7

Credit has been frozen to local businesses and farmers. Interest rates have rocketed. With the end of economic sanctions, the IMF has also demanded that import barriers be removed to facilitate the dumping of surplus commodities on the domestic market. Energy prices are to be totally deregulated prior to the privatization of public utilities.

The most lethal component of the IMF program, however, is the so-called �managed float� of the exchange rate which - according to IMF Deputy Managing Director Stanley Fischer -is implemented `to better reflect market conditions.� Yugoslavia�s central bank foreign reserves are of the order of $500 million, the external debt is in excess of $14 billion. Under the agreement with the IMF, money (in the form of a �precautionary loan�) will be granted to replenish the foreign exchange reserves of the Central Bank with a view to supporting the dinar. Moreover, following the Brazilian pattern, the dinar would also be artificially propped up by extensive government borrowing from private banking institutions at exorbitant interest rates.

In the absence of exchange controls restricting capital flight, central bank foreign exchange reserve would eventually be depleted. In the logic of the �managed float,� the dollars borrowed under an IMF precautionary fund arrangement, would be reappropriated by international creditors and speculators once the dinar slides, leading to a further expansion of Yugoslavia�s debt.

This policy is the same scam that the IMF applied in Korea, Indonesia, Russia, Brazil, and more recently Turkey. Various speculative instruments (including `short selling� of currencies) were applied by international banks and financial institutions to trigger the collapse of national currencies. In Korea, debts spiraled in the wake of the currency crisis. As a result the entire economy was put on the auction block and several of Korea�s powerful conglomerates were taken over by American capital at ridiculously low prices.

Michel Chossudovsky

Economics Professor

University of Ottawa

�from Economic Reform, June 2001

[Clearly shows the need for monetary reform�i.e. its creation debt-and-interest-free. - BL]

THE MONEY TRICK

At some unknown, but fateful, point in medieval history, a moneylender realised that the essence of a viable money system is confidence and that, once this confidence was established, a magical and very remunerative trick could be played.

Typically, the moneylenders were possessors of a stock of precious metals, which they would loan out into the community.

They found that, once they gained a reputation for reliability, instead of transferring actual gold or silver they could issue a promise to pay backed by the real wealth known to be in their vaults.

Their next discovery was that, as long as people believed in the convertibility of the promises to pay, such promises could be issued to a value considerably beyond that of their holdings of precious metals.

If experience taught the moneylender that only one tenth of his clients would at any particular time insist on payment in actual coin or bullion, he could safely make loans totaling about ten times the value of his reserves of bullion.

Thus was born financial credit and the principle of what we now know as fractional reserve banking, which has both allowed the community to expand the economy with unprecedented rapidity and delivered control over the expansion to the financiers.

The important points to grasp are: (1) the promises to pay functioned perfectly well even though they were issued on a fraudulent representation of convertibility; (2) the moneylender retained discretion to vary the availability of the promises to pay and there was never an exact correspondence between the total value of the promises to pay and the overall monetary needs of the community; (3) the promises to pay purportedly derived their value from the bullion in the moneylender�s vault but, in fact, this value came from the actual and potential productivity of the community itself.

While the pretence that financial credit is based on precious metals has been abandoned, all these features have survived in modem financial systems, whose function is to create the financial credit of the community.

next

index

back