THE NEW WORLD DISORDER

Ex-Treasury official: Dump dollar

Wants U.S. to fund alternative for international trade

Posted: October 26, 2009
9:51 pm Eastern
By Jerome R. Corsi
© 2009 WorldNetDaily


C. Fred Bergsten

A former assistant secretary of the Treasury for international affairs is warning dollar deficits might no longer be funded by foreign nations, including China.

But C. Fred Bergsten, the former Treasury executive who is issuing the warning, goes even further, recommending the White House join with the international community in creating an alternative to the dollar for international trade, he writes in the current November/December 2009 issue of the Council on Foreign Relations' Foreign Affairs magazine.

WND previously has reported that the plan to utilize IMF Special Drawing Rights as an alternative "one-world currency" to the dollar has been advanced by China, according to Columbia economist Robert Mundell, widely regarded as the "Father of the Euro."

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WND has also reported the G20 summit meeting in London in April, with the full concurrence of President Obama, took an important step to create a new world currency through the IMF that is designed to replace the dollar as the world's foreign exchange reserve currency of choice.

Point 19 of the final communiqué from the G20 summit in London April 2, specified, "We have agreed to support a general SDR which will inject $250 billion into the world economy and increase global liquidity," taking the first steps forward to implement China's proposal that Special Drawing Rights at the IMF should be created as a foreign exchange currency to replace the dollar.

The article is particularly important given the CFR's typically outspoken support of free trade globalism.

"It has long been known that large external deficits pose substantial risks to the U.S. economy because foreign investors might at some point refuse to finance these deficits on terms compatible with U.S. prosperity," Bergsten writes.

"Any sudden stop in lending to the United States would drive the dollar down, push inflation and interest rates up, and perhaps bring on a hard landing for the United States – and the world economy at large."

Bergsten warns the Obama administration risks becoming increasingly dependent on foreign nations buying U.S. debt in order to keep the federal government operating.

"The country's fate is already in the hands of its foreign creditors, starting with China but also including Japan, Russia and a number of oil-exporting countries," he stresses. "Unless the United States quickly achieves and maintains a sustainable economic position, its ability to pursue autonomous economic and foreign policies will become increasingly compromised."

Noting that the G20 meeting in April agreed to create $250 billion in IMF Special Drawing Rights, Bergsten suggested the distribution of SDRs could total $1 trillion over the next five years.

"As long as the dollar remains the dominant international currency, this demand [to increase foreign exchange holdings globally] will generate capital inflows to the United States and pus up the dollar's exchange rate, hurting U.S. competitiveness and creating even larger U.S. external deficits [in the U.S. balance of foreign trade and current account status]," he writes, clearly indicating his willingness to see a decline in the dollar's role in international trade.

Bergsten predicted that by 2030, the U.S. will be paying $2.5 trillion a year to the rest of the world, equal to the nation's current total spending on health care, just to pay the interest on U.S. debt.

By 2030, Bergsten anticipates the net foreign debt of the U.S. will exceed $50 trillion, or 140 percent of gross domestic product.

The Obama administration has admitted to a $1.4 trillion deficit this year, the largest federal budget deficit relative to the size of the economy since 1945.

Moreover, the administration projects a $9 trillion addition to the national debt over the next 10 years, nearly doubling in one decade the approximately $11.9 trillion national debt accumulated since the founding of the U.S.

Optimum currency areas

Economist Robert Mundell has argued for decades the proposition that nation-state currencies, including the dollar, need to give way to a new official world currency.

According to Mundell, an "optimal currency area" is best defined by international free trade areas and regional markets, not by nation-states such as the U.S.

Mundell's argument was that nation-states are not optimal currency areas, because their borders are artificial constraints imposed on the globe to create ethnic or historical divisions that do not necessarily represent how international markets operate.

To understand the concept, Mundell cites former Federal Reserve chairman Paul Volker's frequently quoted dictum that, "A global economy needs a global currency."

"The benefits from a world currency would be enormous," Mundell argues on his website.

What are IMF Special Drawing Rights?

SDRs are international reserve assets calculated by the IMF in a basket of major currencies that are allocated to its 185 member nation-states in relation to the capital, largely in gold or widely accepted foreign currencies that the members have on deposit with the IMF.

As Red Alert previously reported, the proposal originally advanced by China and Russia would issue SDRs to central banks of IMF member states far in excess of any gold or currency reserves the members have on deposit with the IMF.

The idea is to utilize the little-understood and largely ignored SDRs in a new capacity, as a sort of an international overdraft facility made available to bankrupt or financially failing IMF members. The idea originated with a senior official at both the Federal Reserve and the U.S. Treasury, Ted Turner.

The IMF created SDRs in 1969 to support the Bretton Woods fixed exchange rate system.

"The international supply of two key reserve assets – gold and the U.S. dollar – proved inadequate for supporting the expansion of world trade and financial development that was taking place," a document on the IMF website explains. "Therefore, the international community decided to create a new international reserve asset under the auspices of the IMF."

When the Bretton Woods fixed rate system collapsed, major world currencies, including the dollar, shifted to a floating exchange rate system where the price of the dollar and other major world currencies was created by trading on international currency exchanges.

Until the current global economic crisis, SDRs issued by the IMF have been used by IMF members primarily as a reserve account to support international trade transactions, not as an alternative international currency available to settle international debt transactions in danger of default.

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