Posts Tagged ‘crisis’

Never allow a crisis to go to waste… (Politicians’ misguided propensity to allow crisis to develop if not down right abetting it)

July 5, 2010

Rahm Emanuel famously put into words what every politician since the dawn of man has always known but never dared utter. Never mind that some of the greatest crisis to befall man have been engineered just so politicians could take advantage of the social mood engendered by the crisis. One of the most famous examples of deliberately allowing a crisis to develop that occurred in the recent past is Pearl Harbor of course. Today, after secret files pertaining to WWII have been declassified (over 60 years after the event rather than the standard 30) we know the US administration was aware of Japan’s plans prior to the attack. Nonetheless, mired in a severe financial crisis that bears striking resemblance to the current crisis, the USA as the emerging hegemon needed the crisis in order to galvanize the population for war and at once take care of unemployment, excess debt and excess industrial capacity at global level. The net result is that after horrific bloodshed and overwhelming devastation of the land, not only did the USA emerge as hegemon but suddenly they possessed the only operational industrial capacity that now had to supply the rest of the world with capital and manufactured goods for the reconstruction.

This is the reason politicians love tragedy and crisis because it allows a politician to get spending approved before anyone can even contemplate to ask relevant questions. Questions like: “How did we get into this mess in the first place?”. This is the reason why politicians have no compunction in pushing deficit spending a outrance; those that understand the ramification of constant deficit spending do it because they know that when the monetary system hits the wall, they can always wiggle out of their responsibility by precipitating a crisis. Those that don’t understand the ramifications of constant deficit spending do it because they don’t understand it and think that tax revenue is inexhaustible. Without mentioning that when emergency spending is approved, politicians also get the chance to stuff the new spending programs full of pork for allies, cronies not to mention their own pockets.

The need for a politician to exploit a crisis is rooted in the Broken Window Hypothesis that holds sway with the shallowest and/or the more self serving politicians and that has been debunked as far back as the 1850s. Simple politicians like George W Bush for example were enthralled by fallacious theories that a broken window helps to spur economic activity. Similarly, every politician’s propensity to allow crisis to fester and develop is rooted in the same fallacious thinking. Let something devastating happen so that we can get huge spending programs approved thus stimulating economic activity as well as their own pockets.

http://www.econlib.org/library/Bastiat/basEss1.html

Frederic Bastiat (1801 – 1850)

. The Broken Window
1.6

Have you ever been witness to the fury of that solid citizen, James Goodfellow,*1 when his incorrigible son has happened to break a pane of glass? If you have been present at this spectacle, certainly you must also have observed that the onlookers, even if there are as many as thirty of them, seem with one accord to offer the unfortunate owner the selfsame consolation: “It’s an ill wind that blows nobody some good. Such accidents keep industry going. Everybody has to make a living. What would become of the glaziers if no one ever broke a window?”

1.7

Now, this formula of condolence contains a whole theory that it is a good idea for us to expose, flagrante delicto, in this very simple case, since it is exactly the same as that which, unfortunately, underlies most of our economic institutions.

1.8

Suppose that it will cost six francs to repair the damage. If you mean that the accident gives six francs’ worth of encouragement to the aforesaid industry, I agree. I do not contest it in any way; your reasoning is correct. The glazier will come, do his job, receive six francs, congratulate himself, and bless in his heart the careless child. That is what is seen.

1.9

But if, by way of deduction, you conclude, as happens only too often, that it is good to break windows, that it helps to circulate money, that it results in encouraging industry in general, I am obliged to cry out: That will never do! Your theory stops at what is seen. It does not take account of what is not seen.

1.10

It is not seen that, since our citizen has spent six francs for one thing, he will not be able to spend them for another. It is not seen that if he had not had a windowpane to replace, he would have replaced, for example, his worn-out shoes or added another book to his library. In brief, he would have put his six francs to some use or other for which he will not now have them.

1.11

Let us next consider industry in general. The window having been broken, the glass industry gets six francs’ worth of encouragement; that is what is seen.

1.12

If the window had not been broken, the shoe industry (or some other) would have received six francs’ worth of encouragement; that is what is not seen.

