Posts Tagged ‘deflation’

Warren Buffet and gold

May 25, 2011

I am unable to post charts so a link will have to do for now.

As so often in the past ten years, Mr. Buffet has once again blurted out to all that would listen that gold is neither a sensible investment nor, indeed, is it something that should form part of a balanced investment strategy.

As I have already pointed out in this blog over the years, Mr. Buffet is the archetype of the inflationary investor. I have gone out on a limb in these pages and have submitted that if indeed we are to enter another inflationary era then you could do worse than invest in Mr. Buffet’s Berkshire and Mr. Buffet should obviously continue to be anointed as the most legendary investor ever…

But when viewed through the proper lens, Mr. Buffets’ Berkshire investment vehicle is teetering on the precipice…$GOLD&p=M&b=4&g=0&id=p56448948924&a=235108746

A bon entendeur…

Event horizon approaching

March 24, 2011

The smell of criticality is becoming… well…. critical. Take your pick:

Monetary policy

Gold and silver availability

Geopolitcal turmoil

Nuclear disaster

Political crisis in Europe

Sovereign bankruptcy in the West

Unemployment in the West

Homelessnes in the West

Peak oil

Blatant and overt corruption in the West

Fascism in the West



I can only see deflation

March 20, 2011

Graph lifted from Zero Hedge: – courtesy of John Lohman.

I will grant you that even though we may have entered a deflationary cycle, the path is not yet clear due to the fact that various government interventions are generating conflicting signals in various sectors. So, yes, it is not a straight path down for assets or up for the Dollar or gold. Nonetheless, the trend is clear.

The key is the efficiency of the currency (i.e. the efficiency of debt).

Warren Buffet and gold (berkshire hathaway)

March 8, 2011

In a recent interview (as well as during numerous talks with shareholders), veteran and venerable investor Warren Buffet is adamant gold has no place in a sensible mix of investments in anyone’s portfolio thus adding his voice to the likes of Willem Buiter and all Western central bankers.

What would be good is if Mr. Buffet could explain the performance of his investments over the past ten years in relation to the performance of gold bullion as an investment and as outlined in the below chart.

Above is a chart of Mr. Buffet’s investment company share price valued in gold over the past fifteen years.


People truly will not understand a problem if their livelihood depends on them not understanding it. Either that, or Mr. Buffet has an agenda. How else could someone be consistently wrong over a period of ten years and still think that nothing has changed in the global economy?

Gold may not be an ideal investment at all times. But clearly, gold has served a real purpose in the recent past and Mr. Buffet has either failed to notice or he must have an agenda.

The evil of inflation (Birthday ruminations II)

March 6, 2011

Debt based fiat money (DBFM) is predicated on inflation or, if you prefer, it is predicated on the devaluation of the currency. In other words, it is predicated on the liberal creation of currency and debt and, crucially, on the currency being spent rather than being saved. This is an important point to keep in mind as we go forward.

Of course, a currency can only be devalued so far. There is an absolute mathematical limit to debasing a currency. If that were not the case, then sovereigns could freely create any amount of debt and give every man, woman and child a state salary and we’d all be rich beyond our wildest dreams. But this is clearly impossible.

As the authorities opt for DBFM and impose the system upon society, the state has an obvious vested interest in keeping the system going as long as possible. Thus as the currency is gradually debased, the authorities must attempt to at least partially compensate for the mathematical certainty that DBFM loses efficiency over time. If the viability of DBFM rests on economic actors spending money as fast as possible, it follows that the state has a vested interest in enacting any legislation or instituting regulatory bodies or mandating the creation of entities whose sole purpose is to create new layers of expenditure. All in the name of keeping the currency circulating. This is because the viability of DBFM is predicated on economic actors spending the currency as fast as possible rather than saving it. This is, inter allia, also the reason why DBFM cannot contemplate gold as a viable financial instrument. Buying gold is the equivalent of saving which lowers the velocity of circulation of the currency spelling doom for DBFM, doom for the banks that sponsor the system hence doom for the state.

– Above, graphic representation of the efficiency of debt, ergo, the efficiency of the currency.

Graph: M1 Money Multiplier

– Above, graphic representation of the diminishing marginal utility of the currency in a DBFM system.

