How Realistic is a North American Currency?

Minyanville ^ | 28 Jan 2009 | Todd Harrison

[BGHater]

“World, hold on. Instead of messing with our future, open up inside.” --Bob Sinclair

Thomas Jefferson once said “when you reach the end of your rope, tie a knot in it and hang on.” As the global financial system pushes on a string, investors are desperately trying to hold tight.

The New World Order is upon us, full of hope, promise and a fair amount of fear. In our recent discussion regarding the direction of our country, we noted the risks of catering to conventional wisdom and the implications for the U.S. dollar.

The Minyanville mantra is to provide financial news you need to know before you know you need it. That’s a fine line to walk as foresight often flies in the face of mainstream acceptance.

In 2006, it seemed counter-intuitive to forecast a “prolonged socioeconomic malaise entirely more depressing than a recession.”

For years, the notion of an “invisible hand” was conspiracy theory until we learned that The Working Group on Financial Markets was a central policy tool.

And now, as we gaze across our historically significant horizon, we must open our minds to thoughts and ideas that may seem foreign to folks conditioned by the past and stunned by the present.

Currency Crossroads

As governments take on more risk—as they price assets on behalf of the market and transfer debt from private to public—the common denominator, or release valve, becomes the currency.

If our economic condition is allowed to take medicine in the form of debt destruction, the greenback will appreciate and asset classes, as a whole, will deflate. If we continue to inject drugs that mask symptoms rather than address the disease, the likelihood of a seismic readjustment increases in kind.

The deflationary forces in the marketplace are pervasive and the “other side” of our current equation—hyperinflation—may be years away. Given the magnitude, breadth and pace of the global financial epidemic, however, we must explore each side of the twisted ride.

Years ago, the Federal Reserve wrote a “solution paper” regarding the need to combat zero bound interest rates. The concern was the flight of capital from the U.S. and an option discussed was a two-tiered currency, one for U.S. citizens and one for foreigners.

Canadian economist Herbert G. Grubel first introduced a potential manifestation of this concept in 1999. The North American Currency—called the “Amero” in select circles—would effectively commingle the Canadian Dollar, U.S. Dollar and Mexico Peso. On it’s face, while difficult to imagine, it makes intuitive sense. The ability to combine Canadian natural resources, American ingenuity and cheap Mexican labor would allow North America to better compete on a global stage.

As we’ve learned through experience, however, perceived solutions introduced by policy makers and politicians don’t always have the desired effect.

Unintended Consequences

I’ve long contended that much like the Internet prophecy proved true—but not before the tech crash—so too would globalization, albeit not without painful yet necessary debt destruction.

To get through this, we need to go through this. If we’re not allowed to go through it, foreigners will seek alternative avenues. Remember, for holders of dollar-denominated assets, seeds of discontent have been sowing under the surface for years with the greenback off 30% since 2002.

More likely than not, global leaders will watch how our new administration attempts to tackle the financial crisis before taking drastic steps. They understand that codependent risk exists as a function of the derivatives that interweave our financial infrastructure. If they could disassociate from our economic ecosystem without inflicting massive damage on themselves, they would have done so long ago.

If forward policy attempts to induce more debt rather than allowing savings and obligations to align, we must respect the potential for a system shock—such as a two-tier currency—to gain traction if, and likely after, the dollar meaningfully debases from current levels.

If this dynamic plays out—and I’ve got no insight or edge that it will—the global balance of powers would fragment into four primary regions: North America, Europe, Asia and the Middle East. In such a scenario, ramifications would manifest through social unrest and geopolitical conflict.

This particular path isn’t something one would wish for but the cumulative imbalances that steadily built in our finance-based economy must be resolved one way or another. Therein lies the critical crossroads we together face as our wary world attempts to find its way.

Scary? Yes. Probable? Not so much, at least for the time being. Possible? Certainly, although I’ll again offer that it could take years before the pieces of this prickly puzzle fall into place.

Effective money management dictates weighing the entire probability spectrum of potential outcomes and factoring them into our decision making process. While the notion of a seismic currency shift may seem obscure, we must respect the possibility long before it becomes front-page news.

For if we’ve learned anything through the last few years, proactive thought provocation is a necessary precursor to effective preparedness.

R.P.

[wolfcreek]

Let’s not forget ol’ Precott Bush. He was quite the wheeler-dealer in the last century.

