The Bank for International Settlements (BIS), the central bank of most of the largest privately-owned central banks in the world, met in Basel, Switzerland on June 29, 2014. BIS warned that dangerous asset bubbles were being formed throughout the world before the global economy has finished recuperating from the economic crisis provoked by the same problem. The recovery from the financial worldwide crisis that began in 2007 could take several more years, the Spaniard Jaime Caruana, the general manager of BIS, stated at their annual meeting in Basel, Switzerland. He is concerned that the economic recovery is slow, especially in Europe, because of the very significant debt accumulated over the years. Caruana stated the following in his speech: “In many advanced economies, for example, companies are holding back on investment in plant and equipment. Infrastructure investment is also languishing, particularly in a number of emerging market economies (EMEs) but also in some advanced economies.”
The United States also has an extraordinarily high federal, states, counties, and cities debts. The federal government has an accumulated debt of over $17.5 trillion. However, when all the unfunded mandates or entitlements, such as Social Security, Medicare, Medicaid and Obamacare, as well as the high debts of states, counties, and cities, are included, the real debt of the United States is over $150 trillion.
President Obama has failed to even attempt a structural reform of all these entitlements, fearing alienating his base. If he had worked closely with Republicans in Congress, all of our economic unsustainable entitlements could have been reformed. All these entitlements are running out of money quickly. Like in other areas, the president’s inaction has made the problem worse for the future. Future presidents and Congresses will have the unpleasant duty of cutting the benefits of all the entitlements and increase taxes along with paying for them. This is what happens when an ignorant Marxist President, without any knowledge of economics and job creation, is elected and reelected to office. Our president has created a culture of dependency among his followers.
The tragic reality is that the United States is as indebted as the European nations. It is no surprise that the misguided economic and anti business policies of the Obama administration have resulted in the nation´s largest annual deficits and enormous increases of the federal debt as well as the slowest economic recovery in history. Additionally, the slow recovery ended when the Gross National Product (GDP), the measure of goods and services produced across the economy, declined by 2.9% during the first quarter of 2014.
The decline of the economy of the United States was has been most pronounced since the Great Recession in the first quarter of 2009. It was also one of the worst declines outside of the recession since 1960. Consumer spending in the nation increased only 1% during the first quarter and exports declined 8.9% during the first quarter of 2014. Consumer spending accounts for more than two thirds of economic output. Previous estimates by the Obama administration had predicted that the consumer spending would increase by 3.1%. Obviously, this optimistic prediction was incorrect.
These economic statistics are not a good sign for the future. The job market has not improved and the government unemployment statistics are a farce. These statistics do not include individuals who have not been able to find employment and therefore have ceased looking. In fact, the nation has the lowest participation in the workforce in over 30 years. The Obama administration statistics regarding low inflation are not credible either since they do not include the price of gasoline and other items. When Obama was elected president in January 2009, the price of gasoline was $1.89 per gallon. It has increased almost $4 dollars per gallon in July 2014. If the second quarter of 2014 shows another decline in the Gross Domestic Product, the United States would have entered into a recession.
The Bank for International Settlements general manager Caruana said that “during the boom years resources were misallocated on a huge scale and that it would take time to move them to more productive uses.” BIS warned that the world could be moving towards a new and severe economic crisis. BIS recommended in its report that banks raise more capital as a cushion against risk and speed up efforts to deal with past problems. Claudio Borio, head of the monetary and economic department at the bank, stated the following: “There is a disappointing element of dĂŠjĂ vu in all of this. The signs of financial imbalances are there. That is why we are emphasizing it is important to take further action while the time is still there.”
Jack Ewing wrote an article entitled “Central Bankers, Worried About Bubbles, Rebuke Markets,” which was published in The New York Times on June 30, 2014. He stated the following: “The overall, somewhat gloomy message from the central bankers was that the world is drunk on easy money and has already forgotten the lessons of recent years.” He stated the following regarding this BIS report:
“Despite the euphoria in financial markets, investment remains weak. Instead of adding to productive capacity, large firms prefer to buy back shares or engaged in mergers and acquisitions. The temptation to postpone adjustment can prove irresistible, especially when times are good and financial booms sprinkle the fairy dust of illusory riches. The consequence is a growth model that relies too much on debt, both private and public, and which over time sows the seeds of its own demise.”
Below are excerpts from the speech given by the general manager of BIS Jaime Caruana:
Stepping out of the shadow of the crisis: three transitions for the world economy
Speech by Jaime Caruana General Manager, Bank for International Settlements on the occasion of the Bankâs Annual General Meeting in Basel on 29 June 2014
Good morning, ladies and gentlemen
This yearâs Annual Report offers our views on current challenges and aims to examine policies that might help us step out of the long shadow of the crisis. Our approach is to seek a long-term perspective with a view to shedding light on both the build-up of financial imbalances pre-crisis and their lasting consequences.
