April 6, 2011

Dear Dr. Paul:

There are serious questions about the legality of Quantitative Easing. You are among the few who are well-qualified and well-placed to get to the bottom of it.

Most people believe, and the media confirm them in that belief, that the Fed can legally create dollars ‘out of the thin air’ in any quantity, and can do with them as it pleases. This may well be the pipe dream of Dr. Bernanke who is quoted as saying that the U.S. government has given the Fed a tool, the printing press, to stop deflation — but it hardly corresponds to the truth. The Fed can create new dollars only if some stringent legal conditions are satisfied, and then, it can only dispose of them in certain ways prescribed by law.

Contrary to a statement of Dr. Bernanke, made before he became the Chairman of the Board of Governors of the Fed, he could not drop freshly printed dollars from a helicopter, no matter how many reasons for such an action he may be able to cite. Another thing the Fed is not allowed to do legally is to purchase Treasury paper from the U.S. Treasury directly. It must be purchased indirectly through open market operations. If you don’t put the Treasury paper through the test of the open market before the Fed is allowed to buy it, the presumption is that the market would reject it as worthless, or would take it only at a deep discount. The law does not allow the F.R. banks to purchase Treasury paper directly from the Treasury because that would make money creation through the F.R. banks a charade, reserve requirements a farce, and the dollar a sham.

If that were the only problem with Quantitative Easing, it would be bad enough. But there is something else that is even more ominous. The fact is that the Federal Reserve banks can purchase Treasury paper only if they pay with F.R. credit that has been legally created .

F.R. credit (F.R. notes and F.R. deposits) is legally created if it has been issued in accordance with the law. The law says that F.R. credit must be backed by collateral security at the time of issuance , usually in the form of an equivalent amount of U.S. Treasury paper. The procedure is as follows.

The F.R. bank seeking to expand credit takes its Treasury paper, owned outright and free from encumbrances , and posts it as collateral with the Federal Reserve agent who will then authorize the issuing of credit. In other words, if the F.R. banks do not have the unencumbered Treasury paper in their possession, then they cannot create additional credit legally.

There is some evidence that the F.R. banks do not have F.R. credit available to make the kind of purchases Dr. Bernanke is talking about as part of his Quantitative Easing. Nor do they have unencumbered Treasury paper in sufficient quantity that they could post with the F.R. agent for authorizing the issue of additional F.R. credit.

The point is that the process of posting collateral first, and augmenting F.R. credit afterwards must under no circumstances be reversed. What the F.R. banks cannot legally do is to buy the Treasury paper first with unauthorized F.R. credit, post the paper as collateral, and justify the illegal issuance of credit retroactively. Nor can they borrow the bond from the Treasury, post it as collateral, and pay for the bond retroactively.

This is an important limitation separating the regime of market-based irredeemable currency from the regime of fiat money involving outright monetization of government debt — the graveyard where the Continental dollar, the assignat, the mandat, the Reichsmark, and the Zimbabwe dollar (among countless others) rest.

At any rate, retroactive authorization of F.R. credit, if that’s what the Fed is up to, would be a violation of both the letter and spirit of the F.R. Act. It would mean converting the dollar into outright fiat money through the back door, bypassing Congress. It would show absolute bad faith on the part of the Chairman of the Federal Reserve Board of Governors, Dr. Ben Bernanke, who certainly knows what the law is. Such a blatant violation of the law would make him totally unfit for the powerful office he occupies. It would call for his immediate and dishonorable discharge by the President, pending Congressional investigation of the matter.

The various violations of the law of which the Fed is accused point to a concerted effort to remove the shackles the law has put on the money spigots lest crooks help themselves to the public purse. These violations are not isolated incidents. They are aiming at the corruption of the monetary order of the nation and the world. Moreover, they would ultimately figure prominently among the causes of the financial instability the world has been suffering from since 1971 and, more recently, since 2008.

Without understanding this fundamental truth, all talk about stabilizing the monetary system and reining in the runaway budget deficit is an exercise in futility.

