Chapter 38 - A Model Representing World Trade

A Room Full of Countries: 1
Example One: The countries of the world trade with each other directly. No Banks act as intermediaries.

There are ten people and myself in a room and you are one of the ten. You each represent a country and I have no role whatsoever. You will each be given some credit card sized pieces of paper and you will make your own currency. A different currency for each country. In the first example, you will trade amongst each other as would have been done centuries ago, before private international banks intervened. I will give you sheets of paper which will represent the goods you exchange. You can write the names and volumes of the products or services on the paper. This is a tricky exercise, but you will soon balance apples for airplanes and bananas for baked beans. You will soon set your exchange rates and hopefully trade for currency.

Although trade is cumbersome, usury and unpayable debts cannot occur. Debts are impossible. You simply trade goods with other countries. You may obtain currency belonging to other countries, but you will eventually spend the currency or exchange it with another country.

You can imagine hundreds of years ago, small boats going from country to country exchanging goods for goods in a situation where no debts could occur. You should also be able to imagine two adjacent countries in the modern era, exchanging goods, whilst actually using each other’s currency interchangeably. If someone builds up too much of your the nation’s currency you would go for a shopping trip over the border. This is international exchange without debt.

Example Two: Banks act as intermediaries.

Now consider the second example where international banks get involved. All international exchange of money is now done through a banking system that takes fees as a commission. Any imbalance in trade will require credit from the bank and interest charges will be involved. There are many efficiencies available when international trade is conducted through banks. The payment system between international businesses is simply phenomenal. I purchase an e-bike electric motor from an unpronounceable place in China at a very low price and the seller receives my Bank Credit as a credit in their PayPal account within seconds.

It is not the payment system that is the problem. We don’t mind paying a comparatively small percentage to have our money transported in a reliable and safe manner to a faraway place. The problem is in the way the exchange rate is calculated and the effect that has on the way debts accrue to nations. Nations become indebted to international banks that play to their own rules.

Some countries peg their currencies, but most countries rely on the Bank for International Settlements (BIS). The exchange rates are set by the foreign exchange market, Forex. This entity, Forex, trades in virtual money. That means that no hard currencies are involved. One would imagine that Forex would allow international traders exchange money with each other, but this is not the situation. Only 20% of the trade on Forex has its origins in trade. 80% of the Forex trade is speculation. Do a web search for how to trade on Forex  web search for ‘how to trade on Forex’. Puzzle out how to become a small-time international currency speculator. Ordinary citizens, with no need for foreign currency, can trade on Forex in a manner that resembles posh betting. Big speculators, with more money than you can imagine, can move money in such volumes that they can manipulate the market in their favor. These people can go close to destroying the finances of a nation, without declaring war on the victim nation. The outcome of the international banking arrangements causes the nations of the world to become heavily indebted to international banks. These international banks are not owned or controlled by the United Nations and they are not owned by the nations that trade with them. They are owned by other banks and have a similar corporate structure to any other multinational corporation. Nations in strife get bailouts from the IMF. Thus, we have a situation where nations become indebted in their own currency to national banks and indebted in foreign currency to international banks. Some of these international banks are given quasi-official names such as the ‘International Monetary Fund’ (IMF), ‘Bank for International Settlements’ and ‘World Bank’. The World Bank does not belong to the world. The IMF is not a fund, it is a profit driven private bank. It was not set up for the benefit of nations but for the benefit of its shareholders. The shareholders happen to be other banks. I give you this table titled: ‘International Debt’ that shows how indebted each nation is to these international banks. What is strange is that all but four of the nations of the world are in debt to these international corporations. The four nations that are not in debt are not positive, they are zero.

International Debt.

Can you spot anything illogical in the next table?

