Richard Karn
Emerging Trends Report
Posted Feb 9, 2013
Curing an economy suffocating with debt by advocating the assumption of more debt is like a doctor proscribing smoking more cigarettes for a patient suffering from lung cancer.
The central bankers of the world know this--and deep down, you do too.
You've just become so apathetic, so brow-beaten by generations of economic bullies stridently repeating the same lies over and over again in the classroom, in the halls of government, in the media, that you just don't want to think about it anymore.
But let's get a few things straight.
Central Bankers do not work for you or me.
They are not your friends.
They are not trying to protect your interests or to promote full employment or to control inflation or to preserve the purchasing power of your money any further than it serves their interests to do so.
Central Bankers only care about perpetuating the profit streams they have arranged for their respective cartels.
Their loyalty is only to money and to each other, not to their depositors.
Everything else is just very sophisticated propaganda.
We are living through a pandemic of corruption engendered by the universal use of fiat currency.
And yes, a fiat currency regime is a conspiracy.
History is unequivocal: a fiat currency regime is a conspiracy between the financial sector and the government of a country to orchestrate the controlled, gradual decline in their currencies' purchasing power in order to reap unfathomable wealth and power by defrauding their nation of its wealth.
It is theft on a national level that saps an economy of its vigor and eventually results in collapse.
And today it is a global phenomenon.
Don't kid yourself: the financial sector is motivated purely by the lust for money; the government is motivated purely by the lust for power.
Every single fiat currency regime in history has failed, destroyed by the very corruption the fiat currency regime itself engenders: when you can create money without effort, without producing anything of substance, or without offering any service that promotes economic growth, and can spend that money on any boondoggle you can dream up to buy votes, how would it be possible for that money to retain value over time?
That we assign a dollar any value whatsoever is a matter of convention, of habit, of enforcement, and in many ways it is only a form of mass delusion.
Central bankers' role in this conspiracy is to facilitate the stealthy theft, literally the embezzlement, of your money through the uncontrolled issuance of debt that literally lends money into existence and from which they earn interest.
And with each new dollar, yen or euro 'lent into existence' the value of the dollar, yen or euro in your wallet is diluted.
By design, the money you earn is worth less every year, losing value in terms of what it can buy faster than the number of dollars you earn increases, so even though you may appear to be earning more money, those dollars buy you fewer goods and services than they did the year before.
Using the Federal Reserve Bank's own inflation calculator, over the last ten years the dollar has lost 24.8% of its purchasing power, so if you have not seen a 24.8% increase in your wages over the last ten years, you have literally been robbed by the financial sector and the government--and your standard of living has declined as a consequence.
Also by design, what money you save by thrift and sacrifice from your wages and put into a bank to save for later use, be it for retirement or the purchase of a home or for your children's education, is blatantly robbed of its purchasing power: what you could buy for $10,000 in 2003 now costs $12,478.
On the most fundamental of levels, the financial sector loans us money that does not exist and then profits from the interest they charge us.
And there are millions and millions of us taking out loans that run to trillions and trillions of dollars every year for houses and cars and education and business and credit cards--and the bankers collect the interest on every bit of it even though they actually had but the merest fraction of the money they lent you and you often end up repaying the bankers multiples of what you borrowed.
These banks have conspired to manipulate LIBOR interest rates, corrupting the baseline interest rate that affects virtually all financial transactions as well as these loans, for their profit at our expense.
They knowingly promoted risky assets as 'safe investments' to their customers, many of whom are pension or investment funds that manage your retirement money--and then profited by actively betting those very assets would fail.
For more than a decade they have been involved in money laundering for terrorist organizations, pariah regimes and drug cartels, not to mention run-of-the-mill tax fraud and tax evasion on a truly global scale.
And when they get caught in these illegal activities, it has become routine for these financial institutions to pay a fine amounting to the smallest fraction of what they have stolen--and they pay the fine to their government cronies, not the victims of their crimes, without admitting any guilt for their actions, and go right back to doing whatever it is they think they can get away with.
Such crime pays; getting caught amounts to admonition by their cronies to do a better job of disguising their activities next time; the fine amounts to 'the cost of doing business.'
It makes you wonder whether these fines the financial sector has been paying are tax deductable.
These banks are supposed to be bound by limitations regarding just how much money they don't have that they can loan to people, but in reality there are no limits--because today, when people like you and me can no longer support our debt burdens and our 'bad loans' cumulatively threaten the solvency and very existence of these banks, they run to their government cronies crying 'the sky is falling, the sky is falling,' and the government, ostensibly to avert an 'end of the world financial collapse,' gives them more of our money.
That's right, our money--even though we are broke and we have been the victims of these crimes.
The government excuses the financial sector by claiming these banks pose a 'systemic risk' and have grown too big to be allowed to fail--so the financial sector, which caused the global financial crisis, has been growing their 'assets' faster than they were before the crisis.
And the banking sector in the US has been doing this regularly for more than 40 years, ever since the US dollar became a pure fiat currency regime in 1971, demanding ever more taxpayer money from the government for each crisis on an ever more frequent basis, bailouts growing from hundreds of millions of dollars in the '70s to tens of trillions of dollars today while fewer and fewer executives are jailed for their crimes.
Global financial crises are not rare occurrences--they are the norm.
In the apparent calm between financial crises, bankers are using your money to buy up assets their misbehavior has depressed to bargain basement prices so they can profit from them in the next cycle.
The government's role in the administration of a fiat currency regime is primarily to enforce legislation that enables this theft by the financial sector, growing in lockstep with the expansion of financial sector profits, and manipulating public opinion to further the fraud.
The government extorts the money it spends from its citizens through relentless taxation and penalties and spends it primarily on expanding the size and reach of government and on making specious promises to the most vulnerable of us.
As history has demonstrated ad infinitum, a government is a drain on an economy because it produces nothing except more laws and regulations that make it ever harder for an economy to function.
The larger the government, the more inefficient and corrupt it becomes, and the larger the drain on the economy until one day, such as that day in 1989 in the Soviet Union, the economy simply stops working--as inevitably as the patient proscribed cigarettes to cure his lung cancer, the economy just dies.
Over time the corruption integral to a fiat currency regime permeates society and reaches the stage we are living through today in which financial institutions reap extraordinary profits from new forms of criminal behavior they are never incarcerated for to supplement their bread and butter fraud of loaning money they don't have to people who cannot repay their debts, many of whom have adopted the rationalization, 'well, everybody else is doing it.'
When these loans inevitably default, the financial institutions then turn to their government cronies for financial assistance; the government, which produces nothing itself, creates money that we will have to supply from future taxation to prop up the profligate banks so they can go back to 'business as usual.'
When our income and savings can no longer service our debts, our assets are seized or foreclosed on by the very banks that lent us money they didn't have, our 'credit-worthiness' is destroyed, and we are pushed into a dependence on the services the government provides for us 'in our time of need.'
The government promises us this 'social safety net' as an entitlement and is always adding more services and benefits for those of us unfortunate enough to have been marginalized, and pays for these services with taxes they take from those of us who are still working.
Of course, those who have landed in the 'social safety net' will never vote for any politician that threatens to reign in these entitlements; in fact, many only vote for politicians who not only promise to give them more benefits but who also assuage their guilt for not working with myriad excuses for their failure--excuses that usually single out one group for blame and persecution, such as 'the rich' or 'capitalists' or the Jews, to deflect the Public's deep-seated frustration and hostility away from the politicians themselves.
But the truth is that those of us that are still working have not been able to supply enough in taxes to support these and countless other government spending programs for decades now, which is why we have 'deficit spending.'
With deficit spending, the government steals money from our descendants without their consent, literally indenturing our children and grandchildren to servicing our debts for generations to come, which decades of propaganda have convinced many of us, especially those who have come to depend on government largess, is 'like borrowing from ourselves.'
But in actuality, such runaway spending is the cancer consuming our metaphorical smoker, and if the financial sector is left unchecked by stringent regulation that is actually enforced, and if the size of government is not reduced and its spending strictly controlled, the cancer will kill the patient.
The longer the cycle goes on, the larger the debts, the larger the deficits, the more the banks 'profit,' the larger, more intrusive and more authoritarian government regulation becomes to perpetuate the crime, and the larger and more dependent on government the ranks of the marginalized become.
Weeks turn into months and then years until entire generations know no other existence, and a country as promising as the United States of America becomes in fact more socialist than the Soviets ever attained.
It is a sign of American Exceptionalism that the economy has been innovative and resilient enough to last as long as it has, which is why the US dollar has survived as a purely fiat currency regime for more than 40 years when the reputed average lifespan of a fiat currency regime historically has been about 28 years.
28 years: that's how long it usually takes a society to awaken to the crimes they have been victims of and to respond in the only ways available to them: they either leave their country, stage a rebellion to regain control of their money and government, or they purposefully destroy the currency in an orgy of consumption, frantically trading what they now understand to be intrinsically worthless paper money for real assets before others reach the same conclusion and add to the frenzy of spending that drive prices to unimaginable heights.
Bankers and politicians are old hands at administering fiat currency regimes, seeing as how they have regularly imposed them for more than 2000 years, and they tacitly acknowledge that money and power transcend political ideology and economic models by co-operating with each other on a global basis to prolong the crime.
Because the fiat currency regime is the source of their wealth and power, they strive to keep its debilitating effects hidden from their people--and will, in fact, do absolutely anything to preserve 'the system.'
Notable fiat currency regimes of the 20th century include those inflicted on the peoples of China, Russia, and Germany.
Each of these countries closed their borders, as much to keep their people in as to keep foreigners out.
Each of these countries confiscated their citizens' firearms in order to lessen the chance of open revolt against their government's reprehensible behavior as well as to better oppress their people with 'Cultural Revolutions' and Stalinist purges and concentration camps that killed well over 100 million people last century--more people, in fact, than died during World War II.
Each of these regimes also confiscated gold, ownership of which was viewed by those administering the fiat currency regime as 'monetary rebellion' that had to be stamped out.
Does any of this sound familiar to you?
You can change doctors and get a second opinion, America, or you can have another cigarette and listen to that niggling rattle in your bronchi.
As Machiavelli noted, "History repeats because human nature doesn't change."
The Eurozone is not a debt crisis that is "fixed," it is a debt crisis waiting to implode.
The happy-talk that the Eurozone debt crisis has been resolved is ubiquitous. But when did ubiquitous happy-talk make it correct? Since the crisis is about debt--too much of it, and too much of it cannot and will not be paid back--then perhaps it would be prudent to look at two charts of eurozone credit, courtesy of the insightful chart-based website Market Daily Briefing.
Here is total Eurozone credit since the inception of the euro. This is roughly equivalent to TCMDO (Total Credit Market Debt Owed) in the U.S.
Notice that total credit owed has nearly tripled since the introduction of the euro in 1999, and that it continued to expand robustly after a brief pause in the global financial crisis of late 2008-early 2009. Recently, its expansion has flattened, but there is essentially no evidence that credit has declined, i.e. deleveraging.
Next up: Eurozone credit growth. Recall that debt-based, consumption-based economies like Europe, the U.S., China, Japan, et al. cannot expand without credit growth. Thus any decline of credit growth spells deflation:
This is not a debt crisis that is "fixed," this is a debt crisis waiting to implode. Total credit owed is still sky-high--only a trivial percentage of the debt has been written down or renounced.
Meanwhile, the credit growth needed to drive expanding consumption has literally fallen into the abyss.
This is the worst of all possible worlds in a debt-dependent economy: a massive overhang of impaired debt and a collapse in credit growth.
The only thing that's been "fixed" is the mainstream media's perception management propaganda. So is perception all there is to reality? The next six months should provide an answer.
“Facts do not cease to exist because they are ignored.”
Aldous Huxley
I woke up this past Saturday morning and opened my local paper to find out that all was well. An Associated Press article declared a healthy jobs market, fantastic auto sales, a surging housing market, and a stock market rocketing to new all-time highs. What’s not to love? If the mainstream media says the economy is as good as new, it must be so. Why should we let facts get in the way of a good storyline? The stock market has surged to 2007 highs, so the country’s employment situation must be strong.
The chart above tells a slightly different story. The S&P 500 has regained almost all its losses since October 2007 as Bernanke and Washington politicians chose to save Wall Street and screw over Main Street. The working age population has risen by 12.8 million since 2007 and there are 4 million less Americans employed. The December Household Survey from the BLS being touted by the mainstream media as proof of a jobs recovery told a slightly different story:
The number of unemployed Americans went up by 126,000 in one month
Another 169,000 Americans left the workforce evidently because their stock market gains made them wealthy.
There are 250,000 more Americans unemployed than there were in September 2012.
There are 6,000 less Americans employed than there were in October 2012.
The unemployment rate reported to the masses went up to 7.9% (the true rate reached 23%).
This is just the picture over the last few months. The picture since 2007 is beyond horrific, as more than 10 million Americans have left the workforce. Everyone knows people willingly leave the labor force when the economy crashes and their net worth is reduced by 30%. Who needs a paying job then? Just because there are 101 million working age Americans not working and the labor participation rate of 63.6% is at a three decade low, certainly doesn’t mean we aren’t experiencing a tremendous jobs recovery, according to the mainstream media.
The deep thinkers at CNBC, Fox, CNN and the rest of the captured corporate status quo mouthpieces, propagate the false storyline that the reason for Americans leaving the workforce is Baby Boomers retiring. Considering the average Boomer has $90,000 of total savings and 28% of them have less than $1,000 saved, I suspect there are few willingly leaving the workforce. The Boomers have taken on 4 million additional jobs since the low point in 2009, while the 16 to 54 year olds have lost an additional 2.9 million jobs. Does this reflect a strengthening jobs market? Does the fact that real hourly wages have fallen for the last two years reflect an improving labor market?
Inquiring minds might wonder how auto sales could be booming when there are 4 million less employed Americans and real wages are falling. Of course, mainstream media faux journalists aren’t paid to inquire, think critically, or even think at all. They are paid to regurgitate propaganda designed to keep the masses sedated and ignorant. The “fabulous” rebound in auto sales has been buoyed by the return of easy money lending, even to deadbeat borrowers with lousy credit histories. There is a reason the Federal government hasn’t attempted to spin off their 80% control of Ally Financial (aka GMAC, Ditech, Rescap). The Feds are attempting to manufacture a recovery by doling out subprime auto loans to anyone who can scratch an X on a loan document and offering 0% loans over 7 years to good credits. How exactly does a finance company generate a profit by making 0% loans for seven years and approving loans to people with no means of paying them back? Experian recently noted that 44% of ALL auto loans have been to subprime borrowers over the last year. When a financing company doesn’t have to worry about profits or loan losses, everyone gets a Cadillac Escalade. The losses on these subprime loans will be in the billions when the next leg down in this Crisis hits. The taxpayer will unknowingly pick up the tab, just as they have been doing for the last five years. The trend in this chart is nothing but a Federal government induced fraud.
