Category Archives: Financial Scandals

Popes and demons: Mysterious Vatican bank poses problem for new pontiff

The massive round tower, left, is the headquarters of the Institute for Works of Religion, the Vatican’s secretive bank.

GABRIEL BOUYS/AFP/Getty Images FilesThe massive round tower, left, is the headquarters of the Institute for Works of Religion, the Vatican’s secretive bank.
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National Post | Mar 8, 2013by Adrian Humphreys
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As the world waits for the Vatican’s conclave to select a new pope to lead 1.2 billion Roman Catholics, and the church’s sex abuse scandals dominate discourse on the incoming pontiff’s priorities, another decidedly worldly issue is also poised to take an immediate toll on the new Holy Father: money.

The public and private woes of the Vatican bank, long shrouded in secrets and whispers, might well prove to be just as challenging, if not as draining, as the lurid, faith-shaking damage of the clergy abuse scandal.

With a two-year probe by Italian authorities into money laundering, poor transparency, inadequate adherence to standards for guarding against criminal and terrorist financing, and questions over sudden changes in its leadership, the bank represents another crisis of morals, legalities and perception.

The importance of the Vatican bank in Pope Benedict XVI’s grand vision can be assumed from the urgency it held with the outgoing pontiff: among the last official acts before his shock retirement was overhauling financial leadership and church oversight.

On Feb. 15, Benedict XVI approved the appointment of Ernst von Freyberg as the new president of the supervisory board of the Institute for Works of Religion, the church agency widely known as the Vatican bank.

The appointment of the German lawyer and businessman came after assessing “a number of candidates of professional and moral excellence,” the Vatican said in a statement.

“The Holy Father has closely followed the entire selection process … and he has expressed his full consent to the choice made by the Commission of Cardinals.”

While the appointment drew immediate criticism over the involvement of Mr. von Freyberg’s Blohm+Voss, an industrial group, in manufacturing German warships, including during the Nazi era, it also raised eyebrows for its timing. Putting money under the baton of a German is not out of step with European policy these days, but for an institution already rife with conspiracy theories the sudden shuffle could not go unnoticed.

“[Benedict’s] decision to retire was so unprecedented, you would think that he would have other things on his mind than replacing the head of the Vatican bank,” said Carlo Calvi, son of Roberto Calvi, who was known as “God’s Banker” because of his close ties to the Vatican before his outlandish death more than 30 years ago.

Alessia Pierdomenico/Bloomberg Files

Alessia Pierdomenico/Bloomberg FilesThe city of Rome, in Italy, is seen beyond St. Peter’s Square from the roof of the Basilica in Vatican City.
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Ernst von Freyberg. The Canadian Press Files.

Ernst von Freyberg. The Canadian Press Files.

“However, I am more surprised by the sackings — the people who were let go — rather than the appointments,” he said.

Ettore Gotti Tedeschi was chairman of the Vatican bank until he was pushed out in May with a withering assessment of not being up for the job. He had been trying to get the Vatican onto the international banking “white list” of virtuous countries.

Then, on Feb. 22, Monsignor Ettore Balestrero, a key church official pushing for better regulation and controls on the Vatican bank, was suddenly transferred from Rome to Colombia.

That transfer followed the moving of Archbishop Carlo Maria Vigano, who was credited with turning a deficit for the Vatican into a large surplus through greater accountability and controls, from the Vatican to the United States.

One of the leaked documents in the “Vatileaks” scandal was a letter from Archbishop Vigano to Pope Benedict begging he remain in Rome to continue his financial crusade. The Pope was unmoved.

The transfers suggest change is not always welcome.

“Change under the new pope will be easier said than done because they make money on this, it is a source of income that has been used for a lot of purposes,” said Mr. Calvi. To address the problems, “They need, essentially, to do a very drastic reform that would almost certainly mean foregoing a considerable source of revenue.”

The Vatican bank has not always shown such virtuous strength, as Mr. Calvi knows better than most. Few outside the Vatican’s inner circle eye church finance as closely as Mr. Calvi, who now lives in Montreal.

