Slowest Growing Financial Crisis.

Huw Pill, The Chief economist of The Bank of England, made some interesting statements a few days ago. He said that England as a country has become poor and the people must reconcile to it. Since it is a statement of truth, nobody liked the statement. He also said that economics is hardly a science. This statement, I liked. Remember, I always said that there is no subject as `Economics’? In my opinion, Economics is a philosophy. It is the articulation of individuals’ creative imagination. This is manifested by the lack of consensus between any two so-called experts on anything. Be that as it may.

Ten days ago, a senior professional from a global, too big to fail, bank asked me what is ailing the banking sector. He said that he and his colleagues were asking the bank management this question and their reply was not convincing. I gave him the answer. I thought of elaborating on it in this article. Banks are supposed to channel money from depositors towards productive purposes. They fund the working capital needs of business as well as the needs for capacity creation. Such funding, not only helps the borrower flourish, but also helps create further downstream and lateral economic activities. Thus, these are productive funding. When the banks fund activities like trading in stocks, derivatives, commodities trading, etc, they are not for productive purposes. No value addition takes place in the economy. Same assets get their values enhanced without causing any value addition to the economy. When such activities form part of the assessment of GDP of a country, the country appears to have performed well economically. What happens in such situations is a mere wealth transfer to the rich people and not true growth. The growth in GDP in India during 2004 to 2009 consisted, to a large extent, of such `non-value added’ activities. Since 2000, thanks to developments in digital technology, the traditional businesses, globally, have been shrinking steadily. Businessmen were worried about their investments in capacity creation becoming obsolete even before the capacity gets put to production. This resulted in consistently reduced borrowing from the banks by traditional industries, from that date. Banks have the obligation to service their depositors. Since the banks are not lending for productive purposes, they resorted to lending to non-productive, speculative in nature, activities. Such lending increased the vulnerability of banks. The global banks are going through this crisis. The global banks have been funding, indiscriminately, such activities, which are of no collateral value, resulting in the current morass. Can the banks come out of the crisis? No. Simple reason is, the continued and enhanced developments in digital technology render such reversal truly irreversible.

In social media, there is so much cacophony about the state of the global economy. For many, the economy is in recession. For some, the economy is healthy. Some wonder as to why the economy has not crashed yet. What these so-called expert economists do not realise is that the global economy has been in a state of deflation for a long time already. By deflation, I mean that the cost of production as well as service has been coming down due to digital technology, consistently. This cost contraction is all pervading and ubiquitous. Unlike earlier days when any new technology benefitted some specific industry and some specific geography. This is irreversible. As I mentioned in the previous paragraph, the size of the global economy has been consistently shrinking without denying the people their basic needs. This is one of the reasons as to why people are not agitating as they used to do during earlier economic crises. This is the truth. This is real. The older generation of people, politicians being largely from that generation, have never seen such situations in the past. Hence, they are not able to come to terms with the truth. Will this ever pivot back? Not in the foreseeable future. I have given my prognosis for the future in my book `IT Killed Capitalism. Thank You Mr. Gates’.

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The hot topic, globally, is `De-Dollarisation’. I had written many times that the Dollar is losing the global reserve currency status. In this debate, there is a clear demarcation. Those from America are convinced that the Dollar can not be dethroned from being the reserve currency. Commentators from the rest of the world are certain that it is the end of the road for Dollar hegemony. Let me explain what is happening. The important reason why Dollar remained as the reserve currency was the payment system `SWIFT’. Before we proceed further, we must also remember that Dollar was not absolute reserve currency. Trade took place in Pound-Sterling, Euro, and in some situations, bilateral currency like Ruble-Rupee trades, etc. Dollar trades were predominant. `SWIFT’ facilitated the dominance. Obviously, this gave a tremendous advantage to America because, the Dollar happened to be the country’s currency too. Unfortunately, instead of using this advantage prudently and responsibly, America misused it. Using its military power, it bullied vulnerable countries to use the Dollar as the currency for trade. Both Saddam Hussein and Col. Gadhafi paid with their lives for suggesting the use of Gold backed currencies for their oil trade.

-?????????With the advent of digital technology, several payment systems have been developed and they are capable of replacing `SWIFT’ without any problems. Russia’s `Fast Payment System’, India’s UPI, China’s Alipay are some examples. Other than these, there are many such payment systems under development/implementation. For example, ASEAN countries have developed a payment system to be used among its members, Latin American countries have developed their own too. Like `SWIFT’, `VISA’ payment system was dominating the credit card payment system. Here again, Russia’s `MIR’, India’s UPI and similar systems have come into play, ending VISA’s dominance. These different payment systems are integrating with each other, creating a comprehensive payment system which could cater to nearly all global trades.

-?????????Apart from the developments in the payment systems, countries are now willing to use the respective local currencies for bi-lateral trades. They open what is called the `VOSTRO’ accounts between themselves to settle bi-lateral dues. Previously, vulnerable countries could not indulge in such bi-lateral arrangements due to America’s bullying. Today, many of them have come out of such vulnerable situations, mainly because their respective economies have grown. Also, due to the new multi-polar world economic and military order that has emerged, all such countries are able to stand up to America and resist their pressures.

