Er. Shoaib Mohammed - '2012 - Will the World Economy Take the Greatest Plunge

8/2/2019 Er. Shoaib Mohammed - '2012 - Will the World Economy Take the Greatest Plunge'

1/8

2012 - Will the World Economy take the Greatest Plunge?Authored By: Er. Shoaib Mohammed

Introduction

Let me begin by asking you a question 2012 - Will the World Economy take the Greatest Plunge?What do you say? If you ask me the same question I would reply I do not know. But, this is hardlythe answer you were expecting, and hardly an answer that will satisfy you. So, I say, Yes, in allprobability it will. We will discuss the issue athand.

Identifying the Problem

First, we will analyze the debt-problem in theUS and indeed in the whole world. The USdebt is 10.040 trillion Euros.

The US, Japan, and Germany are the mostindustrialized nations in the world. Thequestion arises that why the industrializednations are facing such a debt problem.

Fig. 1The Root Cause

Industrialized nations are producers, so they should ideally be creditors and not debtors. The answer liesin the fact that there is an intrinsic flaw in the monetary system. The monetary system in existencearound the globe is fiat monetary system.

Fiat monetary system is debt-based and interest-based monetary system. It is based on paper currency.In a fiat money system, money is not backed by a physical commodity i.e. gold.

The statistics as per fig. 1 is that of government-debt . But what matters in macro-economics is theentire debt, i.e. government debt, individual debt, and business debt - the total debt of the system. Forexample, the total debt of the US is 11.906 trillion ($ 15.098 trillion) - as of Dec. 15, 2011.

The total debt as a % of GDP is displayed infig. 2. The countries are colour-coded intosegments.

The Japan and Britain are marked in red;some European countries - France, Italy,Spain, and Switz erland , and South Korea aremarked in dark orange; US, Canada andGermany are marked in light orange, etc.

Fig. 2


2/8

The Effect

The GDP means what a country can produce totally in one whole year. The debt is over 4 times (400 %)of the GDP for Japan and Britain. Japan has the highest debt-to-GDP ratio in the world. This debt carriescompound interest. So, when debt carries compound interest it is an exponential function.

So, what happens when the real produce in the economy cannot match with the rise in the debt? Thereal sector would not be able to catch up with the monetary sector. This is exactly what is happening inthe global economy right now.

The Gold Price as a Function of Time

Let us look at how gold price has changedover the years. Fig. 3 shows us the rise of goldprice since 2000 - Do you see the exponentialgrowth?

The important thing is that many studies haveshown - the price of gold in relation to the realthings is constant. So, if you see anexponential growth like this, what is theinference?

Fig. 3The Inference

The inference is that the dollar and the global economy is collapsing exponentially, it is heading towardsa point of no return. That is the story this is telling us.

Therefore, when an economy is unable to pay the debt, for example for Japan the debt-to-GDP ratio isover 400%, so, Japan is stuck, Britain is stuck, Europe is stuck, America is stuck; we call this aneconomics liquidity trap. The markets are allin liquidity trap.

The way to solve this is debt relief, that is towrite off all the debt, at least the interestportion, and that people are to repay only theprincipal portion. This will help to stabilize theeconomy again.

But when people and businesses default thenthere will be a collapse of the monetarysystem, thats what we call the melt down.

Fig. 4It all started in 2007, with the sub-prime crisis. It is actually a distraction of the dollar. This spread theproblem to the Euro as well. So many banks in Europe collapsed, for example - Northern Rock.

The America, Europe, Dubai, and the Middle East are all experiencing the effect of the global economiccollapse; a domino effect is what is observed.


3/8

Collapse of the debt-based monetary system

What we are observing today is the collapseof the debt-based monetary system. Thatmeans, the major currencies - the Dollar ($),the Euro ( ), the Yen ( ), all of them are facinga problem now. When the countries collapse,the currencies would collapse. This is what islooming. And, when the major currenciescollapse, people will lose faith in allcurrencies.