Yours very sincerely,

Antal E. Fekete

Professor (retired)

Memorial University of Newfoundland

Tel./Fax: +36-1-325-7996

<Section xml:space=”preserve” HasTrailingParagraphBreakOnPaste=”False” xmlns=”http://schemas.microsoft.com/winfx/2006/xaml/presentation”><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run Text=”The opium wars do not belong to the glorious episodes of Western history. Rather, they were instances of shameful behavior the West still has not lived down. Mercantilist governments resented the perpetual drain of silver from West to East in payment for Oriental goods (tea, silk, porcelain) that were in high demand in the Occident, facing low demand in the Orient for Occidental goods. From the mid-17th century more than 9 billion Troy ounces or 290 thousand metric tons of silver was absorbed by China from European countries in exchange for Chinese goods. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run Text=”The British introduced opium along with tobacco as an export item to China in order to reduce their trade deficit. Under the disguise of free trade, the British, the Spanish and the French with the tacit approval of the Americans continued sending their contraband to China through legitimate as well as illegitimate trade channels even after the Chinese dynasty put an embargo on opium imports. Because of its strong appeal to the Chinese masses, and because of its highly addictive nature, opium appeared to be the ideal solution to the West’s trade problem. And, indeed, the flow of silver was first stopped, and then reversed. China was forced to pay silver for her addiction to opium smoking that was artificially induced by the pusher: the British. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run Text=”Thus silver was replaced by opium as the mainstay of Western exports. In 1729 China, recognizing the growing problem of addiction and the debilitating and mind-corrupting nature of the drug, prohibited the sale and smoking of opium; allowing only a small quota of imports for medicinal purposes. The British defied the embargo and ban on opium trade, and encouraged smuggling. As a result, British exports of opium to China grew from an estimated 15 tons to 75 by 1773. This increased further to 900 tons by 1820; and to 1400 tons annually by 1838 — an almost 100-fold increase in 100 years.” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run Text=”Something had to be done. The Chinese government introduced death penalty for drug trafficking, and put British processing and distributing facilities on Chinese soil under siege. Chinese troops boarded British ships in international waters carrying opium to Chinese ports and destroyed their cargo, in addition to the destruction of opium found on Chinese territory. The British accused the Chinese of destroying British property, and sent a large British- Indian army to China in order to exact punishment. British military superiority was clearly evident in the armed conflict. British warships wreaked havoc on coastal towns. After taking Canton the British sailed up the Yangtze River. They grabbed the tax barges, inflicting a devastating blow on the Chinese as imperial revenues were impossible to collect. In 1842 China sued for peace that was concluded in Nanking and ratified the following year. In the treaty China was forced to pay an indemnity to Britain, open four port cities where British subjects were given extraterritorial privileges, and cede Hong Kong to Britain. In 1844 the United States and France signed similar treaties with China. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run Text=”These humiliating treaties were criticized in the House of Commons by William E. Gladstone, who later served as Prime Minister. He was wondering “whether there had ever been a war more unjust in its origin, a war more calculated to cover Britain with permanent disgrace.” The Foreign Secretary, Lord Palmerston replied that nobody believed that the Chinese government’s motive was “the promotion of good moral habits”, or that the war was fought to stem China’s balance of trade deficit. The American president John Quincy Adams chimed in during the debate by suggesting that opium was a “mere incident”. According to him “the cause of the war was the arrogant and insupportable pretensions of China that she would hold commercial intercourse with the rest of mankind not upon terms of equal reciprocity, but upon the insulting and degrading forms of the relations between lord and vassal.” These words are echoed, 160 years later, by president Obama’s recent disdainful pronouncements to the effect that China’s exchange-rate policy is unacceptable to the rest of mankind as it pretends that China’s currency is that of the lord, and everybody else’s is that of the vassal. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run Text=”The peace of Nanking did not last. The Chinese searched a suspicious ship, and the British answered by putting the port city of Canton under siege in 1856, occupying it in 1857. The French also entered the fray. British troops were approaching Beijing and set on to destroy the Summer Palace. China again was forced to sue for peace. In the peace treaty of Tianjin China yielded to the demand to create ten new port cities, and granted foreigners free passage throughout the country. It also agreed to pay an indemnity of five million ounces of silver: three million to Britain and two million to France. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run Text=”This deliberate humiliation of China by the Western powers contributed greatly to the loosening and ultimate snapping of the internal coherence of the Qing Dynasty, leading to the Taiping Rebellion (1850-1864), the Boxer Uprising (1899-1901) and, ultimately, to the downfall of the Qing Dynasty in 1912. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run Text=” The present trade dispute between the U.S. and China is reminiscent of the background to the two Opium Wars. Once more, the issue is the humiliation and plunder of China as a “thank you” for China’s favor of having provided consumer goods for which the West was unable to pay in terms of Western goods suitable for Chinese consumption. The only difference is the absence of opium in the dispute. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run Text=” Oops, I take it back. The role of ” /><Run FontStyle=”Italic” Text=”opium ” /><Run Text=”in the current dispute is played by ” /><Run FontStyle=”Italic” Text=”paper. ” /><Run Text=”Paper dollars, to be precise. In 1971 an atrocity was made that I call the ” /><Run FontStyle=”Italic” Text=”Nixon-Friedman conspiracy” /><Run Text=”. To cover up the shame and disgrace of the default of the U.S. on its international gold obligations, Milton Friedman (following an earlier failed attempt of John M. Keynes) concocted a spurious and idiotic theory of floating exchange rates. It suggests that falling foreign exchange value of the domestic currency makes it ” /><Run FontStyle=”Italic” Text=”stronger ” /><Run Text=”when in actual fact the opposite is true: it is made ” /><Run FontStyle=”Italic” Text=”weaker ” /><Run Text=”as the terms of trade of the devaluing country deteriorates and that of its trading partners improves. Nixon was quick to embrace the false theory of Friedman. No public debate of the plan was permitted then, or ever after. Under the new dispensation the irredeemable dollar was to play the role of the ultimate extinguisher of debt, a preposterous idea. The scheme was imposed on the world under duress as part of the “new millennium”, shaking off the “tyranny of gold”, that “barbarous relic”, the last remnant of superstition, the only remaining “anachronism of the Modern Age”. The ploy was played up and celebrated as a great scientific breakthrough, making it possible for man to shape his own destiny rationally, free of superstition, for the first time ever. Yet all it was a cheap trick to elevate the dishonored paper of an insolvent banker (the U.S.) from scum to the holy of holies: international currency. The fact that fiat paper money has a history of 100 percent mortality was neatly side-stepped. Any questioning of the wisdom of experimenting with is in spite of logic and historical evidence was declared foggy-bottom reactionary thinking. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run Text=” The amazing thing about this episode of the history of human folly was the ease with which it could be pushed down the throat of the rest of the world, including those nations that were directly hurt by it, such as the ones running a trade surplus with the U.S. Their savings went up in smoke. The explanation for this self-destructing behavior is the addictive, debilitating and mind-corrosive nature of paper money, in direct analogy with that of opium. The high caused by administering the opium pipe to the patient (read: administering QE) had to be repeated when the effect faded by a fresh administration of more opium (read: more QE2). ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run Text=”If the patient resists, like China did in 1840, then a holy opium war must be declared on it in the name of the right of others to free trade. 170 years later a New China once more demurred against the paper-torture treatment it was subjected to by the American debt-mongers and opium pushers. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run Text=” But beware: if the West starts another Opium War, this time it is not China that will be on the losing side. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run Text=” ” /><Run FontWeight=”Bold” Text=”Reference ” /><Run Text=” ” /><Run FontStyle=”Italic” Text=”Opium Wars” /><Run Text=”, Wikipedia, June 29, 2010. ” /><Run FontWeight=”Bold” Text=”ANNOUNCEMENT New Austrian School of Economics ” /><Run Text=”Course Two at the Martineum Academy in Szombathely, Hungary, from March 5 through 13, 2011. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run Text=”Title of the course: ” /><Run FontWeight=”Bold” Text=”ADAM SMITH’S REAL BILLS DOCTRINE AND SOCIAL CIRCULATING CAPITAL ” /><Run Text=”What makes this course especially topical today is the fact that more and more hints are being dropped about the possible rehabilitation and restoration of the gold standard — following the ignominious collapse of the irredeemable dollar. However, ” /><Run FontStyle=”Italic” Text=”a gold standard without its clearing house, the bill market, ” /><Run FontWeight=”Bold” FontStyle=”Italic” Text=”is not viable” /><Run Text=” and itself is liable to collapse in short order — as it did in the early 1930’s. The level of public ignorance about the necessity of a clearing house is appalling. It is made that much worse by a tottering banking system. We have an urgent message: only gold standard cum real bills can restore prosperity to the world, in view of the fact that ” /><Run FontStyle=”Italic” Text=”we have to write off the world’s banking system as a total loss” /><Run Text=”. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run Text=” This is the second in a four-course series on Austrian Economics, a branch of economic science based on the work of Carl Menger (1840-1921). It is meant for those, including beginners, who are interested in the theory of money, credit, and banking, with ” /><Run FontStyle=”Italic” Text=”special emphasis on the current financial and economic crisis” /><Run Text=”. The complete program consists of four courses (10 days, 20 lectures each). Completion of each course will earn one credit. Participants who have accumulated four credits get a diploma signed by Professor Fekete. Course One that was given in 2010″ /><Run FontStyle=”Italic” Text=” is not a prerequisite” /><Run Text=”. It is available on DVD for purchase. For further information please contact Dr. Judith Szepesvari, e-mail: szepesvari17@gmail.com ” /><Run FontWeight=”Bold” Text=”NEW! EXTRA! SEMINAR Basis, Co-basis, Permanent Backwardation of Gold and Silver and What It Means ” /><Run Text=” March 14, Monday ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run Text=” ” /><Run FontStyle=”Italic” Text=”The New Austrian School of Economics is the only place in the world where you can learn about the gold and silver basis, co-basis, permanent backwardation, and their importance.” /><Run Text=” In 2008 we offered a successful Seminar on the basis in Canberra, Australia, that was followed by a second Seminar in 2009. This will be the third in the series, where the latest results of the ongoing research on the gold and silver basis and co-basis will be discussed by our star research fellow, Sandeep Jaitly, followed by an open-ended discussion. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run Text=”No prerequisites are needed: we start with an introductory lecture on the basis and co-basis, with reference to permanent backwardation, by Professor Fekete. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run Text=”For more details, contact Dr. Judit Szepesvari: szepesvari17@gmail.com ” /></Paragraph></Section>

