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WILD COOT: Central Bank, beware


Harry Russell

WILD COOT: Central Bank, beware

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Just the other day I wrote a column entitled Thin Edge Of The Wedge. Since then I have been carrying a heavy burden in my poor heart. But I have to get this off my chest.
The United States is the holder of the world’s reserve currency, and being so, most countries have kept their reserves there. They do that in two ways: by banking their dollars directly or indirectly in America, and by buying American bonds, usually United States Treasuries.
If a seller in Australia sends an ostrich to Barbados, he may price the value in American dollars for the Barbadian to pay him. If we buy oil, the price is quoted in American dollars even if we buy it from Iraq.
This may be about to change.
Some of the Arab oil-producing countries – Quatar, Saudi Arabia, Iran – are beginning to demand payment in currency other than dollars. Firstly they do not wish to hold and store dollars, and secondly they have already lost confidence in the dollar.
When problems arose in the United States caused by the mortgage fiasco, government absorbed all the bad debt by using the Treasury; same thing for the banks and large companies too big to fail, like General Motors.
This has accumulated a large debt that the government is sitting on; on the other side of the equation are the dollars paid out. Where did those dollars come from? They were printed.
The United States is in a unique position, being able to meet debt obligations by printing money and having this money accepted throughout the world. It is the only country that can do this. Great Britain did it with the pound sterling for a while until 1967.
What is happening now is that countries are beginning to question whether or not these dollars have any real value. The questions are heating up and already countries are taking action. The debate in Congress last month did not inspire confidence.
China is steadily reducing its investments as they mature. These investments are finding homes in Japan and in Europe. As more countries invoice their goods in a currency other than dollars, the buying country will need to hold that currency or obtain it from somewhere.
For example, if we buy something from China, we would be required to pay for it in yuan. How do we get yuan if we cannot buy them with American or Barbados dollars? We have to earn yuan from visible or invisible exports.
Same thing applies to people in the United States.
Moreover, as the pace of holding reserves in another country and currency accelerates, the United States will have to pay for oil in other than its own dollars.
Once the world starts to ignore the dollar, it will dwindle as the global currency. We outside the United States will have to look for yuan or yen or euros in order to pay for goods or services and, I repeat, we would not be able to pay for these currencies in dollars.
I have been paying interest to an item I came across done by Porter Stansberrry. It may be found at www.stansberryresearch.com/pro/1108PSINEWVD/6PSIM901/PR
Not everything said by the narrator is gospel, but the general purport is compelling. Maybe Americans are saying “it can’t happen here”. What the narrator is saying is that it is already happening. Already I warned about the decision of Nigeria.
Our Central Bank has to be aware of these things and needs to take them seriously in the interest of Barbadians. Of course it should not continue to print money like the United States in order to absorb debt.
America is rich enough and has enough energy resources to avoid this catastrophe if it acts now – I believe.
Another lesson that must be learnt is the danger of Government’s accumulation of debt.
What is worse for us is that when we print money, it is useless beyond Grantley Adams Airport. We mortgage the future of our unemployed youth, whom we now chastise as being worthless and demonic.
Good gracious, if we credit the youth with seeing what we are doing to their future and the National Insurance Fund, who can blame them for their frenzied state?

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