PhD in Stupidity
The Federal government induced sham auto recovery is small peanuts compared to the bubble they are blowing in the higher education realm. Since the Federal government took over 85% of the student loan market in 2009, the debt outstanding has surged to over $1 trillion from below $600 billion. The Feds don’t care about credit risk or loan losses. You’re on the hook for the losses. The purpose for doubling the amount of student loans was to artificially lower the unemployment rate by removing as many people from the labor force as possible. The 600,000 University of Phoenix enrollees getting their on-line master’s degrees in basket weaving while sitting in their mother’s basement, subsidized with $20,000 loans from the taxpayer, didn’t count as unemployed.
Enrollment in these diploma mills has begun to plunge, as the scam has been revealed. The New York Times reported that: "Enrollments at the University of Phoenix and in the for-profit sector over all have been declining in the last two years, partly because of growing competition from other online providers, including nonprofit and public universities, and a steady drumroll of negative publicity about the sector’s recruiting abuses, low graduation rates and high default rates ... including many charges that the schools enrolled students who had almost no chance of succeeding, to get their federal student aid."
Enrolling students who have no chance of graduating is exactly what the Obama Administration and the status quo want.
Based upon the chart below you would think the United States is producing the brightest bunch of young people in U.S. history. Nothing could be further from the truth. Only 43% of the 1.66 million private and public school students who took the college-entrance exam posted scores showing they are prepared to do well in college, according to data released by the College Board, the nonprofit group that administers the SAT. The SAT data mirror scores from the ACT college-entrance exam which showed about 75% of students failed to meet college-readiness standards. If SAT scores are at decade lows, how could college enrollment be at record highs? Our government controlled public school system is graduating functionally illiterate dullards and the government is then subsidizing these subprime students as they matriculate into substandard colleges across the land. Approximately 3.4 million seniors are graduating from our high schools every year. The 1.66 million seniors who took the SAT exam are the cream of the crop. If the 50% of students who took the SAT exam could score so pitifully, imagine how dimwitted the 50% of students who didn’t even take the exam must be. The upshot of these tests are that only 700,000 of all the graduating high school seniors (21%) are capable of getting a B minus or above in college.
Think about that for one second. Only 21% of all graduating high school seniors are intelligent enough to get a B minus in college, but 70% of them are enrolling in college. Of course enrolling in college and graduating college are two different things. Only 30% actually graduate college. The other 40% get drunk, fornicate, sleep late, fail, rack up gobs of debt, and then drop out. There are approximately 13 million 18 to 24 year olds enrolled in college today and at least 6 million of them have little to no chance of graduating. If the Federal government was not subsidizing them with loans, they would rightfully be looking for jobs geared to their intellectual capabilities. Would tuition rates be soaring if there were 6 million less drones matriculating into one of the 4,000 mostly mediocre higher learning institutions in this country?
The Federal government bureaucrats who think they can control the levers of finance to steer our economy to greater heights are creating a new subprime bubble. The absolute implosion of the for profit diploma mills, that have fed like bloated pigs at the Federal loan trough, is the Bear Stearns moment for the massive student loan losses that will be foisted on the shoulders of the American taxpayer. The deceptive schemes, fraud, and financial aid manipulation practices of the publicly traded diploma mills - Corinthian Colleges (down 90%), ITT (down 90%), Apollo Group (down 80%) and DeVry (down 60%) have been revealed, as their ill- gotten profits have evaporated and their stock prices have crashed. Enrollment at the king of worthless online degrees, the University of Phoenix, has plunged from 600,000 to 400,000 and they are closing 115 of their 227 campuses. The proof that much of the student loan bubble has been created by these for-profit shysters can be seen by the fact that 60% of all student loans are owed by people over 30 years old, with 33% owed by people over 40 years old. These people bought into the re-training fallacy perpetuated by government drones and mainstream media mouthpieces.
But still the Federal government continues to blow the bubble bigger and bigger as non-revolving consumer debt has reached all-time highs. Peter Thiel recently compared this bubble to the housing bubble we are still dealing with:
“We have a bubble in education, like we had a bubble in housing...everybody believed you had to have a house, they'd pay whatever it took. Today, everybody believes that we need to go to college, and people will pay-- whatever it takes. There are all sorts of vocational careers that pay extremely well today, so the average plumber makes as much as the average doctor. I did not realize how screwed up the education system is. We now have $1 trillion in student debt in the U.S. Cynically you can say it's paid for $1 trillion of lies about how good education is.”
Delinquency rates have already begun to skyrocket as the diploma mill scam implodes, dropouts can’t make loan payments with their EBT cards and even graduates from legitimate colleges are stuck waitressing at TGI Fridays and can’t make their payments. Millions of millenials are ensnared in the chains of debt servitude, with no chance of escape.
Delinquency rates on student loans made in the past two years stand at 15%, according to FICO, versus 12.4% for loans made from 2005 to 2007. This is proof that loans doled out since the Federal government took control of the market have been distributed willy-nilly in a frantic effort to artificially reduce the unemployment rate. Average student- loan debt last year rose to $27,253 from $17,233 in 2005, with almost 605 of bank managers surveyed in December expecting delinquencies to worsen in six months, according to FICO. Andrew Jennings, chief analytics officer of Fair Issac, said in a statement:
“This situation is simply unsustainable and we’re already suffering the consequences. When wage growth is slow and jobs are not as plentiful as they once were, it is impossible for individuals to continue taking out ever-larger student loans without greatly increasing the risk of default.”
When subprime mortgages blew up, at least there was collateral to alleviate some of the losses. When the subprime auto loans blow up, at least there will be vehicles to repossess. Student loan debts are the ultimate in subprime, with no collateral and millions of jobless debtors. The situation is much worse than the delinquency numbers reveal. More than half of the student loans are in deferment, grace periods, or forbearance, meaning they are not currently requiring repayment. This means the true delinquency rates are twice as high as the reported figure of 15%. What happens next can be succinctly summed up by the esteemed economist John Kenneth Galbraith:
The involuntary taxpayer bailout for this Federal Government created disaster will exceed $200 billion after the shit is done hitting the fan.
Do You Want Pepperoni on that Housing Recovery?
Everywhere I turn I’m hearing about the strong housing recovery that is propelling our economy, generating jobs and spurring a resurgence in retail spending by the millions of deleveraged consumers. Wall Street paid economists on CNBC, NYT economic “journalists”, and even the Fox News blond bimbo brigade all assure me the housing market is in a strong recovery and it’s the best time to buy. There are just two small problems with the story. None of the propaganda spouted by the mouthpieces of the kleptocracy is supported by the facts. And what little uptick in sales and prices that has occurred is due to collusion, fraud and manipulation by Wall Street, the Federal Reserve, the Treasury Department, and connected crony corporate interests.
I challenge anyone to show me the tremendous housing recovery on the new home sales chart below. New homes sales have “surged” to an annual pace of 369,000, only 74% below the 2006 peak and about 50% below the long term average. New home sales fell in December at the fastest rate since February 2011. Existing home sales also fell in December, are pacing at 1999 levels, and are still 30% below 2006 levels. In a country of 115 million households, with mortgage rates at all-time lows, there were a total of 26,000 new homes sold in December, and only 10,000 of them were actually built. For some perspective, new home sales are at the same level as they were in 1967 when the U.S. population was 200 million.
The kleptocrats’ master plan has multiple dimensions designed to lure unsuspecting dupes back into the market. The Federal Reserve has bought over $1 trillion of toxic mortgage debt, freeing the criminal Wall Street banks to start raping the American public again. Bernanke has driven mortgage rates to near all-time lows by tripling his balance sheet, with promises to quadruple it before the end of the year. By driving real interest rates below zero Bernanke has the dual purpose of driving people into the stock market for a positive return and luring “investors” into the housing market.
The Wall Street part of this grand scheme has been to delay the foreclosure process on millions of homes, thereby restricting the amount of inventory on the market. By artificially creating an inventory “shortage”, they have been able to drive prices higher, with the purpose of trying to get the 25% of underwater homeowners back to breakeven. The Treasury Department, through their captured entities (Fannie, Freddie, FHA) are guaranteeing 95% of all mortgages, with the FHA requiring only 3.5% down payments, with the hundreds of billions in present and future losses being incurred by the American taxpayer. You’ve heard of the cycle of life. This is the government cycle of fraud.
The last part of the plan has been to lure investors into the market. Fannie Mae and Freddie Mac have sold huge blocks of foreclosed homes to connected friends of Wall Street at below market rates so they could convert them to rental properties. This has further artificially reduced inventory available for sale, and jacked up prices by as much as 20% in the former bubble markets of Phoenix, Las Vegas and California. Investors and flippers account for 30% of all home sales, with another 24% of home sales listed as distressed sales. Sure sounds like a healthy market to me. With this full court press by the powers that be to produce a housing recovery, the chart below reveals the utter ineptitude of their effort. Real home prices, even using the fake government manipulated CPI, have barely budged from their lows and sit at 1990 levels. Real home prices are still down 40% from their 2006 highs.
If a true housing recovery was underway how could mortgage purchase applications be at 1997 levels? If housing was recovering there would be more mortgage applications. It really is that simple. Do supposed journalists have any critical thinking skills or are they just playing their assigned role in this kleptocracy?
Essentially, the kleptocrats’ primary purpose has been to protect and enhance the wealth of the oligarchs that control Wall Street, Washington DC, and corporate America. They have achieved their goal, while destroying the middle class and sentencing unborn generations to a life sentence of debt servitude.
If we have been experiencing a solid jobs recovery, strong automobile sales, a resurgence of consumer spending, and rising home sales and home prices, how could GDP be negative in the 4th quarter? The mainstream media immediately declared it the best negative GDP of all-time. They pompously declared that GDP would have been positive if government defense spending hadn’t plummeted. These disgraceful excuses for journalists failed to mention the huge surge in government and defense spending in the 3rd quarter just prior to the presidential election that accounted for a 3.1% GDP and helped get Obama re-elected. A less trusting person than myself might question why the surge in government spending prior to the election.
Did the mainstream media government mouthpieces question the absolutely laughable 0.60% inflation rate used to calculate the 4th quarter GDP? No they didn’t. That wouldn’t support their storyline of recovery. Using even the bastardized CPI figure of 2.0% would have produced a -1.5% GDP figure. Using real inflation figures over time reveals what every middle class family in America knows in their bones – the economy has essentially been in recession since the early 2000s. The massive dose of debt issued by the government has masked the true nature of our economic decline.
All is not well. Any awake and aware citizen knows the economic, financial, societal and social fabric of this country is in tatters, and is getting progressively worse by the day. Since this supposed economic recovery began in mid-2009, the country has added 4 million jobs, more than 100% of which went to workers over the age of 55, forced into the workforce by Bernanke’s zero interest rate policy. Over this same time frame of economic recovery, 16 million Americans went on food stamps. How could this possibly happen if the economy has been recovering? Either the government and mainstream media are lying about the economic recovery or the Obama administration has been fraudulently encouraging people to go on food stamps to win votes in elections. Which of these truths is more palatable to your sensibilities?
It comes down to this. The monied interests, high financiers, corporate interests, captured politicians, government apparatchiks, and corporate media have a vested interest in maintaining the corrupt and destructive status quo. They have become rich and powerful through their manipulation of the currency, ravenous sacking of the national wealth, destruction of the working middle class, and ability to use mass media propaganda to convince the willfully ignorant masses to learn to love their debt servitude. Our once proud, liberty minded, self-sufficient nation of freedom loving individuals has devolved into a kleptocracy, where a small cadre of powerful men run the show solely to increase the personal wealth and political power of officials and the ruling class at the expense of the wider population. They are essentially running a state sponsored embezzlement and Ponzi scheme to pillage the wealth of the dumbed down, sedated, technologically distracted masses. Our entire system has been captured and we are entering the final stages of decay and ultimately a day of reckoning where the guilty and innocent alike will suffer the awful consequences of currency collapse, death and destruction on a wide scale, and likely civil and world war.
“The Fed is now engaged in a control fraud, and what appears to be racketeering in conjunction with a few big investment banks. They may have entered into it with good intentions, but they seem to have been turned towards deceit and corruption. This is not an historical event, but an ongoing theft in conjunction with a number of Wall Street banks, and politicians whom they have paid off through a corrupt system of campaign financing and influence peddling. This is nothing new in history if one reads the un-sanitized version. But people never think it can happen today, that somehow yesterday things were different, as if one is looking at some distant, foreign land. This is a facet of the illusion of general progress.
We are now in the cover-up stage of a scandal, similar to Watergate when the White House was stone-walling. The difference is that the corruption and capture of the government is much more pervasive now, and includes a significant portion of the mainstream media, so meaningful reform is difficult. Most of what has transpired so far has been designed to distract and placate the people in their righteous anger. The Fed deceives the Congress and the public, turns a blind eye to glaring conflicts of interest, and is essentially debasing the currency while transferring the wealth of the nation to their cronies. And still the regulators do not enforce the laws they have, and Washington drags its feet while accepting buckets of cash from the perpetrators.” – Jesse
The entire system is corrupt to its core. Both political parties, regulatory agencies, Wall Street, the Federal Reserve, and mainstream media are participants in this enormous fraud. They grow more desperate and bold by the day. The lies, misinformation and propaganda being spewed on a daily basis become more outrageous and audacious. They are using the Big Lie method on a grand scale. They frantically need to lure the muppets into the stock market and the housing market to keep the game going a little longer. You can sense we are reaching a tipping point. The system they have created is mathematically unsustainable. Therefore, it will not be sustained. The world is going mad. Governments across the globe are all trying to out debase each other. Austerity and inflation for the peasants and caviar and champagne for the Davos class is the chosen path. All is not well. Ben Bernanke and the oligarchs running the show will be immortalized in history books forever when this farce comes to a spectacular conclusion.
“If all else fails, immortality can always be assured by spectacular error.” – John Kenneth Galbraith
Default on the public debt, nationalization of the banks, and a citizen dividend could actually save the Italian economy.
Comedian Beppe Grillo was surprised himself when his Five Star Movement got 8.7 million votes in the Italian general election of February 24-25th. His movement is now the biggest single party in the chamber of deputies, says The Guardian, which makes him “a kingmaker in a hung parliament.”
Grillo’s is the party of “no.” In a candidacy based on satire, he organized an annual "V‑Day Celebration," the "V" standing for vaffanculo (“f—k off"). He rejects the status quo—all the existing parties and their monopoly control of politics, jobs, and financing—and seeks a referendum on all international treaties, including NATO membership, free trade agreements and the Euro.
"If we get into parliament,” says Grillo, “we would bring the old system down, not because we would enjoy doing so but because the system is rotten." Critics fear, and supporters hope, that if his party succeeds, it could break the Euro system.
To govern, one needs ideas and a strategy for implementing those ideas. Grillo’s team has neither. They are defined more in terms of the things they are against than things they are for. It’s fine to want to “throw the bums out”, but that won’t put people back to work or boost growth or end the slump. Without a coherent plan to govern, M5S could end up in the political trash heap, along with their right-wing predecessors, the Tea Party.
Steve Colatrella, who lives in Italy and also has an article in Counterpunch on the Grillo phenomenon, has a different take on the surprise win. He says Grillo does have a platform of positive proposals. Besides rejecting all the existing parties and treaties, Grillo’s program includes the following:
unilateral default on the public debt;
nationalization of the banks; and
a guaranteed “citizenship” income of 1000 euros a month.
