Economic Update: Bartering Is Cool, George Soros Speaks and G20 Leans on Global Currency

The Great Depression brought various methods to the fold in order to keep some type of currency flowing and people consuming.  In many ways this is being called the “Great Recession,” and there still is that feeling in the air that a Great Depression may again be heading our way.  However, some of these old systems such as the barter system or local currencies are being used again. 

The barter system became popular in recent years and has become more modernized for today’s society.  Craigslist became incredibly popular when it first began but during these pressing times, Ebay and Craigslist have seen more traffic than usual and one statistic earlier this month had the traffic for Craigslist up by 100%. New barter sites are popping up during this downturn such as www.tradeaway.comwhere you can sell and buy real estate, boats, cars, land, etc.  Even Match.com’s traffic has soared, because young people who may or may not be let go first if a company needs to downsize (due to less tenure on the job) say that dating sites are cheaper than going out to bars to meet people. 

I find it incredibly intriguing that local communities have begun using a method from the Great Depression in which they issue and name their own “currency.” 

The systems generally work like this: Businesses and individuals form a network to print currency. Shoppers buy it at a discount — say, 95 cents for $1 value — and spend the full value at stores that accept the currency.

Workers with dwindling wages are paying for groceries, yoga classes and fuel with Detroit Cheers, Ithaca Hours in New York, Plenty in North Carolina or BerkShares in Massachusetts.

This type of currency encourages consumers to buy and it also encourages consumption at a local level to support local businesses that are also cash-strapped.

This could be a good thing for people to see value in limited government.  Local and state government, or Federalism, is truly the more appropriate form of government rather than a larger centralized organization.

However, you still have to pay your taxes on it…

By law, local money may not resemble federal bills or be promoted as legal tender of the United States, says Claudia Dickens of the Bureau of Engraving and Printing.

“We print the real thing,” she says.

The IRS gets its share. When someone pays for goods or services with local money, the income to the business is taxable, says Tom Ochsenschlager of the American Institute of Certified Public Accountants. “It’s not a way to avoid income taxes, or we’d all be paying in Detroit dollars,” he says.

Many still feel that bad times are ahead for the United States, our economy and the dollar.

George Soros is echoing what many conservatives and libertarians have been saying the past few months with the incessant government spending and bailouts.  He foresees the U.S. becoming much like Japan in the 90′s, where they continued to spend in order to try and dig themselves out of a collapse, and their interventionist policies actually made things worse.  Soros said that he believes the United States will go throw a period of relatively low growth coupled with high inflation…DUH!

Thank you Captain Obvious!

The recovery will look like “an inverted square root sign,” Soros said. “You hit bottom and you automatically rebound some, but then you don’t come out of it in a V-shape recovery or anything like that. You settle down—step down.”

“I don’t expect the U.S. economy to recover in the third or fourth quarter so I think we are in for a pretty lasting slowdown,” Soros said, adding that in 2010 there might be “something” in terms of U.S. growth.

The healing of the banking system and housing markets is crucial to recovery. “The banking system, as a whole, is basically insolvent,” Soros said.

“What we have created now is a situation where the banks who will be able to earn their way out of a hole, but by doing that, they are going to weigh on the economy,” he said. “Instead of stimulating the economy, they will draw the lifeblood, so to speak, of profits away from the real economy in order to keep themselves alive. This is the zombie bank situation.”

We have created zombie banks – much like liberal policies and politics create populations of zombies.

I don’t think that Soroshas America’s best interests at heart but I will concede to the fact that the man is an incredibly savvy investor and knows finance.

However, what Soros states above in regards to our economy, comes as no surprise to me - but it’s what he said about the U.S. dollar that tends to leave me more shocked and awed.

“I think the dollar is now under question and I think the system will need to be reformed, so that the United States will be subject to the same discipline as is imposed on other countries,” said Soros, whose famous bet against the British pound earned his Quantum Fund $1 billion in 1992. “Being the main issuer of international currency, we have been exempt and we have abused that because we have effectively consumed 6.5 percent more than we have produced. That is now coming to an end.”

China recently proposed greater use of Special Drawing Rights, possibly as an eventual global reserve currency. “In the long run, having an international accounting unit rather than the dollar may, in fact, be to our advantage so we can’t splurge—you know, it felt very good for 25 years but now we are paying a very heavy price,” Soros said.

Who would hold the main reserve currency though, if the dollar was in fact dumped?  Would China pick up the tab?  They are still up and coming and would not be able to carry the world on it’s back quite yet and be able to bailout the rest of the world when crises hit specific countries.  We have wiped debt off of other countrys’ books, we have aided and funded breakouts, wars, national stabilization efforts after wars, all on our dime, and what have these other countries done?  Do they want that responsibility heaped on them?  Maybe they should – so they can understand how difficult it is actually being the lone superpower in the world.  “Be careful what you wish for, you just might get it.”  The global governments, just like all other policy makers, are incredibly short-sided and do not analyze the fall-out from their actions.  I think they need take a few classes on long range strategic planning.

However, as with any and all politicians, the long range strategic plan and long-term analysis of possible consequences was overlooked, and the G20 Summit only moved us closer to a new global currency and one world government.

“We have agreed to support a general SDR allocation which will inject $250bn (£170bn) into the world economy and increase global liquidity,” it said. SDRs are Special Drawing Rights, a synthetic paper currency issued by the International Monetary Fund that has lain dormant for half a century.

In effect, the G20 leaders have activated the IMF’s power to create money and begin global “quantitative easing”. In doing so, they are putting a de facto world currency into play. It is outside the control of any sovereign body. Conspiracy theorists will love it.

But Mr Strauss-Kahn at least has resources fit for his own task. He will need them. The IMF is already bailing out Pakistan, Iceland, Latvia, Hungary, Ukraine, Belarus, Serbia, Bosnia and Romania. This week Mexico became the first G20 state to ask for help. It has secured a precautionary credit line of $47bn.

And who do you think makes up most of the money in the IMF?  This is percentage based – based upon the strongest world economies, therefore the United States makes up most of the IMF.  Let’s take a look (highest to lowest):

Country   Percentage
United States  17.09%
Japan   6.13%
Germany   5.99%
France   4.94%
United Kingdom  4.94%
China   3.72%
Italy   3.25%
Saudi Arabia  3.21%
Canada   2.93%
Russia   2.74%
Netherlands  2.38%
Belgium   2.12%
India   1.91%
Switzerland  1.59%
Australia  1.49%
Mexico   1.45%
Brazil   1.4%
Spain   1.4%
South Korea  1.35%
Venezuela  1.22%
Sweden   1.1%
165 Other Countries 26.14%

Have at it world – you spend more money – it’s about time you chipped in as much as we have anyway!

There is now a world currency in waiting. In time, SDRs are likely evolve into a parking place for the foreign holdings of central banks, led by the People’s Bank of China. Beijing’s moves this week to offer $95bn in yuan currency swaps to developing economies show how fast China aims to break dollar dependence.

China isn’t even the second largest contributer to the IMF based off of economic strength.  China is growing and will be incredibly powerful in the future, but it still has a ways to go.  I just think it wouldn’t be a bad thing to have some of these countries wake up and realize what it is that we actually do and how much we actually carry.  Put down the globe Atlas and take a breather!

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