Fascism by any other name… something very ugly this way cometh…

http://www.cbsnews.com/blogs/2009/11/09/taking_liberties/entry5595506.shtml?tag=mncol;txt

This excerpt says it all:

“In a case that raises questions about online journalism and privacy rights, the U.S. Department of Justice sent a formal request to an independent news site ordering it to provide details of all reader visits on a certain day.

The grand jury subpoena also required the Philadelphia-based Indymedia.us Web site “not to disclose the existence of this request” unless authorized by the Justice Department, a gag order that presents an unusual quandary for any news organization. “

First they came for the communists, and I did not speak out—because I was not a communist;
Then they came for the socialists, and I did not speak out—because I was not a socialist;
Then they came for the trade unionists, and I did not speak out—because I was not a trade unionist;
Then they came for the Jews, and I did not speak out—because I was not a Jew;
Then they came for me—and there was no one left to speak out for me.

Got gold?

Social unrest… simmering nicely…

http://www.alternet.org/world/143813/as_foreclosure_nightmares_increase%2C_will_more_homeowners_pay_off_their_bankers_in_violence

“Anger and discontent are reaching a boil as a lethal combination of economic corruption and political collusion are deleveraged across the United States.”

And you ain’t seen nuthin’ yet…. tip of the iceberg this is…

http://guidoromero.wordpress.com/2009/10/19/the-next-world-war/

War by 2012/2015

I’m telling you again… (your pension and insurance contributions)

As I have written in several previous posts, the most recent report issued by the Bank of International Settlements (the banks’ bank) identified in excess of $500 Trillion Dollars in financial obligations (derivatives) worldwide.  These obligations are supported by a global economy that at one point was worth in the region of US$50 Trillion and is now dropping very fast.

So, global GDP is dropping fast but obligations worth easily 10x world GDP are still outstanding at the original value.

Who, you may ask is at the center of this web of derivatives?

http://www.cfo.com/article.cfm/14113089/?f=rsspage

“Concentrated, in fact, among a mere handful of financial-services giants. About 80% of the derivative assets and liabilities carried on the balance sheets of 100 companies reviewed by Fitch were held by five banks: JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley. Those five banks also account for more than 96% of the companies’ exposure to credit derivatives.“

The Fitch study concerned specifically the US market. However, other than the fact that the US economy makes up 70% of global GDP, I can guarantee that other major banks world wide are into derivatives up to their neck and in a deflationary environment, those obligations are going to come due sooner or later.

The problem of course, is that when the obligations are triggered, the asset base of companies will be greatly reduced in value making servicing those obligations next to impossible.

This is the reason governments in the West have shoveled untold billions into banks coffers.

The more astute observers amongst you will realize that our governments have shoveled “billions” into banks but the obligations run into the “trillions”.

This is where a bit of slight of hand comes to the rescue of government.

Government is supporting the banks in two major ways. On one hand, governments have appropriated public funds and given them to the banks. This was the visible part of government support and the officially sanctioned extent of the involvement of government. On the other hand, governments are allowing banks to disregard a swathe of accounting rules the application of which would render them immediately bankrupt. As banks are allowed to appear solvent, they also retain their investment grade rating.

And here is the slight of hand.

As solvent entities with investment grade rating, banks attract a large portion of institutional money like pension and insurance funds. Thus, the money you think you are paying towards your pension or life insurance for example, is invested by your fund manager in the shares of banks.

Thus, the government shoveled tax payers billions into the coffers of banks and then enabled the banks to attract billions more of taxpayers’ money.

Finding out that governments are also doing secret deals with banks is par for the course. We have a $500 Trillion problem on our hands that we are trying to solve with a few dozen Billions.

Accumulating gold bullion is looking every day better.

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6907889.ece

Church urged to publish advice that led to 400M Pound stock market gamble

The thing about deflation is that it is an egalitarian dynamic. It spares absolutely nobody including the servants of your chosen God.

If you are not in debt, you should embrace deflation and look forward to a much more wholesome and comfortable life style.

http://www.guardian.co.uk/business/2009/nov/08/pensions-crisis-church-of-england

And, by the way, I have the feeling the Church has another thing coming too.

You may recall that governments in the West are allowing banks to bypass certain accounting rules the application of which would cause them to declare immediate bankruptcy. This subterfuge means that banks can appear sound from an accounting point of view thus they can maintain investment grade ratings. As sound companies enjoying high investment grade ratings, banks also attract substantial investment money from institutions…. like pension funds….or insurance funds…. yours, mine and the church’s as, indeed, Mr. Buffet’s too…

What’s that light at the end of the tunnel you ask… ?

