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Trillions/US Dollars.

Note: As of 2018 Update: World Wealth:


--------------------
Real Estate: 217
Stock Markets 70
Other Financial Assets: 225
---------------------------------------------------------
World GDP: 80
Derivatives Nom: 580
Derivatives Cash: 10
Funds Off/S: 21
Euro Dollars: 54 + (1971)
Total Gold: 6
Gold Reserves: 1.5
Money: Broad: 228
Money: Cash: 5
Debt: 233
Banking Fractional Ratio: 56
----------------------------------------------------------------------------------------------

Review of World Economic Structure.


Christopher M. Quigley Originally Published 2014.
Summary: (World: US Dollars: Approx).
Total Value of Derivatives (Notional): 1,200 Trillion (1.2 Quadrillion).
Total Value of (Fin. /Real Estate): 318 Trillion (
Total Value of Financial Assets: 118 Trillion
Total Value of Real Estate: 200 Trillion
All Debt. (Owned by Banks): 257 Trillion
Total Priv. Debt. (Owned by Banks): 193 Trillion (Priv./Corporate).
Total Gov. Debt. (Owned by Banks): 64 Trillion
World GDP: 75 Trillion
Total Value of Derivatives (Cash Val.): 20 Trillion
Total Value of Circulating Currency: 4 Trillion
Total Value of Gold Reserves: 1.5 Trillion
When you comprehend the above you begin to understand why many are
beginning to realize the perverse reality behind the “inverted pyramid” below.
This is why it is believed that the current “fiat” (Fiat = let it be) money system
favors the few to the detriment of the many and cannot last without reform.

Note1: Nearly 16% of world GDP is income earned on dividends, interest and
rent: 9.5 Trillion dollars. A further approximately 15 % is earned by banks
through “fractional reserving”: 9 Trillion dollars. Thus annually nearly 18.5
Trillion dollars, or 31% of world GDP, is income earned but unworked. This is the
financial reality behind the phrase: “the money system is not physically working
and is therefor “virtual”, not “real”.

Note 2: Worldwide the ratio of private debt to public debt is approx. 4:1
respectively.

Note 3: Total Chinese debt: 18 trillion dollars.

Note 4: Euro Dollar debt: 16 trillion dollars.

Note 5: World fractional cash reserve ratio: 64. (257 trillion dollars, total bank
debt, divided by 4 trillion dollars, total cash).

Note 6: World fractional gold reserve ratio: 171. (257 trillion dollars, total bank
debt, divided by 1.5 trillion dollars, total Gold reserves).

Note 7: Hyper-Inflation Trending: For that last 20 years the level of “cash in
circulation” has doubled every 5 years approx. Cash in circulation as opposed to
debt is a true barometer of hyper-inflation tendencies. (See Von Mises “Human
Action”).

Note 8: Funds under management “off-shore” 18 trillion dollars. This “off-shore”


reality is greatly motivated by the fact that even though the American corporate
tax rate is 35% approx., “international” branches (affiliates) do not pay this tax
until profits are repatriated. In the main most of the American Fortune 5oo earn
the majority of their income internationally. Very often these trillions of
deferred interest free tax loans remain “abroad” until “tax amnesties” are
arranged. Under such amnesties the 35% rate is adjusted down to the region of
5%. (Reference: 2004 Bush tax amnesty “Homeland Investment Act”. Adjusted
rate was 5.25%). Such “amnesties” make a mockery of the official American
corporate tax rate.

(See references 1-7 below).

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Reference 1.

Circulation (currency)
With regard to a particular currency, circulation refers to the total value of that currency
(whether banknotes, coins, or demand deposits) that is engaged in that currency's economy at a
given time.[1] Circulation can also refer to the metaphorical or literal movement of wealth due to
transactions between the holders of a currency. The euro, the official currency of the European
Union, is currently the currency with the highest combined value of cash circulation in the
world.[2]

Total currency in circulation


In 1990, total currency in circulation passed 1 trillion USD. After 12 years, in 2002 this total
money supply in the world was 2 trillion USD. And just after 6 years, in 2008, this money supply
increased to 4 trillion USD.

 European Union - 1035.2 billion USD, 24.30%


 USA - 850.7 billion USD, 19.97%
 Japan - 762.4 billion USD, 17.90%
 China - 492.3 billion USD, 11.56%
 India - 140.3 billion USD, 3.29%
 Russia - 110.8 billion USD, 2.60%
 UK - 87.5 billion USD, 2.05%
 Canada - 43.8 billion USD, 1.03%
 Switzerland - 40.3 billion USD, 0.95%
 Poland - 37.7 billion USD, 0.89%
 Brazil - 37.3 billion USD, 0.88%
 Mexico - 34.3 billion USD, 0.81%
 Australia - 32.4 billion USD, 0.76%
 Other countries - 554.9 billion USD, 13.03%[3]

See also
http://www.economist.com/content/global_debt_clock
http://en.wikipedia.org/wiki/Household_debt

Reference2.
Gold reserve
From Wikipedia, the free encyclopedia
For the gold mining company, see Gold Reserve.

Switzerland's gold reserves.

World Gold Reserves from 1845 to 2013, in tonnes (also known as metric tons in the United
States)

A gold reserve is the gold held by a national central bank, intended as a store of value and as a
guarantee to redeem promises to pay depositors, note holders (e.g., paper money), or trading
peers, or to secure a currency.

At the end of 2004, central banks and investment funds held 19% of all above-ground gold as
bank reserve assets.

It has been estimated that all the gold mined by the end of 2011 totalled 171,300 tonnes.[1] At a
price of US$1500 per troy ounce, reached on 12 April 2013, one tonne of gold has a value of
approximately US$48.2 million. The total value of all gold ever mined would exceed US$8.2
trillion at that valuation.[note 1]

IMF gold holdings


As of June 2009, the International Monetary Fund held 3,217 tonnes (103.4 million troy ounces)
of gold,[2] which had been constant for several years. In the third quarter of 2009, the IMF
announced that it will sell one eighth of its holdings, a maximum of 403.3 tonnes, based on a
new income model agreed upon in April 2008, and subsequently announced the sale of 200
tonnes to India, 10 tonnes to Sri Lanka,[3] a further 10 tonnes of gold were also sold to
Bangladesh Bank in September 2010 and 2 tonnes to the Bank of Mauritius.[4] These gold sales
were conducted in stages at prevailing market prices.