It is a platform that could actually work. Austerity has been tested for a decade in the Eurozone and has failed, while the proposals in Grillo’s plan have been tested in other countries and have succeeded. Default: Lessons from Iceland and South America
Default on the public debt has been pulled off quite successfully in Iceland, Argentina, Ecuador, and Russia, among other countries. Whitney cites a clip from Grillo’s blog suggesting that this is also the way out for Italy:
The public debt has not been growing in recent years because of too much expenditure . . . Between 1980 and 2011, spending was lower than the tax revenue by 484 billion (thus we have been really virtuous) but the interest payments (on the debt of 2,141 billion) that we had to pay in that period have made us poor. In the last 20 years, GDP has been growing slowly, while the debt has exploded.
. . . [S]peculators . . . are contributing to price falls so as to bring about higher interest rates. It’s the usurer’s technique. Thus the debt becomes an opportunity to maximize earnings in the market at the expense of the nation. . . . If financial powerbrokers use speculation to increase their earnings and force governments to pay the highest possible interest rates, the result is recession for the State that’s in debt as well as their loss of sovereignty.
. . . There are alternatives. These are being put into effect by some countries in South America and by Iceland. . . . The risk is that we are going to reach default in any case with the devaluation of the debt, and the Nation impoverished and on its knees. [Beppe Grillo blog] Bank Nationalization: China Shows What Can Be Done
Grillo’s second proposal, nationalizing the banks, has also been tested and proven elsewhere, most notably in China. In an April 2012 article in The American Conservative titled “China’s Rise, America’s Fall,” Ron Unz observes:
During the three decades to 2010, China achieved perhaps the most rapid sustained rate of economic development in the history of the human species, with its real economy growing almost 40-fold between 1978 and 2010. In 1978, America’s economy was 15 times larger, but according to most international estimates, China is now set to surpass America’s total economic output within just another few years.
According to Eamonn Fingleton in In The Jaws of the Dragon (2009), the fountain that feeds this tide is a strong public banking sector:
Capitalism's triumph in China has been proclaimed in countless books in recent years. . . . But . . . the higher reaches of its economy remain comprehensively controlled in a way that is the antithesis of everything we associate with Western capitalism. The key to this control is the Chinese banking system . . . [which is] not only state-owned but, as in other East Asian miracle economies, functions overtly as a major tool of the central government’s industrial policy. Guaranteed Basic Income—Not Just Welfare
Grillo’s third proposal, a guaranteed basic income, is not just an off-the-wall, utopian idea either. A national dividend has been urged by the “Social Credit” school of monetary reform for nearly a century, and the U.S. Basic Income Guarantee Network has held a dozen annual conferences. They feel that a guaranteed basic income is the key to keeping modern, highly productive economies humming.
In Europe, the proposal is being pursued not just by Grillo’s southern European party but by the sober Swiss of the north. An initiative to establish a new federal law for an unconditional basic income was formally introduced in Switzerland in April 2012. The idea consists of giving to all citizens a monthly income that is neither means-tested nor work-related. Under the Swiss referendum system of direct democracy, if the initiative gathers more than 100,000 signatures before October 2013, the Federal Assembly is required to look into it.
Colatrella does not say where Grillo plans to get the money for Italy’s guaranteed basic income, but in Social Credit theory, it would simply be issued outright by the government; and Grillo, who has an accounting background, evidently agrees with that approach to funding. He said in a presentation available on YouTube:
The Bank of Italy a private join-stock company, ownership comprises 10 insurance companies, 10 foundations, and 10 banks, that are all joint-stock companies . . . They issue the money out of thin air and lend it to us. It’s the State who is supposed to issue it. We need money to work. The State should say: “There’s scarcity of money? I’ll issue some and put it into circulation. Money is plentiful? I’ll withdraw and burn some of it.” . . . Money is needed to keep prices stable and to let us work.
The Key to a Thriving Economy
Major C.H. Douglas, the thought leader of the Social Credit movement, argued that the economy routinely produces more goods and services than consumers have the money to purchase, because workers collectively do not get paid enough to cover the cost of the things they make. This is true because of external costs such as interest paid to banks, and because some portion of the national income is stashed in savings accounts, investment accounts, and under mattresses rather than spent on the GDP.
To fill what Social Crediters call “the gap,” so that “demand” rises to meet “supply,” additional money needs to be gotten into the circulating money supply. Douglas recommended doing it with a national dividend for everyone, an entitlement by “grace” rather than “works,” something that was necessary just to raise purchasing power enough to cover the products on the market.
In the 1930s and 1940s, critics of Social Credit called it “funny money” and said it would merely inflate the money supply. The critics prevailed, and the Social Credit solution has not had much chance to be tested. But the possibilities were demonstrated in New Zealand during the Great Depression, when a state housing project was funded with credit issued by the Reserve Bank of New Zealand, the nationalized central bank. According to New Zealand commentator Kerry Bolton, this one measure was sufficient to resolve 75% of unemployment in the midst of the Great Depression.
Bolton notes that this was achieved without causing inflation. When new money is used to create new goods and services, supply rises along with demand and prices remain stable; but the “demand” has to come first. No business owner will invest in more capacity or production without first seeing a demand. No demand, no new jobs and no economic expansion.
The Need to Restore Economic Sovereignty
The money for a guaranteed basic income could be created by a nationalized central bank in the same way that the Reserve Bank of New Zealand did it, and that central bank “quantitative easing” (QE) is created out of nothing on a computer screen today. The problem with today’s QE is that it has not gotten money into the pockets of consumers. The money has gotten—and can get—no further than the reserve accounts of banks, as explained here and here. A dividend paid directly to consumers would be “quantitative easing” for the people.
A basic income guarantee paid for with central bank credit would not be “welfare” but would eliminate the need for welfare. It would be social security for all, replacing social security payments, unemployment insurance, and welfare taxes. It could also replace much of the consumer debt that is choking the private economy, growing exponentially at usurious compound interest rates.
As Grillo points out, it is not the cost of government but the cost of money itself that has bankrupted Italy. If the country wishes to free itself from the shackles of debt and restore the prosperity it once had, it will need to take back its monetary sovereignty and issue its own money, either directly or through its own nationalized central bank. If Grillo's party comes to power and follows through with his platform, those shackles on the Italian economy might actually be released.
What might happen: printing money and issuing propaganda lose their effectiveness.
We all know what's supposed to happen in the global economy: we get more of everything: more stuff manufactured, more coal dug up and burned, more "aggregate demand" i.e. insatiable desire for more of everything, more innovation, more wealth, more money printed, more debt taken on to buy more stuff and more education, more tourists occupying more beaches sipping more drinks, more strip malls built, more airports expanded, more jobs created, more taxes collected-- more "growth" of everything, in every way and every day.
Beneath this expansive more-of-everything splendor, the power structure is supposed to remain unchanged: a small political-financial Elite holds all the reins of power, a manufacturing-consent propaganda machine (a.k.a. mainstream media) persuades the masses all is well, wealth continues to accumulate in the top 1/10th of 1%, money is printed/created and distributed to the State-financial partnership's fiefdoms and cartels, moderate inflation eats away at the value of wages but makes debt cheaper to service, and the Upper Caste of technocrats continue their well-paid enabling of the Aristocracy's dominance.
The dream of tens of millions of young people is to join the Upper Caste of lackeys, factotums, toadies and apparatchiks serving the Aristocracy's cartels and fiefdoms.
In sum, the pie of wealth is supposed to expand so fast that the 10% left for the bottom 90% will be enough to satisfy their high expectations of endlessly rising prosperity.
That is Baseline Scenario #1: the Status Quo remains as it is, unchanged. This is what's supposed to happen as a result of central bank money-printing and central government borrowing and spending: the Status Quo of endless growth ruled by an Elite will continue on the same trendline it has traced since 1946: more growth, more financialization, more concentration of wealth and political power, more technological innovation, and so on.
Baseline Scenario #2 is the center cannot hold, and the Status Quo devolves.Those living through Scenario #2 will not notice any sudden changes; financial, political and geopolitical crises become the background noise to daily life.
The changes will be gradual and incremental: things will stop working as well, the homeless population will increase, stores will close, government offices will shorten their hours of operation, streets will remain unrepaired, hours will be cut, benefits will be trimmed, stadiums will no longer be filled during sporting events or musical extravaganzas.
There will be less of everything, not more, and a gradual but steady erosion of all "growth" baselines: fewer jobs, lower wages, fewer taxes collected, less profits, fewer retail outlets.
Faced with a shrinking pie to plunder and skim, the Aristocracy and its Upper Caste of technocrats will be forced to increase their share of the dwindling national surplus. Taxes and junk fees will rise, squeezing legitimate small enterprises into the informal economy, and the gulf between the Aristocracy/technocrat Upper Caste and the bottom 90% will widen: this can be characterized as the "third-worldization" of developed economies.
The disposable income of the top 10% will continue to rise, enabling them to retreat to the security of gated communities and luxury urban highrises, just like in Third-World megalopolises, while the gradual impoverishment of the bottom 90% erodes life outside the protected circles of the Elites and their well-paid worker-bees.
Anger and frustration rise, but food stamps, unemployment and transfer payments privatize the social mood: people are paid to stay home and watch TV or otherwise amuse themselves in political isolation. Nothing is sharp enough or drastic enough to spark a politically meaningful response. As long as the bread and circuses are ample, the masses are content to "get the best of what's still around" and go about their business without threatening the top 10%'s dominance of the national surplus.
Baseline Scenario #3 is something breaks: perhaps the trigger is a global credit event or a war, or perhaps it is the price of oil spiking on some disruption. The basic dynamic is this: increasingly fragile systems are increasingly vulnerable to sudden disruption and breakdown. On the surface, everything looks secure, until some event unleashes a cascade of unintended consequences.
The ultimate driver of Baseline Scenario #3 is diminishing returns: the political-financial Elite will respond as it did in 2008, by printing money to bail out banks and private cartels, by reassuring the masses via the propaganda mills, and so on, but these responses will have lost their initial effectiveness: the saturation of debt and propaganda will have reached 100%.
Printing more money and spewing more reassuring propaganda will no longer tamp down the crisis. Rather, the failure of these Status Quo responses will unleash an even more destabilizing crisis.
Baseline Scenario #3 will result when one of a network of highly interconnected systems breaks down, and all the other systems fall in a domino-like cascade of instability.
The key dynamic in Baseline Scenario #3 is the standard-issue official responses (print more money and issue more reassuring propaganda) will fail to stem the destabilization, and this failure will unleash an even larger wave of instability and breakdown.
Order will eventually be restored, but at a much lower level of wealth and prosperity. Baseline Scenario #3 will be replaced by Baseline Scenario #2--another period of erosion--until structural changes are allowed to reshape the political and financial landscape of power and wealth.
First they came for the communists,
and I didn't speak out because I wasn't a communist.
Then they came for the socialists,
and I didn't speak out because I wasn't a socialist.
Then they came for the trade unionists,
and I didn't speak out because I wasn't a trade unionist.
Then they came for me,
and there was no one left to speak for me.
-- Martin Niemöller, Nazi camp prisoner
‘I’m furious with myself,’ he said. ‘I had so many opportunities to move my money abroad but was taken in by all the promises that any attempt to raid my savings was a red line not to be crossed. Experts said it was against the law. Now, I’ve lost several thousand euros. As someone who is retired, the money in my account is all I have to live on for the rest of my life.
‘What’s really upset people is that they’ve been lied to. They were told that their money was safe and that they shouldn’t move it and then they announce this. Everyone’s accounts are frozen and the ATMs have no money. Some people are struggling to get enough cash together to buy food and water...[people] just feel that they’ve been robbed by the Government.’
--Chris Drake (Former BBC Middle East correspondent, retired to Cyprus) via dailymail.co.uk
(All emphasis mine)
So what are you going to do? Are you going to place your faith in the "authorities" like Mr. Drake did? Will you wait for them to rape and pillage you? Or are you going to take matters into your own hands. It's time to take responsibility for yourself and your loved ones. The Government and the Banksters ain't gonna save you. And if you think what happened in Cyprus this weekend is a "one-off" and it can't happen to you - even if you're outside the Eurozone - think again. The fact of the matter is that this was THEFT of private property - pure and simple. And just because it was performed by mafia dressed up in Government regalia and bearing authoritative three letter acronyms (ECB, IMF et. al. – all banker fronts) doesn't mean it wasn't one. This shows us that the Government and the bankster mafia who control them are willing to go to any length to have the public reimburse their “losses” and transfer public wealth into their own pockets. And they just declared outright war against the public.
Anybody in Spain or Italy who's watching what's happening in Cyprus and doesn't withdraw their money RIGHT THIS MOMENT from their banks deserves what's coming their way. This is as loud and clear as it gets folks. And it’s not just Spain or Italy or Greece or even the entire Soviet European Union – it’s the whole world. You won't get a personal warning letter from your feudal overlords government. And you can't say you weren't warned.
But it's not just enough to withdraw your money from the banks. That's just the first step. A global financial tsunami has been brewing and the waters have been receding for a while. It is upto you to pay attention to the signs and get as far away from the coast as possible which means you need to withdraw completely from the system to safeguard your hard earned wealth. The global monetary system today is nothing more than a giant global pyramid scheme which is now collapsing (hence all the "crises"). Just as in a Ponzi scheme, those who get out first will suffer the least amount of losses. But before I explain how to get out of the system, we need to understand what “the system” is. Also remember, this system is same in all countries today.
Will you be one of these people?
A Crisis Created by the Banksters
So what is this "crisis" in Europe that we all keep hearing about? That every one of the citizens must sacrifice an arm and a leg if we are to avert Armageddon? What would happen if we don't bail out the banks and let them collapse? Would it really be so bad? The "authorities" in our academia and government would have us believe that "the crisis" is born of "natural" causes i.e. it is simply a fact/force of nature. It's nobody's fault! Greed is simply human nature and these things happen. It's the damned "business cycle". Now we must all come together like the obedient little slaves that we are and engage in shared sacrifice to "solve it" and save everyone, especially the banks.
One word: BULLSHIT.
Well, the cause of "the crisis" goes to the very heart of how our monetary/currency system operates today.
The Money
If we are to understand the crisis, first we must understand money - a topic which the masses have deliberately been kept ignorant about. A complex economy such as ours consists of a multitude of goods and services which can be in varying demands at various points of time. Hence a medium of exchange is required that acts as a proxy for all the goods and services in the market (so as to enable complex exchanges) and in the process provides information about their relative demand and supply in the market via price signals (even interest rates are nothing but price signals - the price of money and since money is a proxy for all the resources in an economy - the price at which excess capital in the economy is available for utilization). Producers and consumers then use this information to decide on the allocation of resources - what to produce, how much to produce, etc. For this allocation process to be efficient (i.e. satisfy the wants and needs of everyone with the least amount of wastage) it must be essentially decentralized, since a single entity CANNOT know what everyone wants. This is why the Soviet Union collapsed.