Why inflation leads to concentration of profits in the finance sector

Democracy is the rule by the will of the majority. One of the characteristics of democracies is the decentralization of power so that the power of each entity can be checked and scrutinized by other entities thus no one entity can act unilaterally and independently.

The monetary system however, falls outside the democratic process and is imposed by government.This fact in and of itself is already an aberration as politicians are not at all well versed in economic theories and applications and, even if they were, political considerations would always trump economic considerations. Politicians are politicians because they want to lead a group of people. Therefore, politicians must inherently and by necessity be ideologues manipulators of information. They have no idea of the how and why the economy works or doesn’t work as the case may be and, if they did, populism would overcome any other consideration under penalty of losing the power to lead. The only thing politicians know is that they need money. Lots of it.

Also, not only does government retain the right to impose a monetary system but it also retains the right to manipulate interest rates.

In the West, in a gambit to keep up the appearance of satisfying democratic principles, governments have bestowed the authority to set interest rates and create the currency to an ostensibly independent “authority” that in the USA is the Federal Reserve.

Since 1913 in the USA and then in Europe from 1971 and then gradually around the world, governments have imposed on their societies a “fiat” monetary system.

Fiat money is a construct that has little grounding in reality. Unlike value based money, the creation of a given quantity of fiat money is a deliberate act. One would assume (hope) that this deliberate act would be grounded in economic conditions. However, empirical evidence shows that not to be the case.

Thus the combination of fiat money and democracy can only result in an accelerating inflationary trjectory leading to a final inflationary blow-off phase followed by deflation.

http://guidoromero.wordpress.com/2009/11/07/the-utility-of-a-fiat-monetary-system/

Inflation is not an equitable dynamic. At the outset, the result of inflationary policies will show up fairly evenly across sectors leading to gains in asset prices and wages for all. But as the inflationary dynamic progresses, inflation shows up more in some sectors than in others creating bubbles that eventually burst (tech bubble, housing, currencies…). In a fiat monetary context the usual remedy for a bursting bubble is to create more money (liquidity) thus pushing even greater degrees of inflation into the system.

As the inflationary dynamic develops and as bubbles burst along the way, inflation progressively shows up in fewer and fewer sectors until towards the end of the dynamic all nominal gains are concentrated exclusively in the financial sector.

You may wonder why.

Fiat money is a dynamic that is exponential in nature thus limited mathematically. The entity that benefits the most from inflation is the entity that receives the money first. Every subsequent user of the money benefits less and less from the use of fiat money. This is because every additional Dollar bill created devalues all previously created money.

In the USA, the Federal Reserve creates the bills and loans them the the Treasury. That’s right. The money is loaned at interest. Thus, the very instant that a Dollar bill crosses the threshold of the Federal Reserve on its way to the Treasury, it is devalued by and amount equal to the interest rate the Fed charges.

Thus, if someone rustled up all the money in circulation and returned it to the Fed, he/she would still be in debt to the Fed by an amount equal to the interest outstanding on the money that has been repaid….

…

…. can you spot the absurdity… ???

If we return all the money in circulation, we would still be in debt to the fabricator of the currency. However, having now returned all the money, there would be no money left in circulation with which to pay the interest owed…

This is where you would have to sell yourself to the fabricator of the currency and you better hope he’ll have you…

- If the American people (or any other people) ever allow the banks to control the issuance of their currency, first by inflation, and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property, until their children wake up homeless on the continent their fathers conquered. The issuing power of money should be taken from banks and restored to Congress and the people to whom it belongs. I sincerely believe that the banking institutions having the issuing power of money are more dangerous to liberty than standing armies.
(Thomas Jefferson)

- Permit me to issue and control the money of a nation, and I care not who makes its laws. (Mayer Amschel Rothschild)

 

Therefore, towards the end of the inflationary dynamic, all nominal gains are concentrated in the financial sector because it is the entity closest to the fabricator of the currency. Naturally not all in the financial sector profit equally, thus you have your Lehmans and your Washington Mutual sacrificials for example.

