Tuesday, 17 March 2009

Counterfeit

$1

From Dictionary.com:

coun⋅ter⋅feit
[koun-ter-fit]
-adjective
made in imitation so as to be passed off fraudulently or deceptively as genuine; not genuine; forged: counterfeit dollars
pretended; unreal: counterfeit grief.
-noun
an imitation intended to be passed off fraudulently or deceptively as genuine; forgery.
Archaic. a copy.
Archaic. a close likeness; portrait.
Obsolete. impostor; pretender.
-verb (used with object)
to make a counterfeit of; imitate fraudulently; forge.
to resemble.
to simulate

For millennia, since the inception of money, people have counterfeited coins, notes, trying to get free currency (apart from residual production costs) that in principle you should have been working hard to get. For millennia too the entities that issued money have always been chasing counterfeiters with harsh penalties for the ones that were caught in this activity (mostly death with torture and or long terms of imprisonment). Why? The reason is obvious... counterfeiting devalues (note this word for later) real money, money that is well accounted for by the entities that issue it. Counterfeiting also creates a climate of suspicion and if "properly" done it may collapse an entire economy as people do not believe anymore in words like "Bank of England promise to pay the bearer on demand the sum of XX pounds" or "Federal Reserve Note - The United States of America will pay to the bearer on demand XX dollars"; especially if this money is home made in a laser/inkjet printer. We think that all money in circulation and in banks should be very closely controlled and would be horrified if this was not protected by all means necessary. In the last century counterfeiting was thought as a mean of warfare on a state sponsored plot planned by the "good old" Adolph Hitler during WWII. It almost worked. Of course there is a movie about this, Oscar Winner by the way! The idea that a war could be won by printing copious amounts of your enemy's money is not a frivolous one at all.
Efforts have been made both by issuers and counterfeiters to make money and notes more and more elaborate, issuers always trying to be one step ahead of counterfeiters.
If you check the bank of England report on the impact of counterfeit, there is around £5.8 million of "fake money" in circulation against a total of "genuine" money of £40 billion. That is quite good actually, these notes are hard to copy and it appears that in this case crime does not pay (literally!)
Why this lengthy introduction? Remember my earlier posts about Silly Money? I have something else to add to the financial chaos we are witnessing at present. Today I shall talk about the USD, the dollar, buck, green.
All world currencies are rated against the USD. All foreign exchange transactions are made against the value of the dollar at a certain time (milliseconds, seconds, hours, days). The dollar is the benchmark, how all world trade needs to refer too, how all pricing is linked to. This puts a heavy burden towards the bank that is ultimately responsible for the credibility of the USD, the Federal Reserve. The quote on their website states:

"The Federal Reserve, the central bank of the United States, provides the nation with a safe, flexible and stable monetary and financial system".

The above is probably the biggest wishful thinking exercise in modern history. The only accurate adjective is "flexible" but not for the reasons you should be lead to believe. Since the 70s and because of the worldwide application of the Black-Scholes model and later by the multiplication of electronic transactions, the USD has been counterfeited at a staggering rate of $100 million per day! This is an average rate of "growth". The pace was slower in the 70s and increased to apocalyptic proportions within the following decades.
With the dawn of "Financial Engineering" deals were being made (still are by the way!) outside a creationist environment, pure evolutionist ones, based on finance products over finance products with no world reality equivalent. Money was self-generated, placed in banks electronically, in shares, derivatives, funds, hedge funds, exotics and other denominations. For the past 30 years these "products" or 99% of them have been dealt in US dollars, outside the control of the Federal Reserve (so I should think!) and presented as "growth of the western economies". What happened is that a massive exercise in counterfeiting has been made by accepting this dollarcracy. Technically speaking it is like the Federal Reserve is printing $100 million a day without telling anyone. These dollars are electronic, edollars. Unfortunately they cannot be distinguished from... dollars! And the effects have been devastating, increasing the rich/poor divide to the realms of the unacceptable. By the poor I do not mean a homeless in the Bronx but a resident in Malawi, Bangla Desh, Bolivia, Zimbabwe... you know the... Third World.
Generating these edollars without telling anyone (probably in total ignorance) or disguising it as the "successful financial growth" has overvalued the USD to magnificent figures. As all currencies need to be dealt against the USD they have in opposition been devalued to cataclysmic figures. The consequence is not immediately obvious. The devaluation has been mostly in the value of labour and commodities that are geographically produced outside the US and Western World like coffee, bananas or guano. Countries that are outside the loop, mainly the ones that do not have a strong financial component (unlike Japan, Hong Kong (not yet China), Euroland, UK and US), countries that do not have the facility of a strong stock exchange and are unable to create Silly Money, countries that are twice removed from the Big USD Printing Party, have suffered the most. The value of their labour, paid in local pittance currency against a powerful counterfeited dollar, has decreased by 20 times since the 70s. I was trying to get a table for exchange rates against the USD since 1975 and came across this gem of information about a country that fits the bill perfectly... Chile! 1 USD was worth 50 Chilean Pesos (CLP) in 1975. In 2002 it was worth 750 CHP... this in a hard working country that had survived some coups and turmoil and under a strong dictatorship was back to work, a country rich in minerals and other commodities. Unfortunately they were two layers out of the loop. Counterfeited edollars had an effect on offering cheap labour, bargain basement paycheques. If you check this table of USD rates in the African Continent you can clearly spot the countries that were:
Once removed (close contact with USD via trade, tourism, oil)
Twice removed
Not in the world foreign exchange mechanism


