The Main Burrito, Barack Obama, says that the great BP -- which is desecrating the planet with its oil spill -- may cancel dividend payouts to shareholders and put an initial US$20 billion payment into an independently supervised escrow account to pay for the clean-up needed as well as compensation for livelihoods affected.

But, unsurprisingly, some media reports are claiming that BP sources assert that the company is unlikely to cancel dividend payouts but only delay them, as the dividends are valued at a hefty US$10.5 billion annually.

Nothing has been said about whether top honchos of BP will give up bonuses due to the mishandling of the oil spill.

And as expected, Britain's Big Cheese David Cameron is already under pressure by the money bags there to do more to protect such a hallowed company like BP that accounts for apparently 12 per cent of all dividends paid by British companies.

Meanwhile, British Treasury Enchilada George Osborne further confirms his government's plans for a tax on banks stating that they will see to it that there are also further restraints on pay and bonuses of bankers.

The bank tax is a paltry attempt to get something back for citizens for the billions criminally wasted on bank bailouts using the taxpayers' money.

The UK government is additionally supposed to establish an independent commission to study whether big banks should be broken up and their investment and retail arms separated.

But in the end, all this credit and escrow accounts come to naught because the value of the money and how it is created is what needs to be looked at in all seriousness. The world is still being held hostage by fiat currencies that can be just printed to pay for anything.

The money we use is not worth the paper it is printed on as it has no backing by gold or precious metals.

This is aggravated by the dishonest fractional reserve banking system that is a blight upon the world economy. This scam in banking allows banks to keep 10 per cent of a deposit with it as ready cash payment for withdrawals while loaning out the remaining 90 per cent to others until in effect each deposit generates 9 times the amount of itself. The money thus generated is a form of phantom credit money that circulates as the money in our wallets etc.

The whole financial crisis in the first place is largely a side effect of the fiat currency system coupled with the fractional reserve banking system, and until that changes the problems will only get worse until we bring back some form of the gold standard as well as eradicate fractional -- or rather -- fictional reserve banking.

The world monetary system today is a bubble wrapped inside a fraud hidden within the heart of greed.

Here's an extract I had written but did not use for publication elsewhere, but it seems appropriate to use here:

“Towards the end of 2007, it was apparent that things were going wrong badly in the world financial scene. The test case for this was the collapse of the sub-prime speculative bubble in the US housing market. With the swiftly collapsing sub-prime market, banks started calling in loans. When banks start to call in loans they are not just calling in a fixed amount of money. They are calling in inflated amounts of sums of credit with interest to boot. Given the fractional reserve banking system throughout most of the world what this means is that if, as was supposedly the case at end 2007 in the US, banks called in US$200 billion of money they loaned out in terms of their principal sum: they would in effect be calling in just under US$2 trillion from the economy, that is, 9 times the amount loaned out. So it is no surprise at the fiasco that ensued when such vast sums were called in and they were no where to be found.

That in essence is fractional reserve banking and the calling in of loans from the volatile sub prime market. But this is a simplification as the nature of the sub prime market is more complicated. The US sub prime market involved lending money to low income people to buy homes. These are people who due to lack of collateral would not normally be given loans for home purchase. These poor people are given loans that may be interest free at first but require payment over time with rates of interest much higher than rates on loans to people who can usually repay a standard housing loan. The reason for such a precarious arrangement is because banks and financial firms believe they must have something in return for the risk they are taking in making out loans to people who have difficulty repaying them.

This is similar to credit card companies handing out cards to people to buy things on credit without sufficient income, then asking them to make payments and then charging heavy interest rates if they cannot do so.

But in the case of the sub prime market, the debt owed by poor people is in turn made into a speculative market where you can in effect buy and sell these IOUs as part of a speculative enterprise. When the term for repayment arrives, the person who owns the IOU asks the person who took the loan to repay it.

However, the person who took the loan now says they cannot repay it, and so their home is repossessed. There are now homeless people in debt because even after repossession of their homes they still owe money for their other debts. This could also mean that they may have to be declared bankrupt. And speculators are left with empty IOUs in their hands. When the speculative bubble of such IOUs and loans burst because no one can pay anymore, and people who had kept money in financial institutions involved in such activity start to pull their money out, a panic starts.

The banks start pulling in all loans to recoup deposits of clients who want their money back.

Similarly, where does the almost US2$ trillion phantom money come from to repay the actual US$200 billion of deposits? Everyone involved in this pyramid scheme of banking and loans gets burnt, declared bankrupt or is left out on the streets. This a simplified summary of what took place and is only the tip of the iceberg. And all of this because of a system based on risk, speculation and money obsession.”

Perhaps these two clips will help make things a little clearer:

Money to end all Money

This piece will look at the new money that is coming into being and which will replace Money as we know it. Money will still be in use, but it will be of a nature that reflects the social relations between people as one that engenders cooperation and mutual respect. As such, I will not traverse more familiar territory that has been explored and expressed better than I could ever do. What I will do, is look at three stages in the move from today’s crumbling debt based monetary system, to the transition and establishment of complementary currencies (CC) holding sway: this would signify the end of Money as we have known it.

For those of you who may not have heard much about CCs/new money before and how they are the part of the wave that is cresting and which will move with us right into the future, then I would suggest some excellent starting points. To have a good acquaintance with the current crisis in money and credit and to get a better perspective of what follows please check out the following:

Reality Sandwich blog entries on “The End of Money?” at http://www.realitysandwich.com/end_money by Daniel Pinchbeck and “Money: a New Beginning, parts 1 and 2” by Charles Eisenstein at http://www.realitysandwich.com/money_a_new_beginning and http://www.realitysandwich.com/money_a_new_beginning_part_2
The other site that is recommended strongly is Eisenstein’s “The Currency of Cooperation” which is an excellent primer on what the new money is about.