 

 

 

 

 

 

 

Has it really escaped you that…

Without counting corporate debt,

- in 1980 we needed $2 Trillion of debt to produce GDP worth $6 Trillion

- in 2008 we needed $13 Trillion of debt to produce GDP worth $6 Trillion

It is unclear to me why or how anyone would think this trajectory is sustainable. If a similar arrangement is not sustainable for an individual household, it most certainly is not sustainable by the government because government finances are sustained by the individual household. How’s that for absurd.

And, incidentally, 2008 GDP is nothing like 1980 GDP distorted as it is by hedonic adjustments and imputations for example, two gimmicks aimed at showing lower inflation in the CPI ( so as to pay less pension increases for example) but higher GDP growth. Gimmicks as I said.

 

 

Sic transit gloria mundi

Or equally apt for the author of the article:

O tempora! O mores!

You pick.

http://www.telegraph.co.uk/comment/columnists/christopherbooker/6521187/The-end-of-the-great-deception.html

 

The European Union has added several administrative and political layers to already over politicized and over administered nations. Think Italy as an admittedly extreme example. If you are a national of Italy, Greece or France, you know what I mean.

And now, European politicians can rightly feel they have arrived.

Excerpts from the article:

“Tomorrow, as the EU’s leaders gather in Berlin to celebrate the end of that wall, they will also celebrate the rise of a new one – a wall they have built around themselves, that separates Europe’s politicians from all their subject peoples.”

The article is more UK centric than European but the ramifications apply to all nations under the European banner.

 

 

The utility of a fiat monetary system

Let’s try a different approach.

In order to be able to do this:

-

-

Government has only two options:

Option 1 – GDP must advance faster than debt (this, incidentally, is the ideal option)

-

-

Since 1980, Federal debt has expanded from roughly $1 Trillion to just shy of $12 Trillion. That is an advance of well in excess of 1000%. But as attested by the above official data, GDP has only expanded from $6 Trillion to just above $13 Trillion. That is an advance of just over 100%.

Thus option 1 is clearly not in play here.

Option 2 – Interest rates must be manipulated lower

-

-

Yup! There it is.

Therefore, just like in a family household, if you want the ability to spend progressively more than the year before, either your salary must increase or you hope for interest rates to drop.

Having retained the exclusive and arbitrary right to manipulate interest rates, government does so with gay abandon… in its own favor.

The trouble with manipulating interest rates lower artificially is that you create dislocations in a number of sectors like pension payments and savings.

One of the ramifications of lowering interest rates is that you encourage corporations to take out loans. This is perceived as a good thing as borrowing and spending on the part of corporations results in increased demand thus increased production hence increased employment.

This is a good thing for as long as the borrowed money is put towards building intrinsic value which is usually the case at the outset of the inflationary dynamic.

However, as interest rates are kept low and manipulated lower still and as government and the corporate sector spend progressively more, the central bank has to keep up with the creation of physical currency. This is what inflation is all about.

Increasing rates of inflation discourage the public from saving. Essentially, inflation erodes the purchasing power of the currency thus as consumer try to find more profitable ways to deploy their savings, they too end up goosing demand. Once again, this is perceived as a good thing by government as more spending will create even more demand, thus more production thus more employment.

As government keeps the pedal to the metal and pushes greater degrees of inflation into the system, the public eventually runs out of savings. This is the point at which any spending in excess of revenue must be met with debt.

At this point you have government, the corporations and society all feeding the debt dynamic.

-

-

Since 1980 household debt progressed from about $1 Trillion to just shy of $14 Trillion… that is a rise of well over 1000%… yet again.

To recap. Today we have Federal and Household debt combined that advanced from about $2Trillion in 1980 to about $26 Trillion today…. whilst GDP went from about $6 Trillion to about $14 Trillion…

You do the math….

So, what is the utility of a fiat monetary system.

Clearly, a fiat monetary system enables government to spend liberally and, seemingly, endlessly. Unlimited spending power means unlimited political and military power thus unlimited power over people and countries.

But even in a fiat monetary system, inflation is not infinite thus spending cannot be either.

Inflation is a dynamic that is necessarily exponential and finite.

-

-

There it is. That’s the multiplier. What this graph shows is the diminishing effect each additional Dollar has on the overall expansion of GDP. Ergo, it shows the exponentiality of inflation whereby you always need more credit and money creation to bring about the same % of GDP expansion. Essentially, for as long as the multiplier is above 1, each unit of currency has a multiplier effect on the overall economy. That is because each coin or each Dollar bill can be used several times in different transactions.

But when the multiplier is below 1, additional currency has no effect on GDP expansion.