Watching the Vatican bank has consumed Mr. Calvi’s adult life and the Calvi name almost consumed the Vatican bank.

His father was chairman of Banco Ambrosiano, an Italian Catholic bank closely linked to the Vatican.

Graham Hughes for National Post

Few outside the Vatican’s inner circle eye church finance as closely as Carlo Calvi, who now lives in Montreal. Graham Hughes for National Post
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The shadowy operations of Vatican finance forced its way into the public’s consciousness when Roberto Calvi was found dead, just as the scandalous operation of church finance was being revealed amid the collapse of Banco Ambrosiano, Italy’s largest private bank, with $1-billion missing.

Since then, his unsolved death, first declared a suicide, then reclassified as a murder, and the cast of powerful figures and secretive organizations linked to it — from the Mafia and the Masonic lodge P2 to the powerful conservative Catholic organization Opus Dei and the Vatican itself — make it one of modern history’s enduring mysteries, Europe’s equal to the Jimmy Hoffa disappearance.

The case was also said to be linked to landmark Cold War politics, with claims Banco Ambrosiano was used by those close to John Paul II, the Polish pope, to fund the anti-Communist Solidarity movement in Poland and by those close to U.S. president Ronald Reagan to fund the Contra rebels of Central America.

The raw puzzle and quirks of Mr. Calvi’s death compel conspiracy theories and befuddlement, with small details that seem to mean much, but with no answer to exactly what.

The banker’s body was found hanging under Blackfriars Bridge, his feet dangling in the River Thames in the heart of London, on June 18, 1982; he wore two pairs of underwear, had five bricks in his pockets, about $14,00-worth of three different currencies and the business card of a Mafia figure.

It was a death shouting in the symbolic language of Italy’s underworld.

Simon Dawson/Bloomberg Files

Blackfriars Bridge in London, U.K. Simon Dawson/Bloomberg Files
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“I am more of the idea that there are theatrical elements and not necessarily symbolic aspects to it,” said his son. “Hundreds and hundreds of millions of dollars were involved — if that is not a motive for murder, I don’t know what is.”

After all, any Catholic cleric would know: Radix malorum est cupiditas, the Latin Biblical quotation meaning greed is the root of evil.

The very notion of a church bank speaks to the awkward interface between the spiritual and temporal, represented by the pope being both leader of the Catholic Church and sovereign of the Vatican City state.

Unlike many Vatican institutions, the Vatican bank is not of antique origin, having been formed in 1942 by Pius XII, although it had older antecedents. Its purpose is to protect and administer the property and funds intended for the church’s works.

Unlike true national central banks, it does not set monetary policy or involve itself in currency maintenance, as the Vatican uses the euro. Also unlike most banks, its surplus or profit is supposed to go toward religion or charity.

As it is not a true central bank, and with the Vatican not a full member of the European Union, its relationship with strict regulation has been more nebulous and its ends of religion or charity have, likewise, not always been clear.

“One would be surprised at the acceptance of risky relationships and risky behaviour for an organization like the Vatican. But, objectively, I’ve seen it. It is hard to understand, but it is true,” said Mr. Calvi.

Courtesy Carlo Calvi

“God’s Banker” Roberto Calvi, whose body was found hanging from a London bridge in 1982, meets Paul VI in an undated photo. Courtesy Carlo Calvi
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“In many cases, they seem to have little judgment in terms of the arrangements they get themselves into.”

In the fallout of the Banco Ambrosiano scandal, though it claimed no wrongdoing, the Vatican bank paid $250-million to Ambrosiano’s creditors.

Since then, its regulatory framework has still not caught up to modern standards, especially in the post-9/11 world.

Tiziana Fabi/AFP/GettyImages Files

The former head of the Vatican bank, Ettore Gotti Tedeschi, was forced to resign from his post on May 24, 2012 “for failing to carry out duties of primary importance,” the Holy See said in a statement. Tiziana Fabi/AFP/GettyImages Files
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In 2010, Rome magistrates froze ¤23-million ($31-million) the Vatican bank held in an Italian bank. The Vatican said its bank was merely transferring its own funds between its own accounts in Italy and Germany. The money was released in June 2011, but an investigation continues.

