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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.
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.
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.
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.
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
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