Country
1985
1990
1993
1995
Algeria
4.773
12.991
24.123
51.465
Botswana
2.101
1.871
2.565
2.824
Burundi
111.970
165.350
264.380
248.250(Aug)
Cape Verde
85.375
66.085
85.992
74.305(Jul)
Djibouti
177.720
177.720
177.720
177.720
Egypt
0.700
2.000
3.370
3.390
Ethiopia
2.070
2.070
5.000
6.300
Gambia
3.461
7.495
9.535
9.570(Aug)
Ghana
59.990
344.830
819.670
388.900(Sep)
Guinea (Bissau)
176.00
2509.000
11464.000
18036.00(Jun)
Guinea (Conakry)
n/a
680.00
972.400
997.000(Sep)
Kenya
16.284
24.084
68.163
55.5782
Lesotho
2.558
2.563
3.398
3.664
Liberia
1.000
1.000
1.000
1.000
Libyan Arab Jamahiriya
3.378
3.706
3.077
2.869
Madagascar
635.800
1465.800
1962.700
4588.300
Malawi
1.679
2.647
4.494
15.259(Aug)
Mauritania
77.070
77.840
124.160
137.300
Mauritius
14.310
14.322
18.656
15.259(aug)
Morocco
9.621
8.043
9.651
8.545
Mozambique
45.980
1159.610
5343.160
10253.000(Aug)
Namibia
2.557
2.563
3.398
3.664
Nigeria
1.000
9.001
21.882
21.886
Rwanda
93.490
121.120
146.370
n/a
Seychelles
6.602
5.119
5.258
4.843(Sep)
Sierra Leone
5.210
188.680
577.630
952.380
South Africa
2.558
2.563
3.398
3.664
Sudan
2.500
4.504
217.391
558.240*
Swaziland
2.558
2.563
3.398
3.664
Tanzania
16.500 )
196.600
479.870
610.340(Oct
Tunisia
0.757
0.837
1.047
1.056
Uganda
14.000
540.000
1130.200
1030.400
Zaire
18.598 )
666.667
35.000**
11402.99(Oct)
Zambia
5.701
42.735
500.00
909.091
Zimbabwe
1.641
2.636
6.935
9.268
CFA Franc Zone
378.050
256.450
294.780
496.200


I was unable to find tables for Asia and Latin America but I am sure that the trend is there. China was once a twice removed country and is still outside the foreign exchange mechanism. It has recently entered the financial world via Hong Kong, so it is difficult to assess its influence as not enough time has elapsed. It is also hard to establish its world financial status.
The last nail in the coffin for the poorest countries was the International Monetary Fund. Their main duty was selling counterfeited dollars/edollars against a local currency that was being systematically devalued on a daily basis making the repaying of loans more and more difficult, making cheap labour more and more available, making commodities like coffee, cocoa, bananas, cheaper by the minute.
This activity is now coming to an end mostly because of technology. For the past 10 years people and entities have entered the financial world via the internet and are not as removed as before. Their activities accelerated the generation of edollars to the point of collapse but not before having systematically stolen the resources and work energies of people in the poorest countries.
If there is a "great design" to this edollar operation Madoff and Fred the Shred are total amateurs in comparison and their paycheques well deserved as they were unwittingly fundamental parties of this counterfeit plot (the typical fall guy). Even their grief is... counterfeit!
I finish with thoughts on the rhetoric of Marxism-Leninism in the 70s and the Islamic fundamentalism of recent years. Their screams against the Western World and the United States in particular are based on a mob gut feeling that "something is wrong and we know who the culprits are!" albeit using the wrong wording in their banners. They are basically right. Now you know why!

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