In the previous essay I pointed out how by promising to manage a pool of savings on behalf of the individual, the state not only has access to a source of cheap funding (it is in fact free funding) but by assuring the individual that their future financial requirements are taken care of, the state also ensures that the individual’s need to save for a rainy day is diminished thus inducing more spending in an attempt at keeping the velocity of circulation of the currency positive. Of course, the inherent dynamic of electoral politics greatly facilitates this process because politicians will promise great benefits to the electorate just to get elected. Anyway, even the longest serving politicians will not preside over an entire economic cycle so that it is no skin off their nose whatever they promise and whatever they may enact as policy because they won’t be around long enough to see what the long terms effect of their promises may result in.  But this is a subject for another time.

So the state has a vested interest in forcing economic actors to spend all money at all times and to make use of debt to make up the difference between what they want and what they can afford with their salaries. In this regard, the state mandates a constant and progressive reduction of interest rates. This seemingly innocuous policy in fact plays havoc with a myriad systems far and wide and, eventually, is the root cause of flaring prices in basic commodities of which more later.

Graph: 30-Year Treasury Constant Maturity Rate

– Above, graphic representation of long term interest rates. The trend clearly slopes from the top left to the bottom right. This is most certainly not a natural trend in a presumably capitalistic society free from government intervention. Draw your own conclusions.

So, now you are the de-facto industrial power but you are still reeling from the debt hang-over induced by your first attempt at using DBFM. It is 1939ish or thereabout and your administration seems powerless to lift society out of poverty and the masses are getting restless. What do you do? Why, you spoil for a fight of course.

So, you get your war, you put millions of people to work on infrastructure projects, on armaments and on secret weapons. At the same time you start creating gargantuan amounts of money and credit all with the excuse that a war is raging and “freedom must be protected”. As the single largest custodian of sovereign gold globally and having engaged in the greatest build out in the history of man till that point, you emerge from the war the single and only industrial power that has capacity left standing. This is the perfect set up. Now, after the war has devastated countries, lands and people you can release the flood of currency and debt you have piled up from 1913 under the guise of helping countries emerge from the devastation of war. But that is not all.

Here’s the stroke of genius.

You’ve opened the monetary flood gates upon the world but you know that the diminishing marginal utility of the currency will inevitably come back to bite you in the ass. You need to postpone that moment as far off in the future as possible. What do you do?

Well, for one you create the United Nations.

The United Nations a tool of inflation

I’m not going to spend much time on this subject. But here are some issues to ponder.

How many UN employees do you know that actually have any respect for the organization? How many of these same disgusted employees have willingly tendered their resignation? Ever wondered why the UN never refuses to disburse any sums for projects even in cases where fraud has been clearly and objectively established? Have you ever taken a look at the quality and quantity of perks UN employees enjoy during and after employment? Ever taken a look at the UN pension fund and UN pension entitlements? Ever wondered why when the UN moves into a situation the local black market immediately perks up? Finally, ever looked at the ratio of employees that have been fired from the UN in relation to total UN employee numbers?

The long and the short of it is that the UN is a tool of inflation. The role of the UN is to churn currency globally, churn it fast, churn it far and churn it wide. Ask no questions; just churn dosh. And, granted, the UN does too employ a number of idealists who actually believe they can change the world. I don’t mean to detract from their efforts. But the truth is that the UN is a behemoth that consumes staggering amounts of resources for which they have very little to show other than apparently being chronically underfunded (thought the pension fund and salary perks never run short).

Climate change former global warming (more convenient and all encompassing)

Here are Western governments ostensibly preoccupied by what is for all intents and purposes a theory that is more akin to the geo-centrism prevalent during the dark ages hell bent on saving the planet by, wait for it, instituting a trans-global entity to monitor carbon credits to be conveniently traded on an exchange sponsored by none other than Mr. H. B. Obama and Mr. A. Gore…. yes, he of An Inconvenient Truth… But that’s actually only a by the by.

The absurdity in the position of Western governments is that despite their stated intent to save the planet, they are also hell bent on maintaining inflation on a positive trajectory or, at the very least, making sure deflation does not happen (B. Bernanke speech to the National Economists Club, November 2002). The problem is that these are mutually exclusive positions.