In my remarks, I will focus on my own observations on the Annual Report. Claudio Borio, Head of the BISâs Monetary and Economic Department, and Hyun Song Shin, Economic Adviser and Head of Research, will elaborate afterwards on some specific points.
Seven years on, the Great Financial Crisis still casts this long shadow on the world economy. The good news is that the global economy is healing and global growth has picked up during the past year. Reforms have taken hold, if unevenly. The recovery in the advanced economies has broadened. The euro area has eventually emerged from recession, while the slowdown in emerging market economies (EMEs) seems to have abated. The consensus expectation is for global growth to gradually return to pre-crisis rates.
The less good news is that challenges continue to be serious and new risks are emerging. By historical standards, the upswing has disappointed. But this should not be surprising. Consumers, firms and banks in crisis-hit economies are still repairing their balance sheets and grappling with an overburden of debt. Private sector deleveraging is most advanced in the United States; in other countries, including large tracts of the euro area, it is still very much work in progress.
During the boom, resources were misallocated on a huge scale, and it will take time to move them to new and more productive uses. Meanwhile, a number of EMEs have moved into the late stage of their own financial booms. While these booms have helped to extricate the global economy from the Great Recession, they are now confronting the EMEs with a range of economic risks. And these risks cannot be altogether offset by the additional room for policy manoeuvre that the EMEs have won for themselves over the last few years.
Yet the global economic upswing does provide us with the chance to step beyond the shadow of the crisis. Making full use of that opportunity will involve three transitions for the global economy: first, towards patterns of growth that are less debt-driven and therefore more sustainable; second, towards a more normal monetary policy; and third, towards a more reliable financial system. Let me briefly discuss each of these transitions in turn.
First transition: towards a less debt-driven growth model
Over the past decades, growth has relied heavily on debt. Financial booms have led to severe resource misallocation in many economies. These booms have also masked an erosion of growth potential and, in the advanced economies, a trend decline in productivity growth that started decades ago.
Since 2007, in the G20 economies, the ratio of total non-financial sector debt to GDP has risen by more than one fifth. This is the legacy of the massive fiscal stimulus during the Great Recession in the advanced economies and the significant new issuance of debt by corporates in EMEs. Since then, the advanced economies have made some progress in reducing their fiscal deficits. But the upshot is that aggregate debt levels continue to grow. Overall, debt-to-GDP ratios are now 275% in the advanced economies and 175% in EMEs.
This surge in debt has certainly helped to prop up current demand. What is less clear is whether it will generate higher income in the years to come and thus ensure sustainability.
A negative aspect of this debt-driven growth pattern is the relative weakness in investment in advanced economies. True, at the global level, total fixed investment as a share of GDP has continued to rise thanks to rapid growth in the EMEs. It is also true that, in some countries, a correction of overinvestment in housing and construction was overdue. But other investment patterns do not bode well for future growth. In many advanced economies, for example, companies are holding back on investment in plant and equipment. Infrastructure investment is also languishing, particularly in a number of EMEs but also in some advanced economies.
Rising private and public debt has created a range of vulnerabilities. As debt increases, the ability of borrowers to repay becomes progressively more sensitive to drops in income and to interest rate rises. Thus, higher debt translates into greater financial fragility and financial cycles that may become increasingly disruptive. How to cope with those cycles is a major theme of this yearâs Annual Report, as Claudio Borio will explain in a minute.
But what about the risk of secular stagnation? Debt is not the only headwind to growth; there are also structural deficiencies. In the advanced economies, productivity growth has been on the decline since long before the crisis, a trend previously masked by the financial boom. And the drag from ageing populations is well known. In addition, there are country-specific factors, including a structural fall in participation rates, or a sectoral misallocation of credit and resources. All these are structural impediments to demand and growth.
It is hard to see how additional debt-driven demand can help. As we argued last year, monetary and fiscal stimulus has won us some breathing space. But it cannot substitute for structural reform. Ever rising public debt cannot shore up confidence. Nor can a prolonged extension of ultra-low interest rates.
Low rates can certainly increase risk-taking, but it is not evident that this will turn into productive investment. Most importantly, if they persist too long, ultra-low rates could validate and entrench a highly undesirable type of equilibrium â one of high debt, low interest rates and anemic growth.
