Jekyll_text

90 THE CREATURE FROM JEKYLL ISLAND
involuntarily. The only practical hope lay, therefore, in a gradual
evolution in the forms of a managed world currency, taking the
existing gold standard as a starting point.
It was illegal for American citizens to own gold at that time, but
everyone else in the world could exchange their paper dollars for
gold at a fixed price of $35 per ounce. That made it
international currency because, unlike any other at
the de facto
the time, its
value was guaranteed. So, at the outset, the IMF adopted the dollar
as its own international monetary unit.
PAPER GOLD
But the Fabian turtle was crawling inexorably toward its
destination. In 1970, the IMF created a new monetary unit called
the SDR, or Special Drawing Right. The media optimistically
described it as "paper gold," but it was pure bookkeeping wizardry
with no relationship to gold or anything else of tangible value.
SDRs are based on "credits" which are provided by the member
nations. These credits are not money. They are merely promises
that the governments will get the money by taxing their own
citizens should the need arise. The IMF considers these to be
"assets" which then become the "reserves" from which loans are
made to other governments. As we shall see in chapter ten, this is
almost identical to the bookkeeping sleight-of-hand that is used to
create money out of nothing at the Federal Reserve System.
Dennis Turner cuts through the garbage:
SDRs are turned into loans to Third-World nations by the creation
of checking accounts in the commercial or central banks of the member
nations in the name of the debtor governments. These bank accounts
are created out of thin air. The IMF creates dollars, francs, pounds, or
other hard currencies and gives them to a Third-World dictator, with
inflation
resulting in the country where the currency originated.,..
Inflation is caused in the industrialized nations while wealth is
transferred from the eeneral public to the debtor country. And the
debtor doesn't repay.
When the IMF was created, it was the vision of Fabian Socialist
John Maynard Keynes that there be a world central bank issuing a
1. John Maynard Keynes, The Collected Writings of, Vol V (1930 rpt. New York:
Macmillan, 1971), p. xx.
2. Dennis Turner, When Your Bank Fails (Princeton, New Jersey: Amwell
Publishing, 1983), p. 32.
NEARER TO THE HEART'S DESIRE 91
Seive currency called the "bancor" to free all governments from
the discipline of gold. With the creation of SDRs, the IMF had
begun to fulfill that dream.
finally
GOLD IS FINALLY ABANDONED
But there was still
nrimary
an obstacle. As long as the dollar was the
currency used by the IMF and as long as it was redeemable
in gold at $35 per ounce, the amount of international money that
could be created would be limited. If the IMF were to function as a
true world central bank with unlimited issue, the dollar had to be
broken away from its gold backing as a first step toward replacing
it completely with a bancor, an SDR or something else equally free
from restraint.
On August 15, 1971, President Nixon signed an executive order
declaring that the United States would no longer redeem its paper
dollars for gold. So ended the first phase of the IMF's metamorphosis.
It was not yet a true central bank, because it could not create its
own world currency. It had to depend on the central banks of its
member nations to provide cash and so-called credits; but since
these banks, themselves, could create as much money as they
wished, from now on, there would be no limit.
The original purpose had been to maintain fixed rates of
exchange between currencies; but the IMF has presided over more
than two hundred currency devaluations. In private industry, a
failure of that magnitude might be cause for going out of business,
but not in the world of politics. The greater the failure, the greater
the pressure to expand the program. So, when the dollar broke loose
from gold and there was no longer a ready standard for measuring
currency values, the IMF merely changed its goal and continued to
expand its operation. The new goal was to "overcome trade
deficits."
TRADE DEFICITS
The topic of trade deficits is a favorite among politicians,
economists, and talk-show hosts. Everyone agrees they are bad, but
tt^re is much disagreement over what causes them. Let's have a try
at itȦ
trade deficit is a condition that exists when a country imports
a greater value of goods than it exports. In other words, it spends
aore than it earns in international trade. This is similar to the
^tuation of an individual who spends more than he earns. In both