Actually the Chinese are about the only ones who understand the root of the economic problem.

by brookfield

Back in 2008 at the height of the credit crisis Hu said that the problem is not the real economy. The problem is the amount of paper out there masquerading as money that does not have sufficient collateral backing. At the same time the head of the Chinese Central Bank said that the root of the problem was the Triffin Dilemma named after American economist Robert Triffin who said that it is impossible for one nation to sustain the creation of the world’s reserve currency because it requires that nation to run a trade deficit to keep the world liquid with enough reserve currency to settle trade accounts between nations while at the same time run a trade surplus to keep the exchange value of the currency high. Obviously a country cannot run a trade deficit and trade surplus at the same time.

But the US has been managing to resolve the dilemma by running huge trade deficits sending dollars offshore to keep the world liquid with reserve currency while at the same time keeping the currency strong by creating domestic assets bubbles creating the illusion that the country issuing the reserve currency has sufficient domestic collateral supporting the amount of currency in circulation. This supposedly should have come to an end after the Lehman’s collapse and the credit crisis it triggered. People at that time should have realized that credit bubbles (debt and mortgage paper) masquerading as real collateral cannot be used to collateralize a currency. But nobody learned anything so the Fed and Fed prime dealer banks went on a money creation spree with quantitative easing etc reflating the credit bubble and assett bubbles. Look at the price of oil now!

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The Chinese understand this very clearly. I bet a big part of the agenda in the unpcoming meeting will be Chinese pressure for the US to cede the enormous power it gives them creating the world’s reserve currency. But the bankers in New York will never let the politicians they own in Washington (both Dems and Repubs) to ever give up that power. Money is just another tool for these guys – nothing else. The real end game is the enormous power it gives a small group of bankers in being the only ones that create the world’s money and thus run the world. people go on about some conspiracy for one world government. Well one world government has been here since the creation of the Fed in 1913. An unelected bureaucrat like Timothy Geithner has much more power and effect on everybody’s life than the US president does. Obama is the bankers point man. Timothy is the guy who sets the agenda. Obama executes it. Timmy was the chairman of the Federal Reserve Bank of New York before he became Treasury Secretary. Many argue that the real power on the planet sits on the Board of the Federal Reserve Bank of New York. They even tell Bernacke what to do. You cross them you end up silenced. They wanted the repeal of Glass Steagall and in 1999 Clinton obliged them with both Dems and Repubs voting overwhelmingly to give free license to Fed prime dealer banks create all of the money out of thin air that they wanted. Coomercial banks create money through loans in a central bank backed fractional banking system. They even resorted to creating liers loans just to boost the money supply which created a massive real estate bubble. Don’t mess with the bankers. If they want markets to go up they will go up.


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