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March 12, 2008

Out of the Ashes. A Global Central Bank!


By Ron Robins, MBA

From my blog: Enlightened Economics

Our financial overseers will create a world central bank in the next few years.
Growing higher consciousness in the world will enable it to become a reality.
This bank will have a mandate to monitor, regulate, and maintain global
currency, credit, and debt issuance. It will ensure that growth of these activities
roughly matches global economic output. It will come about as the chaos and
inadequacies engendered in our present monetary system become evident to
everyone and a world central bank seen as the best solution.

Individuals and groups in financial markets everywhere, lacking inner


fulfillment, have demonstrated inordinate greed resulting in reckless financial
games and gambling – are bringing the financial system to its knees.

Such mismanagement in the financial system, I believe, will require the new
world central bank to disallow banks everywhere from continuing in unfettered
debt creation and speculative excesses. In search of ever higher returns, banks
created overly lax lending standards, highly leveraged loans, obscure financial
entities bearing major financial risks unconsolidated in their financial
statements, and generally ran down the quality of their assets and reserves to
unsafe levels.

‘Shadow banking’ system larger than conventional banking


All the while an even bigger, massively leveraged, totally unregulated, thinly
capitalized, ‘shadow-banking’ system was allowed to balloon by bank regulators.
And it is now in the process of imploding! Bill Gross, managing director of
PIMCO, the world’s largest bond fund, said this recently about the shadow
banking system: “Our modern shadow banking system craftily dodges the
reserve requirements of traditional institutions and promotes a chain letter,
pyramid scheme of leverage, based in many cases on no reserve cushion
whatsoever.”

Due to the enormous growth of irresponsible central bank and banking activities
globally, plus the vast, mushrooming credit creation of the shadow banking
system – the world’s money supply is expanding out-of-control.

Unprecedented money supply growth creates inflation as bad as 1970s


Globally we see that, “China [is] registering an 18% plus growth in money,
India 22.4% a year growth, Singapore 14%, Britain up by 12.3%, Western
Europe 11.5%, Australia 16%, Canada 13%, and Saudi Arabia 22%!” So says
The Mogambo Guru, Richard Daughty. These are ‘broad money supply’ figures.
John Williams of www.shadowstats.com shows the US broad measure of money
supply, as of early February 2008, increasing at annual rate of 16.8%. (The US
Federal Reserve stopped publishing this measure in March 2006 claiming it costs
too much to produce. Many economists suspect that they just wanted to hide
the ramping-up of the US money supply.)
Even Marketwatch’s chief economist, Irwin Kellner, is concerned about US
money supply growth. He said recently, that, “The rate of growth for highly
liquid funds which the St. Louis Fed calls MZM [i.e. physical money, checking
and money market accounts, etc.]… soared by an annual rate of 22.7%
between December 24, 2007 and February 18 of this year.” He adds, “… it has
created a whole lot of inflation.”

The link between an expanding money supply and inflation is firmly established.
As the Bank of England’s Governor, Mervyn King quoting a highly respected
study, said, that “Over the 30 year horizon 1968-98, the correlation coefficient
between the growth rates of both narrow and broad money, on the one hand,
and inflation, on the other, was 0.99.” Thus in the words of Milton Friedman, the
recently deceased Nobel Economics prize winner, “… inflation is always and
everywhere a monetary phenomenon.”

In the US, consumer price inflation using the politically biased, understated,
consumer price index (CPI-U) is in January 2008 up 4.3% from a year earlier.
But using the CPI methodology as of 1980, it is almost hyperinflationary at close
to 12%! Inflation in China is now running at 8.7%, while in the EU and the UK,
though more moderate at 3.4% and 3.1% respectively, it is picking-up
significantly and well above their respective central bank targets.

The foregoing suggests that the present global monetary and financial system is
reaching a state of extraordinary instability. The danger is the possibility of
rapidly growing, unstoppable inflation culminating in a hyperinflationary episode
such as is now occurring in Zimbabwe. Or, a threat of a deflationary bust similar
to the Great Depression.

Higher consciousness the only real answer


The only real answer to such economic threats is higher global consciousness.
This, I am convinced, will gain traction. (See my post, The Missing Ingredient In
Economics — Consciousness!). In future years, this higher consciousness will,
amongst other things, first manifest itself by allowing our financial overseers to
see the need for, and create, a world central bank.

In ages past central banks utilized gold to help create monetary order. A new
world central bank might well find a role for gold again, but in an updated,
modern form. I will write about this in another post.

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© Ron Robins, 2008. Permissions: Provided full credit, which includes title, my name, and link
to this post is given, anyone may print or re-produce this article in part, or in full, to any
relevant web page.

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