1.13

And if we were to take into consideration what is not seen, because it is a negative factor, as well as what is seen, because it is a positive factor, we should understand that there is no benefit to industry in general or to national employment as a whole, whether windows are broken or not broken.

1.14

Now let us consider James Goodfellow.

1.15

On the first hypothesis, that of the broken window, he spends six francs and has, neither more nor less than before, the enjoyment of one window.

1.16

On the second, that in which the accident did not happen, he would have spent six francs for new shoes and would have had the enjoyment of a pair of shoes as well as of a window.

1.17

Now, if James Goodfellow is part of society, we must conclude that society, considering its labors and its enjoyments, has lost the value of the broken window.

1.18

From which, by generalizing, we arrive at this unexpected conclusion: “Society loses the value of objects unnecessarily destroyed,” and at this aphorism, which will make the hair of the protectionists stand on end: “To break, to destroy, to dissipate is not to encourage national employment,” or more briefly: “Destruction is not profitable.”

1.19

What will the Moniteur industriel*2 say to this, or the disciples of the estimable M. de Saint-Chamans,*3 who has calculated with such precision what industry would gain from the burning of Paris, because of the houses that would have to be rebuilt?

1.20

I am sorry to upset his ingenious calculations, especially since their spirit has passed into our legislation. But I beg him to begin them again, entering what is not seen in the ledger beside what is seen.

1.21

The reader must apply himself to observe that there are not only two people, but three, in the little drama that I have presented. The one, James Goodfellow, represents the consumer, reduced by destruction to one enjoyment instead of two. The other, under the figure of the glazier, shows us the producer whose industry the accident encourages. The third is the shoemaker (or any other manufacturer) whose industry is correspondingly discouraged by the same cause. It is this third person who is always in the shadow, and who, personifying what is not seen, is an essential element of the problem. It is he who makes us understand how absurd it is to see a profit in destruction. It is he who will soon teach us that it is equally absurd to see a profit in trade restriction, which is, after all, nothing more nor less than partial destruction. So, if you get to the bottom of all the arguments advanced in favor of restrictionist measures, you will find only a paraphrase of that common cliché: “What would become of the glaziers if no one ever broke any windows?”


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Greece under EU protectorate…

February 4, 2010

http://www.telegraph.co.uk/finance/economics/7150118/Greece-under-EU-protectorate-as-funds-shift-fire-to-Portugal.html

The article describes what is happening in terms of sovereigns trying to find a solution to their predicament. However, much more interesting are the themes the author touches upon but does not explore further. To wit:

Greece’s labour federation immediately called a general strike for February 24, dashing hopes that Europe’s provisional backing for Greek crisis policies would restore investor confidence.”

Unions, students and all unemployed will fight tooth and nail any austerity measure needed to put things right. As I remarked in many previous posts, over past decades society has developed an acute sense of entitlement vis a vis the state and rightly so. In a fiat monetary system, the authorities will always and everywhere confront a political or economic crisis with increased spending. Since 1913, subsequent administrations in the USA and then gradually in Europe and then the rest of the world, have always and still are resorting to inflation in order to solve any problem real or perceived as it may be. Inflation has thus come to be viewed as the natural state of the world and the state as the natural provider and the problem solver of last resort.

Of course, if you read this blog you will know that government spending can and does palliate the tragedy that is the political process in a society based on democratic principles. But that’s all it can do. Excess spending can only postpone the problem for as long as inflation can be expanded into a monetary system. When inflation hits the inevitable brick wall, then drastic measures are needed to re-create the conditions to allow the inflationary cycle to start again. In the meantime, deliberate inflationary policies pander to interest groups including unions and sundry political interest groups thus fostering an acute sense of entitlement. Thus, when the cows come home and spending must be curtailed, society will resist.

Mr Almunia said concerns have spread beyond Greece to other eurozone countries where public finances are spinning out of control, chiefly Spain and Portugal. “In these countries we have seen a constant loss of competitiveness ever since they joined the eurozone. The external financing needs are quite big,” he said.”

