Chapter 17 - A Model Representing World Trade

A Room Full of Countries: 1
Example One: The countries of the world trade with each other directly. No Banks act as intermediaries.

There are ten people and myself in a room and you are one of the ten. You each represent a country and I have no role whatsoever. You will each be given some credit card sized pieces of paper and you will make your own currency. A different currency for each country. In the first example, you will trade amongst each other as would have been done centuries ago, before private international banks intervened. I will give you sheets of paper which will represent the goods you exchange. You can write the names and volumes of the products or services on the paper. This is a tricky exercise, but you will soon balance apples for airplanes and bananas for baked beans. You will soon set your exchange rates and hopefully trade for currency.

Although trade is cumbersome, usury and un-payable debts cannot occur. Debts are impossible. You simply trade goods with other countries. You may obtain currency belonging to other countries, but you will eventually spend the currency or exchange it with another country.

You can imagine hundreds of years ago, small boats going from country to country exchanging goods for goods in a situation where no debts could occur. You should also be able to imagine two adjacent countries in the modern era, exchanging goods, whilst actually using each other's currency interchangeably. If someone builds up too much of your the nation's currency you would go for a shopping trip over the border. This is international exchange without debt.

Example Two: Banks act as intermediaries.

Now consider the second example where international banks get involved. All international exchange of money is now done through a banking system that takes fees as a commission. Any imbalance in trade will require credit from the bank and interest charges will be involved. There are many efficiencies available when international trade is conducted through banks. The payment system between international businesses is simply phenomenal. I purchase an e-bike electric motor from an unpronounceable place in China at a very low price and the seller receives my Bank Credit as a credit in their PayPal account within seconds.

It is not the payment system that is the problem. We don't mind paying a comparatively small percentage to have our money transported in a reliable and safe manner to a faraway place. The problem is in the way the exchange rate is calculated and the effect that has on the way debts accrue to nations. Nations become indebted to international banks that play to their own rules.

Some countries peg their currencies, but most countries rely on the Bank for International Settlements (BIS). The exchange rates are set by the foreign exchange market, Forex. This entity, Forex, trades in virtual money. That means that no hard currencies are involved. One would imagine that Forex would allow international traders exchange money with each other, but this is not the situation. Only 20% of the trade on Forex has its origins in trade. 80% of the Forex trade is speculation. Do a web search for 'how to trade on Forex'  web search for 'how to trade on Forex'. Puzzle out how to become a small-time international currency speculator. Ordinary citizens, with no need for foreign currency, can trade on Forex in a manner that resembles posh betting. However, big speculators, with more money than you can imagine, can move money in such volumes that they can manipulate the market in their favour. These people can go close to destroying the finances of a nation, without declaring war on the victim nation. The outcome of the international banking arrangements causes the nations of the world to become heavily indebted to international banks. These international banks are not owned or controlled by the United Nations and they are not owned by the nations that trade with them. They are owned by other banks and have a similar corporate structure to any other multinational corporation. Thus, we have a situation where nations become indebted in their own currency to national banks and indebted in foreign currency to international banks. Some of these international banks are given quasi-official type names such as the International Monetary Fund (IMF), Bank for International Settlements and World Bank. The World Bank does not belong to the world. The IMF is not a fund, it is a profit driven private bank. It was not set up for the benefit of nations but for the benefit of its shareholders. The shareholders happen to be other banks. Elsewhere in the book there is a table titled: 'International Debt' that shows how indebted each nation is to these international banks. What is strange is that all but four of the nations of the world are in debt to these international corporations. The four nations that are not in debt are not positive, they are zero.

International Debt.

Can you spot anything illogical in the next table?