The IMF maintains an internal book value of its gold that is far below market value. In 2000, this
book value was XDR 35, or about US$47 per troy ounce.[5] An attempt to revalue the gold
reserve to today's value has met resistance for different reasons. For example, Canada is against
the idea of revaluing the reserve, as it may be a prelude to selling the gold on the open market
and therefore depressing gold prices.[6]
Gold reserves and their relevance in war times (Example
from WW II)
Preserving the gold reserves is of intrinsic value to nations and therefore highly relevant in
contexts of crisis and war. A typical example is a secret memorandum by the Chief of the
Imperial General Staff from October 1939, at the beginning of World War II. The British
Military and the British Secret Service laid out “measures to be taken in the event of an invasion
of Holland and Belgium by Germany” and presented them to the War Cabinet:

“It will be for the Treasury in collaboration with the Bank of England, and the Foreign
Office, to examine the possible means of getting the bullion and negotiable securities into
the same place of safety. The transport of many hundreds of tons of bullion presents a
difficult problem and the loading would take a long time. The ideal would of course be to
have the gold transferred to this country or to the United States of America. [...] The gold
reserves of Belgium and Holland amount to about £ 70 million and £ 110 million
respectively. [Foot]Note: H. M. Treasury has particularly requested that this information,
which is highly confidential should in no circumstances be divulged. The total weight of
this bullion amounts to about 1800 tons and its evacuation would be a matter of the
utmost importance would present a considerable problem if it had to be undertaken in a
hurry when transport facilities were disorganised. At present this gold is believed to be
stored at Brussels and The Hague respectively, neither of which is very well placed for its
rapid evacuation in an emergency.”[7]

The Belgian government rushed to get the gold out of the country into a safe place: Dakar. After
the Germans had occupied Belgium and France in 1940 they demanded the gold reserve back.
Vichy French officials took care of the transport and in 1941 handed almost 5,000 boxes with
221 tons of gold[8] over to officials of the German Reichsbank.

Officially reported gold holdings

Gold reserves per capita

The International Monetary Fund regularly maintains statistics of national assets as reported by
various countries.[9] These data are used by the World Gold Council to periodically rank and
report the gold holdings of countries and official organizations.

The gold listed for each of the countries in the table may not be physically stored in the country
listed, as central banks generally have not allowed independent audits of their reserves.
As at December 2013 (Top 40 based on World Gold Council data)[10]
Gold's share
Gold
Rank Country/Organization of national
(tonnes)
forex reserves (%)
- G6 (EU) 8,972.6 76%
1 United States 8,133.5 72%
2 Germany 3,390.6 69%
3 International Monetary Fund 2,814.0 N.A.
4 Italy 2,451.8 67%
5 France 2,435.4 66%
6 China 1,054.1 1%
7 Switzerland 1,040.1 9%
8 Russia 1,015.1 8%
9 Japan 765.2 3%
10 Netherlands 612.5 54%
11 India 557.7 8%
12 Turkey 519.7 15%
13 European Central Bank 502.1 26%
14 Taiwan 423.6 4%
15 Portugal 382.5 85%
16 Venezuela 367.6 70%
17 Saudi Arabia 322.9 2%
18 United Kingdom 310.3 12%
19 Lebanon 286.8 25%
20 Spain 281.6 25%
21 Austria 280.0 49%
22 Belgium 227.4 35%
23 Philippines 193.0 10%
24 Algeria 173.6 4%
25 Thailand 152.4 4%
26 Kazakhstan 137.0 24%
27 Singapore 127.4 2%
28 Sweden 125.7 8%
29 South Africa 125.1 11%
30 Mexico 123.5 3%
31 Libya 116.6 4%
32 Bank for International Settlements 115.0 N.A.
As at December 2013 (Top 40 based on World Gold Council data)[10]
Gold's share
Gold
Rank Country/Organization of national
(tonnes)
forex reserves (%)
33 Greece 112.1 78%
34 South Korea 104.4 1%
35 Romania 103.7 9%
36 Poland 102.9 4%
37 Australia 79.9 7%
38 Kuwait 79.0 10%
39 Indonesia 75.9 3%
40 Egypt 75.6 17%
41 Federative Republic of Brazil 67.0 1.0%
42 Kingdom of Denmark 66.5 3.5%
43 Islamic Republic of Pakistan 64.4 27.4%
44 Argentine Republic 61.7 7.2%
45 Republic of Belarus 49.4 24.5%
46 Republic of Finland 49.1 21.3%
47 Plurinational State of Bolivia 42.3 13.6%
48 Republic of Bulgaria 40.0 9.3%
49 West African Economic and Monetary Union 36.5 12.0%
50 Malaysia 36.4 1.2%
51 Ukraine 36.4 6.7%
52 Republic of Peru 34.7 2.3%
53 Slovakia 31.8 64.7%
54 Nepal 30.1 22.9%
55 Republic of Iraq 29.8 2.0%
56 Republic of Ecuador 26.3 28.1%
57 Syrian Arab Republic 25.8 6.5%
58 Kingdom of Morocco 22.0 5.7%
59 Islamic Republic of Afghanistan 21.9 13.8%
60 Federal Republic of Nigeria 21.4 2.0%
61 Democratic Socialist Republic of Sri Lanka 16.6 11.2%
62 Republic of Serbia 16.6 4.8%
63 Hashemite Kingdom of Jordan 14.2 5.5%
64 Republic of Cyprus 13.9 65.8%
65 People's Republic of Bangladesh 13.5 4.2%
66 Kingdom of Cambodia 12.4 11.1%
As at December 2013 (Top 40 based on World Gold Council data)[10]
Gold's share
Gold
Rank Country/Organization of national
(tonnes)
forex reserves (%)
67 State of Qatar 12.4 1.4%
68 Czech Republic 11.0 1.1%
69 Republic of Colombia 10.4 1.2%
70 Lao People's Democratic Republic 8.9 34.4%
71 Republic of Ghana 8.7 7.1%
72 Republic of Paraguay 8.7 6.2%
73 Republic of Latvia 7.7 4.6%
74 Republic of the Union of Myanmar 7.3 4.4%
75 Republic of El Salvador 7.3 10.6%
76 Republic of Guatemala 6.9 4.3%
77 Republic of Macedonia 6.8 11.1%
78 Tunisian Republic 6.7 4.4%
79 Republic of Tajikistan 6.4 51.1%
80 Republic of Azerbaijan 6.0 2.0%
81 Ireland 6.0 16.6%
82 Republic of Lithuania 5.8 3.5%
83 Mongolia 5.8 7.4%
84 Kingdom of Bahrain 4.7 3.7%
85 Nation of Brunei, the Abode of Peace 4.0 4.9%
86 Republic of Mauritius 3.9 5.2%
87 Republic of Mozambique 3.7 6.6%
88 Kyrgyz Republic 3.3 7.1%
89 Canada 3.2 0.2%
90 Republic of Slovenia 3.2 18.5%
91 Aruba 3.1 18.5%
92 Hungary 3.1 0.3%
93 Bosnia and Herzegovina 3.0 3.1%
94 Grand Duchy of Luxembourg 2.2 10.7%
95 Hong Kong Special Administrative Region 2.1 0.0%
96 Republic of Iceland 2.0 2.2%
97 Independent State of Papua New Guinea 2.0 2.3%
98 Republic of Trinidad and Tobago 1.9 0.9%
99 Republic of Albania 1.6 2.8%
100 Republic of Yemen 1.6 1.2%
Sum 31,320.4 Excludes G6 figure as
As at December 2013 (Top 40 based on World Gold Council data)[10]
Gold's share
Gold
Rank Country/Organization of national
(tonnes)
forex reserves (%)
countries separately
listed