<Section xml:space=”preserve” HasTrailingParagraphBreakOnPaste=”False” xmlns=”http://schemas.microsoft.com/winfx/2006/xaml/presentation”><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run FontFamily=”Georgia” Text=”There is really just one question about China, the Western mindset’s “enigma wrapped in mystery”. How could the Chinese have made the colossal mistake of investing their hard-earned savings in the debt of the U.S. government —to the tune of $ 1 trillion, the largest sum one country has ever loaned another in all history. (There is only one other puzzle greater than this: How could the U.S. government” /><Run FontFamily=”Georgia” FontStyle=”Italic” Text=” in good faith” /><Run FontFamily=”Georgia” Text=” allow its debt to accumulate in Chinese hands? But we leave that question for another occasion to discuss.) U.S. debt is easy to buy but hard to get rid of. The harder, the larger are the sums involved.” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run FontFamily=”Georgia” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run FontFamily=”Georgia” Text=”It is true that a huge bull market in bonds has been rolling on for the past 30 years — since 1981. But putting all of China’s eggs into the same basket was a terrible mistake even if we ignore the reckless fiscal and monetary policy the U.S. government has been pursuing since 1971. Belatedly, the Chinese are trying to correct their mistakes through diversification. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run FontFamily=”Georgia” Text=” China could have learned from Japan’s sad example. Before the Chinese appeared as buyers, Japan was the largest investor in U.S. debt. In 1971 Japan was running an unprecedented trade surplus ” /><Run FontFamily=”Georgia” FontStyle=”Italic” Text=”vis-à-vis” /><Run FontFamily=”Georgia” Text=” the U.S., and the exchange rate of the Japanese yen was 300 to the dollar. American policymakers and money doctors put enormous pressure on Japan to let the yen float upwards, as this was the “in-thing” to do after the Nixon-Friedman conspiracy made the U.S. default on its foreign gold obligations “respectable”, on the spurious theory that this would first ease, then eliminate the American trade deficit. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run FontFamily=”Georgia” Text=”Japan, in effect still an occupied country, yielded to the American pressure and the yen rose so that by 1981 only 100 yens were needed to buy one dollar. This was a 3-fold appreciation of the yen, but it did not bring about an improvement in the American trade deficit with Japan, as promised by Friedmanite propagandists. Instead,” /><Run FontFamily=”Georgia” FontStyle=”Italic” Text=” there was a 10-fold further deterioration!” /><Run FontFamily=”Georgia” Text=” Yet the Americans did not revise their policy recommendations, and continued to insist on floating the yen upwards. It appeared that the Americans had a hidden agenda that was ” /><Run FontFamily=”Georgia” FontStyle=”Italic” Text=”not ” /><Run FontFamily=”Georgia” Text=”the elimination of the American trade deficit. Could it have been abatement of the American debt? Indeed, the yen-value of Japan’s foreign exchange reserves held in dollars was cut by two-thirds as a result of foreign exchange policy forced upon Japan. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run FontFamily=”Georgia” Text=”The Chinese should have seen the writing on the wall: buying dollar-denominated assets was tantamount to kissing good-by to your savings. In terms of the Nixon-Friedman conspiracy this was extortion, an underhanded way of secretly siphoning off the savings of America’s trading partners running surpluses, disguised as exchange-rate policy. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run FontFamily=”Georgia” Text=”Worse still, when the Japanese wanted to draw on the remnants of their savings held in American banks to tie them over temporary cash shortages, they found that the money wasn’t there. The American money-doctors were ever- ready to come up with a solution. The Japanese government had excellent credit rating and no debt to foreigners. Why not borrow the money it needed? Once more, the Japanese meekly complied. They swapped their ” /><Run FontFamily=”Georgia” FontStyle=”Italic” Text=”temporary ” /><Run FontFamily=”Georgia” Text=”need for dollars for ” /><Run FontFamily=”Georgia” FontStyle=”Italic” Text=”permanent ” /><Run FontFamily=”Georgia” Text=”government debt in yens. By now the Japanese government has the worst indebtedness on record: it would take 2 years of Japan’s GDP to pay it off. See the vicious combination: ” /><Run FontFamily=”Georgia” FontStyle=”Italic” Text=”selling ” /><Run FontFamily=”Georgia” Text=”bonds in an ” /><Run FontFamily=”Georgia” FontStyle=”Italic” Text=”appreciating ” /><Run FontFamily=”Georgia” Text=”currency while ” /><Run FontFamily=”Georgia” FontStyle=”Italic” Text=”buying ” /><Run FontFamily=”Georgia” Text=”bonds in a ” /><Run FontFamily=”Georgia” FontStyle=”Italic” Text=”depreciating ” /><Run FontFamily=”Georgia” Text=”currency? A free one-way ticket to the poorhouse. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run FontFamily=”Georgia” Text=”China should have seen the trap. The Americans want them to buy all the dollar-denominated bonds. Then they would start twisting arms to let the yuan float upwards, ostensibly as a valid exchange-rate mechanism to rectify trade imbalances. Clearly, it is not a valid mechanism because, well, it does not work. It only makes the trade imbalance worse. Neither are the Americans shooting for elimination of their trade deficit. They are shooting for an abatement of America’s debt. They know that higher exchange rate for the yuan means imperceptibly siphoning off China’s savings. An indigent country, China, underwrote with its savings the profligacy of an affluent country, the U.S. Unbelievably, China appears to be caving in to American demands and let the yuan float upwards.. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run FontFamily=”Georgia” Text=”If the Chinese wanted to draw on the remnants of their savings held in American banks, they might just find out, as the Japanese did before them, that the money isn’t there. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run FontFamily=”Georgia” Text=”It can be safely predicted that the American debt-mongers would again be on hand to come up with the solution. China has excellent credit rating and zero debt to foreigners. The Chinese should borrow the dollars they needed, to tie themselves over, rather than liquidate their dollar holdings. Like Japan earlier, China, too, could swap its ” /><Run FontFamily=”Georgia” FontStyle=”Italic” Text=”temporary ” /><Run FontFamily=”Georgia” Text=”dollar shortage for ” /><Run FontFamily=”Georgia” FontStyle=”Italic” Text=”permanent ” /><Run FontFamily=”Georgia” Text=”government debt in the domestic currency. This is debauchery: Mephistopheles trying to corrupt the uncorrupted. This is lacing foreign banking systems with toxic debt. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run FontFamily=”Georgia” Text=”The Chinese puzzle can be stated as follows. The irrational and masochistic behavior of the Japanese can be explained by the fact that Japan is still an occupied country. But China is not. China could refuse to listen to the siren-song of the American exchange-rate manipulators and debt-mongers. Why doesn’t China stand up to this corruption? “Just say no” to the drug of indebtedness, and expose the debauchery behind it! ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run FontFamily=”Georgia” Text=”Here is the explanation of the Chinese puzzle from a non-Chinese perspective. The 1972 popping up of Nixon in China(which was worth composing an opera on the theme) started the pilgrimage of young uncorrupted Chinese scholars to American universities. Well, at least those among them who were economists, monetary scientists, and banking experts have been thoroughly corrupted and brainwashed. Keynesian and Friedmanite theories have been pumped into them through force-feeding. They have never been told that there is a coherent and respectable body of economic knowledge refuting, point-by-point, the false and corrosive economic theories of Keynes and Friedman. China utterly lacks scholars who are well-versed in Austrian economics and in valid monetary theory, to provide antidote for the Keynesian and Friedmanite poison. China was made a fertile ground for American debauchery. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run FontFamily=”Georgia” Text=”Friedman’s theory of deliberate use of foreign exchange rates as a tool of balancing foreign trade is vicious, false, and fraudulent. It has never worked. It never will. It is motivated by American self-interest, ready to wage a new opium war on China, to reduce the indebtedness of the U.S. through a disguised devaluation of the dollar, at the expense of its trading partners, and to push the responsibility for the trade imbalance on the surplus countries. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run FontFamily=”Georgia” Text=”The correct solution to the trade problem is not the flotation of currencies up and down. Quite to the contrary: the solution is the ” /><Run FontFamily=”Georgia” FontStyle=”Italic” Text=”stabilization ” /><Run FontFamily=”Georgia” Text=”of foreign exchange rates! China badly needs advisors who are able to show the way in this direction. ” /><Run FontFamily=”Georgia” FontWeight=”Bold” Text=”ANNOUNCEMENT New Austrian School of Economics ” /><Run FontFamily=”Georgia” Text=” Course Two at the Martineum Academy in Szombathely, Hungary, from March 5 through 13, 2011. Title of the course: ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run FontFamily=”Georgia” Text=” ” /><Run FontFamily=”Georgia” FontWeight=”Bold” Text=”ADAM SMITH’S REAL BILLS DOCTRINE AND SOCIAL CIRCULATING CAPITAL” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run FontFamily=”Georgia” Text=”What makes this course especially topical today is the fact that more and more hints are being dropped about the possible rehabilitation and restoration of the gold standard — following the ignominious collapse of the irredeemable dollar. However, ” /><Run FontFamily=”Georgia” FontStyle=”Italic” Text=”a gold standard without its clearing house, the bill market, ” /><Run FontFamily=”Georgia” FontWeight=”Bold” FontStyle=”Italic” Text=”is not viable” /><Run FontFamily=”Georgia” FontStyle=”Italic” Text=” and itself is liable to collapse in short order” /><Run FontFamily=”Georgia” Text=” — as it did in the early 1930’s. The level of public ignorance about the necessity of a clearing house is appalling. It is made that much worse by a tottering banking system. We have an urgent message: only gold standard ” /><Run FontFamily=”Georgia” FontStyle=”Italic” Text=”cum ” /><Run FontFamily=”Georgia” Text=”real bills can restore prosperity to the world, in view of the fact that ” /><Run FontFamily=”Georgia” FontStyle=”Italic” Text=”we have to write off the world’s banking system as a total loss. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run FontFamily=”Georgia” Text=”This is the second in a four-course series on Austrian Economics, a branch of economic science based on the work of Carl Menger (1840-1921). It is meant for those, including beginners, who are interested in the theory of money, credit, and banking, with” /><Run FontFamily=”Georgia” FontStyle=”Italic” Text=” special emphasis on the current financial and economic crisis.” /><Run FontFamily=”Georgia” Text=” The complete program consists of four courses (10 days, 20 lectures each). Completion of each course will earn one credit. Participants who have accumulated four credits get a diploma signed by Professor Fekete. Course One that was given in 2010″ /><Run FontFamily=”Georgia” FontStyle=”Italic” Text=” is not a prerequisite” /><Run FontFamily=”Georgia” Text=”. It is available on DVD for purchase. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run FontFamily=”Georgia” Text=” ” /><Run FontFamily=”Georgia” FontWeight=”Bold” Text=”NEW: there will be an add-on optional one-day seminar on the gold and silver basis and the threat of permanent backwardation of the monetary metals on March 14.” /><Run FontFamily=”Georgia” Text=” ” /><Run FontFamily=”Georgia” FontStyle=”Italic” Text=”Stay tuned for further details” /><Run FontFamily=”Georgia” Text=”. NOTE: All scholarships have now been awarded. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run FontFamily=”Georgia” Text=”For further information please contact Dr. Judith Szepesvari, e-mail: szepesvari17@gmail.com ” /><Run FontFamily=”Georgia” FontWeight=”Bold” Text=”NEW! EXTRA! SEMINAR Basis, Co-basis, Permanent Backwardation of Gold and Silver and What It Means ” /><Run FontFamily=”Georgia” Text=” March 14, Monday ” /><Run FontFamily=”Georgia” FontStyle=”Italic” Text=”The New Austrian School of Economics is the only place in the world where you can learn about the gold and silver basis, co-basis, permanent backwardation, and their importance.” /><Run FontFamily=”Georgia” Text=” In 2008 we offered a successful Seminar on the basis in Canberra, Australia, that was followed by a second Seminar in 2009. This will be the third in the series, where the latest results of the ongoing research on the gold and silver basis and co-basis will be discussed by our star research fellow, Sandeep Jaitly, followed by an open-ended discussion. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run FontFamily=”Georgia” Text=”No prerequisites are needed: we start with an introductory lecture on the basis and co-basis, with reference to permanent backwardation, by Professor Fekete. ” /></Paragraph><Paragraph FontSize=”20″ FontFamily=”Georgia” Foreground=”#FFFFFFFF” FontWeight=”Normal” FontStyle=”Normal” FontStretch=”Normal” TextAlignment=”Left”><Run FontFamily=”Georgia” Text=”For more details, contact Dr. Judit Szepesvari: szepesvari17@gmail.com” /></Paragraph></Section>