Money, then, is an information mechanism which lets the producers and consumers perform calculations as to the most efficient allocation of resources at any given point of time (a software, if you will, controlling the hardware of the economy). It must be some good that is universally acceptable - that the market has "elected". And just as you need a standard scale of unvarying length to perform measurements of distance, you need a substance whose supply remains fairly constant over long periods of time to perform calculations of economy. Fortunately, the market discovered such a substance fairly long ago - Gold (as evidence that it is the substance, I present Gold's highest stocks to flow ratio of any "commodity" and the only one whose demand does not vary with supply). Unfortunately, somewhere along the line, it all went horribly wrong.
How It All Went Wrong
Now imagine someone wanting to control the economy for their benefit; wanting to have something for nothing i.e. somebody who wants to STEAL from those who are productive. Enter the mafia banksters. All they would need to do is control the medium of exchange or money and voila! But there's only so much Gold to go around. What if you want to appropriate unlimited resources from the economy for your benefit? You need something you can create at will. Enter paper money. So gradually, over period of time, operating behind the curtains, banksters in cahoots with the politicians replaced paper receipts for Gold (just take a look at the higher denomination US dollars circa late 1920’s) with paper tickets backed by NOTHING. An IOU for Gold became an I-O-U-Nothing. Knowing their worthless paper money wouldn't be a voluntary choice, they enlisted the Government as their enforcer and accomplice using bribes and threats (hence the legal tender laws, and for those of you who don’t know or remember, I present the Executive Order 6102). Hurrah! Now they could print and spend as much as they wanted! But alas, there is a fly in the ointment - if they directly used this paper money, the currency would quickly dilute and the scam would fall apart. What to do? Yup, "lend" the money. Thus began the creation of the biggest Empire of Debt backed by the most powerful mafia the world has ever seen.
A Global Ponzi Scheme
So this is how the scam works. Realize that the bankers need to do two things:
Keep creating new money supply
Keep extracting the already created money
Make no mistake, the second is as essential as the first otherwise the money supply would increase too fast in relation to the goods and services produced, the currency would decline in purchasing power too quickly and the scam would fall apart. They first need to ensure that you do the work and create production for them to appropriate via the extracted money (and maybe some freshly printed money on the side – who’s watching anyway?).
They achieve the first by loaning new money out of thin air (mostly via entries in a computer today). The Banks1 "lend" "money" to both the Government (government bonds) and the citizens (credit card, home loans, etc.). Lending to the government is an important part of the scheme as they have to bribe the enforcer of their scheme. The politicians don’t give a shit, its free money so far as they are concerned - it is the citizens who will pay it back. Plus who doesn’t love unlimited free money? The Government can issue as many bonds as it desires knowing the Central Bank2 stands ready to buy all of them with freshly printed money, if other morons don’t. The banksters also ensure that there will always be a demand for loans as lending means they demand paying back of the principal as well as the interest. But realize this: they NEVER created money for the interest, only the principal. So how will someone – whether government or citizens – ever pay back the interest? They can’t. They’ll have go bowl on hand to – you guessed it – the banksters. This is why debt in all the nations (both government and private) always increases. Increasing debt is a feature of the system, not a bug. The system is operating exactly as was designed - to trap the people in perpetual debt slavery. And contrary to what you may hear from “experts” and the MSM, the amount of debt in the society will never go down and will never be repaid but - as I will explain below – only end with the collapse of the currency system.
Now this demand for repayment also ties in to the second part of their scheme – extraction. This is how they do it:
A huge portion of the Government taxes you pay go towards paying the interest on the government bonds which the bankers own i.e. indirectly your taxes are being paid to the bankers. No wonder the IRS and the Federal Reserve came into being together.
A huge section of the society is always in debt. This is not hard to fathom – a huge portion of your income is extracted via taxes and loan payments on your personal debt. Now, personal debt is not a choice under such a system as availability of unlimited money (credit) for goods in the economy creates price inflation making them out of reach for most people unless they take on debt. Just ask around – how many of your colleagues, friends, relative are in debt? Yup.
Do you see the sheer evil genius of it? Basically the banksters have created a system where they give money from one hand, take it back from the other – all the while making you run on the treadmill of jobs (slavery) – THEIR slavery. They are free to spend the extracted money-out-of-thin-air as they want but you have to do productive work for it. Make no mistake – this is modern day slavery - earlier they used chains and whips, now they use debt.
But What Does All This Have To Do With “The Crisis”?
Everything. Because there remains yet another fly in the ointment, which even the bankers don’t have a solution for as its genesis lies in the very system they have created – central control of money. This central control of money causes huge misallocations in the economy. What is a misallocation? There is a lot to this which I can’t cover in this article such as manipulation of interest rates, so I recommend you do a bit of your own research (especially refer to the work of Austrian economists such as Mises), but briefly: Since the money is now centrally controlled for the benefit of the few (government and the banksters), all the price signals go haywire. Money is handed out to connected but incompetent people who produce NOTHING, people who produce are taxed to death and money is transferred to insiders in the money system, investments are made where none are required (e.g. real estate) which results in things being produced which have no demand whereas things that have demand (e.g. food) are not produced. The inefficiencies in the system become huge and vast productive resources are wasted. There is a whole bunch of consumers and spenders (including the banksters) but not a lot of producers. All of which means that over time two things happen in such a system:
Overall money supply increases but the extractions start to decline. This is because loans are being made but not as many of them get paid back.
The amount of goods and services (which people want anyways) available in the economy also start to decline.
An increasing money supply and declining production results in the decimation of the currency’s purchasing power as evidenced in the charts below. These charts are for the USD, but hold true for every currency in the world today:
Unlimited Money...
.... Leads to Unlimited Debt
And the corresponding chart for price of Gold:
Gold price since 1973 (before this it was “fixed” at $35 an ounce after the 1933 robbery). Just to be clear, it is not the gold that is rising, but the USD that is declining.
The Dollar's Purchasing Power Since the Creation of the Federal Reserve in 1913
If you take the limit case for the last chart, you get hyperinflation – the currency becomes worthless (which correspondingly means Gold becomes literally priceless – remember, it is the real money) and the game is over – and as you can see, we are VERY close to it. No more looting. This is what the banksters are so afraid of and this is “the crisis” – their desire to continue pillaging the people. They NEED the extractions to continue, not only because it is their “income” and to prevent “losses” (both these terms mean nothing to someone who owns the money supply as they can always create more) but because otherwise the money supply would increase exponentially (the bad loans already made). This would kill their franchise - the currency. This is also why they can’t just print up and use any amount of currency they need.
But eventually the misallocations become so huge that there is nothing left to extract. The productive citizens have already been bled dry. This need for extractions is what is behind all the demands for “austerity”, the reason for directly robbing the bank accounts of the people. But no matter how much they extract, it doesn’t make a difference because the misallocations will always keep on increasing. The currency is doomed. They might be able to slow the process but hyperinflation is guaranteed in a fiat money system. Eventually, it only matters who gets out first before the currency collapses. So the only question is:
Will you get out in time?
What happened in Cyprus is simply an overt manifestation of what they've been doing all along. It’s just that up until now there were enough productive resources in the economy for them to extract. But as the malinvestments increase and the productive base of the economy keeps on shrinking, as it must for reasons outlined above, they will directly try to appropriate private assets to "cover their losses" (keep the franchise alive). Which means they will need to employ ever more forceful tactics to subdue the populace. Cyprus is just a test run by the global banking oligarchs. Once they are aware of and have prepared for the fallout, they WILL implement this in every nation on earth. How long before you think they will come for you? It’s only a matter of time.
So What to Do?
By now it must be clear that if this looting scheme has to ever end, this fake money system has to end. And whether you like it or not, end it will because as outlined above, the system contains in itself the very seeds of its destruction. Think of it as virus - a parasite - that has infected an otherwise healthy global economy which must be rid of. A forest fire, if you will, that must clear the dead plants (malinvestments) to make way for the new. It is the law of nature. But if the host - YOU - doesn't fight back, the parasite of global banksters will kill the host alongwith itself. If you don’t collapse the system, the system will collapse you. Do you wish to sink with the collapsing system or be one of the survivors to begin a new one?
There are two interdependent objectives at play here. If you choose to take steps for one, the other automatically follows:
Healing the economy: The system must be collapsed for the much needed capital reallocations to productive hands to begin. Sure, collapse is a guaranteed outcome, but the sooner it happens, the lesser the damage to the economy and faster the recovery.
Preservation of wealth: By this I don’t mean preservation of the fiat digits in your account. Wealth is not currency notes but the real resources and people of this world. When the reallocations start you need to be ready either by already owning productive assets (whatever is left of them) such as farmland etc. or claims to them that will be universally honored (Gold).
Yes, the global bankster oligarchy is powerful. It’s David vs. Goliath, I know. But as powerful as the Goliath is, he has a weak spot you can hit:
The Currency
Think of this as guerrilla war. There is no sense in outright confronting a huge and powerful enemy because you will be decimated. But there are peaceful and strategic yet powerful steps you can take, namely: Vote with your feet. Reject the currency. The system cannot survive if you don’t participate. I know you can’t do it overnight but you can start to minimize your participation. And know this: If a majority of you does even one of the below, the system will collapse overnight without so much as a shot fired. Here is what you need to do:
1. Leave as little cash as practically possible inside the banking system. As a rough guide, keep only that much which you are willing to lose (as in 100% loss). Yes the banks will collapse, but that is the desired outcome. Contrary to what the authorities want you to believe, we will survive just fine without the banks. Sure, there will be some short-term hardships involved but think of it as an alcoholic recovering. Longer term it will be healthier. Don’t fear “the contagion”
"Clearly this is a negative development for European assets but in the terms of contagion we think it is quite limited,"
--Guillermo Felices, Head Euro Asset Allocation, Barclays
What this guy means is that he thinks people aren’t clever enough to realize that the banksters are going to loot everyone. He expects people to bend over and take it. Prove him wrong. Let the damn contagion begin!
2. DO NOT be invested in any paper securities inside the system such as bonds, stocks, derivatives of ANY kind, even though they may be "guaranteed" by the mafia government and/or may carry "AAA" ratings. If you still trust "sovereign guarantees" or rating agencies after all that has happened, I'm sorry but you deserve to lose your money. Dump ALL paper assets. Now.
3. Convert the maximum possible amount of your fiat money into Gold and Silver, but remember to pay cash only and hide them in a secure location which you can access anytime (and as of the great Cypriot robbery, no bank lockers are safe anymore). If you need to understand why it is important to buy Gold and why this will preserve your wealth – especially during a currency collapse - please read this and this. If the country you reside in is making hard for you to buy PM's - MOVE, for this is an indication of depredations to come. If they are requiring identification/ tracking if you buy over an X amount, just keep buying a little below it as many times as required (guerrilla warfare). But keep it discreet. And, yes, I know the government can confiscate PM’s but nothing’s stopping them from confiscating your fiat digits either. There are no guarantees in life. At least this way you still have a chance.
4. Although precious metals in your own possession is the safest place to park your hard earned savings, if you wish or need to diversify beyond the precious metals, invest only in real assets in safe jurisdictions. By safe I mean which are furthest from the control of feudal lords of western "civilization", although I'm not sure there are many these days. The best real asset I can think of aside from PM's is cultivable farming land, but I’m sure there are many others.
5. Minimize usage of bankster money in daily transactions by using alternative currencies (such as Bitcoin) which they cannot track and tax. Disclaimer: I haven’t done much research on Bitcoin or other such p2p currencies, so do your due diligence. The only guarantees I can make are for Gold. If your circumstances permit, try to start making a living outside the bankster controlled wage-slave economy. The lesser number of slaves there are to exploit, the faster the system will collapse.
6. Wake up as many people as you can. Let's make this shit viral.
So, unless you want a bankster at your doorstep with a gun to your head – like it happened in Cyprus - it’s time to take the fight to them. Rip them banksters a new one! Let this not happen to you:
He who panics first, panics best. Clearly, these people didn’t know it!
And if there ever was a picture worth a thousand words – or 3,835 in this case :-) – this is it:
1The Banks refer to both the Central Banks and ordinary commercial banks such as Citibank, JP Morgan etc. The latter are simply fronts for the Central Bank. 2 The Central Bank is nothing but just a façade for creating money out of thin air and a front for the global banking aristocracy.
In one of a few early hints that Europe might surprise the world with its Cyprus bailout, on February 10th the Financial Timesleaked the content of a secret EU memo. It reported that bank depositor haircuts were among three options being considered to reduce bailout costs. And the memo also warned ominously that “such drastic action could restart contagion in eurozone financial markets.”
Clearly, policymakers decided to take their chances. And now we’re living through the contagion that the memo’s authors predicted. But what exactly does that mean? Sure, we can see volatility in asset prices, but how long will it last? Some pundits say it’ll blow over like a late afternoon shower on an otherwise sunny day. I disagree.
I’ll suggest there’s more to it than rising market volatility and that we should take a closer look at the meaning of contagion. I’ll argue there are three different types at work today: vanilla contagion, latent contagion and stealth contagion. And when you add up the three effects, Cyprus will have a bigger global impact than many expect.
Vanilla contagion
This is the term I’ll use for a rapid transmission of volatility from one region to another – what most people simply call contagion. We’ve seen vanilla contagion in financial markets since the announcement of the first bailout agreement on March 16th. We’ve also seen it in reports of bank customers in the European periphery rethinking their loyalties. Both effects should continue for awhile, especially as EU officials have warned uninsured depositors that their assets aren’t protected in government bailouts. This is by far the most significant development of the past two weeks. And it’ll play out slowly, since it takes depositors time to find a new home for their assets once they’ve decided their banks are too risky.
On the other hand, the optimistic case is that flight capital in the periphery has already “flown” during the past several years of repeated crises. Remaining bank deposits should be stickier than they were before Europe realized the euro isn’t such a huge success. Moreover, most people take a wait-and-see attitude to events that aren’t happening right on their doorsteps. And as long as the news doesn’t get worse, they just keep waiting. That’s not to say things won’t get worse for those with the misfortune of living in Cyprus – they’ll get much worse. But the bad news for Cypriots should gradually lose its shock value for those living elsewhere.
Latent contagion
This is the contagion that occurs because people who are waiting-and-seeing aren’t quite forgetting. When the next crisis does come to their doorsteps, they’ll quickly remember what happened to the Cypriots. And the flight to safety will occur much faster than it would have without the new precedent set by the latest bailout. Think of it this way: If vanilla contagion is the extra lock you purchased after learning of a rash of burglaries in your neighborhood, latent contagion is the fact that you’re now jumping out of bed much more quickly when you hear a noise in the middle of the night.
In my opinion, latent contagion will prove more damaging in this instance than vanilla contagion. After all, Cyprus is pretty tiny. If the various crises in the rest of Europe were fully resolved, then it wouldn’t receive much attention. It’s because the crises in Europe are alive and kicking that Cyprus has so much meaning. The bailout gives us information about what could happen when banks (or governments) in other countries are once again short of cash.
Latent contagion is already appearing this week with the Italians’ continued failure to form a new government. It’s not especially comforting that Italy is in the middle of a political crisis just as the EU rewrites its rules of engagement in the aftermath of Cyprus.