Central Intelligence Agency Cia World Factbook
Country Comparison :: Debt - external
1 European Union$15,950,000,000,000
2 United States$15,680,000,000,000
3 United Kingdom$9,577,000,000,000
4 Germany$5,717,000,000,000
5 France$5,371,000,000,000
6 Japan$3,017,000,000,000
7 Luxembourg$2,935,000,000,000
8 Italy$2,604,000,000,000
9 Netherlands$2,347,000,000,000
10 Spain$2,278,000,000,000
11 Ireland$2,164,000,000,000
12 Switzerland$1,544,000,000,000
13 Australia$1,506,000,000,000
14 Belgium$1,424,000,000,000
15 Canada$1,331,000,000,000
16 Singapore$1,174,000,000,000
17 Hong Kong$1,159,000,000,000
18 Sweden$1,039,000,000,000
19 China$863,200,000,000
20 Austria$812,000,000,000
21 Norway$720,600,000,000
22 Russia$714,200,000,000
23 Finland$586,900,000,000
24 Denmark$586,700,000,000
25 Greece$568,700,000,000
26 Portugal$508,300,000,000
27 Brazil$475,900,000,000
28 Korea, South$430,900,000,000
29 India$412,200,000,000
30 Poland$365,200,000,000
31 Turkey$359,500,000,000
32 Mexico$354,900,000,000
33 Indonesia$223,800,000,000
34 Hungary$170,300,000,000
35 United Arab Emirates$167,900,000,000
36 Saudi Arabia$149,400,000,000
37 Qatar$149,400,000,000
38 Taiwan$146,800,000,000
39 Thailand$142,600,000,000
40 South Africa$139,000,000,000
41 Ukraine$138,300,000,000
42 Romania$131,600,000,000
43 Kazakhstan$131,300,000,000
44 Chile$119,000,000,000
45 Argentina$111,500,000,000
46 Czech Republic$102,100,000,000
47 Iceland$102,000,000,000
48 Malaysia$100,100,000,000
49 Israel$96,300,000,000
50 Cyprus$95,280,000,000
51 Colombia$85,830,000,000
52 New Zealand$81,360,000,000
53 Venezuela$74,870,000,000
54 Philippines$72,810,000,000
55 Slovakia$68,440,000,000
56 Vietnam$68,380,000,000
57 Croatia$60,470,000,000
58 Iraq$59,490,000,000
59 Puerto Rico$56,820,000,000
60 Slovenia$52,530,000,000
61 Pakistan$52,430,000,000
62 Malta$51,080,000,000
63 Peru$50,150,000,000
64 Egypt$48,760,000,000
65 Sudan$40,920,000,000
66 Latvia$39,870,000,000
67 Bulgaria$37,850,000,000
68 Morocco$36,510,000,000
69 Kuwait$34,410,000,000
70 Sri Lanka$33,670,000,000
71 Serbia$33,600,000,000
72 Bangladesh$30,690,000,000
73 Lithuania$29,550,000,000
74 Bahrain$28,820,000,000
75 Tunisia$26,950,000,000
76 Estonia$26,740,000,000
77 Lebanon$26,740,000,000
78 Cuba$23,440,000,000
79 Angola$22,710,000,000
80 Jordan$22,040,000,000
81 Ecuador$19,910,000,000
82 Dominican Republic$18,010,000,000
83 Guatemala$17,670,000,000
84 Uruguay$17,610,000,000
85 Bahamas, The$17,560,000,000
86 Nigeria$15,730,000,000
87 Iran$15,640,000,000
88 Panama$15,220,000,000
89 Costa Rica$15,100,000,000
90 Ghana$14,680,000,000
91 El Salvador$14,440,000,000
92 Tanzania$13,820,000,000
93 Jamaica$13,820,000,000
94 Papua New Guinea$13,610,000,000
95 Ethiopia$11,990,000,000
96 Kenya$11,960,000,000
97 Georgia$11,740,000,000
98 Bosnia and Herzegovina$11,140,000,000
99 Oman$10,840,000,000
102Cote d'Ivoire$8,959,000,000
109Congo, Democratic Republic of the$6,874,000,000
122Trinidad and Tobago$4,823,000,000
133Congo, Republic of the$3,274,000,000
137Korea, North$3,000,000,000
139Burkina Faso$2,863,000,000
143Equatorial Guinea$2,104,000,000
152Sierra Leone$1,331,000,000
153Cabo Verde$1,328,000,000
163Faroe Islands$888,800,000
171Central African Republic$634,200,000
174Gambia, The$517,700,000
176Saint Lucia$446,400,000
177Antigua and Barbuda$441,200,000
180Sao Tome and Principe$406,800,000
184Solomon Islands$255,500,000
185Saint Vincent and the Grenadines$255,300,000
187Saint Kitts and Nevis$158,900,000
189Cook Islands$141,000,000
190Marshall Islands$87,000,000
191New Caledonia$79,000,000
192Micronesia, Federated States of$60,800,000
194British Virgin Islands$36,100,000
199Wallis and Futuna$3,670,000
This entry gives the total public and private debt owed to non-residents repayable in internationally accepted currencies, goods, or services. These figures are calculated on an exchange rate basis, i.e., not in purchasing power parity (PPP) terms.

