Creature From Jekyll Island by G. Edward

When the IMF was created, it was the vision of Fabian Socialist John Maynard Keynes that there be a world central bank issuing a 1. John Maynard Keynes, The Collected Writings of, Vol V (1930 rpt. New York: Macmillan, 1971), p. xx.

2. Dennis Turner, When Your Bank Fails (Princeton, New Jersey: A m w e l l Publishing, 1983), p. 32.

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reserve currency called the "bancor" to free all governments from the discipline of gold. With the creation of SDRs, the IMF had finally begun to fulfill that dream.

GOLD IS FINALLY ABANDONED

But there was still an obstacle. As long as the dollar was the primary currency used by the IMF and as long as it was redeemable in gold at $35 per ounce, the amount of international money that could be created would be limited. If the IMF were to function as a true world central bank with unlimited issue, the dollar had to be broken away from its gold backing as a first step toward replacing it completely with a bancor, an SDR or something else equally free from restraint.

On August 15,1971, President Nixon signed an executive order declaring that the United States would no longer redeem its paper dollars for gold. So ended the first phase of the IMF's metamorpho-sis. It was not yet a true central bank, because it could not create its own world currency. It had to depend on the central banks of its member nations to provide cash and so-called credits; but since these banks, themselves, could create as much money as they wished, from now on, there would be no limit.

The original purpose had been to maintain fixed rates of

exchange between currencies; but the IMF has presided over more than two hundred currency devaluations. In private industry, a failure of that magnitude might be cause for going out of business, but not in the world of politics. The greater the failure, the greater the pressure to expand the program. So, when the dollar broke loose from gold and there was no longer a ready standard for measuring currency values, the IMF merely changed its goal and continued to expand its operation. The new goal was to "overcome trade deficits."

TRADE DEFICITS

The topic of trade deficits is a favorite among politicians, economists, and talk-show hosts. Everyone agrees they are bad, but there is much disagreement over what causes them. Let's have a try at it.

A trade deficit is a condition that exists when a country imports a greater value of goods than it exports. In other words, it spends more than it earns in international trade. This is similar to the situation of an individual who spends more than he earns. In both 92 THE CREATURE FROM JEKYLL ISLAND

cases, the process cannot be sustained unless: (1) earnings are increased; (2) money is taken out of savings; (3) assets are sold; (4) money is counterfeited; or (5) money is borrowed. Unless one of these occurs, the individual or the country has no choice but to decrease spending.

Increasing one's earnings is the best solution. In fact, it is the only solution for the long haul. All else is temporary at best. An individual can increase his income by working harder or smarter or longer. A country does it the same way. But it cannot happen unless private industry is allowed to flourish in a system of free-enterprise. The problem with this option is that few politicians respect the dynamic power of the free-enterprise system. Their world is built upon political programs in which the laws of the free market are manipulated to achieve politically popular goals. They may desire the option of increasing the nation's income by increasing its productivity, but their political agenda prevents that from happening.1

The second option is to obtain extra money out of savings. But there are virtually no governments in the world today that have any savings. Their debts and liabilities exceed assets by a large margin. Likewise, most of their industries and their citizens are in a similar position. Their savings already have been consumed by government.