In July, a European anti-money laundering committee said the Vatican bank failed to meet all its standards on fighting money laundering, tax evasion and other financial crimes.

The report by Moneyval, a monitoring committee of the 47-nation Council of Europe, found the Vatican passed nine of 16 “key and core” aspects of its financial dealings. The head of the Vatican delegation to the Moneyval committee was Msgr. Balestrero.

Msgr. Balestrero said the report was a call for the Vatican to push forward with “efforts to marry moral commitments to technical excellence” to prove “the Holy See’s and Vatican City state’s desire to be a reliable partner in the international community.”

Seven months later, he was reassigned to South America.

“The Moneyval report was one of the rare bits of good news for the Vatican last year. Balestrero was the one who dealt with Moneyval and they send him to Colombia. That doesn’t sound like the way to reward someone,” said Mr. Calvi.

This week, the widely read Italian Catholic weekly Famiglia Cristiana, which is distributed free in Italian parishes on Sundays, carried an article calling for the bank to be closed on the grounds the pontificate should not have direct links to the world of finance.

It argued there are plenty of ethically minded commercial banks in Italy and elsewhere that could be trusted to manage the Holy See’s assets.

In January, René Bruelhart, the new director of the Vatican’s Financial Information Authority, said the church was on the right track.

“Considering the particular nature of the Vatican City state, adequate measures have been adopted for vigilance, prevention, and fighting money laundering and financing terrorism,” he told the Italian newspaper Corriere della Sera.

How much further the Vatican bank will go and how quickly it can get there, under both the new chairman and a new pope, is being anxiously watched by the world’s financial community. And by Mr. Calvi.

Pier Paolo Cito / The Associated Press Files

Then Cardinal Joseph Ratzinger of Germany, left, now former Pope Benedict XVI, looks on as late Pope John Paul II celebrates Mass in St. Peter’s Basilica at the Vatican in 2002. Pier Paolo Cito / The Associated Press Files
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National Post, with files from news services

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Hillary Clinton to charge ‘$200,000 a speech’… which is more than her whole YEAR’S salary as Secretary of State

Hillary Billary Show Me The Money
Next gig: Former Secretary of State Hillary Clinton has signed up with a talent agency and is commanding $200,000 per lecture, each of which will only last between one and two hours

Now she has signed up to earn whopping fees on the lecture circuit

Daily Mail | Feb 20, 2013

By Meghan Keneally

Hillary Clinton has wasted no time cashing in on the lecture circuit as it was revealed today that she will be charging $200,000 per speech.

The massive fee means that she will be making more from a two-hour lecture than she did in a year as Secretary of State.

The announcement that Mrs Clinton has hired a top talent agency to represent her as she begins to give paid speeches following her departure from the State Department came earlier this week, but her $200,000 asking price was only reported on Wednesday.

According to Buzzfeed, that puts her in the same league as her husband former President Bill Clinton who is so in-demand that he can command the six-figure fee.

The volume of the sum is made clear when looked at in comparison to her salary for a year as Secretary of State, which was $186,000.

Hillary DevilHornsMrs Clinton is now represented by the Harry Walker Agency which is known for getting famous politicians and newsmakers plum gigs on the lecture circuit.

The venture is her first formal decision about what she is going to do now that she is no longer working, though she is widely considered to be the Democratic front runner should she decide to run for the presidency in 2016.

Her decision to attach her name to his particular New York-based agency comes as little surprise since her husband former President Bill Clinton has long been represented by the group since he left office in 2000.

The move was clearly a lucrative one, as he made $75.6million from 2001 to 2010 from speaking engagements, making $10.7million in just 2010 alone.

President Clinton is not the only big name with the agency, as his former Vice President Al Gore has been booking $175,000 gigs through their connections, and former New York City mayor and Republican presidential candidate Rudy Giuliani regularly brings in $100,000 per event.