Fig. 6The Alternative

What is the alternative? To understand the alternative, it is important for us to discuss the concept of seigniorage .

Seigniorage is money that is created out of nothing. That is when you print, or you createmoney electronically, it is very easy, verycheap to create, so the extra or freepurchasing power it carries with it, we call itseigniorage.

The seigniorage transfers wealth and powerfrom individuals, companies and governmentsto people who create money.

Fig. 7This is a view from political economic perspective. The means of political economy is the struggle forwealth and power.

So, this monetary system takes away wealth from individuals, businesses and governments, and itenthrones this on people who have the right to create money, basically, to the banking system.

We have seen the statistics of America, Japan, etc. that they are debtors. In accounting system, for everydebtor there must be a creditor, who are the creditors in this system? The creditors are those to whomwe have given the right to create money out of nothing, and in turn to give it to people as a loan on acompounded basis.

So, individuals (including you), businesses and governments are being more and more indebted to thecreditors i.e. the banking system. And, hence, the creditors control the resources of the nations andwield power.

Very easy, I dont think you need a Ph .D. to understand this.


4/8

The European debt problem

We know about the European debt problem.What happened?

Italys new appointed (not elected) PrimeMinister, Mario Monti, was a member of Goldman Sachs Board of InternationalAdvisers.

Greeces new appointed Prime Minister, LucasPapademos, was Governor of the Bank of Greece from 2002-2010. He was VicePresident of the European Central Bank.

Fig. 8Those are in charge of the unbalanced economic system, are being appointed and are given politicalauthority, power and control, without us even realizing or taking notice of such events, though the

events are unfolding in front of our very eyes.

We grumble that our politicians are corrupt. And, the politicians i.e. the authorities are change, but is itgoing to be a change for good? I dont think so. Because the same authorities now control the economy(unbalanced) and the politics, the policies adopted by them would not be people friendly. The only wayto sustain the unbalanced economic system is by increasing taxation on us. The effect of an unbalancedeconomic system is slavery - not manual slavery, but economic slavery.

The Fiscal Union is not the solution

To stop the European problem German

Chancellor, Angela Merkel, is calling for FiscalUnion for the Euro zone. The Euro is aMonetary Union.

That means the Governments as a unitedbody do the budgeting; that is what is meantby fiscal union. So, when you have a fiscalunion, like that of a monetary union, basicallyyou become One Country - One Nation.

Fig. 9This is the path to the One World Government. Seems good, isnt it? But is frightening is that this w ouldresult in a pole shift of the power from national politicians to those in control of the One WorldGovernment (and because they control the unbalanced economy as well).

There is a vacuum in the political leadership around the globe - in Europe, in the Middle East, and indeedaround the world. And, simultaneously, the One World Government is taking shape. The study of themonetary system along with global politics will give you a true insight into what is happening across theglobe.


5/8

The Solution

What Need to be Done?

1. Nationalize BanksThis step is not a remedy, but rather an intermediate step - so to say a necessary evil. This is inaccordance with the principle - Let a small loss take place, to prevent a big loss. This also ensures thatthe wealth remains with the Govt., rather than being managed by a handful of private bankers, whoessentially give out a loan on interest on a compounded basis - this only destabilizes the system evenfurther.

2. Debt Write-OffsThis is not something which has no precedence. In fact, this has happened in history periodically, thatwhenever there has been an economic crisis so to say debt has been written-off. The minimum that isrequired to stabilize the system is debt write-offs of at least the interest portion.

3. Eliminate InterestThe entire cause of economic destabilization is a result of an intrinsic flaw in the present economicsystem - that of interest-based economy. Today, it may seem impossible to even think of an interest-free economy, some may well ask how can such an economy survive? I say, for thousands of years theeconomic model for human beings has essentially been an interest-free economic system, and societywas no less complex then as it is now, and trade was as much a part of society then as it is now.