The total of these debts is ~$73 000 billion US (~$73 trillion). And where did they get this money? The total currency created by the central banks of the world is about ~$4 250 billion US. There is about seventeen times as much money owing to the IMF/World Bank than currency (M0) produced by all the central banks of the world combined. So clearly, the IMF is loaning out money that never came form a central bank. The IMF creates credit and debt in equal quantities. When the IMF lends one billion dollars to a nation it writes one billion with a plus sign in a credit account and one billion with a minus sign in a debit account. This could have been done by a national public bank in its own currency. If you are capable of logical thought, a national public bank could even create a billion in a foreign currency by creating, say, a billion yen in credit and a billion yen debt. If the IMF can do it, why can't a national public bank? The IMF is capable of creating any currency by double entry accounting.

Currency in Circulation M0
Currency billion USD
Other countries554.9
Source: in an article by Mike Hewitt 2009 from

Our economic commentators regularly discuss which nation has greater debt, but they never point out that they are all in debt and that this is totally illogical. This was one of the reasons I started studying 'real economics', when I wrote pamphlets for the Occupy Wall Street movement. I am a retired mathematics and physics teacher and it struck me as being horribly wrong that 'all nations were in debt'. I then found out that, as soon as nations became indebted to these international corporations, the international corporations started dictating national policy requirements, overriding national democracy. This following quote in 1944 by Eddie Ward, who was the Labor Minister of Australia, gives some insight:

"...I am convinced that the agreement [Bretton Woods] will enthrone a world dictatorship of private finance more complete and terrible than and Hitlerite dream. It offers no solution of world problems, but quite blatantly sets up controls which will reduce the smaller nations to vassal states and make every government the mouthpiece and tool of International Finance. It will undermine and destroy the democratic institutions of this country - in fact as effectively as ever the Fascist forces could have done - pervert and paganise our Christian ideals; and will undoubtedly present a new menace, endangering world peace. World collaboration of private financial interests can only mean mass unemployment, slavery, misery, degradation and financial destruction. Therefore, as freedom loving Australians we should reject this infamous proposal." [171]

These words by Joe Stiglitz are illuminating:

"Every country the IMF/World Bank got involved in ended up with a crashed economy, a destroyed government, and sometimes in flames with riots."

And from Rex Weyler of Greenpeace:

"These bankers are not proposing to loan their money to the world. Rather, they propose creating new money out of thin air, likely through the International Monetary Fund (IMF) 'Special Drawing Rights', a synthetic currency beyond the control of any sovereign nation. By loaning currency rights to national treasuries, the bankers create $100 trillion with a few computer keyboard strokes. Then, they loan the fabricated money, collect interest payments and demand the principal back in real money from the debtors. It's a lucrative scheme if you're on the inside."[172]

This is a terribly important subject and needs far greater knowledge on the part of the public. It may be possible to operate outside this international cartel of banks and it has been done before. However, wars quite often start soon afterwards. When there are two nations which do significant reciprocal trade with each other, they should be able to directly trade and then exchange their currency directly. This would be similar to what happens internally in most nations. Bank One communicates with Bank Two. They each record the total of the daily transactions between each other. There may be $1000 000 of transactions in one direction and $1000 001 in the other direction. All they need to record is the one dollar difference. The $1 can be left as a balance adjustment of each other's bank accounts at the other bank. Similar could be done between the banks of different nations, avoiding the international banking corporations and their predatory practices. Most self-taught economists, not poisoned by classical economics, tend to concentrate on national finance systems. We need better general knowledge about our hideous international finance system and we need a much greater study about any relationship between international finance and international war. Correctly managed, international debt could be a thing of the past. We need to move away from those bad old days when International Banks wanted a slice of every pie.

Germany, in the 1930s, started to exchange goods and services with a few other countries with a form of barter. This had the effect of removing the international banks from the financial side of their international trade. The German system eliminated National Debt and International Debt due to trade deficits. The process was halted by flattening their nation.

Winston Churchill 1960

"Germany's unforgivable crime before WW2 was its attempt to loosen its economy out of the world trade system and to build up an independent exchange system from which the world-finance couldn't profit anymore. ...We butchered the wrong pig." [10013]

Louis McFadden 1930

"The Federal Reserve Bank of New York is eager to enter into close relationship with the Bank for International Settlements....The conclusion is impossible to escape that the State and Treasury Departments are willing to pool the banking system of Europe and America, setting up a world financial power independent of and above the Government of the United States....The United States under present conditions will be transformed from the most active of manufacturing nations into a consuming and importing nation with a balance of trade against it." [10014]

Jeffrey Sachs

"The runs started in Thailand after the IMF intervened in such a dramatic way. Then the IMF came to Indonesia."

[171] Labor Minister of Australia, Eddie Ward, during the inception of the World Bank and Bretton Woods.