Considering that less than a year ago Almunia was boasting about the presumed commercial and financial advantages of EU membership, this is quite a change of heart. But then again. Almunia contradicts himself week in week out because, once again, political pandering is more important than effective action.

Brussels invoked new EU powers under Article 121 of the Lisbon Treaty, allowing it to reshape the structure of pensions, healthcare, labour markets and private commerce – a step-change in the level of EU intrusion.”

Right there is the more interesting tid bit of info that gets no attention whatever. Remember the Lisbon Treaty? Do you remember that it gave us a whole new layer of politicians that despite not being elected by the people have nonetheless serious executive power? Well there you go. But wait! This is not what is important. If you understand what is going on here, then you surely can understand the degree of political sovereignty we have surrendered to what is for all intents and purposes an entity that is very Fascist in inspiration… and now in deed. The more long range ramification of the Lisbon Treaty (and this so far is only speculation on my part) is the ability for the EU to declare war bypassing all traditional political mechanisms that would necessarily require various levels of approvals from civic and political entities alike.

The EU told Greece to “spell out the implementation calendar of (budget) measures within one month”. Athens must be ready to “adopt additional measures if needed” and to submit quarterly updates.”

So that’s what it comes to; threats. Which begs the question: what if Greece doesn’t play ball? Then what could the EU do? What; we are going to send the army to straighten the country out? What does this threat imply?

The gap between what EU demands and what ordinary Greeks seem willing to accept is so wide that it may prove extremely hard for Mr Papandreou carry the country. The top union bloc said the government had “succumbed to the will of the markets” but would now have to face the stronger will of the people.

The top union bloc, like all unions around the world and particularly in the West (with the exception of Germany) fails to grasp the situation. When the monetary authorities can no longer push inflation any farther, there is no money left for political pandering. Certainly there is no money left for political pandering at the level of the great unwashed. And this is what is going to light the tinderbox. The unemployed, the homeless, students, the elderly, the retired and, at some point, even the employed will notice that although we are contributing billions to save the banks, we have no money left for society… that is the point at which the masses begin to get twitchy… that is the point at which, Western governments are going to need a drastic solution…. which speaks to the whole point of this entire blog…

Our options are few and well defined. In order to avoid doing what is necessary, our leaders will plunge us in a world war. I stand by my prediction. War by 2013/2015.

Some interesting articles this morning…

January 28, 2010

… but not necessarily for what they appear to be about.

Let’s start with Bloomberg and Stiglitz:

http://www.bloomberg.com/apps/news?pid=20601109&sid=aVYY24_A2SHA

This is an ambiguous article that deals with the economics of happiness. Stiglitz sets off with this comment: “Bankers created “negative value” with innovations such as mortgages that homeowners couldn’t afford, said Nobel laureate Joseph E. Stiglitz, who is speaking today at the World Economic Forum in Davos, Switzerland, on the economics of happiness.

Setting aside for the moment that the article is about the economics of happiness in an attempt at finding a better way of gauging the wealth and well being of a country, what strikes me as typical is the fact that even Stiglitz, Nobel Laureate that he is, perpetuates the perception that the problem that has befallen us was due to bad mortgages. Glaringly absent in Stiglitz’s comments now or in the past, is any indication as to why the banks should have been allowed and even encouraged to do what they did; and, by the way, banks are still now aggressively encouraged to do more of the same. My peeve with the whole charade is the unwillingness to have a proper discussion on the utility and desirability of a fiat monetary system. Because if banks did what they did, it is only because the presumed guardians of the system allowed them to do so despite the various laws that, if applied, would have clearly and immediately put a stop to such aberrant (criminal?) practices.

But then, Stiglitz goes on and at least partly redeems himself when he says:

Stiglitz, who advocates a broader measure of gross domestic product that takes social well-being into account, studied the issue last year for French President Nicolas Sarkozy, who has said that relying on GDP to gauge the state of an economy helped trigger the financial crisis.