“World War I was then raging in Europe. With the prospect that the U.S.A. would soon join the war, two Skull and Bones “Patriarchs”, Averell Harriman (class of 1913) and Percy A. Rockefeller (class of 1900), paid special attention to Prescott’s class of 1917. They wanted reliable cadres to help them play the Great Game, in the lucrative new imperial era that the war was opening up for London and New York moneycrats. Prescott Bush, by then a close friend of “Bunny” Harriman, and several other Bonesmen from their class of 1917 would later comprise the core partners in Brown Brothers Harriman, the world’s largest private investment bank.”

http://www.modernhistoryproject.org/mhp/ArticleDisplay.php?Article=BushCh01&Entity=BushPS

[wolfcreek]

“Geithner is not there to serve Obama, he’s there to manage him.”

Absolutely. Barry was chosen, not only through his mother and her Coomie asociates but, by Zbigniew
Brzezinski while at Columbia U. (You can throw Soros and the elites at CFR into that group)

[ArrogantBustard]

In a couple of years, the Mexicans and Canadians may well be asking “Who wants to trade their Pesos/CanuckBucks for US Dollars?”

[wolfcreek]

I don’t like the fact they will drag us down with them.

I’m ready to go another direction.

[B-Chan]

Fox and Bush jointly endorsed the Guanajuato Proposal

"La vida no vale nada en Guanajuato" -- Jose Jimenez

[fanfan]

Thanks for the ping, SwinneySwitch.

[fanfan]

How about we just take over Canada and Mexico?

Mexico?

Just build a wall.

[silverleaf]

interesting coincidence bump

[Philo-Junius]

During the English Civil Wars and the various Jacobite conspiracies which followed it was commonplace for families to keep at least one son prominently attached in both camps, so that, whichever way the fickle mob went, the family’s interests would be protected.

The Harriman family patronage of both the Bush and Clinton families shows this game is still played, but now the political leaders court the great families, not the other way around.

[dforest]

I tell you what, after the election, can’t remember where I heard it, but someone mentioned that a member of the Kennedy family went up to Obama and said “congratulations, you have been chosen as the one to pass the torch to” I do not think that was just a democrat party thing, I think it was planned for the outcome.

I knew then we had no real election, we were royally played. Interesting that they would pick a half black man to do the dirty deed. I do not believe anything happening now was unplanned.

[dforest]

Very interesting. Thought food.

[wolfcreek]

“Interesting that they would pick a half black man to do the dirty deed.”

I think the powers that be thought the time was right for just that. They were correct.

It really sucks not be able to trust but, Hey, at least we have hope and change. ;>)

[dforest]

I won’t deny there is change, the hope part is out the door.

[wolfcreek]

These are the real culprits.

http://land.netonecom.net/tlp/ref/federal_reserve.shtml

[Philo-Junius]

These charts scratch the surface, but you also need genealogies to see, for instance, why Karenna Gore’s marriage to Andrew Schiff virtually guaranteed that Al Gore would not fade into obscurity.

[Aquamarine]

Microfinance --- A whole new level of high risk loans. Where will they get the money to fund this ...... or to bail it out it one day?

[headsonpikes]

Either way, Spengler was right—this is the dawning of the Age of Caesars

No this is the dark before that dawn. It's more like the early 1st C. B.C. - on the cusp of the reaction to all that Gracchan and Marian redistributive "socialist" politics - the rise of Sulla!

In truth, I think we're a decade away from Sulla, and a couple of generations away from Caesar.(Sulla will look a lot like Caesar - perhaps a sort of historical fore-shadowing)

[wolfcreek]

I know. It's been like that for ions. Traitors all.

I thought I'd heard the name, Schiff. Along with Col. House and Paul Warburg, responsible for the Fed Reserve.

Why hasn't anyone challenged the constitutionality of the Fed? (at least lately)

[wolfcreek]

In this case, from the Ford family. Foundations are nothing more than a tax shelter for the rich.

90% of the Ford family's wealth went into the Ford Foundation to avoid inheritance taxes. (But they're just fine for the middle class)

[Philo-Junius]

In my mind, Marius and Sulla were the thesis and antithesis of the political dialectic which, ultimately, produced Caesar.

Obama indeed could be a puppet Marius, but he would need a military force loyal to him personally to be an exact analogue.

In the background, one always need to watch the equestrian moneylenders—they more than anyone else dictated the final arrangement.