(excerpt from book "That He May Run That Readeth It...")
Money is taking on a whole new look, from e-gold to e-money, the traditional medium for economic exchange is changing tremendously. What will money look like in 10 years?
one can say exactly. Nevertheless, it would be wise to look at some of the money trends now transpiring to get a glimpse of how money will change in the future. This report will look at the move towards electronic money as well as economic trends to look for over the next three years to five. These forecasts will look at traditional and non-traditional factors, which will effect the economy over this time period.
First of all, no can talk about money in the US or in the world for that matter until the Federal Reserve's policies are understood. The Fed, being granted the ability to create money, out of debt, is the engine of the US economy. The critical importance of this fact is rarely discussed yet, discussing money with discussing the Fed it is like trying to describe the internal combustion engine without ever mentioning gasoline. The Fed's actions are critical in understanding the recent upturn in the stock market. It's influence is at least as important as the surge in price of technology companies.
Over the past 5 years the Dow Jones industrial average has almost tripled in value. This unprecedented growth is certainly a symbol of prosperity as, in spite of global financial turmoil, US markets have prospered and substantially risen in spite of these global economic upheavals. Has the market' rise been the result of real economic growth and an increase in productivity, or are other less tangible factors at work?
The present fascination with the Internet is certainly a major driving force behind the current markets growth. Manufacturers of computer hardware, software and new Internet sales businesses are taking off and are changing the face of business. But is the growth really worth a tripling of the market? Indeed many are asking this question and see other factors at work. Two groups of people come to mind when discussing the recent fascination with stocks and with it a couple of other factors. This report will not attempt to debunk much of the real growth transpiring in the economy. It will however, try to put some much needed perspective on some the hype coming from those who make their money selling stocks.
Factor 1 - The Plunge Protection Team activities are not widely known. This is an action committee set up after the crash of 1987 to manage a serious drop in the markets. This group is formally known as The Working Group on Financial Markets. The group does publish reports periodically (so no, this is not a secret cabal). It is composed of some of the Government's important financial regulators and political appointees. It was created by executive order on March 18, 1998 (E.O. 12631) and is charged with overseeing the markets to look for adverse financial and market trends and uses its power to "maintain investor confidence." This group consults with key players in the major stock exchanges to accomplish its goals.
Factor 2 - Fed's Substantial increase of the money supply. The Fed has increased the money supply substantially over the past year, this is a record infusion of liquidity which has gone directly into the US economy. This has been a highly inflationary move, but which has not hit consumer goods prices. Indeed the majority of the Fed's freshly printed money appears to have gone into the stock market by individuals placing funds in stocks, most notably in 401K's and other retirement financial instruments. Additionally banks and large brokerage houses have also put the money into stocks. This is where most of the money has gone. Ordinarily, when so much money is created by the Fed, it causes inflation. However, arguably this is exactly what has happened, inflation in the stock market. While those that sell stocks are constantly informing their current and prospective customers that this is a new market paradigm and that price to earnings ratio's are not a true reflection of a stocks worth, stock prices on some Internet companies are over 300 dollars a share. These prices are for companies that have never turned a profit and are not about to, any time soon. This type of advertisement of stocks is a strange and dangerous shift from responsible behavior which, by and large, has come to mark the big Wall street trading houses, to the wild and irresponsible speculation presently transpiring.
The Federal Reserve has already stated that is will intervene in certain instances to prevent a meltdown.
``We have the responsibility to prevent major financial market disruptions through development and enforcement of prudent regulatory standards and, if necessary in rare circumstances, through direct intervention in market events,'' - Alan Greenspan, Aug 29, 1997.
The Fed has made it clear that it will intervene to prevent a 'major financial disruption' this removes a great burden for investors who have mad bad investments as it helps to remove the pressure of destructive losses. The Fed's actions are laudable and needed, nevertheless, hard questions need to be asked as to where the money will come from and who will be the beneficiaries of the Fed's financial largess. One of the biggest criticisms of those who dislike to FED, is it appears to be a close association of Bankers and financial insiders, who use the Fed and its Government given powers to Bail out the rich and well connected at the expense of the ordinary citizen. It can be surmised by the above statement and previous actions by the Fed that no bank, no matter how insolvent, or how badly managed, will be allowed to fail. This brings in interesting questions as to the basic check and balance that makes the free market successful, that being the threat of financial loss when a bad investment is made. If this check is removed from the equation, then we no longer have a free market, but one in which the insiders get bailed out to make more bad investments and the ordinary citizen must pay for these bad investments wither via taxes or higher fees and interest rates at the banks. Here money, which should be a from of payment for work or services rendered becomes a tool of private enrichment to those who belong to a certain club. Hence the entire purpose of money becomes misused, incentive for hard work is replaced with an incentive to become a member of the club, in order to gain access to Fed subsidized, far less risky investing.