The right way to avoid this trap is to tackle the structural headwinds head-on. The priorities are to reverse the decline in productivity growth and to address structural deficiencies. Doing so will require supply side reforms that promote a more flexible and profitable use of resources and create confidence in employment and income prospects. Although such reforms need to be very country-specific, they are likely to include further liberalization of product and labor markets, revised tax codes and more focused use of public spending. And, not incidentally, monetary policy will be more effective in a more flexible and less leveraged economy.
Second transition: towards a more normal monetary policy
Monetary accommodation is testing its limits. Monetary policy loses a great deal of its effectiveness in the recovery phase of a balance sheet recession when households, corporates and banks are all struggling to repair their balance sheets, thus entrenching the weakness in aggregate demand. There is a threat to financial stability too, as ultra-low interest rates promote debt accumulation and risk-taking.
Policy normalization has a long way to go. By tapering, the Federal Reserve is merely putting an end to its loosening. Central bank balance sheets â including the Fedâs â have continued to expand and now exceed $20 trillion in aggregate, worldwide. Policy rates sit at the zero lower bound in major currency areas, and are well below pre-crisis levels in EMEs . Globally speaking, therefore, monetary policy remains extraordinarily accommodative.
The road towards normalization is bound to be bumpy and full of challenges. Let me mention two. The first is how to make financial markets less dependent on monetary policy. During the past few months, volatility in global markets has fallen to historically low levels. At the same time, the search for yield has gathered pace and credit spreads consequence of receding global risks. Rather, market participants seem to have become convinced that monetary conditions will remain very easy for a very long time. But markets may be taking more assurance than central banks wish to give, and they may be considering only a very narrow spectrum of potential outcomes. Such overconfidence is dangerous. It may encourage excessive risk-taking, and may add to the pressure on central banks to postpone policy normalization.
The second challenge is to cope with the international spillovers of monetary policy. Many EMEs have struggled with the knock-on effects of last yearâs global bond market sell-off. Some of these effects have resembled past episodes of EME stress, including large exchange rate pressures and the heightened vulnerability of economies with weak fundamentals. But other features are new, including the strong linkages via domestic bond markets in EMEs. This reflects the shift from bank to market based finance during the past few years â a shift that may have a bearing on financial stability risks during policy normalization. We have yet to learn whether a market-driven boom is more or less risky than a bank-driven boom.
Second, the low rates of inflation worldwide are another sign that, coming out of a balance sheet recession, monetary policy typically has much less traction in stimulating demand than it does during a normal recovery. One piece of evidence is the stark disconnect between very accommodative financial conditions on the one hand and sluggish corporate investment on the other. It is therefore important to take a critical look at what monetary policy can realistically accomplish right now. After years of easy money, we need to pay more attention to the risks of normalizing too late.
Third transition: towards a more reliable financial system
Appreciable progress has already been made in the transition towards a more resilient financial system. Banks have made progress in recouping their strength. They have, on average, rebuilt capital levels to meet more demanding regulatory standards. In particular, stronger profits have allowed banks to strengthen their capital base.
But pockets of weakness and uncertainty persist, especially in Europe. Despite an improvement in aggregate profitability, many institutions are still struggling with high levels of government and household debt. Stand alone ratings remain weak. Investors continue to ask questions about asset quality. Elsewhere, in some economies that largely escaped the effects of the crisis, financial booms have created new vulnerabilities.
Major regulatory initiatives are nearing completion. The focus has shifted towards ensuring consistent implementation and to monitoring the effects, both intended and unintended. These regulatory initiatives cover an ample spectrum, from capital and liquidity requirements to dealing with the too-big-to-fail problem, resolution regimes, financial market infrastructure and shadow banking. It is important now to place more emphasis on rigorous supervision.
A reliable financial system requires more than resilience. Resilience is the starting point, but let me mention some other key elements.
The first is confidence in banksâ risk management. This goes all the way from the overall risk culture to the risk models themselves. The large reported dispersion in risk-weighted asset calculations suggests that there is still plenty of scope for inconsistency, and perhaps even for gaming the rulebook…
Caruana concluded in his speech with the following: “It is time that we stepped out of the shadow of the crisis. Stronger growth provides an opportunity to push through structural reforms and set balance sheets on firmer footing. We can hardly expect such efforts to be popular. But they may pay off in the short run if they help restore confidence.” Will Barack Obama listen to this wise recommendation to improve our economy? Unfortunately, Obama will not follow this advice because it conflicts with his desire to downgrade our economy and make us a weaker Superpower in retreat.
What is the Bank for International Settlements (BIS) who rules the world?
The BIS has a sordid history. The Bank for International Settlements (BIS) was created on May 17, 1930 to administer or “settle” the World War I reparations imposed on Germany under the Treaty of Versailles. There were four very powerful individuals who played a very important role in the founding of BIS: Charles G. Dawes, Owen D. Young, Hjalmar Schacht, and Montagu Norman.