Former vice president Dick Cheney, former Senators Olympia Snowe and Joe Lieberman, Obama campaign strategist Jim Messina and former Secretary General of the United Nations Kofi Annan are all represented by The Harry Walker Agency as well.

Her exact asking price has not been reported, but Politico asserts that she ‘will likely do some speeches for no fee for causes she champions, and expects to occasionally donate her fees for charitable purposes’.

While keeping mum about any future presidential plans, Mrs Clinton has said that she plans to write another book, this time about her work as Secretary of State.

Publishing house Simon & Schuster reportedly paid the former first lady an $8million advance on her first book, Living History, which she published in December 2000.

With any and all positions that she decides to take, she will have to weigh the optics of if it would look appropriate for a presidential candidate.

That said, another concern is shoring up a steady income, because it doesn’t come cheap to live like the Clintons and six-figure speaking fees will certainly help.

Though there were early reports that they might buy a house in the Hamptons area of Long Island, it appears now that they will hustle between their current residences in Washington, D.C. and Chappaqua, a quiet town in the suburbs of New York City.

She is also expected to either work with her husband’s Clinton Foundation or start her own, though no decisions about that have been made at this point.

The only thing that Mrs Clinton has publicly confirmed is that she plans to rest after a very taxing four years of traveling to 112 different countries.

As Mrs Clinton remains coy about her political prospects, her potential competitors are being very blatant in their fundraising attempts.

On the Republican side, both New Jersey Governor Chris Christie and Florida Senator Marco Rubio have raised significant sums for their campaign war chests in recent weeks.

Mr Christie attended a fundraiser in his honor at Facebook founder Mark Zuckerberg’s California home, and Mr Rubio raised $100,000 by selling water bottles with his name on them, playing on his thirst-quenching gaffe during the State of the Union rebuttal.

UN report says Afghan corruption worth twice government’s revenue

karzai-pointing

The U.N. reports that governmental corruption in Afghanistan costs the country billions of dollars each year.

msn.com | Feb 7, 2013

By Dylan Welch

KABUL – A figure equal to twice the Afghan government’s domestic revenue – $3.9 billion – was gouged from the country by public sector corruption last year, a U.N. report said on Thursday.

This amount is also roughly equal to the annual aid pledged to Afghanistan until 2015 by the international community at last year’s Tokyo Conference.

The report, by the U.N.’s Office on Drugs and Crime, will lead to concerns about the mismanagement of those donor funds by Afghan officials in a country which has been consistently ranked as one of the world’s most corrupt.

“While corruption is seen by Afghans as one of the most urgent challenges facing their country, it seems to be increasingly embedded in social practices, with patronage and bribery being an acceptable part of day-to-day life,” the report said.

Almost 7,000 Afghans were surveyed last year and they revealed that corruption in the country had risen by 40 per cent since 2009. Half the population had to pay at least one bribe to a public official in 2012, the report said.

U.S.-backed Afghan President Hamid Karzai has repeatedly pledged to curb corruption in order to keep attracting aid from international donors as a planned transition from U.S.-led NATO forces to Afghan leadership takes place by the end of 2014.

But capital flight has continued, threatening Afghanistan’s fragile economy and stability. The Afghan central bank estimates that the total amount of cash leaving Afghanistan each year could be as much as $8 billion.

The report found corruption was becoming a way of life in Afghanistan, with 68 percent of those surveyed saying it was acceptable for a civil servant to top up their salary by taking bribes.

However, it found that the percentage of people who paid a bribe had dropped from 59 in 2009 to 50 last year.

In September, Karzai sacked five provincial governors and made changes to almost a third of the country’s 34 provinces in a shakeout of corrupt and inept officials aimed at soothing foreign donors’ fears.

At last year’s Tokyo Conference, delegates from 80 nations and international organizations pledged $16 billion in aid to the country over four years.

Afghanistan is plagued by corruption as a result of more than 30 years of war and nepotism. Last year it was ranked at the bottom of Transparency International’s annual corruption index, sharing the spot with North Korea and Somalia.