Stealth contagion
The third type of contagion is one that no-one seems to be talking about. To understand it, imagine that people waiting-and-seeing just keep on waiting and never take action. Then there’s no contagion, right? Well, actually that’s wrong. It’s wrong because contagion doesn’t just work by causing people to take certain actions; it also works by causing them to refrain from certain actions. Like lending, for example. Tightening lending standards are a key piece of the vicious circle that’s currently in place in Europe. Have a look at the chart below, which shows past results of the ECB’s bank lending standards survey, and then I’ll come back to stealth contagion in just a moment.
In a recession, this survey is like a quarterly and economic version of Groundhog’s Day. If it shows lending standards are still tightening, then expect “winter” to continue, because it’s folly to think economies will recover. Economies rise and fall with the rise and fall of credit, and if bankers tell you credit expansion isn’t happening, then economic expansion isn’t happening either. It’s really that simple. This is arguably the best leading indicator of all, even though it’s rarely noticed. For those optimistic forecasters who keep expecting a recovery and getting it wrong, their errors are probably best explained by not giving enough weight to lending standards.
Getting back to stealth contagion, this occurs when people reduce their risk-taking activities. It has nothing to do with either buying an extra lock or being jumpy at night after learning of those burglaries I mentioned earlier. Think of it as a developer shelving his plans to build a high-end apartment complex because of the increase in local crime. And in the case of stealth contagion from Cyprus, bankers are the ones to watch. Bankers in the peripheral economies realize their deposit base is becoming less secure, even if they haven’t seen a significant rise in withdrawals. They’re doing the same calculations as the rest of us and concluding that risks are higher than they were before.
So how significant is the stealth contagion effect? We’ll have a pretty good answer to that on April 24th. That’s the next release date for the lending standards survey. The ECB began to solicit responses in mid-March and will continue to do this through the early part of April, which means the survey should partly reflect the public mood as the Cyprus bailout has unfolded. And I predict it’ll tell us to expect more winter, but don’t just take my word for it. Mark your calendar for April 24th and plan to go straight to the ECB’s website. We may learn that the least talked about of the three contagion types is also the most significant.
Lastly, here’s an article posted by Zerohedge and sourced from JP Morgan that lists other indicators that might foreshadow a change in lending standards. In a nutshell, other indicators to watch include excess cash in the Euro banking system (available daily), peripheral bank debt issuance (available weekly), Target 2 balances (monthly) and balance sheets of monetary financial institutions (also monthly).
"The Carrot's In Reach:" The Myth Of A Self-Sustaining Recovery
"The Carrot's In Reach:" The Myth Of A Self-Sustaining Recovery
Submitted by Charles Hugh-Smith of OfTwoMinds blog, The carrot of self-sustaining recovery will remain out of reach, for the policies presented as the path to recovery preclude the "virtuous cycle" everyone desires.
The enduring myth of the post-2008 era is that central-planning money printing and deficit spending would soon spark a self-sustaining recovery. Once consumers and businesses stepped up their own borrowing and spending, the central bank and state would then pare back money printing and deficit spending, as the increase in private-sector spending would fuel further borrowing and spending, i.e. become self-sustaining.
The reality is the mythical self-sustaining recovery is the carrot dangled in front of a credulous public: though we're constantly reassured "we're almost there" (the promised land of self-sustaining recovery), the mythical recovery remains out of reach, no matter how much money is printed or borrowed and blown in fiscal stimulus.
There are several key reasons for this.
1. As noted yesterday, consumption is not investment, no matter how many times you call consumption "an investment." Investment is planting one's seed corn (capital) wisely. Consumption ($300 million fighter aircraft, $70,000 biopsies, McMansions in the middle of nowhere, endless subsidies of housing and banking, etc.) is turning the seed corn into sour mash and indulging in a drunken orgy of squandered debt that cannot and will not be paid back in dollars with today's purchasing power.
2. Borrowing money (debt) yields diminishing return. There's this funny little thing called interest that piles up in a borrowing spree that eventually siphons off much of the debtor's income stream, effectively impoverishing the borrower.
There's another funny thing called mal-investment or mis-allocation of capital: when the borrowed money is nearly free (low interest rates), then even poor quality bets (oops, I mean "investments") get funded. This is especially true if the winnings are yours to keep but any losses you incur are covered by Big Brother--the Federal Reserve or the U.S. Treasury--and the taxpayers the government has indentured to the banking sector.
3. Debt that cannot be written down because that would impair the politically powerful financial sector remains a tightening noose around the throat of the economy. Capitalism requires creative destruction, which includes the liquidation of bad bets and unpayable debt. Since that is verboten in our State-managed crony-capitalism system, the impaired debt remains on the books, supported by endless government subsidies.
Both the phantom collateral and the subsidies derange and distort the markets, leading to further bad decisions as risk has been obscured.
4. As analyst Ramsey Su recently observed, It is obvious that the central banks of the world have printed too much money, (which) all went into the wrong hands and now has nowhere to go. In the oft-propagated myth of central bank intervention, helicopters drop cash into the economy to stimulate demand for goods and services, sparking the "virtuous cycle" of a self-reinforcing recovery.
But the money isn't dropped into households or the real economy--it's dropped into banks, which use it for speculation or funding cronies' speculations and asset grabs. If the Federal Reserve had wanted to do a real helicopter drop of money, it could have sent $10,000 in cash to every taxpayer. Instead, it lavished at least $23 trillion in subsidies, backstops and guarantees on the Too Big To Fail banks and the mortgage industry.
This neofeudal distribution of $7 trillion in new Federal debt to taxpayers and the Fed's trillions in "free money" to the parasitic financial sector has carved out a vicious cycle of lower real household incomes, higher interest payments and new asset bubbles in stocks, bonds and housing. These trillions of dollars in freshly issued money have flowed to financiers who have used it to chase yield in one asset class or another.
As a result of these neofeudal policies, the economy is now perched precariously on the edge of multiple asset bubbles and demographically impossible-to-fulfill promises of entitlements and other giveaways (such as mortgage/housing subsidies and a variety of corporate welfare scams).
The carrot of self-sustaining recovery will remain out of reach, for the policies presented as the path to recovery preclude the "virtuous cycle" everyone desires.
Greece vs Iceland Unemployment - The Specter of Things to Come
Greece vs Iceland Unemployment - The Specter of Things to Come
The road to ruin is on plain display and the playbook is easily seen at this juncture. Let's take a look at how that playbook will unfold. Contrary to popular outrage of the SOLUTION being IMPOSED it is the correct one once the insured depositors where PROTECTED. In this edition the elites suffered FIRST followed by the private sector depositors who foolishly believed false BALANCE sheets which were POLITICALLY CORRECT but PRACTICALLY incorrect fictions approved by fiduciarily (regulations and regulators allowed ONGOING insolvent operations rather than protect the public by ending and prohibiting them) challenged governments (work for the banks and crony capitalists not for the public at large).
The pecking order of the losses was the CORRECT one: Shareholders FIRST, bondholder's second and lastly uninsured depositors. Have we seen this anytime since the crisis began? It is clear that this is and what must be what's done in the future. But for the countries in question to RECOVER they must RECOVER the ability to PRINT and devalue their currency to competitiveness.
Ask Iceland and Greece how the different paths turn out? Iceland (wiped out bond holders, shareholders, prosecuted the banksters and devalued its currency and is in RECOVERY mode), versus Greece (where the Troika holds all the debt, refuses to take a haircut, the bank shareholders and current bondholders (TROIKA) are intact, is forcing INTERNAL devaluations (to get their new slaves in line) rather than external and is in a perpetual DEPRESSION). Let's look at how this is reflected in employment courtesy of www.zerohedge.com:
Which country would you choose to be in? One is internally devaluing (Greece) and Iceland externally. In Greece the future is BLEAK, in Iceland freedom and a good future only requires hard work and REAL wealth creation for the public at large. Italy, Spain, Portugal, Cypress, Ireland are internally devaluing and firmly on the road to ruin. France is up next.
This is why the euro is DOOMED as internal devaluations destroy many generations of citizens and allow unelected technocrats to gather POWER over all. Whereas external devaluations provide the path to recovery. Beppo Grillo is a hero to those who want a future and their freedom from the debt slave masters in Brussels, the IMF, BIS and European central bank.
In a rare moment of candor the Head of the Eurogroup of finance ministers spoke the truth:
"If there is a risk in a bank, our first question should be: 'Ok, what are you the bank going to do about that? What can you do to recapitalize yourself?' If the bank can't do it, then we'll talk to the shareholders and the bondholders. We'll ask them to contribute in recapitalizing the bank. And if necessary the uninsured deposit holders: 'What can you do in order to save your own banks?'..." "If a bank can't recapitalize itself, then we will talk to the shareholders, bond holders and uninsured depositors."
- Dutch Finance Minister Jeroen Dijsselbloem, who heads the Eurogroup of euro zone finance ministers
Unfortunately the vast majority of banks in the Eurozone will CEASE to EXIST inside this TEMPLATE. This statement reflects reality and is practically correct but is politically incorrect. He quickly retreated to the standard of LYING after the proper amount of PRESSURE from Brussels was applied.
It is THE template and since the sovereigns in which these insolvent banks reside are ALSO insolvent themselves a belly button moment is at hand for the European central bank and the European commission in Brussels. CLOSE DOWN HALF of the banks (or more) within the Eurozone, stockholders, liquidate bomb...er...bond holders and confiscate the rest from uninsured depositors or get the printing press in HIGH GEAR!
There really is no alternative after this TRUTHFUL statement. Human behavior has been altered to the extent that bank runs in Italy have already begun in the weakest institutions. As they say: fool me once shame on you, fool me twice shame on me. The die is cast and buffoonery by the TROIKA will it gather speed and momentum.
The average bank asset to GDP ratio in Europe is approximately 375% of GDP.
Switzerland is not included but its bank asset to GDP ratio is over 700% and according to the ECB Luxembourg is 22 times GDP. If those assets are written down by 20% (those assets are worth FAR LESS) you are still looking at a CUMULATIVE $14 trillion dollar price tag MINIMUM. The number does not include European sovereign debt which is the elephant in the room as most WILL NEVER BE REPAID but sovereign governments let the banks hold it as RISK FREE. LOL
"Most Europeans, even today, probably would be better off if over-indebted governments were allowed to default in accordance with the relevant bankruptcy precepts . But it can't happen in societies so trained to look to politicians to overrule the laws of arithmetic and economics whenever those laws are inconvenient."
- Holman Jenkins, wsj.com
The losses yet to be allocated or PRINTED AWAY by the TROIKA for the European banking systems is probably north of $30 trillion as the numbers above do not reflect off balance sheet and shadow banking activities. A lot of those bank assets are SOVEREIGN BOMBS...er...BONDS and are UNPAYABLE and inextinguishable although they are sitting on the BANK balance sheets as RISK FREE. HA, ha!
MONETARY monopolists who printed the MONEY out of THIN AIR and LENT IT OUT. The idea that these central bankers, sovereign governments and the IMF can't take a loss is a FICTION! There is no loss when the money lent was created out of thin air!
(Author's note: In my opinion, this is NOT Doom and GLOOM, it is one of the greatest opportunities in HISTORY. Invest properly for this outcome and Prosper, invest looking in the REARVIEW mirror and your wealth will be irreparably DAMAGED. Volatility is opportunity for the prepared investor. As it is priced in and markets ZOOM higher or LOWER to price in collapsing economies and money printing huge opportunities are created. Is your portfolio structured to thrive? The greatest transfer of wealth from those that hold it in paper and financial assets to those that don't is UNDERWAY. Restoring fiat currencies to sound money and absolute return alternative investments with the potential to thrive in all market (up, down and sideways) conditions is what I do.
Look at little IRELAND whose citizens and their descendants are in a perpetual debt slavery to OFFICIAL (banksters of the TROIKA) bondholders as a result of a TROIKA rescue. Once again money printed out of thin air with the obligations sent to the public to SAVE THEM.
As Rahm Emanuel said: never let a crisis go to waste. Think about the IRISH rescue, a panic was created and the debt slave noose was fitted a la Cypress today!
The Germans, Austrians and Dutch citizens are now saying NO to borrowing money to bailout BANKSTERS and creating PERPETUAL generations of debt slaves out of themselves and their children. These people are practicing SELF defense by refusing to participate FURTHER. BRAVO!! This represents an impending acceleration of the Global financial crisis in EUROPE!
Any COMPETENT and self-respecting CFO, CEO, Family office, high net worth individuals, institutional investor, small businessman, retiree, etc. inside the PIIGS (Portugal, Italy, Ireland, Greece, and Spain) that is not moving or planning to move excess funds out of insolvent banks is insane. No matter what the EU and ECB say...
The ECB Target 2 system is still up and running, when it crumbles and it will, capital controls will descend in a HEARTBEAT.
Remember, Germany is on the hook for almost $1 trillion euros of lending to PIIGS central banks through the target 2 system. They will see this money back only in their dreams, the money is gone and the economies which must PAY IT BACK are COLLAPSING under Troika demands creating future crises to exploit. The ONLY thing that will stop this from gathering the big MOMENTUM is the OUTRIGHT MONEY PRINTING not in the form of MORE DEBT.
The ELITE leadership in Europe is HARD CORE socialists no matter where you look and deeply entrenched and like in Amerika the socialists are on both sides of the aisle. Rehn, Juncker, Merkel, Hollande, Monti, Baroso, etc. are easily revealed as SOCIALISTS to anyone researching their backgrounds and histories. These people DON'T change their STRIPES.
Blind ideologues, sociopaths and psychopaths who will sentence their constituents to any amount of destruction in their LUNGE for complete control of what wealth is left to extract from what's left of the respective private sectors. The same is true for the District of corruption (both sides of the aisle) and the crew in the White house.
Although you may believe you, your money and your property are yours. They believe it is THEIRS to allocate and confiscate as they wish. It is no different inside Washington DC (district of corruption). Private property ENDED at Breton Woods II in August 1971. Developed world governments have been devising ways to confiscate your wealth ever since, as governments which where a small fraction of their economies then, now are most of the economies NOW!
"The elites in the EU and IMF failed to learn their lesson from the popular backlash to these tax proposals, and have openly talked about using Cyprus as a template for future bank bailouts. This raises the prospect of raids on bank accounts, pension funds, and any investments the government can get its hands on. In other words, no one's money is safe in any financial institution in Europe. Bank runs are now a certainty in future crises, as the people realize that they do not really own the money in their accounts. How long before bureaucrats and bankers try that here?"
- Ron Paul
The European Union is itself a project of creating an unaccountable centrally controlled socialist government OUTSIDE the grasp of its CITIZENS. It is what the European project has been about since its inception. Control of the MONOPOLY MONEY printing press is central to their LONG RANGE plan working. Banksters have worked the booms and busts (caused by unsound money) for centuries to impoverish and enslave (debt slaves) those who labor and live under their currency monopolies. The founding fathers of the United States KNEW them well:
"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property - until their children wake-up homeless on the continent their fathers conquered."
- Thomas Jefferson, 1802
We are QUICKLY approaching his conclusions in the developed world. The banksters have gathered these monopolies on money in exchange for the funding of progressive governments. How many monopolists that you know work to the benefit of their customers? I don't know of any...