Right there, Stiglitz actually hits the nail on the head. As I have already written in previous posts, the GDP figure is at the heart of most social, economic and financial metrics. But GDP is a flawed figure and, by itself, says nothing of the direction or the quality of development. As a flawed figure, GDP becomes the proverbial end that justifies the means. Specifically, since GDP is the begin all and end all of politics and economics, the natural tendency of government officials is to boost GDP by any means possible. Hence the appeal of a fiat monetary system which allows government to push credit and money creation in excess of GDP progression. The rationale for doing that is that by stimulating credit and money creation government can induce inflation, thus a rise in prices thus a rise in GDP.

That right there is the elephant in the room that few can intellectually countenance and, of those that can, fewer still are willing or ready to discuss. Because I assure you there are some officials that understand that.

Moving on from Stiglitz, Mr. Sarkozy of France too has a beef and it happens to be globalization.

http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=5bf8e003-f472-497d-ac61-78bddf6e4352

Once again, Mr. Sarkozy’s peeve is justified but fails to address the reasons why globalization came about. Anyone that in talking about globalization does not mention that it is the logical ramification of the use of fiat money, is wide of the mark.

Fiat money has a logic. Fiat money is predicated on the expansion of credit and money supply. If that were not the case, then we could make do with either a fixed amount of money or with a value based monetary system. It is as simple as that. No need for arcane mathematical formulas. The choice of a monetary system is deliberate even if it is unilateral thus not submitted to the people for ratification. As a deliberate choice, fiat money implies two things: first, fiat money must not contemplate intrinsic value – second, fiat money can only exist in an inflationary environment.

The above being so, then it is clear that globalization is an inherent and inevitable consequence of a fiat monetary system. Few will remember for example that in the 1960s, the United States were exactly in the same jam we find ourselves in today globally. That’s right. In the 60s, the USA were confronting bankruptcy brought about by profligate spending that pushed credit and money creation far in excess of GDP since 1913. (Just a related observation here to note that the causes of the first inflationary crisis of 1929 were never really tackled. What happened instead is that as a consequence of WWII nobody anywhere had any industrial capacity left standing so that the USA were finally able to utilize their excess capacity to supply the rest of the world). Curiously enough,  in the late 1960s events were precipitated by none other than France who, smelling smoke in the wind, asked to redeem their US$ currency reserves for the gold they thought they were entitled to.

Surprise!! The gold wasn’t there. At least not enough of it because if the USA acquiesced to redeemed France’s foreign currency reserves, then everyone else would have wanted to redeem their reserves too and at that point, obviously, there wasn’t enough gold anywhere in the world to satisfy sovereign demand.

Solution?

Abrogate Bretton Woods.

The USA gathered the leaders of the then developed world and essentially made them an offer they could not refuse. I mean; heck! The gold wasn’t there anyway so they had nothing to lose by at least listening to what the USA had to say.

The deal the USA put to the Europeans was to adopt a new monetary system based on the US$ as reserve currency.

To the question: “Why should we do that?”

The answer was twofold. The first part of the answer is what counted and what ultimately would have clinched the deal anyway; that is, the USA told the Europeans that by adopting the US$ as reserve currency they could themselves go on a fiat monetary system, hence they could print as much money as they pleased. The shrewd politicians that the European heads of states were, they needed no other reason to go along with the scam. The second part of the answer and which was then and still is today a moot point is that if the Europeans did not go along with the scam, the USA would have annihilated them (WWII was still rather fresh in Europeans’ minds and the Russian bogey man was looming large). A hard sell it was not.

And so it was that the US$ got a new lease on life. Essentially, inflation had saturated the US market hence the looming bankruptcy. By assimilating new markets, US$ inflation could now be pushed into a whole bunch of new currencies.

Incidentally, the introduction of the Euro served the same purpose. In one fell swoop, European currencies were devalued by anywhere between 20 and 50% thus boosting inflation.

Globalization is just more of the same. New markets to expand inflation into. Hence the US$ is today the official reserve currency of all countries and, thanks to the magic of “floating exchange rates”, inflation is guaranteed.

The problem of course is that inflation is a dynamic that is exponential in character and conforms to the law of diminishing returns. It could not be otherwise. If that were not the case, then there would be a direct correlation between the amount of credit and money creation and GDP progression. But as shown here, that is clearly not the case.