Congressional Budget Office: National debt $7 trillion larger by 2023

dailycaller.com | Feb 6, 2013

The nonpartisan Congressional Budget Office released an estimate Tuesday saying that by 2023, the federal debt will be $7 trillion larger.

“If current laws remain in place, debt will equal 77 percent of GDP and be on an upward path,” CBO projects.

Based on their modeling, the deficit will total $845 billion in 2013, making it the first year in five years to have a deficit below $1 trillion.

“With such deficits, federal debt would remain above 73 percent of GDP — far higher than the 39 percent average seen over the past four decades,” says the CBO.

Economists commonly recommend that the debt-to-GDP ratio should not exceed 60 percent. It currently exceeds 70 percent.

US Debt Clock

“The CBO’s report is yet another warning that we need to get spending under control,” House budget committee chair Paul Ryan said last week. “The deficit is still unsustainable. By 2023, our national debt will hit $26 trillion. We can’t let that happen. We need to budget responsibly, so we can keep our commitments and expand opportunity.”

Included in the CBO’s budget outlook is the future of medical insurance programs. The CBO projects that 7 million people will no longer have employer-provided health insurance by 2022, because of changes required by the Affordable Care Act.

The cost of Social Security is expected to nearly double over the next ten years, from $773 billion in 2012 to $1.43 trillion in 2023.

G. William Hoagland, senior vice president of the Bipartisan Policy Center, testified before Congress that by 2022, the debt will be $27 trillion. Hoagland agreed that the debt-to-GDP ratio will reach 77 percent.

In all, the CBO expects economic growth to be slow for the remainder of the year as the expected budgetary cuts take place. Following 2013, the CBO estimates economic growth will speed up, “causing the unemployment rate to decline and inflation and interest rates to eventually rise from their current low levels,” the CBO writes.

“Nevertheless, the unemployment rate is expected to remain above 7½ percent through next year,” making 2014 the sixth consecutive year with unemployment exceeding 7.5 percent — the longest period of extended unemployment in the last 70 years.

Federal Reserve Pushes Assets to Record $3 Trillion

ben
Chairman of the Federal Reserve Ben Bernanke speaks during a press briefing at the Federal Reserve. Brendan Smialowski/AFP via Getty Images

bloomberg.com | Jan 24, 2013

By Joshua Zumbrun

The Federal Reserve pushed its balance sheet beyond $3 trillion for the first time this week while undertaking open-ended purchases of Treasuries and mortgage-backed securities to combat 7.8 percent unemployment.

The Fed’s total assets climbed by $48 billion in the past week to $3.01 trillion as of Jan. 23, according to a release from the central bank today in Washington. Holdings of Treasuries climbed by $7.8 billion while mortgage-backed securities in the Fed portfolio rose by $35.6 billion.

The bond buying is part of Chairman Ben S. Bernanke’s campaign to use the full force of the central bank’s balance sheet to stoke the economic recovery. The Fed began purchasing $40 billion of mortgage-backed securities a month in September and this month added $45 billion in Treasury securities to that pace, bringing total monthly purchases to $85 billion.

CEO of JPMorgan says you don’t need to know how banking works, it’s like an airliner engine, too complex to explain, just shut up and pay us.

“You’re hard-pressed to find another example in history where the Fed pulled out all the stops to help a recovery along,” said Michael Hanson, senior U.S. economist at Bank of America Corp. in New York, and a former Fed economist. “It’s at least as revolutionary as Paul Volcker coming in and saying we’re going to hike rates until inflation” declines.

The Fed has a dual mandate from Congress to achieve stable prices and maximum employment. Volcker, Fed chairman from 1979 to 1987, pushed interest rates to as high as 22 percent to rein in annual price acceleration approaching 15 percent. Now Bernanke is focusing Fed policy on the other mandate, aiming to reduce the ranks of the nation’s 12.2 million unemployed workers.