Central Intelligence Agency Cia World Factbook
Country Comparison :: Debt - external
1 European Union$15 950 000 000 000
2 United States$15 680 000 000 000
3 United Kingdom$9,577 000 000 000
4 Germany$5,717 000 000 000
5 France$5,371 000 000 000
6 Japan$3 017 000 000 000
7 Luxembourg$2 935 000 000 000
8 Italy$2 604 000 000 000
9 Netherlands$2,347 000 000 000
10 Spain$2 278 000 000 000
11 Ireland$2 164 000 000 000
12 Switzerland$1 544 000 000 000
13 Australia$1 506 000 000 000
14 Belgium$1 424 000 000 000
15 Canada$1 331 000 000 000
16 Singapore$1 174 000 000 000
17 Hong Kong$1,159 000 000 000
18 Sweden$1 039 000 000 000
19 China$863 200 000 000
20 Austria$812 000 000 000
21 Norway$720,600 000 000
22 Russia$714,200 000 000
23 Finland$586,900 000 000
24 Denmark$586,700 000 000
25 Greece$568,700 000 000
26 Portugal$508,300 000 000
27 Brazil$475,900 000 000
28 Korea, South$430,900 000 000
29 India$412 200 000 000
30 Poland$365,200 000 000
31 Turkey$359,500 000 000
32 Mexico$354,900 000 000
33 Indonesia$223 800 000 000
34 Hungary$170,300 000 000
35 United Arab Emirates$167,900 000 000
36 Saudi Arabia$149,400 000 000
37 Qatar$149,400 000 000
38 Taiwan$146,800 000 000
39 Thailand$142 600 000 000
40 South Africa$139 000 000 000
41 Ukraine$138,300 000 000
42 Romania$131 600 000 000
43 Kazakhstan$131 300 000 000
44 Chile$119 000 000 000
45 Argentina$111 500 000 000
46 Czech Republic$102 100 000 000
47 Iceland$102 000 000 000
48 Malaysia$100,100 000 000
49 Israel$96,300 000 000
50 Cyprus$95,280 000 000
51 Colombia$85,830 000 000
52 New Zealand$81 360 000 000
53 Venezuela$74,870 000 000
54 Philippines$72 810 000 000
55 Slovakia$68,440 000 000
56 Vietnam$68,380 000 000
57 Croatia$60,470 000 000
58 Iraq$59,490 000 000
59 Puerto Rico$56,820 000 000
60 Slovenia$52 530 000 000
61 Pakistan$52 430 000 000
62 Malta$51 080 000 000
63 Peru$50,150 000 000
64 Egypt$48,760 000 000
65 Sudan$40,920 000 000
66 Latvia$39,870 000 000
67 Bulgaria$37,850 000 000
68 Morocco$36,510 000 000
69 Kuwait$34,410 000 000
70 Sri Lanka$33 670 000 000
71 Serbia$33 600 000 000
72 Bangladesh$30,690 000 000
73 Lithuania$29,550 000 000
74 Bahrain$28,820 000 000
75 Tunisia$26,950 000 000
76 Estonia$26,740 000 000
77 Lebanon$26,740 000 000
78 Cuba$23 440 000 000
79 Angola$22 710 000 000
80 Jordan$22 040 000 000
81 Ecuador$19,910 000 000
82 Dominican Republic$18,010 000 000
83 Guatemala$17,670 000 000
84 Uruguay$17,610 000 000
85 Bahamas, The$17,560 000 000
86 Nigeria$15,730 000 000
87 Iran$15,640 000 000
88 Panama$15,220 000 000
89 Costa Rica$15,100 000 000
90 Ghana$14,680 000 000
91 El Salvador$14,440 000 000
92 Tanzania$13 820 000 000
93 Jamaica$13 820 000 000
94 Papua New Guinea$13 610 000 000
95 Ethiopia$11 990 000 000
96 Kenya$11 960 000 000
97 Georgia$11 740 000 000
98 Bosnia and Herzegovina$11 140 000 000
99 Oman$10,840 000 000
100Syria$9,796 000 000
101Azerbaijan$9,552 000 000
102Cote d’Ivoire$8,959 000 000
103Uzbekistan$8,773 000 000
104Zimbabwe$8,445 000 000
