IF 200 -- August 29, 2011 -- 10/20

It is important, therefore, to understand that today’s financial mess is part of a systemic debasement of the global financial system that started decades ago.    Along the years and decades, capital was displaced from under the control of central banks and governments into “private” individual and institutional hands, often in foreign countries, and in the “shadow banking system”.    Governments and central banks, as a result do not have adequate control of the economy and financial markets.

It is disappointing, indeed, to witness the immense lack of knowledge of leading policy makers around the globe about how the economy and finance are intimately intertwined and about the ever evolving technical intricacies of sophisticated modern finance.    This ignorance inexorably leads to miscalculation of risk exposure and to systemic risk’s day of reckoning.

When this well oiled system stops working, it is the policy makers and central banks that are called to rescue the financial system.    How can they rescue effectively a financial system of which they simply ignore the increasingly fast evolving sophistication?    Yet, the “Sovereign State” is overtaking the “Sovereign Individual”!

2. Currency Unions and the Euro Experiment 

A brief glance at history reveals that, before the U.S. Dollar’s reign as a “reserve” currency began in earnest in 1920, there have been five well defined cycles, each lasting approximately a century, when a “superpower of the world” imposed its currency supremacy over other countries:   Portuguese (1450-1530), Spanish (1530-1640), Dutch (1640-1720), French (1720-1815) and British (1815-1920).