Privately held gold


As of October 2009, gold exchange-traded funds held 1,750 tonnes of gold for private and
institutional investors.[11]

Privately held gold (May 2011)[12]


Rank Name Type Gold (Tonnes)
1 SPDR Gold Shares ETF 1,239
2 ETF Securities Gold Funds ETF 259.79
3 ZKB Physical Gold ETF 195.53
4 COMEX Gold Trust ETF 137.61
5 Julius Baer Physical Gold Fund ETF 93.50
6 Central Fund of Canada CEF 52.71[13]
7 NewGold ETF ETF 47.75
8 Sprott Physical Gold Trust CEF 32.27
9 ETFS Physical Swiss Gold Shares ETF 27.97
10 Bullionvault Bailment 37.1[14]
11 Central GoldTrust CEF 18.81[15]
12 GoldMoney Bailment 19.55[16]

World gold holdings


World gold holdings (2008) (Source: World Gold Council)[17]
Holding Percentage
Jewellery 52%
Central banks 18%
Investment (bars, coins) 16%
Industrial 12%
Unaccounted 2%
Reference 3.

World Derivatives Market Estimated As Big


As $1.2 Quadrillion Notional, as Banks Fight
Efforts to Rein It In
Posted on March 26, 2013 by Yves Smith

Yves here. Readers have asked us to write about the ginormous scale of the derivatives market.
This article is a layperson-friendly discussion of bank efforts to stymie the not-onerous
safeguards in Dodd Frank and why you should be up in arms about it. Derivatives, specifically
credit default swaps, were the reason what would otherwise been a contained subprime crisis into
a global financial meltdown. If you have not done so already, we strongly encourage you to call
your Senator and Representative and tell them you are strongly opposed to this stealth effort by
banks to keep taxpayers on the hook for the derivatives casino and allow it to continue to operate
with minimal supervision.

By Gaius Publius. Cross posted from Americablog

We wrote earlier about the recent move by bankers — and the politicians who serve them — to
unreform the derivatives market, to return it to its pre–Dodd-Frank, pre–Crash-of-2007 state.
This is a serious move by banks and bank lobbyists, and it could well happen soon. The seven
bills in the House package of “tweaks” — as the House Agriculture website dishonestly puts it
— have cleared the committee with Democratic support and are headed to the House floor. In the
meantime, there are companion bills in the Senate.

What will happen in the Senate? Well, Dick Durbin (always an Obama surrogate) famously said
of the Senate that “the banks own the place.” And of course the White House has been
notoriously bank-friendly since day 1. As a friend told me last week, “Bank lobbyists are good;
they really earn their money.” Indeed.

Our earlier story focused on both aspects of this push — the “bad Dems” side and the derivatives
side. Let’s now look at just the derivatives aspect.

What is a “derivative”?
While a general definition of a derivative in this context could be — “A financial product
derived from another financial product” (for example, a futures contract tied to a stock index) —
in practice, the term applies to a whole world of financial products that are written on a one-off
basis between two entities called “counterparties,” as opposed to products that are traded on a
broad, well-regulated market.
Standard futures contracts are bought and sold on large exchanges, for example, the Chicago
Board of Trade (CBOT). If I buy a futures contract — for example, I go long (contract or agree
to buy in the future) a million bushels of wheat, or barrels of oil, in the expectation that the future
price will rise within the time limit of the contract — there will be a counterparty on the short, or
selling side, but I have no idea who that is. In fact, in a well-regulated market, the contracts are
all standardized; there are thousands of identical contracts in pairs (one on the long or buy side,
and one on the short or sell side); and as long as there are the same number of identical contracts
on each side, it makes no difference who’s on the other side of my personal contract. The
exchange just matches up longs with shorts when they liquidate.

The contracts, as you can see, are created by the exchanges themselves (for example, by the
CBOT); they keep the operation orderly; and there are rules, both by the exchanges and by the
government, that prevent things (mostly) from running out of control. For example, I can indeed
buy futures contracts on millions and millions of barrels of oil for delivery next July (say), and I
can put up a tenth of the cost of these contracts, but if the market moves against me, I have to
increase my margin (add to my escrow if you will) to protect my counterparties from my
inability to pay. The exchange requires that, and if I don’t comply, I’m liquidated (at my
expense) and kicked out.

Futures contracts are gambling — I can bet on the Dow to go down or up, for example — but
trading in futures contracts is regulated gambling, in which winners are protected from losers,
and in many cases, losers protected from themselves.

Not so, derivatives, in the usual meaning of the word. Derivatives in that sense are contracts
between parties who want to trade risks, but they aren’t market-traded. They aren’t standardized.
And counterparties aren’t vetted by any controlling institution.