105Armenia$7,839 000 000
106Yemen$7,806 000 000
107Macedonia$7,451 000 000
108Paraguay$7,013 000 000
109Congo, Democratic Republic of the$6,874 000 000
110Laos$6,690 000 000
111Libya$6,319 000 000
112Mozambique$6,276 000 000
113Moldova$6,218 000 000
114Honduras$6,173 000 000
115Zambia$5,985 000 000
116Burma$5,379 000 000
117Algeria$5,278 000 000
118Bolivia$5,265 000 000
119Uganda$5,223 000 000
120Mongolia$4,954 000 000
121Cambodia$4,912 000 000
122Trinidad and Tobago$4,823 000 000
123Nicaragua$4,532 000 000
124Barbados$4,490 000 000
125Senegal$4,375 000 000
126Namibia$4,312 000 000
127Nepal$3 956 000 000
128Kyrgyzstan$3 859 000 000
129Cameroon$3 455 000 000
130Gabon$3 433 000 000
131Madagascar$3 361 000 000
132Mali$3 349 000 000
133Congo, Republic of the$3 274 000 000
134Mauritania$3 233 000 000
135Albania$3 213 000 000
136Somalia$3 050 000 000
137Korea, North$3 000 000 000
138Mauritius$2 894 000 000
139Burkina Faso$2 863 000 000
140Guinea$2 584 000 000
141Botswana$2 416 000 000
142Tajikistan$2 162 000 000
143Equatorial Guinea$2 104 000 000
144Guyana$1 846 000 000
145Chad$1 828 000 000
146Seychelles$1 719 000 000
147Montenegro$1 700 000 000
148Rwanda$1 656 000 000
149Malawi$1 556 000 000
150Niger$1 556 000 000
151Bermuda$1 400 000 000
152Sierra Leone$1 331 000 000
153Cabo Verde$1 328 000 000
154Afghanistan$1 280 000 000
155Bhutan$1 275 000 000
156Benin$1 236 000 000
157Belarus$1 204 000 000
158Haiti$1 118 000 000
159Guinea-Bissau$1 095 000 000
160Eritrea$1 094 000 000
161Belize$1 048 000 000
162Maldives$890,800 000
163Faroe Islands$888,800 000
164Suriname$860 000 000
165Djibouti$821 600 000
166Lesotho$794 000 000
167Fiji$779,900 000
168Togo$719 000 000
169Grenada$679 000 000
170Burundi$677,200 000
171Central African Republic$634,200 000
172Swaziland$609,500 000
173Aruba$533 400 000
174Gambia, The$517,700 000
175Kosovo$448,200 000
176Saint Lucia$446,400 000
177Antigua and Barbuda$441 200 000
178Liberia$438,100 000
179Turkmenistan$428,900 000
180Sao Tome and Principe$406,800 000
181Samoa$368,300 000
182Vanuatu$307,700 000
183Dominica$274,900 000
184Solomon Islands$255,500 000
185Saint Vincent and the Grenadines$255,300 000
186Tonga$215,800 000
187Saint Kitts and Nevis$158,900 000
188Comoros$142 900 000
189Cook Islands$141 000 000
190Marshall Islands$87 000 000
191New Caledonia$79 000 000
192Micronesia, Federated States of$60,800 000
193Greenland$36,400 000
194British Virgin Islands$36,100 000
195Nauru$33 300 000
196Kiribati$10 000 000
197Montserrat$8,900 000
198Anguilla$8,800 000
199Wallis and Futuna$3 670 000
200Niue$418 000
201Liechtenstein$0
202Brunei$0
203Palau$0
204Macau$0
This entry gives the total public and private debt owed to non-residents repayable in internationally accepted currencies, goods, or services. These figures are calculated on an exchange rate basis, i.e., not in purchasing power parity (PPP) terms.
[Source: https://www.cia.gov/library//publications/the-world-factbook/rankorder/2079rank.html]