Adam Lebor wrote the best and most up-to-date book on BIS called Tower of Basel: The Shadowy History of the Secret Bank that Runs the World (2013). This book is the first investigative history of the most secretive and powerful global financial institution in the world. Lebor conducted many in the interviews with international central bankers and their employees, including Paul Volcker, the former chairman of the Federal Reserve Bank (the Fed), and Sir Mervyn King, former governor of the Bank of England. He also conducted extensive archival research of the BIS in Basel, Switzerland and other libraries in the United States and Great Britain. His book included biographies on the major central bankers who founded the bank and the important officials that worked at BIS.
The BIS is completely unknown by the vast majority of the American people. This most powerful supranational bank has always wanted to keep a low profile. Even well-known authors who have written books describing the history of the operations of the Federal Reserve Bank as well as the powerful organizations that run the United States and the world, such as the Bilderberg Group, the Trilateral Commission, and the Council of Foreign Relations, do not even mention the existence of the BIS. This is surprising as the owners and employees of the banking cartels who own the central banks of almost all the Western nations, including the United States, are all involved in the BIS. This international bank is the central bank of all the central banks in the United States and Europe, as well as other nations in the world.
The four individuals who were instrumental in the creation of the Bank for International Settlements are the following:
⢠Charles G. Dawes. He was the director of the United States Bureau of the Budget in 1921 and later served on the Allied Reparation Commission in 1923. His subsequent work on stabilizing the German economy won him the Nobel Peace Prize in 1925. Dawes was elected vice president under President Calvin Coolidge from 1925 to 1929. Two years later, he was appointed ambassador to England. In 1932, he resumed his banking career as chairman of the board of the City National Bank and Trust in Chicago, where he remained until his death in 1951.
⢠Owen D. Young. He was an industrialist who founded the Radio Corporation of America (RCA) in 1919 and served as its chairman until 1933.Young became chairman of the board of General Electric from 1922 to 1939. He tried to obtain the nomination as president of the Democratic Party but lost to Franklin Delano Roosevelt in 1932.
⢠Hjalmar Schacht. He served as president of the Reichsbank of Germany from December 22, 1923 to January, 1939. He was responsible for the economic recovery of Germany that allowed Adolf Hitler to rearm the German Armed Forces and lounge World War II.
⢠Montagu Norman. He served as the governor of the Bank of England from 1920 to 1944. During those years he was one of the most influential central bankers of the world. His power was so enormous that a single speech made by Norman could affect the New York Stock Exchange in the United States and other stock exchanges the world. Before and during World War II, Montagu Norman allegiance was to the Bank of International Settlements and not to Great Britain.
The Versailles Treaty of 1919 that ended World War I imposed on Germany a heavy burden of reparations. It required that Germany to comply with a payment schedule of 132 billion gold marks per year. Germany was bankrupt and suffering from hyperinflation following the war and was unable to pay the enormous war reparations dictated by the Versailles Treaty. In 1924, the Allies, or the nations that defeated the German Empire, appointed a committee of international bankers led by Charles G. Dawes and his assistant Owen Young to develop a plan to help Germany with the reparation payments. It was decided that $800 million in foreign loans have to be arrange for Germany in order to rebuild its economy.
Dawes was replaced by Owen Young in 1929, so now the Dawes Plan became the Young Plan. Carl Teichrib contributed to an article entitled “Global Banking: the Bank for International Settlements” which was published on October 14, 2005 by the August Forecast and Review. He explained the following: “Neither Dawes nor Young represented anything more than banking interests. After all, World War I was fought by governments using borrowed money made possible by the international banking community. The banks had a vested interest in having those loans repaid.”
Hjalmar Schacht, the President of the German Reichsbank, and Montagu Norman, the Governor of the Bank of England, came up with the idea of creating a new bank free from politics that could assist with Germany’s payments to the Allies. The need to establish such a bank for this purpose was suggested in 1929 by the Young Plan.
On January 20, 1930, the governments of the United Kingdom, Germany, France, Belgium, Italy, Japan, and Switzerland signed a document that became known as the Hague Agreement. Article 1 of the Hague Convention or Agreement stated that “Switzerland undertakes to grant to the Bank for International Settlements, without delay, the following Constituent Charter having force of law: not to abrogate the Charter, not to amend or add to it, and not to sanction amendments to be Statutes of the Bank referred to in Paragraph 4 of the Charter or otherwise than in agreement with the other signatory governments.”