Moving on.

Here is an interesting blog post that puts forth an interesting observation. Essentially, our nations have surrendered sovereignty to the financial elite.

http://seekingalpha.com/article/184715-so-much-for-the-sovereignty-of-our-nation?source=patrick.net

Fact is, the United States of America had no one in power to stop the Fed. The Fed did what it wanted to do. No one was a there to protect the taxpayer. America abdicated sovereignty. The country was actually too weak to fight the banks.

Though astute the observation is, once again the author cannot or does not want to make the connection with fiat money.

Fiat money has a logic. Fiat money must follow a cycle. Inherent in fiat monetary logic are a number of ramifications and outcomes. Chief amongst the ramifications of fiat money is that each additional unit of currency created has a diminishing effect on the overall economy thus a diminishing effect on GDP. The diminishing effect of fiat money is illustrated by what is known as the “Money Multiplier”. This is what the multiplier looks like:

Graph: M1 Money Multiplier

Now, here is the interesting part of this graph. Let’s zoom in on the period of time going from 2000 to present day:

FRED Graph
Now look at this:
FRED Graph
Since hockey stick shaped graphs seem to be the topic du jour albeit in different discussions, how’s that for a hockey stick?
The hockey stick shape representing the acceleration of debt at government level (not included in this graph is corporate and household debt which must be added for full effect) is matched by a multiplier that literally sank like a lead balloon.
That, dear reader, in my opinion represents the limit of the “beneficial” effect of a fiat monetary system. That, in my opinion, is the end of the inflationary cycle and the end of what can be done to keep GDP on an expansionary trajectory. That, in my opinion, is the end of this iteration of this monetary system. As a by the by, there have been so far 3 iterations to this monetary system: 1913 – 1929, 1929 – 1970, 1970 – today. The first iteration was saved by WWII, the second iteration was saved by bringing in new markets and currencies in on the US$ fiat monetary system. How will we solve this iteration of the monetary system…??? (For those of you that are mumbling that a new reserve currency will solve our problems you get a goose egg. A new currency will buy us some time; think Euro. Ultimately, the problem remains excess debt, excess industrial capacity, overbearing government and insufficient revenue to service debt.)
But more importantly, if any of my contentions as outlined above are true, that is the reason our “leaders” are about to throw us into a conflict of global proportions.
But let me be clear about something here. Most of you reading this post have been indoctrinated by the facile cliche that wars are profitable. As a matter of fact, wars are profitable. Not only are wars profitable, but they also keep research and development alive and a large number of military applications then make their way into civilian life too. So limited back water wars are inevitable if for no other reason that when you build weapons you cannot stock them unused forever.
But this next war is not going to be an inventory management war. This next war has a well defined economic and social focus. This next war serves to reset the fiat monetary system and create the conditions that allow us to re-start inflation. This next war will be a world war complete with civilians called up and packed off to the front and energy and food rationing at home. This next war must deal with one of the inevitable outcomes of fiat money; this next war needs to address industrial and infrastructure overcapacity.
Since I can virtually guarantee that no main stream politician today could contemplate any other monetary system than fiat, then the present system must be reset. Thus a world war is inevitable.
Got bullion?
PS – The war is inevitable and must involve civilians packed-off to the front for the simple reason that currency seems to have lost its multiplier role. If that is true, it means that unemployment will increase significantly. The trouble is that if the currency no longer has a multiplier effect on the overall economy, then revenues will necessarily dwindle at individual and corporate level thus at government level. As revenues dwindle, government must curtail public spending. And that’s the flash point. Rising unemployment must now confront lower social expenditure if not discontinuation of certain social services. Thus, unless someone somewhere can find a way to restore to the currency its multiplying powers as contemplated by Keynesian economics (the prevalent economic model of the past century), then we are looking at horrendous levels of unemployment (by taking the broadest measure in the US, unemployment is already well in the 20% according to labor statistics measure U6 as opposed to U3 which is the figure government uses for its official calculations). Thus it looks to me that the next war not only has to address infrastructure and industrial overcapacity but also a pernicious problem of unemployment because the unemployed poor have a nasty but historic tradition of rising up against the power elites and hang them.