Ask former president Woodrow Wilson about this, in the US he is the ultimate BENEDICT ARNOLD and traitor. Many Presidents have betrayed the public; Watergate is but an anecdote to the betrayal of America by Richard Nixon when he stole the "GOLD" backing off the US dollar at Breton woods II creating the INSTRUMENT (unsound money) of the serfdoms the developed world has become.
In order to get money printed out of thin air countries must surrender their sovereignty to Brussels and chain current and future generations as DEBT SLAVES to the banksters. The EFSF and ESM are the means of chaining the prudent northern countries ( debt slaves but haven't been notified yet) to the banksters through the indirect mechanism of GUARANTEEING the Borrowing to rescue the south. It is the stuff of George Orwell (1984 and Animal Farm).
The Eurozone is nothing but a group of elites (government, banksters, crony capitalists, and trade unions) which run EVERYTHING (economy) to their own benefit. It is a FLEECING machine designed only to prey as parasites on the public at large, its all-encompassing confiscation (inflation, taxes, and regulated demand to crony capitalists) of public wealth is the envy of every progressive in Washington on BOTH SIDES of the Aisle. It is the economic and political blueprint of the current tenants inside the Beltway!
Just today the troika dribbled $1 trillion euros of money printed out of thin air in exchange for DOUBLING the income tax in Cypress from 15 to 30% as if they have not done enough to steal the futures of its citizens and future generations already. Anyone who enters the troikas grasp hand their futures mortgaged in exchange for being SAVED. Can you say Vile and insidious?
Just as the United States is morphing into at LIGHTSPEED under the Chicago boys and the Chosen one in Washington DC (district of corruption) as constant crisis combined with a predatory government prey upon the ECONOMIC crisis which their policies have CAUSED.
As INCOMPETENT, INEPT socialist central planning collapses the European and US economies things shall continue deteriorate from here in REAL TERMS. Nowhere is there a plan for growth except in the increasing takings from the public, runaway currency debasement and the growth of unaccountable leviathan governments. As I said, SOCIALISTS smelling the end zone. An economic and banking collapse (CONSTANT CRISIS, FEAR and terrorizing the public at large) allows them to take everything to SAVE YOU and that is the PLAN on both sides of the Atlantic. They believe they OWN YOU!
In Conclusion: The die is CAST. The next stage of the Eurozone crisis has JUST begun! Any child with a calculator can tell you insolvency is entrenched on both sides of the Atlantic on ALL LEVELS of society: public and private. Some groups are within the radius of the printing presses (banksters, public serpents, government, crony capitalists) and others are outside (the public).
The public has to surrender everything (THEIR FUTURES) in exchange for the illusion of getting to safe ground. They are actually being delivered into hell as socialism is MISERY SPREAD WIDELY as REAL growth collapses and money is printed and lent out to provide illusions of growth. These episodes of currency and financial extinction events occur in waves of insolvency and the next wave is STRIKING right now. The creation of money out of thin air is not keeping up with the deleveraging/default of the insolvent borrowers.
This episode of the unfolding crisis will provide the spark for the next CENTRAL BANK balance sheet expansion. The next aggressive reflation is commencing.
FLASH: As we go to press ABENOMICS and new BOJ president Kuroda has PRODUCED a STUNNING approach to the Global financial crisis as it announced over $81 TRILLION dollars of monetization of assets of all stripes PER MONTH. That is triple the size of QE 3 in the US (Japans economy is 1/3rd the size of the US but the money printing is about the same size, wowee). FIREHOSES of HOT money set to roll off the printing presses into every type of assets you can imagine. Take a look at this detail from the fabulous Gartman letter
When I look at this I gasp in its breadth and depth. It is an incredible escalation in a KEYNESIAN monetary experiment. The biggest shock and awe assault on paper creation in the crisis. Between the Bank of England, Federal Reserve, and the Bank of Japan PRINTING over $160 billion a MONTH (160,000 million) to prevent the fall of asset markets and fund sovereign INSOLVENCIES! Hard to conceive.
Banks in Italy are under great strain as the smart money PULLS OUT for destinations unknown. Spain and Canada have just put into place the means (laws) for the upcoming episodes of being CYPRESSED!
Mario Draghli (look where he comes from: Goldman Sachs, BIS and Italian central bank, groomed as a master predator, notice Mark Carney incoming head of the bank of England has the EXACT SAME RESUME) in particular is playing the crisis like a maestro to deliver the Eurozone into the grasp of the BIS (the covert owners of all the big central banks) and their minions in Brussels.
He waits till he sees the whites of his victim's eyes, panic/fear in their hearts courtesy of main stream media, and then extracts their futures from them in exchange for the printed money. Bang, bang, enslaved nations into the grasp of the troika. Just this I am completing this missive Draghli is REFUSING to supply capital (crisis creation) to the BANKING systems, as he must be aware this is a recipe for Europe going to the barter system) OR a nationalization of the banking systems (opportunity for central banksters who own the central banks) with the ECB as OWNERS in exchange for the CAPITAL! WHICH will be printed out of THIN AIR...
This happened in the GREAT DEPRESSION as FED sponsored banks ROLLED up the weaklings. Think Wachovia, Merrill lynch, Bear Stearns, Lehman Brothers (outside MONEY PRINTING loop), JP Morgan Chase, Citigroup, Goldman Sachs, Bank of America (inside the loop) etc. It has been documented that the Federal Reserve printed and lent almost $15 trillion dollars during the October 2008 massacre. That money went to banks INSIDE the MONEY PRINTING LOOP! Capiche? This playbook has been played for centuries. Are you inside the loop of money printing or outside, which is the question?
The NEXT question becomes: will he blink and let the real printing press loose or miscalculate and set off the real nuclear detonation of the Eurozone banking and financial systems. We shall know the answer soon. He has and the troika have gathered untold power in the PIIGS and destroyed countless lives and futures. Beppo Grillo and his constituents are just the TIP of the SPEAR of citizens seeking to recover their freedoms and futures from the banksters. EXPECT MUCH MORE to emerge!
This decline in the rate of money printing is why you see silver and gold struggling in the face a disintegrating Europe. Couple that with massive paper gold and silver selling by the Federal Reserve and US treasury to kill the inflationary canaries in the coal mine. Fortunately the public and foreign central banks are taking delivery of physical gold and silver as fast as it is available at these bargain basement prices. A clash of TITANS so to speak.
The only antidote to this crisis, REAL economic growth, not nominal growth. In order for that to happen private property rights must be restored, CRONY CAPITALIST regulations repealed and CONFISCATORY taxes lowered. What's the chance of that? A snowball's chance in hell.
L: Doug, the news of the week is the big meltdown in the gold market. Some people are saying the bear is here to stay, and it's time to sell everything gold-related and look for greener pastures elsewhere. Others are saying the is the buying opportunity of the decade, and it's time to go "all in." What do you think?
Doug: I'd say it was neither. It could be that just as in 2008, when gold went down a lot at just the time you might think everyone would be panicking into it. But a lot of people had to sell their gold to meet their other obligations that were denominated in various paper currencies. That may be happening at this very moment in Cyprus. There are conflicting reports, but they may end up being forced to sell something on the order of half a billion euros' worth of gold - and if that happens to them, it could happen to other much larger countries that are in trouble, like Greece, Italy, Spain... or France.
L: That is an interesting explanation. A lot of people have been pointing at the lower price target and guidance issued by Goldman Sachs - but why anybody would listen to those guys after all they've been wrong about, at taxpayers' expense, is beyond me.
Doug: Yes. It makes no sense that anyone would listen to Wall Street analysts about gold. Insofar as these people have an education in economics, it's invariably something they've gotten from a conventional university program, which is to say that their economics degrees are worth nothing, and their economic thinking is both totally askew and totally conventional. You can always rely on conventional thinking from the Establishment. The moment someone looks like he's thinking independently, he's seen as a danger and asked to go away. Which means getting off the gravy train. And who wants to both be ostracized and lose a fat income?
Doug: I did, and I liked it. That was a very good interview. How rare to have a conversation with a university economics professor and have it not only make sense, but be entertaining.
L: It was fun. But that's exactly what he said: "My credentials are worthless."
Doug: [Laughs] That's one of the many reasons why I like Walter; he's not only extremely smart, but very intellectually honest. He looks at reality and calls it the way he sees it, no matter how politically incorrect. That's immediately obvious to anyone who reads his book Defending the Undefendable, which is a hoot; it's like hitting someone between the eyes with a mental 2 x 4... one of my all-time favorites.
He recognizes that a Ph.D in economics from Columbia is a sham. I'm not sure if it's worth more or less than a doctorate in political science, sociology, or education. Or a degree from a Bible college, for that matter. Actually, I'd assign a negative value to all of them. They only prove that the recipient was naïve enough to spend the time and money it takes to get them. There's a lot more I could say. Those who are interested can read more in our conversation on education.
L: Right. But back to the matter at hand. You're saying that at least the proximal cause of the big selloff in gold was Europeans getting hit by the demands of their obligations and being forced to hit the bid on gold - or fear of this happening in a big way?
Doug: It's hard to say. I think that's part of the puzzle. Once a selloff starts pushing investors into panic mode, that negative momentum can seem to take on a life of its own, making the downturn longer and deeper than a rational response to the situation merits, or indeed than most people can imagine. In other words, it's a normal - albeit radical - market fluctuation in abnormal times. The sellers are apparently treating gold as a speculation, which is a mistake. They should view it as a bedrock financial asset, something you buy and put away for the very long haul. It's not a trading sardine.
There are, of course, plenty of theories that flood the Internet every time gold sells off when it seems like it should be advancing - mostly conspiracy theories. The proponents don't like it when we call their theories conspiracy theories, but that's what they are. They allege it's all because of the bullion banks, or the Bilderbergers, or the Trilateral Commission, or the Council on Foreign Relations, or the Fed's crash team, or some other nefarious agency. I have good friends who are otherwise quite knowledgeable and rational who sincerely believe that such groups are constantly knocking the price of gold down. I know they mean well, but I have to put these theories in the tinfoil hat category.
L: Some people are saying the Fed hit the market with 500 tons of naked gold shorts. I'm not sure how they could prove that, but the argument that the government wants to see the price of gold go down does have a certain appeal.
Doug: Of course governments want the price of gold lower. They want the prices of everything lower: silver, copper, iron ore, soybeans, corn...everything but housing, which for some reason they want higher. But gold is the least important commodity to these people. Not only don't they understand its monetary role, they don't believe in it or even really care about it.
It's true that the US government tried to suppress the gold price back in the late '60s, back when it was $35. But that was because the Treasury had to redeem its paper money for gold at that price; since 1971 it no longer does that. Actually, if anything, the US should want a much higher gold price now; with a reported 265 million ounces in national reserves, the US is by far the world's largest gold owner.
But the price-suppression theories are quite ridiculous from a practical standpoint as well. The US couldn't even suppress gold's price 40 years ago - when there was only half as much gold in the world as there is now, and twice as much was owned by governments, and it was 1/40 of the price that it is now. And governments were far more solvent than they are today. Yet they are somehow supposed to be able to keep the price of gold down now. So, whatever else it might be, I do not attribute gold's retreat to an official price-suppression conspiracy. The idea gives conspiracy theories a bad name...
L: They have successfully suppressed the price of gold from $250 an ounce all the way down to $1,600 or $1,800 an ounce... until recently.
Doug: [Chuckles] Yes, exactly. Nobody, not even the US government, is stupid enough to fight the biggest bull market in history for the last 12 years. Especially when it's bankrupt; exactly how are the losses being accounted for? And especially when traders talk like high-school girls about who's winning or losing in the markets. They don't get paid bonuses for losing money. I wonder when the conspiracy guys suppose the government will stop trying to suppress the price... at $5,000? $10,000? I wonder why the US would be trying to help the Russians, the Chinese, and lots of other governments buy gold at lower prices? None of this makes any sense.
L: Okay, we may never sort out all the imponderables relating to why, but perhaps the more useful question now is what to do now as gold investors.
Doug: Well, this environment is full of buying opportunities. That said, I'd be careful about backing up the truck and going all in. It's not as though gold has dropped all the way back to where it started its current bull run, back under $300 an ounce.
L: So what should people do?
Doug: They should stick with their plans, buying consistently and lowering their dollar cost average. The lower goes, the more gold at better prices they will own.
L: And that's still a good thing?
Doug: Yes. All these governments around the world are still printing up trillions of dollars' worth of new currency units. At this point, all that new paper money is basically just sitting in the financial system - not entirely, but most of it. At some point it's going to get into the economy. It's going to cause much higher prices for consumer goods. And it's definitely going to create more asset bubbles. One of the most certain of those bubbles is gold. That in turn will create an even bigger bubble in its old friends the gold stocks, which, relative to the price of gold, are about as cheap as they have ever been in history.
As you know, the reason why I like junior mining stocks - well, mining stocks in general, but especially the juniors - is that they are the most volatile class of securities on the planet. It seems to me that everything is lining up right now for a perfect bear-market bottom in these stocks. That's despite the fact that mining is a terrible industry that has gotten nothing but worse over the years.
L: More regulation, taxation, and confiscation.
Doug: That's right. There are thousands of NGOs running around the world trying to put miners out of business, and lots of native tribes who see the recent mining boom as an opportunity to hop on the gravy train and perform a righteous shakedown. That's in addition to the fact that young people see it as a 19th-century choo-choo train business. You have to spend huge amounts up front on an Easter egg hunt to find deposits, then billions more to build a mine with no certainty you'll ever get even a return of investment - forget about return on investment - many years later. Plus the fact that the world has been picked over for both large and high-grade deposits. It's a horrible business. Despite these things - or in some ways because of them, actually - I think there's going to be a super bubble in mining stocks. Which means a fantastic opportunity for those with the courage to buy now, because true market capitulation is shaping up in the sector, as we speak.
L: Is there a price below which you would advise throwing caution to the wind and going all in?
Doug: No. Almost no matter how low it goes, it can always go lower. If it dropped below $800 or $900 per ounce, that would be below the average cost of production today, and would rationally signal that gold would have to rise eventually. But the new supply of gold is unimportant to moving its price. About 80 million ounces are mined annually these days, but there are about six billion ounces estimated to remain above ground. So supply only increases about 1.3% per year - it's fairly trivial, especially after industrial consumption. What determines the price is the desire of current owners to buy, hold, or sell it. It's not like wheat, or even copper, where new supply is critical.
So, no; if the negative momentum were strong enough, it could fall well below the cost of production. I'm not saying I think it will go that low, just that the only point at which it can go no lower is zero. Now, I don't expect it to drop much more, and I'd be very surprised at a drop below $1,000 an ounce, but there is no law of nature preventing it from doing so. All markets fluctuate. People who get panicked are overcommitted... or maybe they shouldn't be in the market because they're not psychologically suited for it. The problem is that government currency debasement practically forces everyone to be in the market, just to try to stay ahead of inflation.