In derivatives trading, the counterparties know each other, the contracts are one-off between the
parties directly, and the only guarantee that either party will get paid is trust … or the naked
belief that they just can’t lose on this one.

AIG wrote billions of dollars of CDS “insurance” against the mortgage market without having
even a fraction of what it would take to pay off claims … in the naked belief that they could
collect fees forever and never have to pay out once. When the whole thing collapsed, they were
wiped out. And because their “insurance” was part of the balance sheet of AIG’s many
counterparties (Goldman Sachs and everyone like them), Goldman Sachs would have been
wiped out too by AIG’s failure (in effect, by their lies and deception).

That’s why the government bailed out AIG — and insisted on giving them 100 cents on the
dollar — so that they could pay off Goldman et al. AIG was bailed out to bail out all their
counterparties. (Our discussion of CDSs and their role as bets is here.)

How large is the derivatives market? $1.2 quadrillion in


notional value; at least $12 trillion in cash at risk
You read that headline right. By at least one estimate, in 2010 there was a total of $12 trillion in
cash tied up (at risk) in derivatives as defined above, all of which controlled contracts connected
to assets valued at $1.2 quadrillion.

Here’s how we got those numbers — be sure to differentiate the two values, cash value vs.
notional value, as explained below (h/t commenter BeccaM for the link; my emphasis):

Big Risk: $1.2 Quadrillion Derivatives Market Dwarfs World GDP

One of the biggest risks to the world’s financial health is the $1.2 quadrillion derivatives
market. It’s complex, it’s unregulated, and it ought to be of concern to world leaders that its
notional value is 20 times the size of the world economy. But traders rule the roost — and as
much as risk managers and regulators might want to limit that risk, they lack the power or
knowledge to do so. A quadrillion is a big number: 1,000 times a trillion. Yet according to one of
the world’s leading derivatives experts, Paul Wilmott, who holds a doctorate in applied
mathematics from Oxford University (and whose speaking voice sounds eerily like John
Lennon’s), $1.2 quadrillion is the so-called notional value of the worldwide derivatives
market. To put that in perspective, the world’s annual gross domestic product is between $50
trillion and $60 trillion. To understand the concept of “notional value,” it’s useful to have an
example. Let’s say you borrow $1 million to buy an apartment and the interest rate on that loan
gets reset every six months. Meanwhile, you turn around and rent that apartment out at a monthly
fixed rate. If all your expenses including interest are less than the rent, you make money. But if
the interest and expenses get bigger than the rent, you lose.

You might be able to hedge this risk of a spike in interest rates by swapping that variable rate of
interest for a fixed one. To do that you’d need to find a counterparty who has an asset with a
fixed rate of return who believed that interest rates were going to fall and was willing to swap his
fixed rate for your variable one.

The actual cash amount of the interest rates swaps might be 1% of the $1 million debt,
while that $1 million is the “notional” amount. Applying that same 1% to the $1.2 quadrillion
derivatives market would leave a cash amount of the derivatives market of $12 trillion — far
smaller, but still 20% of the world economy.

To trust that lower number ($12 trillion), a lot depends on what’s being traded. In the example
above — an “interest rate swap” — what’s being traded (swapped) is the risk of small interest
rate changes on the $1 million you borrowed. It’s never the whole $1 million (the notional
value).

But with a CDS — a “credit default swap” as discussed here — what’s traded is a fee paid by
one side vs. the whole cost of the default paid by the other side. If I as an “insurer” sold a hedge
fund a CDS on $20 million in GM bonds, and those bonds default, I’m on the hook for the whole
$20 million, the “notional” value.
As a result, I accept the $1.2 quadrillion notional value number. But I think the $12 trillion cash-
at-risk number is way low. And “just” $12 trillion is, as they point out, still 20% of world GDP.
Stunning.

And don’t forget, these are 2010 numbers. Banks have grown even fatter since then, even
greedier, even riskier. And their push to gut the modest regulations put in place by Dodd-Frank
declares their intentions to grow. Whatever the size of this market today, expect it to grow like a
weed.

Again, House bill HR 992, one of the seven mentioned at the beginning of this piece, is the one
that makes you, the taxpayer, even more on the hook for banker-losses than you were after the
Dodd-Frank reform. For the banks, the high-priced lobbyists, and their paid, moderately-priced
politicians, this is a Win-Win.

But for you, it’s a second trip to Bailout Village. As for the nation … well, I think there’s
rebellion in the air if this happens twice. In this case, the hubris of our enemies is not our friend.
Not our friend at all.

I thought you should know this, though. We’re going to be covering the derivatives story to
conclusion. Hopefully this post and the previous one will keep you oriented as the game moves
forward. Quoting Congressman Grayson again:

“The road to hell is paved with these bills.”

Reference 4.

The Policy Tensor: The Euro Dollar Market


James Carville. April 25 2013.
In an earlier article, I wrote that US’ turn to finance “had already begun in the early 1970s. The
fixed exchange rate system broke down by 1973. Capital controls were relaxed in 1974 in the
US, and in Britain in 1975. The Eurodollar market started growing immediately after.” This
chronology is incorrect. The Eurodollar market had been growing at a scorching pace throughout
the late fifties and sixties, and already exceeded the world’s official dollar reserves by 1973. In
fact, my claim was much worse than a mere chronological error. The causality runs the other
way: it was the Eurodollar market that forced the US and UK to relinquish capital controls.

According to Gary Burn, “What, in fact, the City bankers had done by creating this market, was
to puncture a hole in the regulated international banking system, enabling capital to escape
offshore. But what began as a trickle eventually became a deluge. Until the City ‘came to
resemble an “offshore island” much like the Cayman Islands or Curacao’. Although, unlike those
islands, where there is an obvious coincidence of territorial and judicial sovereignty, for the City
of London, offshore is a ‘de-territorialized economic phenomena’.”[1] [Emphasis in the
original.] To be sure the ‘sovereignty’ of the offshore islands is a façade, a matter of some
relevance that we will come to in the next post on offshore finance.