-?????????There will be situations where the above explained system may not be able to fulfil the trade settlement needs. For enabling such transactions, Commodity (essentially Gold) backed BRICS currency is being introduced.

I have listened carefully to the arguments from American commentators on this topic. I can see the mistake they are making. For them, the world consists only of North Atlantic countries. 85% of the world population live outside of these countries. Besides, they appear to have not kept track of developments as described by me above. Not only are they deceiving themselves but they are also not explaining the impending changes that are coming to the people of America. People are not aware of the implications and the problems they may have to endure. `De-Dollarisation’ does not mean that Dollar will cease to exist. Dollar will continue to be the currency for America. Countries may use Dollar as intermediate currency. The volume of Dollar denominated global trade will be substantially reduced. Presently, Foreign countries are holding 31.5 trillion Dollars. Of this 7 trillion are in the form of short-term trade bills and treasury bills. The balance 24.5 trillion Dollars are held in the form of long-term treasury bonds and corporate bonds. These are held by foreign Central banks as well as foreign private bodies. They were doing so to have adequate Dollar in reserve to fund their imports, because most global trade happened in Dollar. When the dollar denominated trade comes down substantially, there will be no need for foreign countries to hold Dollar reserves. Obviously, the Dollar will get dumped back to America. When the foreign entities dump Dollar back, they would seek to take their money back in their respective local currencies. Here comes a major problem for America. America does not have enough reserves in foreign currencies. The ratio of foreigners’ holdings in Dollar to the foreign currency reserve with America is 18.5. So, when foreigners dump dollars, America will have to buy foreign currencies in the market. This catastrophic for the value of the American Dollar. By the way, foreign central banks have already dumped a lot of Dollars. The FED has been keeping Dollar afloat using artificial methods. FED’s claims on inflation is unsustainable. The global trade is shrinking, the order books are shrinking, oil consumption is falling, shipping and container rates are falling, the number of unutilized containers are increasing and, in such situation, how can there be any inflation? Inflation is the cover to keep the Dollar rate high. In this game, the bullion banks, particularly JP Morgan, is helping by manipulating the price of Gold. In February 2023, JP Morgan entered into derivative contracts for 11 million ounces of gold. This is illegal. Who cares? JP Morgan is doing all this rigging only at the bidding of the US Government and the FED. Can such practices go on eternally? No way. There is a consequence to this. When FED keeps artificially increasing interest rates, it messes with the balance sheets of commercial banks. Current depositors start to pull out their deposits to invest in higher yielding instruments. This is how Silicon Valley bank perished. The bank failures will bring an end to such methods. Until then, good luck to them.

I request the readers to watch this video where Congressman Andy Biggs is being interviewed by Judge Napolitano. In this interview, Andy makes a stunning revelation. According to his understanding, if the US Government fails to pay the bills for want of authorization by the congress to increase the debt ceiling, the FED will pay the bills on behalf of the government. If true, and I don’t have any doubt about it because I see no reason to think otherwise, it is a huge fraud on the global monetary system. Global central banks must object to it. This makes a mockery of 1. the American budget system and 2. more seriously, this means that America can enjoy and splurge on anything, interfere in any country and spend at will, all by just printing more money without earning it through legitimate means. As a matter of fact, even if congress approves the raising of debt ceiling, it is a fraud on the global monetary system. In this process, the US commits this fraud with approval. No wonder that America continues to destabilise the governments of other countries for, it costs them only the cost of printing paper Dollars. Currently, America is involved in destabilizing Taiwan, Sudan, Thailand, Mongolia, Armenia, Eritrea and a few others.

Before ending the article, let me give my customary comments on the Ukraine war. This year, there were unusually heavy rains in Ukraine. The trenches are full of water. As a result, both sides have not started any new offensives in the last 3 months. If you want to know about Bakhmut, the troops are moving on the asphalted roads and that is why the war is going on there. Russia has been continuously pounding with missiles and drones, defense establishments, ammunition storages etc. In the last few days, 2 significant events took place and these events have confirmed every thing I have been writing about the war from the beginning. 1. Jack Teixerira, a 21 year old National Guardsman at the US national Air Guard’s air wing leaked top secret documents meant to be perused only by the chief of the US Military. He has been sharing these documents regularly since February 2022 in the Chat Room he has with his friends. Suddenly, New York Times published some of these leaked documents. Let me not discuss the politics behind the leaks. These leaks confirm everything that I wrote since the beginning of the war. 2. General C G Cavoli, who is a 4 star US General currently serving as the commander of US European Command, in his deposition before the US Congressmen, said, in unequivocal terms, that contrary to American propaganda, Russian Defense position has improved substantially during the period of the war. He also said that Russians are indulging in a high level of under sea activities. Remember what I wrote about the Belgorod submarine with Poseidon Nuclear missile installed torpedoes in the Atlantic waters??

Regarding the back channel negotiations for peace, I am still hopeful. The leaks and Gen. Cavoli’s statements, in my opinion, appear to be preparing the American citizens to accept the defeat of NATO, a severe one at that, in Ukraine.

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If the King doesn’t punish, God will ultimately.

J Prakash

Author:?IT Killed Capitalism. Thank You Mr. Gates.

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