You can't time market bottoms, but you've got to play the odds. If I were going to sell anything now, I wouldn't think of selling my gold or gold stocks - as we said already, I'm a buyer today - but I would absolutely sell any government bonds, if I hadn't been paying attention and still owned any. I'd also get out of most common stocks, which are very overpriced, based on very unsound economic fundamentals.
L: On the other hand, you say that all these trillions of new currency units are flooding the market and have to go somewhere - clearly a lot of them are going into stocks. We just saw that in Japan, with the government announced it would be printing a lot more yen, and the same thing sure seems to be happening on Wall Street. This can be a new super-bubble forming in stocks; might a speculator not want to buy before that happens?
Doug: Well, that might work, at least if you buy the kind of stocks Warren Buffett buys, as they represent ownership in real productive assets. But that's a bubble that could pop at any time, and I view it as extremely high risk. I want to re-emphasize that we're just in the eye of the biggest financial and economic hurricane in history. The key in the Greater Depression is first and foremost to keep what you have. That's not going to be easy.
L: All right, I understand - the precious metals remain my favorite investment as well. But last week Walter Block said that as much as he likes gold for similar reasons, he hesitates to recommend buying it because it's subject to confiscation by desperate governments. It happened in the United States in the 1930s, by Executive Order 6201, issued by FDR.
Doug: That's why I have always recommended internationalizing one's assets. No place is perfect, no country on earth is completely safe, but you can mitigate political risk by distributing your assets across a variety of jurisdictions. Political diversification makes more sense than ever today.
Bluntly: all investments are dangerous these days. There are very few bargains anywhere, in any market, in any country. Governments around the globe are completely out of control - there is nothing so low that they will not stoop to it. They are predators, they are desperate, and they are hungry.
Oblivious people, mostly untraveled and unsophisticated US tax slaves, argue that one should not diversify internationally, believing that foreigners are more likely to steal from them. The amount of fear and antagonism that some quarters of the populace have toward libertarian ideas is actually quite disturbing. The people who think this way generally have the same attitude that medieval serfs had who could not be persuaded to go further than ten miles from their home towns, because they had heard that they were dragons over the hills. I pity the fools. They don't realize that their main danger is from their own government, which believes it owns them.
This is true of all governments, but most governments are generally not aggressive towards tourists. Tourists are treated as honored guests who come and spend money - and can pick up and leave if offended. Citizens, on the other hand, are commonly regarded as milk cows, if not beef cows. And contrary to what most people in the US think, there are countries that are more stable than the US is today. These people are living in the past, thinking that the United States is no different from the America of 50 years ago.
L: I scratch my head about that too. Anybody who thinks that what happened in Cyprus, for example, could only happen in Cyprus, is just not paying attention. It was the European Central Bank's idea to confiscate people's savings, not that of the Cypriot politicians or central bankers. That's First World politicians' thinking these days: "the people's money is our money to do with as we please." People are being naïve beyond reason if they imagine that such a thing could never happen in America.
Doug: That's right. It's been said that officials in Canada and New Zealand have talked about seizing bank accounts, if necessary, just like in Cyprus - and those two have long been considered among the most stable countries in the world. L: Okay, well, Cyprus was a banking destination until a few weeks ago, and obviously won't be again for a very long time. Have your thoughts on where the best places in the world internationalize to changed any in recent times?
Doug: It really depends on who you are, what stage of life you're in, what you want, how much money you have, and so forth. If I were just starting out, for example, I would definitely do Africa. It's not a lifestyle destination, but a raw and rough place where people with courage, brains, and determination can seek and create their fortunes.
If a gracious and pleasant lifestyle were my goal, on the other hand, Europe is still a place to go - it's just bloody expensive. And the culture has been totally corrupted by ingrained socialist ideas, high taxes, onerous regulation, and extravagant welfare programs. The politics there will likely become even worse in the future, until the place collapses economically or has another war. I've lived in several countries there, but it's not for me.
I'm a big fan of the Orient, as you know, because that's where the future lies. The problem with the Orient, however, is that unless you were born there you will always be an outsider, regardless of how welcome a guest you may be.
So I remain a fan of Latin America. I spent almost all of my time these days in Argentina and Uruguay. Both are quite similar to Europe culturally, but with much lower population density. Also, they won't be on the front lines of the ongoing war with Islam. Of course, they both have completely insane governments - but that's true of most everywhere today. I'm here for the lifestyle, not to do business. From that point of view, it's impossible to beat them.
L: So, suppose you bumped into one of our readers who had just read our past interviews, and wanted some advice on the first steps to take to internationalize his or her life. What would you say?
Doug: The first and most important thing is to uproot and destroy any remnants of medieval serf thinking you may have lurking around in the crevices of your mind. Second is to open a bank account or a brokerage account in some country - any country that you like spending time in and has reasonable banking laws - where you are not a citizen/resident/ milk cow. This is both hard and getting harder for people carrying US passports, but it's very important and well worth doing. Political diversification is even more important than investment diversification at this point.
Just start traveling. Explore the world. Look for countries you truly enjoy, that are friendly to foreigners, and are open to investors - especially as regards real estate.
It turns out now that the recent 'journalistic coup' (yeah, right…bridge in Brooklyn anyone?) revealing the identities of hundreds of thousands with accounts and companies registered in tax havens seems indeed part of a concerted campaign by the eurocracy to utterly destroy what is left of financial privacy in the name of grabbing more loot for governments. As we have hopefully demonstrated in our previous article on the topic – or rather, Dan Mitchell has demonstrated in the presentation which we included – tax havens actually support growth in developed nations. Money that is deposited there is not just lying idly in vaults. It is as a rule reinvested in developed economies.
However, the eurocrats in their vast economic illiteracy are implacable: as Der Spiegel reports, the European Union Tax Commissar Algirdas Semeta (the title 'commissioner' seems an unnecessary euphemism) wants to step up measures against low tax jurisdictions and intensify the international 'information exchange' between governments about the financial matters of their citizens. Private wealth appears to be increasingly treated as though its possession were merely a temporary 'grant' by the State, instead of representing the fruit of people's own efforts to do with as they deem fit. The EU commission complains about the EU 'losing € 1 trillion per year to tax dodging'. This number was just pulled randomly out of a hat we think, but we may admit that a lot of tax revenue is indeed 'lost' in the EU. Europe's shadow economies are huge – and for a very good reason: taxes areway too high.
Has anyone ever heard that low tax jurisdictions have problems with 'tax dodgers'? Moreover, is there any proof that the citizens of low tax jurisdictions are somehow unhappy or worse off because they can keep more of their hard-earned funds? The reality is of course the exact opposite: low tax jurisdictions are among the most prosperous places on earth. So what exactly is the argument for 'harmonizing' the whole world according to the precepts of the governments imposing the highest taxes? What social benefit is about to be accrued?
Herman van Rompuy meanwhile gives us the usual spiel with which increasingly autocratic and rapacious governments try to defend their tax grabs and the destruction of all financial privacy – namely that it is 'only fair' (incidentally, note his remark about the 'political momentum' that must be 'seized' and that was evidently artificially created by the aforementioned 'scoop', which in turn can only have been provided by a State actor).
“We must seize the increased political momentum to address this critical problem," Herman Van Rompuy, who chairs meetings of EU leaders, said in a statement broadcast on the Internet.
"Tax evasion is unfair to citizens who work hard and pay their share of taxes for society to work. It is unfair to companies that pay their taxes – but find it hard to compete because others don't."
If Mr van Rompuy – whose entire quite generous salary and perks are by the way paid for by the tax slaves – wants to know what is really 'unfair', then he should consult the following table, which reveals where in Europe people work largely for themselves and where they work mainly to keep people like him clothed, housed and fed:
The portion of the year the average citizen must work in various countries before a single cent of his earnings actually belongs to him and not the State.
As Murray Rothbard writes in 'The Anatomy of the State':
“The great German sociologist Franz Oppenheimer pointed out that there are two mutually exclusive ways of acquiring wealth; one, the above way of production and exchange, he called the "economic means." The other way is simpler in that it does not require productivity; it is the way of seizure of another's goods or services by the use of force and violence. This is the method of one-sided confiscation, of theft of the property of others. This is the method which Oppenheimer termed "the political means" to wealth. It should be clear that the peaceful use of reason and energy in production is the "natural" path for man: the means for his survival and prosperity on this earth. It should be equally clear that the coercive, exploitative means is contrary to natural law; it is parasitic, for instead of adding to production, it subtracts from it. The "political means" siphons production off to a parasitic and destructive individual or group; and this siphoning not only subtracts from the number producing, but also lowers the producer's incentive to produce beyond his own subsistence. In the long run, the robber destroys his own subsistence by dwindling or eliminating the source of his own supply. But not only that; even in the short-run, the predator is acting contrary to his own true nature as a man.
We are now in a position to answer more fully the question: what is the State? The State, in the words of Oppenheimer, is the "organization of the political means"; it is the systematization of the predatory process over a given territory. For crime, at best, is sporadic and uncertain; the parasitism is ephemeral, and the coercive, parasitic lifeline may be cut off at any time by the resistance of the victims. The State provides a legal, orderly, systematic channel for the predation of private property; it renders certain, secure, and relatively "peaceful" the lifeline of the parasitic caste in society.Since production must always precede predation, the free market is anterior to the State. The State has never been created by a "social contract"; it has always been born in conquest and exploitation.
(emphasis added)
Rothbard once stated the above somewhat more succinctly by exclaiming: “The State is a gang of thieves writ large!”.
In a great number of EU nations, the illusion that everybody can live at everybody else's expense continues to prevail, but consider the first section we emphasized above: the parasite can go too far and actually kill its host. That is undoubtedly what is now e.g. happening in France. It bears repeating: “In the long run, the robber destroys his own subsistence by dwindling or eliminating the source of his own supply. But not only that; even in the short-run, the predator is acting contrary to his own true nature as a man.”
That is what is 'achieved' by the Tobin tax, and it will be a major unintended consequence of the drive to eliminate financial privacy and to put pressure on low tax jurisdictions. The investment funds flowing into Europe from there may well dry up completely one day. We are by the way not at all surprised by the recent ECB finding that Germany's citizens are quite a bit poorer overall than the citizens of places like Cyprus. The table above tells you why that is the case. Incidentally, Germany's so-called 'wise men' now call for the expropriation of all these 'evil rich people' in Cyprus and elsewhere, so as to pay for the bailouts of their governments. In one sense it seems a fair enough demand, since there is absolutely no reason why German, Dutch, Finnish (and so forth) tax payers should bail them out. On the other hand, when governments go bankrupt, it is probably best to just let them announce their insolvency as quickly as possible and be done with it; after all, they cannot hope to create any improvement for society by forcibly robbing people who had absolutely nothing to do with their bankruptcy. Their creditors meanwhile lent them money voluntarily – even if they wrongly assumed to be 'safe'.
Conclusion:
Let us not forget, officially, the State 'works' for society, not the other way around. Therefore, what is good for society must be the focus, not what is good for the State.
In olden times, the heads of kings tended to roll when they pushed taxes above 10%. Peasant revolts and similar unpleasantness were invariably the outcome. Meanwhile, it is not at all clear to us what 'services' citizens who must work for the State's coffers for half a year or more actually get in return that outweigh the attendant difficulty to grow the economy and private wealth. If governments are not careful, more and more of society's most productive members will either simply pack up and leave (France is subject to such a drain of its best and brightest) or simply 'go Galt' on them.
The bigger the real-life problems, the greater the tendency for people to retreat into a reassuring fantasy-land of abstract theory and technical manipulation.
Many people have little or no understanding of what is presently taking place in Europe. This is because it is reported nowhere, discussed in public by no one and carefully hidden in the data supplied by the European Central Bank.
What I will discuss today is the prime mover, in my opinion, of the destabilization of the European economies and yet, like the debt to GDP ratios on the Continent; just because it isn’t counted does not mean that it does not exist. I will endeavor to explain it as simply as possible.
A bank in some European country such as Spain lends money but the collateral, Real Estate or commercial loans, are going bad. The bank then securitizes a large pool of this collateral and pledges it at the ECB to receive cash. In many cases to take the pool the country has to guarantee the debt. So Spain, in my example, guarantees the loan package which is then pledged at the ECB and is a contingent liability and which is not reported in the debt to GDP ratio of the country but nowhere else that you will find either. “Hidden” would be the appropriate word.
Then as time passes the loans get even worse so that the ECB demands cash or more collateral because they will not be taking the hit; thank you very much. The bank cannot afford to post more collateral so that the country, Spain, must post the collateral and add an additional guarantee for the new loan or they must post cash which is oftentimes the case.
Consequently as time passes and more cash has been spent the country, Spain, begins to run out of capital and the 10.6% deficit figure, that Spain announced recently, is not anywhere close to the actual reality so that they will get forced to officially borrow more money from the ESM as the sovereign guarantee of bank debt becomes unsustainable.
What is happening is then becoming clearer as the nations of Europe are running out of capital as they endeavor to support their banking institutions. The breadth and depth of this problem is nowhere to be found but the effect is unmistakable. The European nations are going bankrupt.
The problem is that Europe pretends to be asleep. The difficulty then is that you cannot wake them up.
The longer that time passes; the worse the situation. The countries cannot afford to pay their known bills. The banking crisis worsens. The debt at the ECB must get paid which worsens the finances of the sovereigns. It is a death spiral unless the economies pick-up and experience real growth which is just not happening. Soon the problems will become bad enough that they will hit the fan once again and this time; there will be real Hell to pay.
You can expect this for Spain, Greece, Portugal, Cyprus, Slovenia, Ireland et al and in short order. I have used Spain as the example today because their stated 10.6% economic decline is only a fraction of their real issue. Again, what is not counted or what is not stated does not ease the burden of what must be paid. They may proclaim fantasy but they are living in reality. The famous windmills are becoming unhinged.
I have no issue with myths. I just have difficulty when governments fly them as banners of truth.
Normally, your Captain doesn’t have a lot of trouble with an issue of The Privateer. There is not much in the way of revision and seldom if ever anything in the way of re-writing necessary. After doing it in this newsletter for almost thirty years, a certain amount of facility in putting one’s thoughts into words can hardly be avoided. We seem to get it pretty nearly right, at least to our satisfaction, the great majority of the time.
This issue is different. That’s inevitable, since it is the last issue of The Privateer we will write. Something called “writer’s block” - which we thought we had conquered years ago - has come back to bite us in sitting down to write this issue. We’ve already had to start over twice, not being satisfied with our original effort, and that is unprecedented. The essence of the matter is that it is hard to know just what to say.
With the partial exception of the brief period of the fall of the Soviet Union and its puppet states in 1989-1991 - two things have not changed over the whole history of The Privateer. One is the principles of both politics and economics which really matter. The other is the determination of all those who ignore these principles to squash any attempt to discuss them. The Privateer has been discussing them ever since we began. In what follows, we will discuss them again.
The Baseline Is You:
We use the word “you” here in the “royal” sense. The “you” includes the person who is reading these words. It also includes the person who is writing them. And it includes everyone who has never and will never read an issue of The Privateer. In sum, it includes everyone, but each standing as an individual upon their own two feet and facing the world out of their own two eyes. The most fascinating thing about converting our thoughts into words every two weeks is the simple fact that the most important thing in the world is ideas. Most people who take ideas seriously have at one time or another looked back over the course of history and chosen eras in which they would have liked to have lived. The more seriously they take ideas, the more selective they are about those eras. But in all cases, the chosen eras are the ones in which the exchange of ideas AND the debate over conflicting ideas was at its most vibrant.