‘Good as gold’

The liberal global economic order underwritten by Great Britain that matured in the late-
nineteenth century was firmly centered within the one square mile of the City of London. The
cornerstone of the international monetary system was ostensibly the gold standard. Yet, the rapid
expansion in international trade with the spread of the industrial revolution could not have taken
place without a substantial increase in liquidity to settle transactions, insure shipments, extend
credit, and so on and so forth. This liquidity was provided by the pound sterling and the Bill on
London, with the London Discount Market at the very center of this financial universe. The City
functioned as a “transmission belt” aggregating deposits from all over the world and utilizing
them to finance international trade and speculation. The exercise of monetary authority was an
entirely private affair between the Bank of England – a private institution with commercial
interests along with a governance role as a lender of last resort – and the City bankers.

The advent of the First World War brought about a virtual collapse of the open global economic
system: tariff walls went up immediately, production was subordinated to the war effort, capital
controls were imposed, and the gold standard was effectively suspended. The United States
emerged from the war as the dominant economic power and creditor nation. The naval
agreement between Britain, Japan, and the US established a battle-fleet ratio of 5-3-5. In effect,
the protection of the Atlantic was split between Britain and the US, that of the Pacific between
the US and Japan, while the Indian Ocean and the Mediterranean were to remain under British
naval control. As good centered realists we would expect a partial replacement of sterling and the
City by the dollar and New York. This is precisely what happened. The dollar increasingly came
to replace the pound sterling in international transactions, especially in the western hemisphere.
The City bankers became convinced that New York was seeking to take over control of
international finance.

In a bid to restore the fortunes of the City and resurrect the pre-war global economic and
financial order, the bankers launched a major political offensive to return the pound sterling to
the gold standard at the pre-war parity of $4.86. In February 1920, the sterling stood at $3.40, so
the plan to return to gold at parity by 1925 required drastic deflationary measures. Draconian
cuts in government spending (by 30% in the first year of deflation) led to a 6% contraction in
GDP, with unemployment rising to a high of 21% in June 1921. The bitter medicine continued
until 28 April 1925 – with manufacturers devastated and wages down 40% – when Britain
returned to the gold standard at pre-war parity of $4.86.

Unfortunately, the bankers were chasing an illusion. The pre-war gold standard was, in effect, a
gold-sterling exchange standard with sterling providing the international liquidity required for
the functioning of the global economy. Cutting back the circulation of sterling in order to return
to the gold standard was thus self-defeating because it put severe deflationary pressure on the
world economy. Indeed, as the international financial crisis gathered pace in 1931, Britain was
again forced to suspend gold payments. Instead of the catastrophe forecast by the City, there was
instant relief. The anti-climax of the failure of the decade long struggle to return Britain to gold
prompted Colonial Secretary Webb to remark, “Nobody told us we could do this.”

The reason why returning to the gold standard at pre-war parity was gospel to the City was
political. “Supposedly operating outside of politics, it offered an unchallengeable, technically
based rationale for ‘the cessation of government borrowing’, and by extension, government
spending. Being free from political manipulation it became a constitutional barrier to the policies
of any parliament elected to pursue policies in the interests of the working class. As the Bankers’
Magazine explained, ‘a return to gold would prevent future “unsound” experiments by Socialist
Governments which might divert the English people from the only real solution of their problems
– economy and hard work’. Or in the words of Cunliffe Committee member, Lord Bradbury, ‘the
gold standard was knave proof’.” The gold standard was a shield against the threat of
democracy.

The collapse of global capitalism during the 1930s removed any lingering faith in the viability of
the free market. The principal architects of the Bretton Woods system, Keynes and White,
believed that a liberal order of international trade and finance was fundamentally incompatible.
That is, uncontrolled ‘hot money’ made the international system prone to repeated financial
crisis, and made the pursuit of rational economic management impossible. The new order was
therefore based on a “quasi-public international financial order”. While Wall Street and the City
of London managed to block obligatory capital controls, they could not prevent countries having
the option of imposing such controls from going through. However, even before the Bretton
Woods system proper went into effect in 1958, it had already been circumvented by global
finance. The creation of the Eurodollar market was the “first shot fired in the neoliberal counter-
revolution”. It was the “dress rehearsal for the full deregulation of international markets that
finally took place twenty years later”.[2] But we are getting ahead of the story.

The birth of the Eurodollar

The US state practiced a significant degree of financial repression after the New Deal era
regulations went into effect. The most important one of these was Regulation Q, which imposed
limits on what interest rates could be offered by banks. The Regulation Q ceilings – the “stop-
valves in the plumbing of finance” that regulated the American economy with “hydraulic
efficiency” – also played a key role in the birth of the Eurodollar market.[3]

In the summer of 1955, the British Bank rate had risen significantly above prevailing Regulation
Q rate in the United States. The Midland Bank, a medium-sized merchant bank in London, was
growing desperate to increase its share of the international business which was dominated by the
bigger merchant banks. At the same time, it was facing a liquidity crush given the tight monetary
environment of that summer. Midland stumbled on an arbitrage which solved its acute liquidity
problem. The bankers purchased 30-day dollar deposits at 1.875%, sold them spot for sterling,
and bought them back forward at a premium of 2.125%. The sterling so obtained cost Midland
4% when the Bank rate was 4.5%. This arbitrage proved to be enormously profitable and
Midland was soon piling in around seventy million dollars a month in this trade.
“Midland’s exchange deals were the first stage of the financial innovation which produced the
Eurodollar market. These deposits were not traditional deposits of clients related to their business
with the bank. The foreign exchange was not deposited with Midland’s American accounts or
converted through the foreign exchange reserves. The deposits were attracted to solve specific
liquidity constraints and in response to profitable investment opportunities in the U.K. In this
sense they were a new product for the bank’s clients and represented a new source of funds for
investment.”[4]

Midland was soon invited for a tête-à-tête at the Bank of England. The Bank came to the opinion
that “it is impossible to say to a London bank that it may accept dollar deposits but may not seek
for them. We would be wise not to press Midland any further.”[5] The Bank of England thus
decided on a policy of ‘benign neglect’ from the very beginning. The innovation spread rapidly.
Within a year, Midland’s share of the nascent market was down to about a half. American banks
jumped in the fray and soon came to dominate the scene. By April 1963, the nine American
banks active in the City took the largest share of the deposits, accounting for about a third of the
market. Legendary London banker Siegmund Warburg organized the first Eurobond issue in
June 1963. It was the Eurobond market which made the Eurodollars available for international
credit, thus creating an alternative international capital market outside any regulatory
jurisdiction.