The total of these debts is ~$73 000 billion US (~$73 trillion). And where did they get this money? The total currency created by the central banks of the world is about ~$4 250 billion US. There is about seventeen times as much money owing to the IMF/World Bank than currency (M0) produced by all the central banks of the world combined. So clearly, the IMF is loaning out money that never came from a central bank. The IMF creates credit and debt in equal quantities. When the IMF lends one billion dollars to a nation it writes one billion with a plus sign in a credit account and one billion with a minus sign in a debit account. This could have been done by a national public bank in its own currency. If you are capable of logical thought, a national public bank could even create a billion in a foreign currency by creating, say, a billion yen in credit and a billion yen debt. If the IMF can do it, why can’t a national public bank? The IMF is capable of creating any currency by double entry accounting.

Currency in Circulation M0
Currency billion USD
Eurozone1035.2
USA850.7
Japan762.4
China492.3
India140.3
Russia110.8
UK87.5
Canada43.8
Switzerland40.3
Poland37.7
Brazil37.3
Mexico34.3
Australia32.4
Other countries554.9
Total4259.9
Source: http://www.marketoracle.co.uk/Article11576.html in an article by Mike Hewitt 2009 from www.dollardaze.org

Our economic commentators regularly discuss which nation has greater debt, but they never point out that they are all in debt and that this is totally illogical. This was one of the reasons I started studying ‘real economics’ when I wrote pamphlets for the Occupy Wall Street movement. I am a retired mathematics and physics teacher. It struck me as being horribly wrong that ‘all nations were in debt’. I then found out that, as soon as nations became indebted to these international corporations, the international corporations started dictating national policy requirements, overriding national democracy. This following quote in 1944 by Eddie Ward, who was the Labor Minister of Australia, gives some insight:

“...I am convinced that the agreement [Bretton Woods] will enthrone a world dictatorship of private finance more complete and terrible than and Hitlerite dream. It offers no solution of world problems, but quite blatantly sets up controls which will reduce the smaller nations to vassal states and make every government the mouthpiece and tool of International Finance. It will undermine and destroy the democratic institutions of this country - in fact as effectively as ever the Fascist forces could have done - pervert and paganise our Christian ideals; and will undoubtedly present a new menace, endangering world peace. World collaboration of private financial interests can only mean mass unemployment, slavery, misery, degradation and financial destruction. Therefore, as freedom loving Australians we should reject this infamous proposal.” [1]

These words by Joe Stiglitz are illuminating:

“Every country the IMF/World Bank got involved in ended up with a crashed economy, a destroyed government, and sometimes in flames with riots.”

And from Rex Weyler of Greenpeace:

“These bankers are not proposing to loan their money to the world. Rather, they propose creating new money out of thin air, likely through the International Monetary Fund (IMF) ‘Special Drawing Rights’, a synthetic currency beyond the control of any sovereign nation. By loaning currency rights to national treasuries, the bankers create $100 trillion with a few computer keyboard strokes. Then, they loan the fabricated money, collect interest payments and demand the principal back in real money from the debtors. It’s a lucrative scheme if you’re on the inside.” [2]

This is a terribly important subject that needs far greater knowledge on the part of the public. It may be possible to operate outside this international cartel of banks and it has been done before. However, wars quite often start soon afterward. When there are two nations which do significant reciprocal trade with each other, they should be able to directly trade and then exchange their currency directly. This would be similar to what happens internally in most nations. Bank One communicates with Bank Two. They each record the total of the daily transactions between each other. There may be $1000 000 of transactions in one direction and $1000 001 in the other direction. All they need to record is the one dollar difference. The $1 can be left as a balance adjustment of each other’s bank accounts at the other bank. Similar could be done between the banks of different nations, avoiding the international banking corporations and their predatory practices. Most self-taught economists, not poisoned by classical economics, tend to concentrate on national finance systems. We need better general knowledge about our hideous international finance system and we need a much greater study about any relationship between international finance and international war. Correctly managed, international debt could be a thing of the past. We need to move away from those bad old days when International Banks wanted a slice of every pie.

Germany, in the 1930s, started to exchange goods and services with a few other countries with a form of barter. This had the effect of removing the international banks from the financial side of their international trade. The German system eliminated National Debt and International Debt due to trade deficits. The process was halted by flattening their nation.

Winston Churchill 1960

“Germany’s unforgivable crime before WW2 was its attempt to loosen its economy out of the world trade system and to build up an independent exchange system from which the world-finance couldn’t profit anymore. ...We butchered the wrong pig.”

Louis McFadden 1930

“The Federal Reserve Bank of New York is eager to enter into close relationship with the Bank for International Settlements....The conclusion is impossible to escape that the State and Treasury Departments are willing to pool the banking system of Europe and America, setting up a world financial power independent of and above the Government of the United States....The United States under present conditions will be transformed from the most active of manufacturing nations into a consuming and importing nation with a balance of trade against it.” [3]

Jeffrey Sachs

“The runs started in Thailand after the IMF intervened in such a dramatic way. Then the IMF came to Indonesia.”