Article 10 of the Hague Convention or Agreement stated that “the bank, its property and assets and all deposits and other funds entrusted to it shall be immune in time of peace and in time of war from any measure such as expropriation, requisition, seizure, confiscation, prohibition or restriction of gold or currency export or import, and any other similar measures.” Thus, the powerful BIS was born as a result of this international treaty.
According to Adam Lebor, Gianni Toniolo with Piet Clement, and James C. Baker, authors of books regarding the history of the Bank for International Settlements, this supranational banking institution was created with unprecedented powers and privileges. The central bankers who created the BIS held politicians with contempt, the exception being if the politician was one of their own. The BIS founders wanted to build a transnational financial system that could move large amounts of capital free from political or governmental control. The central bankers demanded and received incredible immunity from their own governments, free from any type of regulation, scrutiny, or accountability for the BIS directors and members as well as their employees.
The unprecedented immunity that was granted was the following:
⢠Diplomatic immunity for persons and what they carry with them, such as diplomatic pouches.
⢠Not being subjected to taxation on any transactions, including salaries paid to employees.
⢠Embassy-type immunity for all buildings and/or offices operated by the BIS.
⢠Freedom from immigration restrictions.
⢠Freedom to encrypt any and all communications of any sort.
⢠Freedom from any legal jurisdiction.
⢠Immunity from arrest or imprisonment and immunity from seizure of their personal baggage, except in flagrant cases of criminal offense.
⢠Immunity from jurisdiction, even after their mission has been accomplished, for acts carried out in the discharge of their duties, including words spoken and writings.
⢠Exemption for themselves, their spouses, and children from any immigration restrictions, from any formalities concerning the registration of aliens, and from any obligation relating to national service in Switzerland.
⢠The right to use codes in an official communications or receive or send documents or correspondence by means of couriers or diplomatic backs.
On February 10, 1987, the BIS and the Swiss Federal Counsel signed a “Headquarters Agreement” which confirmed the immunities previously granted to the BIS when it was created, as well as additional immunities. Article 2 stated that “the Bank buildings shall be inviolable… No agent of the Swiss public authorities may enter therein without the express consent of the Bank… The archives of the bank and, in general, all documents and any data media belonging to the Bank… shall be inviolable at all times and in all places. The Bank shall exercise supervision of an police power over its premises.”
Article 4 of the Headquarters Agreement stated the following: “The Bank shall enjoy immunity from criminal and administrative jurisdiction, except to the extent that such immunity is formerly waived in individual cases by the president, the general manager of the Bank, or their duly authorized representative. The assets of the Bank may be subject to measures of compulsory execution for enforcing monetary claims. On the other hand, all deposits entrusted to the Bank, all claims against the Bank and the shares issued by the Bank shall, without the prior agreement of the Bank, be immune from seizure or other measures of compulsory execution and the sequestration, particularly of attachment within the meaning of Swiss law.” In essence, the 1987 Headquarters Agreement granted the BIS similar protections given to the headquarters of the United Nations, the International Monetary Fund, and diplomatic embassies.
On February 27, 1930, the governors of the central banks of Germany, Great Britain, France, Italy, and Belgian met with representatives from Japan and three American banks to establish the Bank for International Settlements. Each nation’s central bank purchased 16,000 shares. Since the Federal Reserve Bank was not permitted to own shares of BIS for political reasons, three United States banks, the First National Bank of New York, J. P. Morgan, and the First National Bank of Chicago, created a consortium and each bank purchased 16,000 BIS shares. Thus, the United States representation at the BIS was three times as that of any other nation.
This international bank’s initial share capital was set at 500 million Swiss francs. The owners of BIS purchased 200,000 shares of 2,500 of gold francs. The governors of the founding central banks were ex-officio members of the board of directors and each could appoint a second director of the same nationality. Many years later, on January 8, 2001, an Extraordinary General Meeting of the BIS approved a proposal that restricted ownership of BIS shares to central banks. At the time, 13.7% of all shares were in private hands. BIS set a price of $10,000 per share which was over twice the book value of $4,850. Some private owners of the BIS shares filed a lawsuit against the bank insisting that the shares were worth much more money than what was offered.
At the beginning, central bankers wanted to keep a very low profile and complete anonymity for their activities. The first headquarters of the BIS was an abandoned six-story hotel, the Grand et Savoy Hotel Universe, with an address above the adjacent Frey’s Chocolate Shop, near the train station at Basel, Switzerland. No sign was placed at the door identifying the BIS. In May 1977, however, the BIS moved to a more visible and efficient headquarters. The new building was an 18-story circular skyscraper that arises over the medieval city of Basel, Switzerland and soon it became known as the “Tower of Basel”. The new building is completely air-conditioned and self-contained. It has a nuclear bomb shelter in the basement, a private hospital, and some 20 miles of subterranean archives. From the top floor of the Tower of Base there is a panoramic view of Germany, France, and Switzerland.