Basically, the transactions back then was on real money - either precious metals (gold and silver), orcommodities such as wheat, barley, dates, salt, etc. like for like and equal for equal; or it would involvebarter or exchange of commodities all of which involved real money systems in an interest-freeeconomy.

Do you know what is missing in the present economic system? It is a measure of value . For anythingand everything we have a measure, for example kilogram is used as a measure of weight, metre isused as a measure of length or distance, etc. Ever since 1971, when the Bretton Woods accordcollapsed, we do not have a measure of value. Gold and Silver is to be used a s a measure of value .This is the primary role of gold and silver, over and above its secondary, yet important, role - to be usedas a medium of exchange.

4. Redistribution of WealthWealth accumulates in a few hands in an interest-based economy, as seen to have happened in this age,what is thus required is a redistribution of this wealth, at least a part of it, to be given back to society.Sure this does not make an economic sense, but surely it does make a humanitarian sense.

5. EducationEducation on this issue helps in easing the crisis. Education as regards science of economics, skillsrequired to implement such changes, and of ethics goes a long way.


6/8

The Solution being attempted by Economists is Faulty

The solution being suggested is Eurobonds . What is Eurobonds? Eurobonds is more debt. The problemis debt. So, more debt, in whatever form - be it Eurobonds or anything else will not solve the problem. Itwould compound the problem. A Micro- and Macro-Economic analysis helps us to understand the issue.

Let us assume that all of us are a part of a certaineconomy, and I print 1 million Euros and give it to oneof you, the person who gets it immediately becomesa millionaire. But, if I create millions and give to eachone of you, then none of you would become rich, itwould only lead to inflation.

Fig. 11Similarly, if you have a debt-problem, you cannotcreate Eurobonds (more debt), to solve the problem as a rectification strategy, it would only worsen thealready unbalanced system. It would lead to hyper-inflation . The prices (including that of essential

commodities) would just sky-rocket.

This is so far as the solution being attempted by the European Economists is concerned, to relieve thesystem from the ailing dollar.

The concept being promoted by the American Economists is Quantitative Easing No. 3 -QE3. Do youknow, what is QE3? It sounds very sophisticated, isnt it? Quantitative Easing, sounds like QuantumPhysics, right? It is just printing more money. So, all this would create global hyper-inflation .

What is worrying is this - the price of staple food - rice, wheat, etc. is expected to sky-rocket this year.So, countries which import food will be heavily affected. And, in turn, it would lead to a serious

recession. This is because the Economists know that the system in unsustainable, so solution of printingmore and more money at best could be a temporary delay in the inevitable - leading to seriousunemployment and eventually to a global economic depression - resulting in wars (it is important totake a lesson from history). This is not to scare you, but to make you understand the right solution asindicated.

Insight on this issue from Current Affairs

The Dollar, Euro, Yen, and all international currencies are getting weaker by the day - this is nothypothesis but an observable fact. In such a scenario the real resources assume prime importance. So, itresults in wars - for the control of real resources. You may not have the clear picture, but the Economistsare aware of such facts.

Do you know Alan Greenspan ? He is an American Economist who served as Chairman of the FederalReserve of the United States from 1987 to 2006. And, soon after he retired, he wrote a book The Ageof Turbulence , indicating what he foresaw in the immediate future. What did he say about the Iraqwar? In the media, we hear about terrorism and weapons of mass destruction as the causes for the Iraqwar, dont we? But, Alan Greenspan in his book The Age of Turbulence notes that the Iraq war is foroil . Its an open secret, and we have stated this fact. In fact, any war fought anywhere at any time is forthe control of real resources.


7/8

This was the real insight into Americas War on Iraq. From the same perspective, i f America can controlthe real resources - oil etc., then it can control China, Russia, or for that matter anyone. This is becausethey all need oil for their economic engine.

And, now almost every day you read in the newspapers that America and Israel are threatening Iran,with war. Needless to say, again, it is for oil. You dont understand this. But, China understands this. So,as recent as Nov. 2011, Zhang Zhaozhong, a Chinese Major General, said, China will not hesitate toprotect Ira n even with a third World War.