Inflation conforms to the law of diminishing marginal utility so that you always need more inflation in order to obtain the same degree of GDP expansion. Accelerating inflation induces accelerating spending thus it pulls forward in time the demand and production cycles. This means that economic actors will consume today what they would otherwise consume over a longer period of time. Thus, accelerating spending puts stress on, for example, agricultural land and agricultural commodities. Accelerated spending puts pressure on renewable resources because by accelerating the consumption cycle the growth cycle may not be able to keep up. Finally, inflation puts undue pressure on energy resources for exactly the same reasons. So that oil wells that should reasonably be exploited at lower rates in order to ensure a more thorough extraction over a longer period of time must instead be exploited at higher rates thus leading to the abandonment of wells sooner than otherwise necessary which leads to an increase in prices. Rinse repeat.

So, now it’s the year 2000. You realize that the efficiency of this monetary system is once again hitting the buffers and you desperately need to find a way to keep the gig going either because you think you can actually find infinite ways to bail out the system or because you believe that buying time will actually achieve something. Or maybe you just know that now that DBFM has been forced down the throat of every single sovereign globally, there is no easy way to keep the system going short of some dramatic scorched earth solution … like a global currency for example…So what do you do? For one you just hammer interest rates to the lowest point in the history of mankind.  You then proceed to legally ring fence the sponsors of the monetary system (the banks) in an attempt to prevent their mathematical demise. You then pump the sponsors of the system full of cash that you either appropriate from the public or you down right create out of thin air. Then you go on a rampage creating untold trillions of Dollars that you use to buy your own sovereign debt either directly from the treasury or from your own primary dealers to the point where you become the single largest holder of your own country’s sovereign debt in blatant contradiction of the presumed floating exchange rate mechanism. All the while the real economy is starved of cash, unemployment rises, tax revenue collapses thus bringing about the failure of those social safety nets that were supposed to provide for the individual in his/her old age or when sick whilst, simultaneously, the banks you are so intent on saving are recycling their monetary gifts you so generously offered them into basic commodities just to protect their gift from the loss of purchasing power you are intentionally causing.

You do this aggressively, progressively and pervasively and soon enough you have on your hands a Greece, a Hungary, an Ireland and then a Tunisia, an Egypt and a Libya… and other to follow….

So, now you have a population that is well on its way to become destitute, unemployment is rising, debt levels are high and savings are low and the presumed social safety nets are failing. So now the people are angry, hungry and progressively homeless. The people are looking for somebody’s head. So what do you do? Are you going to give them the head of a Western politician or, gulp, that of a Western banker? What to do, what to do. Why, you spoil for a fight of course.

So this is the time to rev-up the blame machine the West is so good at operating. This is the point in time when the various fingers of blame that to date have been pointed in the general direction of countries and people you don’t like must be pointed more directly and more persistently at some country and people you don’t like.

That, in short, is the reason inflation is evil.

As to the “flation” debate

March 4, 2011

The “flation” debate is alive and well and in some quarters it borders on violent confrontation. So I’d like to get another crack at it.

Armchair inflationists observe the flare-up in commodity  prices and claim hyperinflation is around the corner. The more technical inflationists observe the flare-up in money aggregates which rightly result in flaring commodity prices and claim hyper inflation is around the corner.

Western economies are service based consumer economies.  In the USA for example, consumers till very recently accounted for 70% of GDP of $14Trillion.

Thus, in the USA if the consumer should for some reason be unable to carry on spending as it did till recently, it follows that US GDP would suffer significantly.

But empirically, since the crash of 2007, official data seems to indicate that US GDP has not really suffered that much. This leads observers to opine variously that either we are out of the crisis or at least coming out of it. Certainly, the rise in unemployment seems to have stalled if not reversed so that if people are no longer losing their jobs the explosion in the monetary base will translate in inflation and hyperinflation is around the corner… because we are a consumer based economy… so that if the consumer is doing well then GDP will explode nominally thus giving us inflation…

But I with my $800 computer am not convinced that inflation looms on the horizon. Hyperinflation is a different animal alltogether and I’ll touch on it later on. But I cannot countenance inflation … yet.

Here are a few spanners in the inflationist argument.

