-central-banks&catid=596:international-monetary-fund-imf&Itemid=332

“No one saw this coming?" Balderdash - The Experts | Switzer

“No one saw this coming?" Balderdash

by Steve Keen

The widespread statement that this financial crisis was a tsunami that no one saw coming has been given the lie to by an excellent survey of economic models by Dirk Bezemer, a Professor of Economics at the University of Groningen in the Netherlands.

Bezemer did an extensive survey of research by economists or financial market commentators, looking for papers that met four criteria:

“Only analysts were included who:

1. provide some account on how they arrived at their conclusions.
2. went beyond predicting a real estate crisis, also making the link to real-sector recessionary implications, including an analytical account of those links.
3. the actual prediction must have been made by the analyst and available in the public domain, rather than being asserted by others.
4. the prediction had to have some timing attached to it.”

On that basis, Bezemer found eleven researchers who qualified:

Researcher: Dean Baker, US
Role: Co-director, Center for Economic and Policy Research
Forecast date: 2006

Researcher: Wynne Godley, US
Role: Distinguished scholar, Levy Economics Institute of Bard College
Forecast date: 2007

Researcher: Fred Harrison, UK
Role: Economic commentator
Forecast date: 2005

Researcher: Michael Hudson, US
Role: Professor, University of Missouri
Forecast date: 2006

Researcher: Eric Janszen, US
Role: Investor and iTulip commentator
Forecast date: 2007

Researcher: Stephen Keen, Australia
Role: Associate professor, University of Western Sydney
Forecast date: 2006

Researcher: Jakob Brøchner Madsen and Jens Kjaer Sørensen, Denmark
Role: Professor and graduate student (respectively), Copenhagen University
Forecast date: 2006

Researcher: Kurt Richebächer, US
Role: Private consultant and investment newsletter writer
Forecast date: 2006

Researcher: Nouriel Roubini, US
Role: Professor, New York University
Forecast date: 200

Researcher: Peter Schiff, US
Role: Stock broker, investment adviser and commentator
Forecast date: 2007

Researcher: Robert Shiller, US
Role: Professor, Yale University
Forecast date: 2006

Having identified eleven researchers who did “see it coming”, Bezemer then looked for the common elements in the way these researchers analysed the economy. He argued that if there were common elements—and if these differed from the approach taken by the overwhelming majority of economists, who didn’t have a clue that a crisis was approaching—then the only useful economic models would be ones that included these common elements.

He identified four common elements:

1. “A concern with financial assets as distinct from real-sector assets,
2. with the credit flows that finance both forms of wealth,
3. with the debt growth accompanying growth in financial wealth, and
4. with the accounting relation between the financial and real economy.”

A non-economist might look at these elements in puzzlement: surely all economic models include these factors?

Actually, no. Most macroeconomic models lack these features. Bezemer gives the topical example of the OECD’s “small global forecasting” model, which makes forecasts for the global economy that are then disaggregated to generate predictions for individual countries—like the ones touted recently as indicating that Australia will avoid a serious recession.

He notes that this OECD model includes monetary and financial variables, but these are not taken from data but instead derived from theoretical assumptions about the relationship between “real” variables—such as “the gap between actual output and potential output”—and financial variables. As Bezemer notes, in the OECD’s model:

“There are no credit flows, asset prices or increasing net worth driving a borrowing boom, nor interest payment indicating growing debt burdens, and no balance sheet stock and flow variables that would reflect all this.”

How come? Because standard “neoclassical” economic models assume that the financial system is like lubricating oil in an engine—it enables the “real economy” to work smoothly, but has no driving effect—and that the real economy is a miracle machine that always returns to a state of steady growth, and never generates any pollution—like a car engine that, once you take your foot off the accelerator or brake, always returns to a steady 3,000 revs per minute, and simply pumps pure water into the atmosphere.

The common elements in the models developed by the Gang of Eleven that Bezemer identified are that they see finance as more akin to petrol than oil—without it, your “real economy” engine revs not at 3,000 revs per minute, but zero—which can contain large doses of impurities as well as hydrocarbons. The engine itself is seen as a rather more typical gas-guzzler that pumps not merely water and carbon dioxide, but sometimes unhealthy amounts of carbon monoxide as well.

That’s encapsulated in the flowchart that Bezemer copied from a paper by Michael Hudson (shown below). Without credit from the finance sector, producer/employers don’t get the finance needed to run their factories and hire workers; but with credit they accumulate debt that has to be serviced from the cash flows those businesses generate.

The component left out of the above flowchart—but incorporated in all the models praised by Bezemer for seeing the crisis coming—is that the finance system can fund not merely “good” real economy action but “bad” speculation on financial assets and real estate as well. This also leads to debt, but unlike the lending to finance production, it doesn’t add to the economy’s capacity to service that debt.

The growth in thus unproductive debt was the common element identified by Bezemer’s Gang of Eleven, which was why we most definitely did see “It” coming.

I’ll finish this analogy-laden article with a sideswipe at an inappropriate analogy—that this crisis is “like a tsunami”. Though that image captures the suddenness and devastating nature of the crisis, it is wrong not merely once but twice.

Firstly, unlike a tsunami, this crisis was predictable by economists who take what Bezemer characterized as a “Flow-of-fund or accounting” approach. Secondly, a tsunami is actually caused by a huge shift in the planet’s tectonic plates, and the shift itself relieves the tension that caused the tsunami in the first place: in a sense, the tsunami resets the system.

This financial tsunami was caused by the bursting of asset price bubbles driven by excessive levels of debt, but the bursting of those asset bubbles hasn’t eliminated the debt—far from it. Instead, economic performance for the next decade or more will be driven by the private sector’s attempts to reduce its debt levels, and this will depress economic activity for years. Unlike a tsunami, a debt crisis is a wave of destruction that keeps on rolling unless the debt is deliberately eliminated.

Everything that is being done by policy makers around the world is instead trying to restart private borrowing. A better analogy is therefore not a tsunami but a drug overdose—and our economic doctors are attempting to bring the patient back to health by administering more of the same drug.

Published: Tuesday, July 14, 2009

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