The novelty of the Eurodollar market was twofold. First, it lay outside British banking
jurisdiction, and allowed the banks to borrow from one another rather than through discount
houses thus creating a new animal, the ‘wholesale inter-bank market’. Second, even though it
was in the foreign exchange market, instead of dollars being exchanged for other currencies, they
were now being borrowed and lent, and thus lay outside the official system for controlling capital
movements. “In this way, operating, as it was, outside both the traditional international capital
market and the traditional foreign exchange market (TFEB), became the prototypical escape
route offshore, which, very gradually, evolved into a parallel international capital market
available to non-bank users dealing in Eurocurrencies.”[6]

Brace for Impact

The Eurodollar market expanded at a fast clip, reaching around $9 billion in 1964 when the Bank
of International Settlements first started tracking it, $25 billion in 1968, and $54 billion by 1971.
The first significant effect of the Eurodollar market on the international economy began to be felt
in the late 1960s. When the Federal Reserve restricted US banks’ access to loans in August 1966,
they turned to the Eurodollar market for funds. Germany ran persistent trade surpluses with the
US, which lead to an accumulation of enormous dollar reserves at the Bundesbank. The German
central bank thus became the principal source of Eurodollars for US banks. This recycling of US
dollars began feeding a wage-price spiral already underway due to the military-Keynesian impact
of the campaign in Indochina.
Without reserve requirements – or any regulation for that matter – the Eurodollar market’s ability
to create money was, in principle, unbounded. This is why the inflationary impact of this
offshore credit creation was so significant. To stop the recycling of inflation as well as dollars,
the Bundesbank persuaded the Fed to impose reserve requirements on US banks’ Eurodollar
borrowings. The unwinding of US banks’ borrowings in 1970-71 unmoored the market from
Germany’s official reserves, institutionalizing a vast pool of short term capital, by now roughly
the size of the world’s official dollar reserves. This is the appropriate yard stick because central
bankers need dollar reserves to defend their currency.

Speculators had already used the Eurodollar market to mount an attack on the pound sterling in
1967, forcing a devaluation in November. Similarly, speculators used the Eurodollar market to
exploit arbitrage opportunities that opened up between the revaluation of the Deutschmark in
1969, and the decision to let the market determine its price in 1971. The biggest fish in the tank
was tackled in the first two weeks of August 1971, when the US lost $6 billion of reserves amid
mounting speculative attack on the dollar. With dwindling gold reserves, the US withdrew its
commitment to sell gold for $35 an ounce and the dollar was devalued on the 15th. Statesmen
fought to save the post-war monetary order for two more years, to no avail.

The Eurocurrency market, including not only the offshore dollars but also yen and the German
mark et cetera, continued its explosive growth over the years. The following table shows the
growth of the market in gross terms (as opposed to the net positions reported earlier).
Gross Market Size
Year
(billions of dollars)
1963 12
1964 15
1966 27
1968 46
1970 93
1972 150
1974 248
1976 342
1978 550
1980 1,012
1982 1,515
1984 2,153
1986 3,221
1988 4,511
1990 6,254
1992 6,198
1994 7,117
1996 8,309
1998 9,899
2000 10,765
2002 13,375
2003 15,929

Note the doubling of the market in 1978-80. That was due to the dollar crisis of that period amid
rampant inflation and capital flight from the United States. The size of the Eurodollar market is
so large that it can be considered an independent great power. “It also, by definition, increased
the likelihood of currency speculation, as ever larger Eurodollar funds, far in excess of the gold
and dollar reserves held by governments and the IMF, became increasingly powerful as ‘market
makers’, taking on and winning against national central banks, while, in the process, becoming
indispensable as privately owned and controlled disequilibrating international liquidity.”[7]

The existence of the Eurodollar market played a key role in the pressure to deregulate finance
during the seventies and the early eighties. The bankers now had a powerful argument at hand:
‘We can already do this in London, if you don’t allow us to do this here in New York, we’ll just
write our international business across the pond’. This is not a special feature of the Eurodollar
market, although historically it did play a pivotal role in this dynamic. This is a critical feature of
offshore finance. There is much to trace in the history of offshore finance, something I have
almost written out and will be posting soon.

“The re-assertion of a nineteenth-century institutional framework for the organization of global


credit would be re-convened outside the control of the quasi-public monetary order established at
Bretton Woods, once sterling had been replaced with a more robust world money medium. The
advent of the Eurodollar market finally allowed the City to regain its autonomy, lost in 1931.
British financial elites re-established control of regulatory space and re-imposed ‘a regulatory
order largely separate from the central institution of the state’ (Clarke 1986: 19; Moran, 1991:
16). Something welcomed by the American banking community, given that the US would remain
tied up in New Deal regulation until Reagan arrived in the White House, by which time there
would be more American banks in London than in New York.”[8]

We will see in the next post how the City created a spiderweb of offshore secrecy jurisdictions
that have allowed big corporations and the superrich to escape both taxes and regulation in the
center countries, and the channeling of ‘dirty money’ into the major capital markets of New York
and London. I will conclude these two essays together, so stay posted.

[1]Burn, Gary. The Re-emergence of Global Finance. Houndmills, Basingstoke: Palgrave


Macmillan, 2006. Print.

[2] Durham, quoted in Burn, Gary. Op. cit.

[3] Greider, quoted in Krippner, Greta R. Capitalizing on Crisis: The Political Origins of the
Rise of Finance. Cambridge, MA: Harvard UP, 2011. Print.

[4] Schenk, C. “The Origins of the Eurodollar Market in London: 1955–1963″ Explorations in
Economic History 35.2 (1998): 221-38. Print.

[5] Ibid.

[6] Burn, Gary. Op. cit.

[7] Burn, Gary. Op. cit.

[8] Burn, Gary. Op. cit.


Reference 5.

China's Debt: How Serious Is It?


Jack Perowski.

China GDP (Photo credit: Wikipedia)

In a report ordered by China’s State Council last June, the country’s National Audit
Office reported in December that the debts of China’s local governments had increased to RMB
17.9 trillion ($3.0 trillion) by the end of June 2013. This amount, which includes contingent
liabilities and debt guarantees, represents a 70 percent increase from the RMB 10.7 trillion ($1.8
trillion) owed by the country’s local governments at the end of 2010.