Walk away from your mortgage (New York Times)

January 9, 2010

Is this more anecdotal evidence of media awakening?

http://www.nytimes.com/2010/01/10/magazine/10FOB-wwln-t.html?source=patrick.net

As stated here, there is absolutely no moral obligation not to. A mortgage is a financial transaction.

Where this essay in the New York Times fails, is in correctly identifying the reasons government attempts to persuade you that walking away is immoral. The NYTimes article says: “There are two reasons why so-called strategic defaults have been considered antisocial and perhaps amoral. One is that foreclosures depress the neighborhood and drive down prices. […] The other reason is that default (supposedly) debases the character of the borrower.

Actually, the NYT only partially got it wrong. The reason government does not want you to walk away is because doing so would immediately cause a revaluation of the property to the downside. This would require a re-marking of the outstanding debt thus triggering a reduction in total outstanding debt.

Of course, if you follow this blog, you know that in an unchecked fiat monetary system inflation is the conditio sine qua non of the existence of government. Thus, the survival of government is predicated on the continued expansion of inflation thus on the continual expansion of debt.

A reduction of outstanding debt is contrary and lethal to the logic of government.

Deflation brings about a reduction of outstanding debt. Deflation is the enemy of debtors and nobody is deeper in debt than government issuer of the reserve currency.

Ho, ho, ho…. global currency talk is once again filling the air waves…

December 28, 2009

As outlined in several prior posts, one way to get a modicum of inflation going again would be to introduce a new currency so as to devalue the currency it replaces. This is one of the oldest tricks in the book and one that has been used often in the recent past (think Argentina, Zimbabwe…) and again very recently with the introduction of the Euro for example. At this stage of the game however, nothing short of somehow altering or even replacing the global reserve currency is going to help.

In recent months rumors have filled the airwaves at regular intervals regarding potential strategies that could be implemented: the Amero, adoption of the UN’ Special Drawing Rights (SDRs) and even rumors of a two tier devaluation of the US Dollar differentiating between US$ held overseas (to be devalued more) and US$ held within US borders.

What is clear is that governments are running out of options to restart the inflationary cycle and this would be a desperate last ditch attempt that would buy us some time. But that’s all it would do. Buy us some time because as per the latest BIS report, outstanding global financial obligations are still running at US$600Trillion whereas global GDP is running in the ball park of US$50Trillion and is dropping fast. The elephant in the room therefore is still the debt mountain we have built in 100 years of aggressive, pervasive and persistent inflation pumping in the US$ monetary system (the US$ being the world reserve currency of course).

Here is Jesse’s Cafe Americain with his comments and an article written by Martin Wolf in, of all places, some Persian Gulf daily:

http://jessescrossroadscafe.blogspot.com/2009/12/what-will-new-world-reserve-currency.html

Here is the UN’s own Trade and Development Report 2009 – true to form of course, always late to the penny-dropping party and always misguided in the final conclusion. But at least they’ve brought the issue up finally.

http://www.unctad.org/Templates/WebFlyer.asp?intItemID=5006&lang=1

In the needlessly wordy, overly pompous lump of platitudes and redundant ideology that passes for a “report” at the UN, what you want to read is chapter IV: “Reform of the international monetary and financial system”. You will find the link at the bottom of the page under “quick links”. It is a PDF file and I seem unable to attach a link for you but I will post below their own highlights.

To be sure the report is actually reasonable in its initial chapters despite a glaring piece of ignorant pablum right at the start of the report when the luminaries that are the UN researchers state that:

The crisis proves that free financial markets do not lead to optimal social and macroeconomic outcomes.”

Of course, the UN conveniently disregards the fact that in economies where, for example, the choice of monetary system is not submitted to the people for ratification, where interest rates are manipulated arbitrarily by political decree, where in order to pander to special interest groups companies are not allowed to fail, where governments arbitrarily decree that corporate and commercial law must be suspended in order to save the system and where governments arbitrarily appropriate public funds, where industries are protected and subsidized even though they are not economically viable, how free can the market really be?