We can argue as to what the reasons may be for the declining effect of inflation. My preferred theory is that at the beginning of the inflationary cycle there is a legitimate need for seed money to create industry thus employment thus demand. But as you force credit down the throats of corporations and individuals, there is only so much useful and intrinsically valuable investment that can be carried out before all this excess money spills into frivolous endeavors. The fact that industrial capacity utilization though sinusoidal slopes from the upper left to the lower right and is now at around 70% is fairly strong evidence of redundant and unnecessary investment in industry and commerce.

-

-

In a democratic environment, subsequent administrations are loath to have less money to spend than previous administrations so that inflation becomes a perceived necessity. Furthermore, as GDP is the measure against which the success of an administration is measured, if a little inflation gooses the GDP number, then politicians feel that lots of inflation will rightly goose it even more thus bringing them great praise.

Thus, a fiat monetary system in a democracy not only guarantees excess debt and, eventually, the bankruptcy of government but it also ensures that by the end of the inflationary cycle, government is the largest actor in the economy.

-

http://mwhodges.home.att.net/piechart.htm

-

As the largest actor in the economy, the survival of government becomes intertwined with continued inflation. Thus, towards the natural end of the inflationary cycle, government has a vested interest in disregarding the law in an effort to maintain a positive inflationary trajectory.

Thus, the genius of a fiat monetary system that could be employed to fine tune the economy and mitigate the effects of the natural ebb and flow of economic activity is wasted by politicians that act in the only way that a democratic political system ensures they should act; that is, they must be short term greedy opportunists and it helps if they are ignorant to boot.

So the presumed holy grail of politics which is, at least ostensibly, to reach a perpetual high plateau of prosperity and well being is virtually guaranteed never to happen in an unchecked fiat monetary system.

PS

The theoretical solution to our predicament would be the establishment of an enlightened autocracy. However, the historical record shows that this solution too has never brought lasting well being upon any society. Democracy truly is the worst political system except all the others that have been tried. The only saving grace of democracy and a fiat monetary system is that along the way society does truly benefit from advances in technology, science and the arts.

My beef is that it is an integral part of fiduciary duty to look at where we came from and where we are with a constructively critical eye.

Once again however, the historical record shows that the self proclaimed holders of the moral high ground won’t do that and, as they feel power slipping through their fingers to an agitated populace, they will plunge us into a world war.

The state as oppressor

Towards the end of the inflationary dynamic, the state has a vested interest in disregarding the law.

If you’ve read my rants prior to this one, you know that my pet peeve is the monetary system. And although you may sympathize or even agree with my position, what very few of you will agree to is that the monetary system does not only affect the economy but also our social structure and the way we live our lives.

If towards the end of the inflationary cycle you agree that in order to maintain a positive inflationary trajectory government must disregard the law, I am almost sure you may have a harder time still understanding how unconstitutional behavior in matters of terrorism relate to inflation.

http://www.informationclearinghouse.info/article23896.htm

Excerpts from the article:

“Yesterday, the Second Circuit — by a vote of 7-4 –  agreed with the government and dismissed Arar’s case in its entirety.  It held that even if the government violated Arar’s Constitutional rights as well as statutes banning participation in torture, he still has no right to sue for what was done to him.  Why?  Because “providing a damages remedy against senior officials who implement an extraordinary rendition policy would enmesh the courts ineluctably in an assessment of the validity of the rationale of that policy and its implementation in this particular case, matters that directly affect significant diplomatic and national security concerns” (p. 39).  In other words, government officials are free to do anything they want in the national security context — even violate the law and purposely cause someone to be tortured — and courts should honor and defer to their actions by refusing to scrutinize them.”

“Reflecting the type of people who fill our judiciary, the judges in the majority also invented the most morally depraved bureaucratic requirements for Arar to proceed with his case and then claimed he had failed to meet them.  Arar did not, for instance, have the names of the individuals who detained and abused him at JFK, which the majority said he must have.  As Judge Sack in dissent said of that requirement:  it “means government miscreants may avoid [] liability altogether through the simple expedient of wearing hoods while inflicting injury“ (p. 27; emphasis added).”

One of the keys to being able to ride roughshod over standing laws is the ability to escape scrutiny and/or the ability to escape prosecution. The end of the inflationary cycle must inevitably bring about a hardening of the institutions related to security and, gradually, to a militarization of civic institutions such as the police. As that is happening, the state also needs to make sure that whatever standing laws may exist in the land, they may not be brought to bear upon the administration.