Does the explosion of local government debt in China mean that the country has a debt problem?
If so, how serious is it? Does it threaten China’s economy?

Before these questions can be answered, China’s local government debt must be viewed first in
relation to China’s GDP, and then in relation to the debt levels that exist in other countries.

Because the central government is ultimately responsible for all local-level debts in China, local
debt must be added to central government debt to come up with a total government debt/GDP
ratio. Andy Rothman, China Macro Strategist for CLSA, puts this ratio at 53.5 percent for 2012
– up from 43.5 percent in 2010, 44.1 percent in 2009, and 32.9 percent in 2005. Compared to the
United States and most developed European countries where government debt levels are near
100 percent of GDP, China’s government debt/GDP ratio is not exceptionally high. For this
reason, as well as the fact that China’s economic growth rate, while slowing, remains
significantly faster than most of the rest of the world, Andy concludes that China’s total
government debt is high but manageable in the near term.

However, government debt is just one component of a country’s indebtedness. A country’s “total
debt” includes government debt, as well as the debt of financial institutions, non-financial
businesses and households. According to the China Balance Sheet 2013 released by the Chinese
Academy of Social Sciences (CASS), China’s total debt amounted to RMB 111.6 trillion ($18.3
trillion) at the end of 2012, which was 215.7 percent of that year’s GDP. Of this amount,
corporate debt equaled 113.5 percent of GDP; government debt, 53.5 percent; household debt,
31.1 percent; and financial sector debt, 17.6 percent.

When looking at China’s total debt, Ruchir Sharma, Head of Emerging Markets at Morgan
Stanley Investment Management, wrote last year that: “Since 2008, China’s total public and
private debt has exploded to more than 200 percent of GDP — an unprecedented level for any
developing country” in his opinion – and that China’s debt problems are “huge.” Sharma’s
conclusions were cited by Fareed Zakaria as one of China’s looming challenges in his
recent piece on the country.

But how does China’s debt level compare to its assets and the debt levels of other countries? The
CASS report showed that China’s net assets exceeded RMB 300 trillion ($49.3 trillion) in 2011,
almost three times China’s total indebtedness. According to data supplied by the McKinsey
Global Institute, the 10 largest mature economies in the world — Australia, Canada, France,
Germany, Italy, Japan, Spain, South Korea, UK and US — had total debt of almost 350 percent
of GDP in 2011. If Portugal, Ireland, Italy, Spain and Greece, the countries worst hit by the debt
crisis in Europe, are included, total debt was almost 400% of GDP.

Of these countries, Japan and the UK were over 500 percent, and the United States and Germany
were both at about 279 percent. If asset-backed securities, which many analysts include in total
debt, are included, US total debt would have been 360 percent. To be fair, Sharma considers
China to be a developing country, not a mature economy as those in the survey, and he argues
that the “rate of increase” of debt, not necessarily the total amount of debt of a country, is the key
measure.

That may be, but on all things China, I have found that the glass is either half-empty or half-full
based upon your perspective.
Reference 6.
Tax Havens, the Euro Dollar Market
and “They” Who Own the World.
Christopher M. Quigley

B.Sc., M.M.I.I., M.A.

Eurodollars are time deposits denominated in U.S. dollars at banks outside the United States,
and thus are not under the jurisdiction of the Federal Reserve. Consequently, such deposits are
subject to much less regulation than similar deposits within the U.S., allowing for higher
margins. The term was originally coined for U.S. dollars in European banks, but it expanded
over the years to its present definition: U.S. dollar-denominated deposits residing in banks
outside the Federal jurisdiction. Please realise there is no connection between Euro Dollars and
the euro currency or the euro zone. The first Eurodollars were created by deposits made by the
Moscow Narodny bank in 1957 to its branch in London to protect Russian State foreign reserves
during the cold war. Eurodollar deposits are a cheaper source of funds because they are free of
reserve requirements and deposit insurance assessments, thus the Euro Dollar is a money
launderers dream "currency".

Due to the secrecy and light regulation surrounding the Eurodollar market, based in London, an
extraordinary situation has unfolded where the Euromarket, which has no physical embodiment
in an exchange, is now the largest source of capital in the world. This state of affairs has
developed because dollars held in “banks” overseas (i.e. Eurodollars) form the basis of new bank
credit. This credit is issued with untold leverage due to no formal reserve requirement and little
or no regulation. The fact that this “market” is based at the Corporation of London (otherwise
known as “The City”) is one reason why this financial powerhouse is beginning to eclipse New
York as the financial center of the 21st. century.

The growth of the Eurodollar market has been further supported by the birth of Eurobonds.
These instruments are in the main unregulated offshore bearer bonds. No record is kept of who
owns them so they are perfect for tax evasion. Thus it is no shock to discover a great source of
funds to the Eurobond market comes from The Isle of Man, Jersey, Guernsey, Malta, Cyprus,
The Cayman Islands, Barbados, Bermuda, The Virgin Islands, Gibraltar, Monte Carlo,
Lichtenstein, Luxembourg, the IFSC Dublin, Hong Kong, Panama and of course, the daddy of
them all, Switzerland. These tax havens are all linked to “The City” by a myriad of
interconnected accountants, lawyers, financial advisors, consultants and “boutique” banks where
secrecy is paramount. It is estimated that wealthy individuals and multinational corporations hold
more than 18 trillion dollars (that’s trillion with a capital “T”) “offshore” in these “tax havens”.
(The rest is held in "custodial banks" where total wealth under management is circa 120 Trillion
dollars).

As a result the Eurodollar has become a new form of money (if by money one means unregulated
credit) and had exploded in size. By 1997 nearly 90% of all international loans were in this
market. Today it has grown so large that the Bank of International Settlements has ceased to
measure it independently because the scale of the "problem" was becoming an embarrassment.

The part the Eurodollar market has played in the Global financial collapse has not been fully
analyzed or documented to date. I think such an analysis is long overdue. Our monetary system
needs to be brought back to a solid steady state where economic value means solid capital
investment. True "economic investment" creates real added value, real employment and real
benefits for ordinary citizens and society. The current investment orthodoxy is based on
a "smoke and mirror" paradigm that is hollowing out our national economies and if it is allowed
continue it will ensure the "system" will finally collapse under the weight of its cant, hypocrisy
and sophistry.