But, in all honestly, the report does get better as you go along… to a point:

“… because speculative investments do not generate increases in real income. […] Financial globalization implies a de facto loss of national policy autonomy […] The current international reserve system does not provide for any disciplines on surplus countries and on deficit countries that issue reserve currencies. (Ed. you don’t say!) […] In the absence of symmetric interventions in currency markets, the system has a deflationary bias… […] Any reform of the inter- national monetary and financial system has to address the issue of SDR allocation (Ed. this is the allusion to a new reserve currency).

This is the point at which after having identified many of the shortcoming of the present monetary system, the bright crayons that are the experts in the UN box, go on to offer solutions that are nothing but variations on the floating exchange fiat theme… ergo… more of the same…

I expected no less from the UN so, here it goes:

Unconditional countercycli- cal access to IMF resources would help prevent excessive currency depreciations. […] Achieving a stable pattern of exchange rates stands a bet- ter chance within a multilat- erally agreed framework for exchange-rate management. (Ed. of course the UN says it is desirable but does not say how to achieve that concretely. Also, the UN completely disregards the fact that government continuously intervene in the currency markets; what else is Quantitative Easing? Why set up Euro/Dollar swap lines of credit with foreign governments?… what a bunch of crock!!) […] An exchange rate system based on the principle of constant real exchange rates would tackle the problem of destabilizing capital flows at its source (Ed. these nitwits propose floating exchange rates by any other name i.e. more of the same)

So, after a reasonably good start even if peppered with pablum, the UN report goes on to propose more of what we already have but maybe with a new currency or a revalued global reserve currency and then, disregarding all the crap they have dished out in what is essentially a piece of trashy literature that aims to justify the grossly ludicrous salaries and benefits paid to an over staffed, under employed, unjustifiably proud, over arrogant, group of vain and ineffective “professionals” that couldn’t hack it in the real world, they conclude with one pearl of wisdom:

A further accumulation of external debt obligations by the United States would make the world economy even more fragile.

Of course, if you follow this blog, you will know that I contend that like Climate Change, the UN is nothing but a tool of inflation. I don’t mean to detract from the group of true idealists that are employed here and there within the organization and that are genuinely unaware of the ultimate purpose of the UN. But all the UN is, is a tool meant to create circulation of great amounts of money in an attempt to maintain a positive multiplier effect of the currency. That is the reason the UN must spend money regardless of the political/economic/social conditions it encounters in the areas where it operates. Have you ever heard the UN not to disburse on a project because the local government had been found out to be corrupt? Of course not. The UN must disburse because failure to deploy those sums would mean a reduced budget for the following year. And I can assure you that no UN department is going to stand for that. The UN will always outspend itself in an effort to acquire ever more resources year in year out. That is par for the course in a monetary/political system predicated on inflation.

But inflation is teetering on the brink of the deflationary cliff these days….

How far can a global war be?

2013/2015 is my prediction in the absence of radical political economic change in direction.

Take me to task then.

Treasury removes cap for Fannie and Freddie aid

December 25, 2009

… this, may I remind you, is to save a company which, not two years after the Enron debacle, in 2004 was unable to publish its accounting books for a period of 18 months. That’s eighteen months. And back then, nobody thought something might be amiss…

http://news.yahoo.com/s/ap/20091224/ap_on_bi_ge/us_mortgage_giants_ceos_20

How much more blatant can criminal behavior get?

Oh and, by the way, … continuing the tradition of rewarding failure…

Fannie and Freddie CEOs to get up to $6M in pay

http://www.sltrib.com/business/ci_14066302?source=rss

…. tic, toc…. tic, toc….

Geithner: We will not have a second wave of financial crisis…

December 24, 2009

Typically, something is not true till official government sources deny it…

http://wallstreetpit.com/13141-geithner-we-will-not-have-a-second-wave-of-financial-crisis

And of course, the opposite is also true: i.e. when government peddles a concept as being true it typically is not (anyone for global warming? Which, by the way, is now conveniently termed climate change).

Lets see how this prediction pans out.

