Sunday, August 9, 2009

The BIS is sweating the recovery

The Bank for International Settlements (BIS) was founded in 1930 as a means of facilitating reparations payments from Germany to the Allied powers. According to Wikipedia,
The original board of directors of the BIS included two appointees of Hitler, Walter Funk a prominent Nazi official, and SS officer Oswald Pohl, both convicted at the Nuremberg trials after World War II, as well as Herman Schmitz the director of IG Farben and Baron von Schroeder, the owner of the J.H.Stein Bank, the bank that held the deposits of the Gestapo.
The BIS was alleged to have helped Germans loot assets from occupied countries during WW II, and accordingly a UN monetary committee recommended its liquidation at the "earliest possible moment." Economist J. M. Keynes and other British, along with President Harry Truman, prevented the dissolution in 1945. Today, the BIS serves as a bank for central banks, with 55 member banks worldwide. Fed chairman Ben Bernanke is currently on the BIS board.

According to the late professor Carroll Quigley of Georgetown University in his book, Tragedy and Hope: A History of The World in Our Time, the BIS was to serve as the apex of a system of world financial control run by privately-owned central banks. "It was set up to be the world cartel of every-growing national financial powers by assembling the nominal heads of these national financial centers." Each central bank would seek to dominate
its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.
With this background, we might expect the BIS to endorse the massive stimulus programs that governments and their central banks are pushing on their economies, and in principle they do. But the BIS is worried. According to a report in The Australian on June 30, 2009, the BIS said
there would not be a sustainable recovery until major problems in both the financial system and in the real economy were tackled, and it warned that governments were a long way from dealing adequately with either.
. . . fiscal expansion tends towards permanency and a rise in long-term deficits.
Although the deficits could be manageable if recovery came quickly, the BIS believes the task of removing the distortions that caused the crisis in the first place has barely begun.

"The financial sector has to shrink, as it has grown too large and accumulated assets of dubious quality," it said. "Debt and leverage in both the financial and the non-financial sectors have to decline further, and household saving rates need to rise to more reasonable levels."
Of course, the BIS will not admit that the source of the distortions came from the central banks' cheap money policies. The staggering level of bailouts, both past and yet to come, will continue to aggravate those distortions and produce new ones. With many economists predicting high inflation or even hyperinflation in the near future, we could be witnessing the last days of central banking.

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