Its puzzling to some that the Chinese Major General should make such a statement. However, we haveexplained it, that it is a reaction to America-Israel threats for the control of oil i.e. real resources.

Effect on Gold in the Age of Turbulence

1. There is almost a Negative One-to-One Correlation between the Dollar Index and Gold.That means if the dollar were to go up, gold pricewould come down. And, more importantly, since we

know that gold prices are going up, it essentiallymeans that the dollar is collapsing and it iscollapsing exponentially, as gold price rise isexponential.

This is not just a problem with the Dollar, in fact, theEuro, Yen, and all international currencies are in asimilar problem - liquidity trap .

Fig. 122. Gold is a proven hedge against inflation.When there is inflation, the price of gold also goes up. This year is expected to be a year of hyper-

inflation. And so, this year the gold price is expected to rise veryhigh. So, diversifying some of your savings into gold and silverprotects you from inflation. You can protect your savings byinvesting in gold, silver, agri-land & complementary currencies. Gold,Silver, and agri-land will become very precious very soon. It is notadvisable to invest in houses as the price of houses is expected tofall; all financial markets is expected to follow a downward spiral.Except, commodity market, it is expected to rise; and also land.

Fig. 133. Central Banks are diversifying reserves.The Central Banks are aware of the problem of fiat money, so they are diversifying into and stock-pilinggold as a reserve asset; even, the Federal Reserve it is the largest holder of gold in the world, why is it?You dont know, but the Federal Reserve knows that gold is real money - paper is not. Though theFederal Reserve prints dollar, it knows that paper dollar has no real value as it is not backed with goldsince 1971 when the Bretton Woods agreement collapsed, paper dollar is no more redeemable withgold.


8/8

4. Gold is the asset of choice in chaotic, war and times of turbulence.Remember Alan Greenspan, this year is expected to be the commencement of The Age of Turbulence; and gold is going to be the asset of choice. Because, with gold, you can take away the gold to any placethat is safer or where there is peace.

5. Gold is proven money and store of value.Gold is a proven store of value. The value of paper money goes down every day. There are documentedevidences - the scope of this text does not allow us to quote extensively - that gold has retained its valuein the last 1500 years. In fact, gold has retained its value ever since the dawn of human civilization i.e.since the time gold has been used as currency.

For example, the price of a sheep, 1500 years back, was a standard gold coin (Dinar) - Dinar was incommon use back then. And, today, the price of a sheep has remained one Dinar. This is astounding;there has been absolutely zero inflation when the price of commodities is considered in gold. Incontrast, dollar has lost 90% of its value, since 1970, in a span of 41 years.

6. Return of gold as a global monetary standard.Robert Mundell, noted Economist and Nobel laureate, advocates strongly for a return to the goldstandard. Not just Mundell, even Robert Zoellick - President of World Bank, and many notedEconomists, Nobel laureates, and Thinkers favour a return to the gold standard.

The success of the Dinar (gold coin) is not in minting the dinar, yes it is important; but the success is inpricing things in gold and silver. You can mint the Dinar but the moment you do not price things in goldand silver the system will not work.

Conclusion

The balanced economy in which real currency is used has no sustainable alternates. Both the extreme

models attempted - Socialism and Capitalism, have failed. While Socialism gave way in the 1990s; since2007 onwards, with the onset of the subprime crisis, it was evident that the collapse of Capitalism isimminent.

The balanced economic model, based on justice and truth, that we have proposed is the only solutionthat leads to global peace. This is what leads us to the age of bliss, abundance, prosperity, and freedom.We are at a very important junction point in history. It is for us to create a better world with a balancedeconomy. The choice is yours and so are the consequences!

[email protected]
mailto:[email protected]:[email protected]:[email protected]

Documents

Er. Shoaib Mohammed - '2012 - Will the World Economy Take the Greatest Plunge