During the war years, the BIS continued operating from its headquarters in Basel, Switzerland. Adam Lebor explained that “during the war, the BIS became a de-facto arm of the German Reichsbank, accepting looted Nazi gold and carrying out foreign exchange deals for Nazi Germany.” The alliance of BIS with Germany was known in the United States and Great Britain. However, the need for the bank to keep functioning in order to maintain transnational financial operations was agreed by all the countries that fought each other during World War II.
Lebor pointed out the following: “A few miles away, Nazi and Allied soldiers were fighting and dying. None of that mattered at the BIS. Board meetings were suspended, but relations between the BIS staff of the belligerent nations remained cordial, professional, and productive. Nationalities were irrelevant. The overriding loyalty was to international finance.” During the war years, an American, Thomas McKittrick, was president of the bank. A Frenchman, Roger Auboin, was the general manager and a German, Paul Hechler, was the assistant general manager and a member of the Nazi party. An Italian, Raffaelle Pilotti, was the Secretary-General, a Swedish, Per Jacobssen, was the Bank’s economic advisor; and other employees were British.
Since the time that Adolf Hitler came to power in Germany in 1933 and to the end of World War II in 1945, five German members of the board of directors of the BIS were Nazis. After World War II they were convicted of war crimes.
During the Nuremberg trials that followed the end of World War II, 104 Germans were sentenced to death or to prison terms. Those who received terms in prison included four of the five directors of the BIS. Hermann Schmitz was sentenced to four years. Walther Funk, who had worked with Himmler, the SS chief, to ensure that gold and valuables from the Jews at the concentration camps were credited to a special account at the Reichsbank, was sentenced to life imprisonment. Baron Kurt von SchrĂśder was tried by a German court for crimes against humanity and sentenced to three months in prison. Emil Puhl was sentenced to five years. As for Hjalmar Schacht, he was found guilty but then he was acquitted since he had been sympathetic to the Allies in the early years of the war.
After the war during the Bretton Woods conference held in New Hampshire in July 1944, Norway proposed the liquidation of the BIS at the earliest possible moment for assisting Nazi Germany to deposit the stolen gold from the occupied nations that it had conquered in the bank. The liquidation of the bank was supported by other European delegates as well as the United States delegates who included Harry Dexter White and the Secretary of the Treasury Henry Morgenthau. However, the liquidation of the bank was never actually undertaken. In April 1945, the new United States President Harry S. Truman and the British government suspended the dissolution of the bank. The decision to liquidate the BIS was officially reversed in 1948.
How does the Bank of International Settlements operate today?
The BIS is a bank for all the central banks of the major nations in the world. According to the website of the Bank for International Settlements, the mission for this international bank is to serve central banks in their pursuit of monetary and financial stability, foster international cooperation in those areas, and act as a bank for central banks. The BIS pursues its mission by:
⢠Promoting discussion and facilitating collaboration among central banks.
⢠Supporting dialogue with other authorities that are responsible for promoting financial stability.
⢠Conducting research on policy issues confronting central banks and financial supervisory authorities.
⢠Acting as a prime counterparty for central banks in their financial transactions.
⢠Serving as an agent or trustee in connection with international financial operations.
The headquarters of the bank remain in Basel, Switzerland and there are two representative offices, one in Hong Kong and the other one in Mexico City. Acting as the central bank, the BIS has sweeping powers to do things for its own benefit or to assist one of its members central banks. Article 21 of the original BIS statute defines the day-to-day operations as follows:
⢠buying and selling of gold coin or bullion for its own account or for the account of central banks;
⢠holding gold for its own account under reserve in central banks;
⢠accepting the supervision of gold for the account of central banks;
⢠making advances to or borrowing from central banks against gold, bills of exchange, or other short-term obligations of prime liquidity or other approved the securities;
⢠discounting, rediscounting, purchasing or selling with or without its endorsement deals of exchange, checks, and other short-term obligations of prime liquidity;
⢠buying and selling foreign exchange for its own account or for the account of central banks;
⢠buying and selling negotiable securities other than shares for its own account or for the account of central banks;
⢠discounting for central banks bills taken from their portfolio and rediscounting with central banks bills taken from its on portfolio;
⢠opening and maintaining current or deposit accounts with central banks;
⢠accepting deposits in connection with trustee agreements that may be made between the BIS and governments in connection with international settlements.
Organization and governance of the Bank for International Settlements
The bank currently employs 647 staff members from 54 countries. The three most important decision-making bodies within the bank are: the general meeting of members central banks, the board of directors, and the management of the bank. The BIS currently has 60 members central banks, all of which are entitled to be represented and to vote in the general meetings. However, voting power is proportionate to the number of BIS shares issued in the country of each member represented at the meeting.