Factor 3 - Political Interference. This has largely been ignored and admittedly the direct evidence is scarce, nevertheless many investors and commentators have long suspected that the Clinton Administration has had a hand to play in the Fed's decision not to raise interest rates back in 1996, when the Dow was at an "irrationally exuberant" 5800. While speculation is unwise here, it is interesting to note that while the Fed Chairman was warning of Wall Streets excesses, other than make cryptic speeches, he did nothing.
There will be future negative consequences to the current trends on Wall Street. This does not necessarily mean a 'crash' or even a significant down turn in the market, though either scenario is likely, in the middle to long term. A more likely event perhaps, inevitable in one form or another to save the markets, retirements and long prison sentences for some Wall street's shenanigans, is strict currency controls through profit realization limits, cash withdrawal limits and encouraging a stock based method as a medium of exchange for certain purchases. These may sound extreme now, but most would agree that a serious (3 to 5 thousand point drop) in the market would cause serious economic disruptions. Many banks, heavily involved in the market and derivatives would require very hefty bailouts from the Fed in order to stay in business. Wall Street would very likely lose some of its big name investment houses. However, despite the words of many doomsayers, who claim that the market must crash, this less disruptive option could be forced upon the financial community. None of these scenarios are inevitable, other options would certainly be considered before such extreme measures are taken, indeed some of these measures could be phased in slowly, thus minimizing public uproar.
One thing that is a certainty, money in the US and the West, will inevitably take on a new, e-look (electronic look). A true cash-less society is probably less than a decade away. Even today, ATM card, Credit Card, Check or inter-bank transfer of funds accomplishes the vast majority of financial transactions. Cash is becoming a relic. A person with a major credit card, or an ATM card can purchase just about anything he or she needs. Cash, in most transactions, is not necessary. This is the look of the future. In fact some provisions to help bring this about have already been passed and are law, though they have not been implemented.
A major banking bill was passed by the house and signed into law by 1987 by then President Ronald Reagan. This bill, unfortunately, has some alarming provisions. One important provision is known as the 5 PM availability requirement. This allows a depositor to get $100 of a deposit made at a bank on the day of the deposit and up to $400 dollars of the deposit on and only on the day the deposit clears the bank, the rest of the money must remain in the banking system. This applies to all deposits, no matter how large. This act is one of the most heavily amended acts in US history. Therefore, let it be known that your Congressman and Senators are aware of this act. This kind of legislation could and probably will be implemented (it is already law) in a banking crisis.
In a banking crisis, the main thing to prevent is a banking panic followed by a bank run. The answer has always been to limit cash withdrawals and keep money in the banking system in the from of electronic money, as the banking act of 1987 provides for. None of this is welcome news to those who may be more than a little suspicious of big banks and big government joining forces against the small individual account holder. It would give ultimate power to the banks to determine who gets to have access to his or her money and who does not. Interestingly, another provision in the same Banking act removes an anti-discrimination clause. This provision removes the provision that compels banks to treat all check clearing the same, they presently are not allowed to discriminate against one region, individual banks, group of individuals or race of people when clearing checks. This provision could now legally be removed, in an emergency. This has not been implemented, but it is the law. This would allow a privileged group of people to get their money out before the 'masses' do. It could also be a means of discriminating against certain groups of individuals.
These types of laws may have some positive use in a banking emergency, it is also true that they could, and probably will be, abused. This spells an end to traditional uses for money. One of the main uses for money is as 'a store of value'. This simply means that you save money in currency in the hopes that you can spend it later. This is now being challenged, as the banks could now, in an emergency have the power to decide who gets to save and retrieve their money and who does not. It is likely, based on the a-fore mentioned passed legislation, to be used as a tool, political or otherwise against some unsuspecting group of people. More importantly high level officials are floating ides now which would penalize someone for holding on to cash, by having its value depreciate as time goes by, thus removing to a key form of wealth preservation which is outside the direct management of the big banks, and the Federal Reserve. When one realizes many of the moves that have been made that places the sigma of criminality on those who use cash on a regular basis, a pattern begins to appear that shows continued monitoring by the government and the large banks of its patrons. One can be arrested and have all on ones cash seized by authorities, be completely guiltless of a crime have that fact demonstrated in a court of law, and still never receive his or her money back. This is seen by many as an all out attack, not on money laundering, as publicized, but on the physical possession of cash. It has been effective, if not by design, then by results, in attaching a stigma on the physical possession of the money that one has earned.
This goes to a fundamental question that must be answered. Who does the money belong to? The government or the individual who worked for it? If the money belongs to the government, then the citizens are working on one huge slave plantation and do not know it yet, for only a slave works for something that is not his. If the Money belongs to the people who earned it, then we still have freedom and can choose our destinies. The question is fundamental, who has the ultimate say-so with the fruit of our labors? While debate may go on about electronic currency, cash-less society, or other methods of more futuristic forms of money, the issue that will be the most important is this; who's money is it anyway? Copyright © 2000 Mark S. Watson
New Dollar? - A look at the Amero, the New North American Currency
Dollar Policy Transparency - US House of Representative Document
A Crash Course on Economics - Excellent Resource from a Nebraska University for those who have only a basic knowledge of money and how economic policy is formed. -Excellent!