Great British Pound Of Flesh

I’ve been thinking about the pound sterling lately. I keep rolling over in my mind the continual expansion of the treatment of the symptoms by the central banking cartels rather than addressing the illness itself.  I keep thinking to myself; “Who are the most influential individuals on the globe and what are they doing to protect themselves from the quantity of credit money?”  My mind keeps turning to London.

For the past month or so I’ve been thinking, just maybe, the British pound would be some sort of global safe haven from the Euro and the Dollar. Not because of English ingenuity or productivity, the normal things you would look for in a robust economy, but more what I would describe as “safety in old money.” You know, the kind of wealth that builds up in rich neighborhoods and insulates them from the economic rollercoaster that middle class and lower class neighborhoods are subject to.

I had the opportunity to visit Naples, Florida this week. If you haven’t been there, it’s one of the best examples of just such a phenomenon. This is the home of $20 million ocean front estates looking out over the Gulf of Mexico. These home values have held up during the collapse of the real estate market, while just blocks away (literally 10 blocks), middle class homes have collapsed in value and remain severely depressed. What was particularly striking to me was that you could buy a home today for $400k (valued $1.1 million three years ago) that shares essentially the same access to Naple’s Bay as the $20 million homes.  In other words, your boat fender would be rubbing shoulders with their boat fender notwithstanding the extraordinary financial differential. 

It’s not uncommon for the uber-wealthy to rub shoulders with the mere wealthy.  There’s just not enough super-rich to make for a decent country club party without the inconvenience of excessive private jet travel.  That’s why I started thinking about the British pound.  What was their plan?  How were they going to navigate their way out of the narrow streets of the City of London while avoiding being sideswiped by the dollar and the euro?  It’s obvious that they continue to accumulate precious metals and supress the prices accordingly in anticipation of the inevitable flipping of the reset switch, but what about systemic risk?  I figured they had a plan.  Their answer was consistent with the standard operating procedure for undesirable partnerships that put the family jewels at risk… divorce.   

Mervyn King, Governor of the Bank of England, gave a speech on October 25, 2010 at the Buttonwood Gathering in New York.  His speech was titled “Banking: From Bagehot to Basel, and Back Again.”  Here’s an excerpt from the speech.  

 
Another avenue of reform is some form of functional separation. The Volcker Rule is one example. Another, more fundamental, example would be to divorce the payment system from risky lending activity – that is to prevent fractional reserve banking (for example, as proposed by Fisher, 1936, Friedman, 1960, Tobin, 1987 and more recently by Kay, 2009). 
 
 In essence these proposals recognise that if banks undertake risky activities then it is highly dangerous to allow such “gambling” to take place on the same balance sheet as is used to support the payments system, and other crucial parts of the financial  infrastructure. And eliminating fractional reserve banking explicitly recognises that the pretence that risk-free deposits can be supported by risky assets is alchemy. If there is a need for genuinely safe deposits the only way they can be provided, while ensuring costs and benefits are fully aligned, is to insist such deposits do not coexist with risky assets.
  

Wow.  Did he say what I think he said?  Is he proposing special purpose banking that eliminates fractional reserves?  Does he want to separate the risk-based banking system from the payments system?  Did he say ”divorce the payment system?”  Now wait just a minute.  There’s two ways to look at this.  One would be old school, or true money, or a bullion-based system or whatever you want to call it.  The other would be the creation of an entirely new electronic payments system that was not built upon a debt-based fractional reserve system and was divorced from banking risk per se.  Which one is he talking about, or is he talking about both? 

Before you say to yourself, you can’t make money on a payment system that’s divorced from leverage… you’re wrong.  You could make huge money on such a system, especially if you controlled it.  The float between people getting paid by direct deposit from their employer and then filling their car up at a BP gas station alone would create a massive time value.  Then what is this claim that the emperor of risk-free deposits is clothed in a wardrobe as naked as the philosopher of alchemy?  Isn’t that the equivalent of treason?  He’s claiming the government is stealing from its own citizens in a interest-based confidence game doomed to failure.   So which is it…. real money and no growth, or risk-free deposits and the elimination of systemic risk to the payments system? 