The sad state of our current era is that it is one in which the exchange, discussion and debate of the ideas which MATTER is at a low ebb. The hallmark of any age of vibrancy and prosperity is the seriousness with which ideas are taken. The pesky problem with taking ideas seriously is that there is no way to do it except to think for oneself. Those who actually originate ideas are a tiny fraction of any population. Those who originate ideas with intellectual honesty and strive to present them with the utmost clarity are a tiny fraction of that tiny fraction. But everyone has the capacity to examine ideas and to accept or reject them. The extent to which that process takes place is what matters.
As you can imagine, we have been inundated with emails since we published our “closing down” letter along with the previous issue of The Privateer. We would be hard pressed to find a sour note struck anywhere in any of them. The aspect of all this which has gratified us the most is the one quality that was mentioned above all others by you, our subscribers. That was the clarity with which we present our arguments and analyses. We do not claim to have originated any new ideas over our publishing history. We do claim to have presented the ideas we have accepted and the PRINCIPLES behind them as honestly and clearly as we possibly can. There is no other honest way to communicate. There is no other honest way to persuade other people that the ideas being presented are worthy of their serious attention.
For years, one of the “catch phrases” we have used on our website is: “We have ways of making you think!” Strictly speaking, that is not true. The one thing which CANNOT be forced is the working of the mind of another person. But we are sure you have noticed that the greatest inducement to thought in others is the clearest exposition of what one would like them to think about. Many Americans, especially young Americans, were treated to an example of that last year in the courageous campaign of Dr Ron Paul.
Higher Learning?
The US and the rest of the “developed” world are (at great and ever-increasing cost to those who receive them) churning out more holders of university graduate and post-graduate degrees than ever before in history. Yet the quality of teaching - and learning - has sunk to abysmal depths. In January 2013, the Huffington Post put up a test for eighth graders (age 13-14) on their website. Innocuous, you might say. The difference was that this test was administered - not in 2013 - but in 1912. Most post-graduate students today could not pass it. The test didn’t ask for opinions or interpretation - it asked for knowledge - of a very high order. Yes, high school students 100 years ago were “entitled” to their opinions. But they could not expect their opinions to be taken seriously unless they could show that they had the requisite knowledge to form them in the first place.
No such demonstration is required today, especially from those who are touted as the “opinion makers”. If you want to know why the United States was a comparatively FREE country in 1912 and why it is not today, the difference in what very young people were expected to KNOW then and now goes a very long way in explaining the difference. A century ago, a far larger percentage of the population was equipped to identify NONSENSE when they saw or heard it than is the case today. This is not a case of “dumbing people down”, it is a case of cutting off free and honest debate about anything which truly matters.
The Baseline Of Economics - And Politics
We wrote this stuff about twenty years ago. We put it up on our website when it was first uploaded to the Internet in 1995. We don’t think it is necessary to change a word of it, so we won’t. Here it is:
“One Man Or Woman In Nature:
The best way to reach an understanding of the principles of economics, or politics, or anything else which involves the interaction of people, is to start by taking all the other people out of the picture.
All clear thinking about these problems begins with the idea of one man or woman in nature. Or, to put it another way, imagine yourself in the shoes of Robinson Crusoe.
Starting from such a situation makes it far easier to see the fundamental and irrefutable principles of economics. Here they are:
TANSTAAFL: (There ain’t no such thing as a free lunch!)
No one can consume more than he or she has produced.
You don’t get any if there ain’t none.
Don't eat the seed corn.
After food, shelter, and clothing, the most important economic good is TIME!
All productive work begins between the ears.
With more than one person (it makes no difference if it's six or six billion) in the picture, here are the fundamental and irrefutable principles of politics:
- Everyone has the right to life and liberty.
- You have a right to pursue happiness - there's no guarantee that you'll catch it.
- The payment for successful effort is ownership.
- Both parties must benefit or no voluntary exchange will take place.
- There is no such thing as the ‘right’ to anything produced by another person's effort.
That's all there is to it. Just as the highest mathematics are built on the fact that 2 + 2 = 4, economics, politics, and finance, are built on these principles.”
We hold that all of the principles stated above are irrefutable. The beauty of starting any study of economics with one man or woman in nature is that the principles stated are obviously true in that context. Please note that “rights” are not mentioned in the economic context because “rights” only pertain in a political context - a context which involves more than one person. If there are such things as political “rights”, there must also be such things as political “wrongs”. A glance on what is going on around you, wherever you live, is quite sufficient to demonstrate that there are many such “wrongs”. All of them are perpetrated by governments. And all of them involve the use of force - actual or latent. As Ayn Rand put it a long time ago: “The precondition of a civilised society is the barring of physical force from social relationships.”
In a civilised society, there is no such thing as the “redistribution of incomes”. Nor is there any such thing as “entitlements”, the very concept being an insolent negation of politics. In a civilised society, the concept of government debt is a contradiction in terms because a government has no way to service or repay that debt other than to use force to extract the means from its citizens. A civilised society is one in which the atrocities which have been perpetrated on the financial “markets” could never have taken place because the government would not have the means, or the “power”, to bring them about. If your Captain lived in a civilised society, he would have had to take up another line of work. So would a lot of other people.
All these things are seen today as being radical if not revolutionary, not to mention being “politically impossible”. In reality, they are simple statements of fact. They are obvious truths.
A World Which Never Grows Up:
These are two of the most famous quotes which have come out of the mouth of any politician in recent years. Both of them were said by Jean Claude Juncker - the prime minister of Luxembourg:
“When it becomes serious, you have to lie.”
“We all know what to do, we just don't know how to get re-elected after we have done it.”
Mr Juncker knows whereof he speaks. He is the longest serving head of government of any European Union state and the longest serving democratically elected current head of any government in the world. On top of his duties in Luxembourg, he was president of the Eurogroup from the creation of the semi-permanent position in 2005 until earlier this year. He is a very experienced politician. We don’t know if Mr Juncker actually knows what to do or not. We only know that he hasn’t done it, because he keeps getting re-elected.
Economic interventionism requires a welfare state in order to “justify” itself. Any government sells the notion that it should “run” the economy by redistributing what is left after it has met its own (inexorably rising) costs back to the public. Before the industrial revolution, this was done under endless variations of what the Romans called “bread and circuses”. The modern “welfare state” goes much further than this. To quote part of FDR’s state of the union message from 1941, it holds out the promise of “freedom from want” and “freedom from fear”. In return, the people are merely expected to give up FREEDOM.
There is another American statesman, this one worthy of the name, who made the definitive comment on this subject long before Mr Roosevelt got up in Congress in 1941. In 1775, in preparation for a proposition which he put before the Pennsylvania assembly, Benjamin Franklin said this: “They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety.”
Wherever you look in the world, those who HAVE given up essential liberty to obtain a little temporary safety have neither. The only way to make provision for the latter state is to regain the former state. But any moves towards this goal, according to so experienced a voice as Jean Claude Juncker’s, are politically impossible. Those who genuinely advocate it would either never be in a position to run for office or would be devastatingly defeated if they did get into such a position. Ron Paul’s run last year is proof of that.
A Plague Of Vested Interests:
In property law, the term “vesting” means to give an immediately secured right of present or future enjoyment to a given asset or item of wealth. In inheritance law, a holder of property “vests” this property in his freely chosen heirs when he lodges a duly signed and witnessed will. His heirs therefore have a vested interest in his property and will receive it after his death according to the terms of the will.
The concept of a vested interest is vital in a free society because it protects property beyond the lifetime of the person who holds it by assuring that it will be “distributed” according to his wishes. The tragedy of modern politics is that this concept has been turned on its head. Today, all of those who are recipients of wealth or claims to wealth taken by force (or created by fraud) by the government are said to have a “vested interest” in the power of that same government to continue to “distribute” it. A government with such power cannot and does not protect property or those who hold it. It has been well said by many people that without property rights, no other political rights are possible.
Governments have an obvious interest in the maintenance and increase of their power. Their subjects do not, even though most of them think they do because they have become confused in the process of swapping their freedom for what they think is their “safety”. More and more of these subjects are slowly and painfully awakening to the fact that old Ben (Franklin) was right. They have proved themselves undeserving of freedom or safety and have ended up with neither. A “vested interest” in the power of government to redistribute property guarantees an end result where there is no property left to distribute.
That’s pretty obvious when you think about it, but most people don’t bother.
Financial Analysis In One Lesson:
Here is something else which we wrote about 20 years ago and has been up at our website since 1995:
“We hold that the fundamental reason behind the present chaos in global relations, in trade, in financial interactions, and in markets themselves is an ‘absence’. What is absent, or missing, is the freedom to choose and act, the security of private property, and the use of sound money. That is the fundamental premise on which The Privateer bases all its analysis.”
In fact, every historical example of a society or civilisation descending into chaos has been due to an absence of precisely the factors we write about above. In the countless billions of words - in every language - which have been spoken and written about these problems, precious few have homed in on these fundamentals. A century ago, Ludwig von Mises proved conclusively that business cycles and “booms and busts” are an inevitable result of government interference with markets and money. At the same time, the advocates for the establishment of the Federal Reserve were talking about the need for an “elastic” currency to meet the “needs” of business. An “elastic” currency was precisely what von Mises pointed to as the fundamental CAUSE of the business cycle. Yet is was that same “cycle” that the Fed was supposed to banish.
It is a trivial observation to point out that von Mises was right and the Fed is wrong. The evidence is too overwhelming to need sifting through. Back in 2012, in our Early September Issue (Number 711), we quoted Doug Casey on precisely this subject: “There has been way too much concentration on the financial markets over the last 50 years. ...22 percent of the US economy is in financial services. ...In a sound economy, the financial sector would be tiny.”
The fact is that the financial sector is slowly swallowing the entire economy. As the US Dollar and the rest of the world’s currencies become more “elastic”, the financial markets become an ever more dangerous “substitute” for the economy - the production of real WEALTH. A century ago, the financial markets were seen as being the playthings of the rich. The rest of the population did not indulge. That was not because they couldn’t afford to. It was because they did not see such antics as being necessary. They relied on personal freedom, property rights and sound money. That was all they needed to “get ahead”.
Today, the financial markets are STILL seen as the playground of the rich. But now, the rest of the population sees themselves as having no choice but to “indulge”. In a situation where the government has first claim on their liberty, their freedom and their money, they have no confidence of “getting ahead” in the dwindling portion of the economy which is still devoted to the production of real WEALTH. Meanwhile, the “business cycle” as fueled by the Fed and its fellow central banks has pulled the standard of living that Americans once took for granted right out from under them.
Revulsion over the state of the financial system and the financial markets is growing all over the world. So is anger over the impossibility of keeping up with the cost of living by means of simple saving. The problem is that most people today cannot imagine a situation in which “the financial sector would be tiny” any more than they can imagine a world in which the government did not have first claim over their property and they walked around with actual Gold coins in their pockets as money. That was the state of the world in which the Fed was born. It will not return until the Fed and its fellow central banks are given a decent burial.
Meanwhile, the financial markets and the financial sector have taken over the task of what is called “wealth creation”. What was once prosperity has become what is called “economic growth” - with the “growth” being measured exclusively by the amount of money being pumped into the system. And the more “money” that IS being pumped into the system, the more impoverished those who confuse it with wealth become.
The acme of ALL financial analysis is to assess the quality of the money that stands as the foundation of any conceivable financial system. The antithesis of financial analysis is to clamor for ever greater quantities of “money for nothing” as the only means to stave off economic implosion. There is no need to “analyse” REAL money. Supply THAT, and the financial markets can take care of themselves.
To Rule Or Be Ruled?
This has always been the fundamental problem because it has always been held up as the fundamental choice. The vast majority of people today and at every stage of history have taken it for given and granted that “somebody” has to RULE. Behind all the justifications for all the forms of government in the world today is the implicit (or sometimes explicit) assumption that people must be told what to do with their lives.
When we speak of a dictatorship or a totalitarian state, we speak of a specific group of people who RULE.When we speak of a ballot box and supposedly contending political parties, we speak of the party in POWER. A totalitarian government rules by means of permissions by setting up a situation where any action which is not specifically permitted by those in power is PROHIBITED. The subjects in such a state can only do precisely what they are told to do and must do it when they are told to do it. Anything else is against the law. In the so-called “free” nations, those who prevail at the ballot box used to be called elected representatives in the days when the constitution - the laws which GOVERNMENTS must obey - still held sway. In more recent times, the label has changed to the “lawmakers”. Once that changeover was cemented in place, the laws which governments must obey were steadily eroded. Today, they have all but ceased to exist everywhere. The rule of law has reverted back to the rule of men.
The term “democracy” is nowadays everywhere revered as the preferred synonym for the term “freedom”. The problem is that democracy - literally translated - means majority RULE. The implication is that the rule is limited. The dictionary definition of “rule” in a political context is: “To exercise control, dominion, or direction over.” That is the opposite of freedom, which is defined as the ABSENCE of coercion.
The USA was established as a republic. As stated by Isobel Paterson in her book - The God Of The Machine - “A republic signifies an organisation dealing with affairs which concern the public, thus implying that there are also private affairs, a sphere of social and personal life with which government is not and should not be concerned.” When Benjamin Franklin was asked about the type of government that had been decided on at the Constitutional convention, he replied: “A republic - if you can keep it.”
The US has not kept it, of course, and neither has any other nation. The false choice remains - do you want to rule or do you want to be ruled. The only way out is to throw out the political concept of RULE altogether. There is a time in our lives when we do need someone “to exercise control, dominion or direction” over us. That time should end when we assume the mantle of being ADULT human beings. An adult human being rejects the role of both ruler and ruled.
The Most Powerful Impediment To Change
If you think back to your childhood, can you remember not wanting to do something that your parents said that you had to do? Can you remember asking WHY you had to do it? Can you remember your parents striving to answer your question but you stubbornly refusing to accept their explanations because you didn’t WANT them to be true even though you knew that they WERE true? Did it ever come to the point where your parents threw up their hands and fell back on the old standby - “Because I say so!”?
Have you noticed a similarity between those old domestic dramas and the way our “leaders” govern us today? There are many people who don’t WANT the fact that one must produce before one can consume to be true. They don’t WANT the fact that every new “Dollar” the central bank produces out of thin air erodes the purchasing power of every “Dollar” they have spent their lives earning to be true.
They don’t WANT the fact that they are not “entitled” to anything that the government might “redistribute” to them to be true. In short, they don’t WANT the fact that they have never progressed from their childhood rebellions to be true. It’s much safer to live in a world where you are told what to do. After all, doesn’t everybody?
Children may not like it, but they expect to be “governed”. An adult is capable of governing him or herself without the aid of any outside agency. As much as many of us might wish it were true, there is no halfway house. That is why any nation actually does end up with the government its people WANT - and deserve.
Feel Your Pain 
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