Member central banks
Members are the central banks or monetary authorities of:
Algeria, Argentina, Australia, Austria, Belgium, Bosnia and Herzegovina, Brazil, Bulgaria, Canada, Chile, China, Colombia, Croatia, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong SAR, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Macedonia (FYR), Malaysia, Mexico, the Netherlands, New Zealand, Norway, Peru, the Philippines, Poland, Portugal, Romania, Russia, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Thailand, Turkey, the United Arab Emirates, the United Kingdom and the United States, plus the European Central Bank.
Board of Directors
The Board is responsible for determining the strategic and policy direction of the BIS, supervising Management, and fulfilling the specific tasks given to it by the Bank’s Statutes. It meets at least six times a year.
The Board of Directors may have up to 21 members, including six ex officio directors, comprising the central bank Governors of Belgium, France, Germany, Italy, the United Kingdom and the United States. Each ex officio member may appoint another member of the same nationality. Nine Governors of other member central banks may be elected to the Board.
In addition, one member of the Economic Consultative Committee serves as observer to BIS Board meetings, on a rotating basis. The observer participates in the Board’s discussions and may be a member of one or more of the four committees which assist the Board in its work.
The Board of Directors elects a Chairman from among its members for a three-year term and may elect a Vice-Chairman.
The BIS Board of Directors
The BIS Board of Directors in 2014 is made up of the following powerful individuals: Chairman:
Christian Noyer, Paris
Mark Carney, London
AgustĂn Carstens, Mexico City
Luc Coene, Brussels
Jon Cunliffe, London
Andreas Dombret, Frankfurt am Main
Mario Draghi, Frankfurt am Main
William C Dudley, New York
Stefan Ingves, Stockholm
Thomas Jordan, Zurich
Klaas Knot, Amsterdam
Haruhiko Kuroda, Tokyo
Ann Le Lorier, Paris
Stephen S Poloz, Ottawa
Raghuram Rajan, Mumbai
Jan Smets, Brussels
Alexandre A Tombini, BrasĂlia
Ignazio Visco, Rome
Jens Weidmann, Frankfurt am Main
Janet L Yellen, Washington
Zhou Xiaochuan, Beijing
At present, the board of directors of the bank has 21 members. The board has six ex officio directors, made up of the governors of the central banks of Belgium, France, Germany, Italy, and the United Kingdom and the chairperson of the Board of Governors of the Federal Reserve System. Janet L Yellen is currently the head of the Federal Reserve. Each ex officio member may appoint another member of the same nationality. The rest of the board of directors is made up through the election of nine other governors from members of central banks. The governors of the central banks of Canada, China, Brazil, France, Japan, India, Italy, Mexico, the Netherlands, Sweden, Switzerland, and the president of the European Central Bank are currently elected members of the board of directors.
The board of directors of the Bank for International Settlements is responsible for determining the strategic and policy directions for the bank, supervising the management, and fulfilling this specific tasks given to by the bank´s statutes. The board meets six times a year.
Edward Jay Epstein explained the major beliefs of the inner circle of the BIS. The members of the board of directors have the firm belief that central banks should act with complete independence of their own governments. Another belief is that politicians should not be trusted to decide the fate of the international monetary system. The powerful central bankers of the world share a preference for pragmatism and flexibility over ideology. The most important belief is that they cannot allow a central bank of a large country to fail, for fear that it could jeopardize the entire international monetary system due to interconnectedness with the central banks of other nations. This is a result of globalization and interdependence.
History professor Carroll Quigley from Georgetown University wrote a book entitled Tragedy and Hope: A History of the World in our Time (1966). This professor was a mentor of President Bill Clinton. Professor Quigley was very familiar with how the international bankers operated in the world. He happened to agree with their goals. Professor Quigley wrote the following: “I know of the operations of this network because I have studied it for 20 years and was permitted for two years, in the early 1960s to examine its papers and secret records. I have no aversion to it or to most of its aims and have, for much of my life, been close to it and to many of its instruments.”
Dr. Quigley described the international banking network in the following manner: “The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations. The key to their success, was that the international bankers would control and manipulate the money system of a nation while letting it appear to be controlled by the government.”
The founder of the most powerful banking dynasty in the world, Mayer Amschel Bauer (who later adopted the name Rothschild) said in 1791 “allow me to issue and control a nation’s currency, and I care not who makes its laws.” Four of his five sons were sent to London, Paris, Vienna, and Naples to establish a banking system that would be outside government control. The eldest son stayed at Frankfurt, Germany where the first Rothschild bank had been established. Eventually, a privately-owned central bank was established in almost every country, including the Federal Reserve in United States founded in 1913 by a powerful cartel of European and U.S. bankers.