Substantial Gains

Fed officials have said their $85 billion pace of purchases will continue until the labor market improves “substantially.” Still, they disagree on how long they should press on with the buying.

The minutes from their Dec. 11-12 meeting Federal Open Market Committee participants “approximately evenly divided” between those who said it would be appropriate to end the purchases around mid-2013 and those who said they should continue beyond that date. A number of policy makers are concerned the size of the Fed’s holdings “could complicate the Committee’s efforts to eventually withdraw monetary policy accommodation,” according to the minutes.

The central bank’s balance sheet has provided record windfalls to the U.S. Treasury. The Fed uses interest income from its bond holdings to cover its own expenses and sends the rest to the Treasury. In 2012, that dividend to taxpayers was $88.9 billion.

Hit Zero

One risk from a large balance sheet is the possibility that the Fed’s interest income could evaporate in coming years as rates rise, according to a paper released last week written by researchers in the Fed’s monetary affairs division. The paper studied different scenarios and concluded that the central bank’s payments to Treasury “will likely decline for a time, and in some cases fall to zero.”

The Standard & Poor’s 500 Index, the benchmark for U.S. equities, was little changed today at 1,494.82 at 4 p.m. in New York, while the yield on the 10-year Treasury note increased 0.03 percentage point, to 1.85 percent. The yield has increased from 1.72 percent on Sept. 13, the day the Fed announced its third round of quantitative easing, while stocks have climbed 4.8 percent.

The central bank’s balance sheet is now more than triple its size before the financial crisis. Fed assets stood at $924 billion on Sept. 10, 2008, the week before the bankruptcy of Lehman Brothers Holdings Inc. helped spark a global financial crisis.

The Fed responded to the financial crisis first with emergency credit programs, and then with bond purchases known as QE or quantitative easing. In the first round of purchases, the Fed bought $1.7 trillion of securities. In a second round of QE, begun in November 2010, the central bank added an additional $600 billion of Treasuries to its holdings.

The Treasury Has Already Minted Two Trillion Dollar Coins

What the advocates of the $1 trillion coin are, therefore, proposing is to tax us in a hidden way.  This is not just taxation without representation.  It’s also taxation with misrepresentation.

While inflation, let alone hyperinflation, has not yet occurred, everything is in place for this outcome. 

forbes.com | Jan 19, 2013

by Laurence Kotlikoff

No doubt, you’ve heard about the latest irresponsible fiscal/monetary proposal to be floated by members of Congress and the erstwhile economist, Paul Krugman, whose lunch was just eaten by Jon Stewart.  

It entails having the Treasury avoid the federal debt limit by handing the Federal Reserve a single $1 trillion platinum coin.  The Fed would then credit the Treasury’s bank account with $1 trillion, which the Fed could spend on the President’s lunch, a $200 toilet seat, a new aircraft carrier, more Medicare spending – anything it wants.

Is there anything special about platinum? Well, yes.  The coin doesn’t have to contain $1 trillion worth of platinum.  It can be microscopic for all the Fed cares as long as they can use a electron microscope to read the $1 trillion In God We Trust inscription.   But it has to be made out of platinum.  No other metal or substance, like a piece of pizza, will do.  The reason is that the Treasury has the right, by an obscure law, to mint platinum coins, but only platinum coins.  Otherwise, making money by making money is the Fed’s domain.

Countries that pay for what they spend by printing money or, these days, creating it electronically, are usually broke.  That certainly fits our bill.

Our country is completely, entirely, and thoroughly broke.  In fact, we’re in worst fiscal shape than any developed country, including Greece.   We have fantastically large expenditures coming due in the form of Social Security, Medicare, and Medicaid payments to the baby boom generations – I.O.U.s, which we’ve conveniently kept off the books.

When the boomers are fully retired, Uncle Sam will need to cough up $3 trillion (in today’s dollars) per year to pay us (I’m one of us.) these benefits.   To put $3 trillion in perspective, it’s 1.5 times Russia’s GDP.