Reference: “Treasure Islands: Tax Havens and The Men Who Stole The World”

Nicholas Shaxson

Wikipedia Online Encyclopedia

© 21st November 2014 Christopher M. Quigley www.wealthbuilder.ie


Reference 7.
Euro Dollar History:

Eurodollar
Eurodollars are time deposits denominated in U.S. dollars at banks outside the United States,
and thus are not under the jurisdiction of the Federal Reserve. Consequently, such deposits are
subject to much less regulation than similar deposits within the U.S., allowing for higher
margins. The term was originally coined for U.S. dollars in European banks, but it expanded
over the years to its present definition—a U.S. dollar-denominated deposit in Tokyo or Beijing
would be likewise deemed a Eurodollar deposit. There is no connection with the euro currency or
the eurozone.

More generally, the euro- prefix can be used to indicate any currency held in a country where it
is not the official currency: for example, euroyen or even euroeuro.

History
Gradually, after World War II, the quantity of U.S. dollars outside the United States increased
enormously, as a result of both the Marshall Plan and imports into the U.S., which had become
the largest consumer market after World War II.

As a result, enormous sums of U.S. dollars were in the custody of foreign banks outside the
United States. Some foreign countries, including the Soviet Union, also had deposits in U.S.
dollars in American banks, granted by certificates. Various history myths exist for the first
Eurodollar creation, or booking, but most trace back to Communist governments keeping dollar
deposits abroad.

In one version, the first booking traces back to Communist China, which, in 1949, managed to
move almost all of its U.S. dollars to the Soviet-owned Banque Commerciale pour l'Europe du
Nord in Paris before the United States froze the remaining assets during the Korean War.

In another version, the first booking traces back to the Soviet Union during the Cold War period,
especially after the invasion of Hungary in 1956, as the Soviet Union feared that its deposits in
North American banks would be frozen as a retaliation. It decided to move some of its holdings
to the Moscow Narodny Bank, a Soviet-owned bank with a British charter. The British bank
would then deposit that money in the US banks. There would be no chance of confiscating that
money, because it belonged to the British bank and not directly to the Soviets. On 28 February
1957, the sum of $800,000 was transferred, creating the first eurodollars. Initially dubbed
"Eurbank dollars" after the bank's telex address, they eventually became known as "eurodollars"
as such deposits were at first held mostly by European banks and financial institutions. A major
role was played by City of London banks, as the Midland Bank, now HSBC, and their offshore
holding companies.
In the mid-1950s, Eurodollar trading and its development into a dominant world currency began
when the Soviet Union wanted better interest rates on their Eurodollars and convinced an Italian
banking cartel to give them more interest than what could have been earned if the dollars were
deposited in the U.S. The Italian bankers then had to find customers ready to borrow the Soviet
dollars and pay above the U.S. legal interest-rate caps for their use, and were able to do so; thus,
Eurodollars began to be used increasingly in global finance.

By the end of 1970 385,000M eurodollars were booked offshore. These deposits were lent on as
US dollar loans to businesses in other countries where interest rates on loans were perhaps much
higher in the local currency, and where the businesses were exporting to the USA and being paid
in dollars, thereby avoiding foreign exchange risk on their loans.

Several factors led Eurodollars to overtake certificates of deposit (CDs) issued by U.S. banks as
the primary private short-term money market instruments by the 1980s, including:

 The successive commercial deficits of the United States


 The U.S. Federal Reserve's ceiling on domestic deposits during the high inflation of the
1970s Eurodollar deposits were a cheaper source of funds because they were free of
reserve requirements and deposit insurance assessments

Market size
By December 1985 the Eurocurrency market was estimated by Morgan Guaranty bank to have a
net size of 1,668B, of which 75% are likely eurodollars. However, since the markets are not
responsible to any government agency its growth is hard to estimate. The Eurodollar market is by
a wide margin the largest source of global finance. In 1997, nearly 90% of all international loans
were made this way.

--------------------------------------------------------------------------------------------------------------------

Richest 1% now owns half the world's wealth


 The wealthiest 1 percent of the world's population now owns more than half of the
world's wealth, according a Credit Suisse report.
 The total wealth in the world grew by 6 percent over the past 12 months to $280 trillion,
Credit Suisse said.
 That was the fastest wealth creation since 2012.

Robert Frank | @robtfrank


Published 11:43 AM ET Tue, 14 Nov 2017 Updated 5:37 PM ET Tue, 14 Nov 2017 CNBC.com
Richest 1% now own half the world's wealth .

The wealthiest 1 percent of the world's population now owns more than half of the world's
wealth, according to a new report.
The total wealth in the world grew by 6 percent over the past 12 months to $280 trillion, marking
the fastest wealth creation since 2012, according to the Credit Suisse report. More than half of
the $16.7 trillion in new wealth was in the U.S., which grew $8.5 trillion richer.

But that wealth around the world is increasingly concentrated among those at the top. The top 1
percent now owns 50.1 percent of the world's wealth, up from 45.5 percent in 2001.

"So far, the Trump presidency has seen businesses flourish and employment grow, though the
ongoing supportive role played by the Federal Reserve has undoubtedly played a part here as
well, and wealth inequality remains a prominent issue," said Michael O'Sullivan, chief
investment officer for International Wealth Management at Credit Suisse. "Looking ahead,
however, high market valuations and property prices may curb the pace of growth in future
years."

The world's millionaires are expected to do the best in the coming years. There are now 36
million millionaires in the world, and their numbers are expected to grow to 44 million by 2022.

The U.S. still leads the world in millionaires, with 15.3 million people worth $1 million or more.

Japan ranks second with 2.7 million millionaires, while the U.K. ranks third with 2.2 million.
China ranks fifth with 1.9 million millionaires, but its millionaire population is expected to hit
2.8 million by 2022.
Ref: Mckinsey Global Institute
Ref: Global Debt: International Monetary Fund.

Sources:

World Gold Council

Wikipedia/Level of Private and Public Debt/ Euro Dollar

CIA World Handbook

The Economist: World Debt Comparison

Yves Smith

James Carville

Jack Perowski
Nicholas Shaxson

th
© Christopher M. Quigley 24 . April 2014. B. Sc. (Maj. Accounting, M.I.I. Grad., M.A.)

QuigleyCompany@gmail.com

www.wealthbuilder.ie