These banking cartels have the authority to print money in their respective countries and governments must borrow money to pay their debts and fund their operations from them. And of course, at the top of this network is the privately-owned BIS, the central bank of the central banks of the world.
Ellen Brown wrote an article entitled “The Tower of Basel: Secretive Plans for the Issuing of a Global Currency” which was published in Global Research on April 17, 2013. The reporter explained that the British newspaper The London Telegraph had an article entitled “The G-20 Moves the World a Step Closer to a Global Currency.” The British newspaper said that the leaders of the G-20 nations have agreed to support a currency that was created by the International Monetary Fund called Special Drawing Rights or SDR. The leaders of the G-20 nations have activated the power to create money and begin global quantitative easing, which is printing money out of thin air, not back by gold or any other thing. The world is now a step closer to a global currency, backed by a global central banks, running monetary policy for all humanity. The London Telegraph’s article stated that the financial institution that would do this would be the BIS.
There is no doubt that the BIS is moving the entire world to regional currencies and ultimately, a global currency. The global currency could be a successor to the SDR, and may be the reason why the BIS recently adopted the SDR as its primary reserve currency. Canada, Mexico, and the United States are members of the trade group called the North American Free Trade Association (NAFTA). It may be that someday soon a common currency will be used for these three North American nations. It might be called the amero, which will sound like the euro, or some other name such as the NAFTA dollar. The adoption of the common currency is a voluntary surrender of sovereignty and is a step towards a one-world government dominated by these powerful international bankers.
After World War II, Jean Monnet, a French internationalist, who helped found the League of Nations, had the idea of creating a European Union where nations would relinquish their national sovereignty as an economic necessity. The BIS came up with the idea creating the euro, which eventually was adopted by 17 European countries. The removal of the sovereignty of European nations was presented as an economic necessity, rather than as a profound political process. The powerful elite of international bankers, powerful industrialists with the complicity of government officials, decided to create a one-world government under the United Nations, but controlled by them. Thus, the European Union was born.
The officials and technocrats from the BIS where most instrumental in the creation of the European Union and its currency the euro. They also created the very powerful European Central Bank, a bank that is not accountable to any government or the European Parliament even though, it controls the monetary policy of 17 countries.
The BIS has done very well financially over the years. In 2012, the supranational bank had 355 metric tons of gold and an estimated value of $19 billion. By the end of March 2012, the BIS made a profit of $1.17 billion. Each year the bank makes over $1 billion in profits. The bank makes much of its profits from the fees and commissions that it charges to central banks for its services.
The relationship of BIS with the International Monetary Fund and the World Bank
The International Monetary Fund (IMF) lends money to national governments when these countries have some type of fiscal or monetary crisis. The IMF raises money by the receiving contributions of its 184 member nations. Thus, all of its funds are taxpayer’s money. The World Bank also lends money and has 184 member nations. Within the World Bank are two separate institutions: The International Bank for Reconstruction and Development, which lends money to middle income and poor countries that have good credit, and the International Development Association, which lends money to the poorest countries of the world.
The BIS, as the central bank to the other central banks, facilitates the movement of money and they provide what is known as “bridge loans” to central banks while waiting for the funds of the IMF and/or the World Bank. For example, when Brazil in 1998 had a currency crisis because it could not pay the enormous accumulated interest on loans made over a protracted period of time, the IMF, the World Bank and the United States bailed out Brazil with a $41.5 billion package. If that nation had not paid its creditors, United States banks such as Citigroup, J.P. Morgan Chase and Fleet Boston would have lost an enormous amount of money. Thus, the real winners of rescuing the largest country in South America were the U.S. banks that had made risky loans.
Criticisms of the Bank for International Settlements
Adam Lebor has made very strong criticisms of the BIS. He said that this bank is an elitist, opaque, and anti-democratic institution which is out of step with the 21st century. The legal immunities of the supranational bank perpetuates the belief that the central bankers are unaccountable to everyday citizens and their own governments. The bank does not reveal the discussions at their meetings with the central bankers of the world or its internal operations. The bank has no accountability or transparency in its operation.
Lebor wrote that the BIS should lose its legal inviolability. It is important that citizens around the world demand more transparency and accountability from the financial institutions that have power over their lives and that includes the BIS. It is very important for Americans to pay attention to the operations of the BIS and our own Federal Reserve Bank since we could very easily lose our sovereignty and be subjected to the desires and wishes of unelected and undemocratic central bankers of the world.