For those not familiar with CCs/new money, and who have not taken the time to look at the above sites, I humbly absolve myself for any boggled minds in what follows which may start of as a familiar language, then turn to one of only verbs or nouns, and finally metamorphose into hieroglyphics.

The Three-Step Move

The three stage move I am looking at towards new money is descriptive as it is prescriptive. The first stage will involve a move to a new gold standard due to the impending collapse of the US dollar (USD) and other major fiat world currencies. The dollar will still be in use in the future of course, but it will collapse mainly as a global trading currency and in being used as a reserve currency by national banks of some countries. The second stage involves the rise and enhancement of social businesses as envisaged by Nobel Peace laureate Dr Muhammad Yunus. The third stage will see the establishment of CCs/new money as the prime form of value exchange, relegating national currencies to a limited role.

We need to be clear in understanding that national currencies will not just disappear. The role of CCs is that of complementing other forms of currencies. What will transpire in the years ahead will be the rise of a highly sophisticated system of barter with decentralized sources of new money taking centre stage thereby relegating national currencies to a disciplined and specific role.

The current credit crisis the world is facing is a result of an untenable debt based system of monetary expansion. This is primarily due to the effect of central banks like the US Fed which expand the money supply through the banking system via a pyramid scheme of expanding money which does not actually exist. This comes about by a system of double entry book keeping and expansion of credit. To get a good idea of how this works, check out the wonderful The Creature from Jekyll Island by Edward Griffin.

This pyramid method of expanding money supply has been possible largely due to the use of floating fiat currencies, meaning money that has been unhinged from the gold standard and subject to being printed whenever it is convenient for it to be cranked out. This is soft money that has no tangible backing. A gold backed currency is a hard currency. The US only went off the gold standard in 1971 thanks to President Nixon thereby forcing other nations, by 1973, to all have full floating currencies as well. The reason for Nixon’s move was manifold, partly due to a misunderstanding of how the gold standard works and also, as is sometimes mentioned, the need to print more money to finance the Vietnam War.

Politicians tend to veer away from the discipline of the gold standard because it forces them to stay within the base money supply and ensure convertibility of their national currency into gold. This makes it difficult for self serving political projects and what are now known as earmarks (of the pork barrel kind) to be fully put into play unless there are lots of cash swirling about. But too much money in the system tends to lead to devaluation and eventually inflation which is devastating especially to low income people and the middle classes. Ron Paul’s latest book The Revolution: A Manifesto touches on this specifically.

Please do check this out for greater insight into the matter:

http://www.lewrockwell.com/paul/paul319.html

The fact is the gold standard has long been a preventive cure for unnecessary wars. That is because politicians cannot just print cash to justify their next act of international ambition. It may be of interest that as this is being written, USD has fallen to almost $1,000 per ounce of gold. This is just the beginning. This fall in USD value is a massive vote of no-confidence in the politicians at Washington, politicos at the Fed and chieftains of the banking industry.

Recent headlines are the rising of oil prices to USD135 per barrel. What is not fully explained by the media pundits is that this is due not to a shortage of oil as such, but to the devaluating USD. There is far more money in the system than demand for it, which is the classic cause of inflation as we know it. So calls for oil from strategic reserves to be used, and trashing the arctic and other areas for even more oil is NOT the answer.

Fiat currencies are among the principal causes for misdiagnosing problems and leading to even worse ones. A similar spike occurred in oil prices, as research will show, in the early 70s after Nixon wrenched the US off the gold standard. Yes, there were problems in the Mid East (when were there never?) but the surge in quantity of fiat USD was central to the rise in energy prices.

But the monetarists and the neo-classical economists that are largely responsible for the economic rut we are in are great believers in fooling around with the money supply. It not only, they think, gives us lots of “moolah” but allows the economy to expand. Yet, what it does do instead is lead to bubbles and booms and busts. Money becomes a tool manipulated via interest rates by unelected super bureaucrats at various central banks.

For instance, check out a recent book by one-time Fed governor-general Laurence H. Meyer in his A Term at the Fed during the crucial years of 1996-2002. He states that the key things the FOMC (Federal Open Market Committee) were interested were NAIRU (Non-Accelerating Inflation Rate of Unemployment) and the Taylor rule. What this basically means is that Fed gurus would manipulate rates based on economic theories of the Phillips curve and what the acceptable rate of unemployment was before inflation would kick in; and also when GDP would move away from expected/estimated GDP growth: all this would make it necessary to raise/drop rates based on projections. How effective do you think these people can be within the constraints of the highly charged political framework they operate in? Look around you for the results.

Also, it is worth checking out Bonner and Wiggins’s book Empire of Debt to see why the USD cannot last as it is the way it is going. How can the world’s greatest debtor nation with trillions of dollars of debt carry on by increasing expenditure, lowering rates, and not a sign of increasing taxes on the horizon? How much of this money that is being pumped in can stay the course without leading to severe devaluation? Is there productivity to match this artificial influx of cash into the economy? To what extent can you tell a drunk that the way to get over his inebriate state is to drink another bottle of vodka 75 proof? Who will pay for all these debts (or clean up after the drunk for that matter)?

What is happening now is similar to Americans who go to a diner, have a meal and tell the cashier to pass the check to their grandchildren. The future generation will have to pay for all the current debt. It looks like there is going to be a massive devaluation of the USD coming up (best way to settle debts is to lower the value of what you owe too) and, alas, record hyperinflation. At the first sign of this, or something to this effect, states like Japan and China are going to throw their US bonds in saying “Give me the money!” When that happens there will quite likely be a run against the dollar world wide, and then my friends, financial meltdown takes on a new meaning.