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.

[Aquamarine]

It may be voluntarily funded now but could be a forced world tax in the future which would be communism.

[Philo-Junius]

Fun fact I just learned today:

Andrew Schiff is a managing director of the—wait for it—Perseus-Soros BioPharmaceutical Fund:

http://www.observer.com/node/48529

Thanks for nudging me to review these links; it’s always illuminating, so to speak.

[wolfcreek]

I could see that happening.

[wolfcreek]

My pleasure. More FReepers should join in.

[SisterK]

You left out the part of Geithner’s involvement with International Monetary Fund or the UN’s department of economic planning.

[SisterK]

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

Kennedy wanted to disband or audit the Fed a couple of months before he was killed.

[donmeaker]

I would be all for a North American Currency if I controlled the printing press. If anyone else did, I wouldn’t like it so much.

Of course the US Government doesn’t have legal power to print money. Congress can only coin money, in accordance with article 1 of the Constitution.

[Sundog]

There’s gold down there. The beggars could mine it for us, just like old times. Think of it as their contribution to a new gold-backed North American dollar.

[Cedar]

Thanks for your informative comments. We see it all happening before our eyes, but as mentioned, many here at FR just think it’s tinfoil stuff.

[wolfcreek]

No, it’s in the link.

“director of the Policy Development and Review Department at the International Monetary Fund.”

[wolfcreek]

Lincoln and Kennedy’s monetary policy may have led to both their deaths.

http://www.illuminati-news.com/kennedy-assassin.htm

[wolfcreek]

Your Welcome. Sometimes I wonder if it’s worth the effort to keep informing.

[Aquamarine]

You left out the part of Geithner’s involvement with International Monetary Fund or the UN’s department of economic planning.

The United Nations Capital Development Fund (UNCDF) and the 2005 International Year of Microcredit

"The UN General Assembly designated 2005 as the International Year of Microcredit and has invited Governments, the United Nations system, concerned non-governmental organizations and others from civil society, the private sector and the media to join in raising the profile and building the capacity of the microcredit and microfinance sectors."

[SisterK]

Follow the money. I am working hard untangling the last 100 years of lies and you tell me that “Lincoln and Kennedy’s monetary policy may have led to both their deaths”. That the evil goes further back? Further. Further. Perhaps to a garden some 6000 years ago?

[SisterK]

The United Nations Capital Development Fund (UNCDF) and the 2005 International Year of Microcredit "The UN General Assembly designated 2005 as the International Year of Microcredit and has invited Governments, the United Nations system, concerned non-governmental organizations and others from civil society, the private sector and the media to join in raising the profile and building the capacity of the microcredit and microfinance sectors."

Isn't 2006 when the economy started the downhill slide?

[wolfcreek]

I agree. Blackness in the hearts of men...

In the case of Kennedy and Lincoln, easier to research.

[Aquamarine]

2006 is when the real estate market peaked then started to decline and may have been what triggered the problem with the banking industry.

[Avoiding_Sulla]

Yes, it does appear that it is too late to avoid Sulla. I’m sorry I couldn’t figure out HOW to prevent the CAUSE for the need for his type. It’s the enemy within who have played Hegelian games so well (Marxists and Tranzis carrying their water) that we were no match for.