Which choice is he recommending within the dichotomy of risk?  There was something about this speech that smelled like a Japanese hari kari mission.  You can double the range of an aerial bombing run if you don’t plan on flying back to your home base or an aircraft carrier.  It’s a modified central banking version of the terrorist suicide bomber or the Tom Cruise movie The Last Samurai.  Either decouple your currency as a store of wealth from the payment system, or we’ll crash your payment system… brilliant.  This would play on Wall Street and Main Street.  Finally a solution the three Pauls & Sons could agree on; Ron Paul, Rand Paul and Hank Paulson.  Simultaneously introducing the new gold bank currency as a store of wealth and it’s counterpart the new global payment system administered by the Bank for International Settlements.  What could be better,   especially if you get to administer the payment system.  If you refuse.  We’ll just keep flash-crashing, credit-default-swapping and precious-metals-price-suppressing until you submit to the plan.  Any questions. 

But how would Mervyn King’s plan play out in the media?  Is it possible that he could be proposing that we could have our cake and eat it too.  Don’t we know better than that by now?  Indeed that is the preferable choice from the far right where libertarians acknowledge the time preference of the human axiom and those on the left who would embrace the continued growth of the system itself as architected by those who understand better than you do exactly which choices will be best for your future.  It’s a global version of the Pepsi Challenge and it’s financed by Coke. 

King is proposing a solution that offers something for everyone including as serving the role of strawman for an attack by the New York Times   This solution is both liberty and paternity all wrapped up in one easy-to-eat burrito rolling continuously on the hot roller.  Thank heaven for 7-11.  It’s the central banker’s version of the global breath mint assertion that Cert’s is indeed two, two, two mints in one.   

It’s what Dave has previously described as the creation of a peer-to-peer global COINCINET (TM), but this one is conveniently owned, controlled and administered through the global payment systems network.  This proposal satisfies the double coincidence of wants without disintermediating those who would maintain the kill switch of commerce over your head under the guise of fraud control, the war on terror, war on drugs and the war on kids.  Just think of the convenience. 

The human head weighs eight pounds…

The math is quite simple as this is the philosophical equivalent of Isaiah Berlin’s Two Concepts of Liberty meets John Locke’s Two Treatises of Government.  It’s two forms of money;  one that’s safe and secure in the form of a risk-free deposit, backed by a gold-based central bank currency and one that facilitates a global payments systems.  Keep in mind that under this scenario only the banks will be allowed to trade in precious metals such as gold.  Gold is the one thing that the Anglo-Saxon and Islamic worlds can agree on.  It’s equal parts sharia and tea-party compliant.  And since you’ll have access to the new global payments system, you won’t need money anyway, so how could you sell your gold if you wanted to, that is with the exception of an authorized gold dealer on behalf of the banks.  As we learned in yet another Tom Cruise movie Jerry McGuire, the value of the British pound within such a new system would be multiplied eight times.  One pound would become eight pounds… the weight of the human head.  To be more specific, the suicidal banker’s head of Mervyn King. 

The New York Times swings their katana in the Japanese tradition known as kaishaku as the banker performs hari kari on himself: http://www.nytimes.com/2011/02/07/business/07king.html?_r=2&scp=1&sq=mervyn%20king&st=cse

blogger commentary on the New York Times hack job: http://londonbanker.blogspot.com/2011/02/mervyn-king-from-bagehot-to-basel-and.html    

The full content of the King speech: http://www.bankofengland.co.uk/publications/speeches/2010/speech455.pdf

75 Responses to “Great British Pound Of Flesh”

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  5. [...] The proposal that was circulated by Mervyn King of the Bank of England called for a new model based on a “divorced” currency – one half as a non-fractional currency with full gold backing to satisfy the double coincidence of wants while eliminating systemic risk and a second half as a fractional currency with a fractional gold backing and significant friction for liquidating (think IRA account/special purpose vehicle) thereby mitigating systemic risk significantly. (here’s a link with some background quotes: http://tradewithdave.com/?p=5310) [...]

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