These benefits are called entitlements because, presumably, we feel we are entitled to hit up our children to cover their costs.  Borrowing from them and letting them tax themselves and their kids to pay themselves back is a good trick, but it’s running afoul of the debt ceiling.  Taxing them more and promising to the pay them benefits they’ll never receive is an old trick that’s run its course.  So we’re now onto printing money that will, we hope, raise prices only after we have protected our assets against inflation.

And we’re printing lots and lots of money.  Indeed, over the past five years, the Treasury has, in effect, done its $1 trillion coin trick twice.

Come again?

Well, substitute a $2 trillion piece of paper called a Treasury bond for the platinum coin.  Suppose the Treasury prints up such a piece of paper and hands it to the Fed and the Fed puts $2 trillion into its account.  No difference right, except for the lack of platinum.

Next suppose the Treasury doesn’t hand the $2 trillion bond to the Fed directly, but hands it to John Q. Public who gives the Treasury $2 trillion and then hands the bond to the Fed in exchange for $2 trillion.  What’s the result?  It’s the same.  The Treasury has $2 trillion to spend.  John Q. Public has his original $2 trillion.  And the Fed is holding the piece of paper labeled U.S. Treasury bond.

Finally, suppose the Treasury does this operation in smaller steps and over five years, specifically between 2007 and today.  It sells, i.e., hands to John Q. in exchange for money, smaller denomination bonds, which Johns Q. sells to the Fed, i.e., hands to the Fed in exchange for money.   Further, suppose the sum total of all these bond sales to the public and Fed purchases of the bonds from the public equals $2 trillion.  Voila, you’ve got U.S. monetary policy since 2007.

In 2007, the monetary base – the amount of money our government printed in its entire 231 years of existence totaled $800 billion.  Today it totals $2.8 trillion.  And it increased by this amount via the process just described – the Treasury’s effective minting out of thin air two $1 trillion platinum coins.

Now what happens when the Treasury spends its freebee money?  It raises prices of the goods and services we buy or keeps them from falling as much as would otherwise be the case.  Either way, the money we have in our pockets or in the bank or coming to us over time as, for example, interest plus principal on bonds we’ve bought in the past – all this money loses purchasing power.  So we are effectively taxed $2 trillion.

What the advocates of the $1 trillion coin are, therefore, proposing is to tax us in a hidden way.  This is not just taxation without representation.  It’s also taxation with misrepresentation.   The fact that a Nobel Laureate in economics would propose this without making clear this fact raises the question of whether his prize should be revoked.  Lance Armstrong, after all, is losing his medals for discrediting his profession.  Perhaps the Nobel committee should consider taking back Krugman’s.

This is no innocent omission.  Every PhD economist is taught about seigniorage.  It’s a term that was coined (excuse the pun) in the 15th century and stems from the right of feudal lords – seignurs – to coin money, use it to buy, say, chickens and debase the purchasing power of the coins they had given their serfs in the past for, say, wild boar.

Today, 12 cents out of ever dollar being spent by our government is being printed.  As indicated, the money supply has more than tripled.  While inflation, let alone hyperinflation, has not yet occurred, everything is in place for this outcome.  If you want to see what things will look like, check out Zimbabwe, which has surely been reading Krugman’s articles.

Foreign holdings of US debt increased to record $5.56 trillion in November

Associated Press | Jan 16, 2013

WASHINGTON — Foreign demand for U.S. Treasury securities rose to a record level in November, further evidence that overseas investors remained confident in U.S. debt despite looming budget battles in Washington.

The Treasury Department says foreign holdings of U.S. Treasurys rose 0.6 percent in November from October to $5.56 trillion. It was the 11th consecutive monthly gain.

China, the top foreign holder, increased its portfolio by $200 million to $1.17 trillion. Japan, the second-largest holder, boosted its investments by $900 million to $1.13 trillion.

Demand kept rising even as Congress neared a deadline to raise its $16.4 trillion borrowing limit. The government reached its borrowing limit on Dec. 31, but began using bookkeeping maneuvers to keep operating. The Treasury is expected to exhaust those measures by mid-February to early March.