Inflation as a deliberate policy is pernicious.

The only reason the government of a nation chooses a fiat monetary system is to have the ability to push inflation (creation of credit and money) faster than underlying economic activity.

Fiat money is a fantastic construct that would allow for fine tuning of the economy and mitigation of the effects of the natural ebb and flow of economic activity.

However, in a democratic context as incumbent administrations necessarily follow one another in the seat of power, fiat money can lead nowhere other than to the permanent expansion of inflation. It could not be otherwise because even assuming that economic conditions should call for reduced spending, no administration would accept to willingly decrease its budget.

The idea to make the central bank independent is supposed to facilitate just that process. As the guardian of interest rates and the fabricators of the currency, the central bank (the Fed in the USA) should act independently and manipulate interest rates according to economic activity.

However, that has never been the case. For whatever reason, central banks are not independent. The Fed certainly isn’t and as the US$ is the global reserve currency, by extension, neither are the other central banks. Certainly not the ones that matter.

Loading …

The only logical reason for any government to adopt a fiat monetary system is so that it may pursue what it perceives is its legitimate raison d’etat. Tragically, the “raison d’etat” relates to the existence of the state which, initially, is pretty much an economic matter. However, as the magic of the inflationary dynamic wanes, la raison d’etat becomes ever more related to physical security.

Arar vs Ashcroft is only the manifestation of the aberration that is inevitable in a fiat monetary system. It’s happened before. We know how it ends.

Global conflict by 2013/2015

Something even uglier this way cometh… (government employment)

You’ve heard me screech that as the inflationary time line progresses government becomes progressively a larger actor in the economy. You’ve heard me wail that at the end of the inflationary dynamic, tax revenue dwindles forcing government to curtail public spending. You’ve heard me lament that as unemployment rises but social expenditure is curtailed, we would reach a flash-point making civil disorder very likely … and you’ve heard me howl that persistent and widespread civil disorder will be further fueled by rising scandals implicating politicians and the power elite leading eventually to the fall of governments across the West…. but that before that would happen, Western governments will engineer a war of global proportions….

Now read this courtesy of the team at Financial Sense (hat tip to Jasper on the VOY forum):

http://www.financialsense.com/Market/wrapup.htm

Significant excerpts:

“As the chart shows us, the current year over year rate of [government payroll] contraction has no equal until we reach back to 1982“

“Although this may not be common knowledge, the bulk of government employees are found at the State and local levels of government. In fact, Federal government employment only accounts for 12.6% of total aggregate government employment as of September 2009-month end. That’s pocket change compared to State and local levels of employment. And of course the current cycle irony is that it’s the State and local governments that are hurting big time under the duress of not only infrastructure, maintenance and support, but pension issues, loss of Federal support payments, etc.“

And then, this pearl with an accompanying chart

“As of now, unfortunately for the US economy as a whole, government employees outnumber US manufacturing sector employees literally just shy of two to one. Now is the rhythm of government payrolls important enough for you?“

This is a pearl because Western economies are largely service based economies. As I never tire to ask, in an economy that is 80% consumption, how much real wealth is being generated?

Essentially, when credit creation outpaces GDP progression by a wide margin (remember that even without considering corporate debt, household and government debt combined since 1980 has expanded 1200%  but GDP has only expanded by 100%) how much intrinsic value is there left in the economy to sustain those people that are losing their jobs?

This is not a question borne of idle curiosity. This is a question the answer to which is vital to understanding why I think we will be thrown into a world war by our “leaders”.

The research published recently indicates that we have entered and are fairly well into a deflationary cycle. I understand that opinions may diverge on whether we have or we haven’t and that’s fine.

However, what I feel is imperative is that all proponents of one type of “flation” or the other sit together and thrash out a hypothetical scenario of what would happen in case the “de” flationists should be right. Only once the perils and dangers of a deflationary outcome are identified and understood can we sit down with unions and economic actors and put forward a coherent argument as to what should be done at personal, household, corporate, union and government level in order to mitigate the repercussions of deflation.

But, for as long as government is hell bent on denying reality, then a world war is pretty much dialed-in.

When I say world war I don’t mean a war as we’ve had for the past forty years in remote backwaters against tin pot governments run exclusively by the armed forces without any sacrifice of the civilian population in the West. I mean a real war where the human and material resources of the West along with Western civilian industry will be marshaled and employed towards the war effort complete with rationing of food and electricity. That sort of war.