Curtailing public spending… a precursor to war…

December 24, 2009

OK… now wait for the scandals to keep piling up and the masses will revolt… same goes for California, Spain, Ireland, the UK, France Italy….

Social unrest has the pesky characteristic that makes it contagious and causes it to spread cross borders…

http://www.theglobeandmail.com/report-on-business/greece-passes-austerity-budget/article1411266/

The count down to global war is on… 2013/2015 latest

Debt ceiling to be raised

December 11, 2009

This is going to be interesting.

If you read this essay and this essay, you will know I contend that we have reached the limit of how far we can expand inflation and that as a consequence, our Dollar based fiat monetary system is now broken. The most immediate concern is that deflationary environments bring about the insolvency of government.

Some of you will retort that governments have always been bankrupt but that somehow we’ve always come out ok.

What you are missing is the logic of inflation in a fiat monetary system characterized by floating exchange rate.

For as long as a government is able to borrow progressively more money, then its unfunded liabilities can be kicked down the road. Think of the pension trust fund. The money has been paid in all right. But government has used that money. Physically the money is no longer there; it has been spent. What governments count upon is inflation. Essentially, government feels free to spend today what it thinks it can repay back tomorrow in devalued currency. That in a nutshell, is what Western governments have been doing.

The above works for as long as inflation can be maintained on a positive trajectory and for as long as sovereign participants to the monetary system can and want to purchase each other’s sovereign debt (that is the meaning of floating exchange rates – i.e. the value of a currency is predicated on a basked of other currencies thus relying on sovereigns buying each other’s sovereign debt)

But pushing inflation into a system artificially, aggressively, pervasively and relentlessly over decades necessarily results in distortions, aberrations and criminal behavior. Thus, towards the end of the inflationary cycle, nominal profits progressively show up in fewer and fewer sectors until at the very end they show up only in the financial sector as the entity that is first in line for the use of fiat money.

The point at which nominal profits disappear from most sectors, is the point at which unemployment and social costs soar and is also the point at which tax revenue declines. This is the typical environment in which the power elites are also shown to be willing and consenting participants in unlawful and criminal enterprise.

Here is the problem.

As tax revenue declines, the ability of sovereigns to expand debt is hampered. On one hand declining tax revenue puts a dent in the budget that leads to credit worthiness revisions. On the other hand, as governments apply more of the tactics they think have enabled them to induce inflation into the system till recently (i.e. more spending on public projects, bailouts, military) they worsen an already critical fiscal situation.

This is the point at which sovereigns are either unwilling and/or unable to purchase each other’s debt.

The USA today have opted to increase the debt ceiling by $1.8Trillion.

Even assuming other sovereigns were willing and able to buy US debt, 1.8Trillion is a gargantuan chunk that would be tough to palm off during good times let alone during a crisis when all sovereigns are busy bailing out their own industries and banks.

Considering that the Fed has already been the purchaser of last and only resort of US debt in the past 8 months, it will be interesting to see who will buy any of this 1.8Trillion and how much of it. If the Fed should once again be the largest buyer as it has been in the recent past, the balance sheet of the entity responsible for the global reserve currency (the Fed) is going to show that the international monetary system is totally and utterly broken.

http://www.reuters.com/article/idUSTRE5B849020091210

I am on the road…

November 29, 2009

 

Have not had access to internet for the past few days… only online temporarily today and for the next three days.

Here are some press articles of interest:

Examples of industrial overcapacity

http://network.nationalpost.com/np/blogs/tradingdesk/archive/2009/11/27/desperate-winemakers-downunder.aspx

 

Legitimacy of governments under fire from within

http://www.dailymail.co.uk/debate/article-1231540/Why-I-believe-Blair-stand-trial–face-charges-war-crimes.html

 

Deflation’s  inexorable march… we’re nowhere near being out of the woods…

http://www.guardian.co.uk/world/2009/nov/12/united-nations-us-property-fallout

 

A self sustaining economy must produce intrinsic value. When development is brought about by financial engineering, then crisis will devastate what little intrinsic wealth there may be

http://www.guardian.co.uk/world/2009/nov/29/dubai-world-desert-gulf-investors