If the rise in unemployment has stalled and, according to the most recent data, has reversed, then why has food stamp usage not even abated?

But more importantly, if the rise in unemployment has already stalled and has now reversed, why is the participation rate plumbing new depths?

FRED Graph
FRED Graph

But then, if indeed the official employment statistics are fudged as these official graphs suggest, then how come GDP hasn’t really suffered that much since the crisis began?

One reason is the extraordinary, galactic, gargantuan and thoroughly unprecedented fashion in which our governments are attempting to substitute for the consumer by injecting money into the economy in ways that have never been attempted in the history of man. Subsidies, TARP, Quantitative Easing and good old fashioned fraud perpetrated at the highest levels of government have helped keep up appearances of normality.

And here is the conundrum. You may or may not agree that the rise in unemployment has not yet stalled but, say you, even if it has not, then obviously government has been successful in compensating the loss of  consumer expenditure because it is plain to see that commodity prices are flaring. So somebody is buying these commodities which in turn means that somewhere there is demand. And if there is demand then we will have inflation… right?

Graph: Personal Saving Rate

Graph: Household Sector: Liabilites: Household Credit Market Debt Outstanding

Clearly, from 1980 till 2000 consumers egged on by state mandated reductions in interest rates, gradually depleted their savings whilst at the same time gorged on debt thus contributing to turning the US economy in a raging consumer based economy (declining interest rates discourage saving and encourage debt thus goosing inflation).

But since 2007 consumer trends have clearly reversed thus undermining the consumer based economy. In the recent past, consumers have been saving more and have been taking out less debt. The trend is similar in Europe. Ergo, in the West today consumers are taking a break if not outright retrenching… and for good reason… unemployment is rampant in the UK, in France, in Spain in Greece in Italy, in Portugal and in the good ol’ USofA.

If that is the case, then I don’t see how in a consumer based economy inflation can once again be revived in the absence of the consumer. I see how the government is for now compensating for the lack of consumer. But Keynesian monetary injections are not going towards expanding the productive economy. If monetary injections were successful then the participation rate would be turning up signifying that business was hiring again. Instead, money injected by the authorities is going directly to line the pockets of bankers and selected entities whom in turn go on to protect the purchasing power of their monetary gift by investing and speculating in commodities because they are fully aware of the deleterious nature of state directed policy.

Investment and speculation in commodities by privileged parties of course results in severe dislocations in the energy and food markets with consequences that are as much economic and political as they are social on the global stage.

Notice the trend of government debt (the debt that has to be serviced and eventually paid back through taxation) since 1980

Graph: Federal Government Debt: Total Public Debt

Now check out GDP progression since 1980

Graph: Real Gross Domestic Product
Notice how since 1980 Federal debt progresses from $1Trillion to about $14Trillion but GDP barely doubles from $6Trillion to barely $15Trillion. The entirety of US GDP today is made up of debt.
There are other significant charts that buttress the above contention and that you can see under “My Charts” in the right hand side column. Chart 135 on page 1 is particularly significant and should strike fear in the hearts of any citizen that is about to retire as well as the hearts of sovereigns and investment funds the world over as well as, yes, your (the person reading this blog) insurance and pension fund.
To wrap it up.
The final arbiter of whether the authorities have been successful in inducing inflation is tax revenue. For as long as tax revenue stalls or declines, there is no inflation in sight. That’s because in a consumer based economy, for as long as consumers do not spend money in the general economy, business cannot pay taxes. And since unemployment is still rising, the wider economy is not working thus taxes cannot be paid thus there cannot be inflation. Moreover, flaring commodity prices due to aberrant monetary policy act as a further tax on consumer as the extra money that has to be spent on gasoline, electricity or food cannot be spent in other aspects of the economy.
The important thing in understanding what the outcome will be is not mere idle speculation. Understanding which flation will befall us is vital to surviving this crisis. One of the more immediate concerns for example is that if indeed we should be in deflation as I contend, economic actors that are struggling with heavy debt loads would be better off selling whatever assets they have now, in an attempt at lightening or extinguish the debt load now, because in deflation assets will only lose more value. Alternatively, in the absence of assets owned outright, economic actors could contemplate walking away from debt i.e declare bankruptcy now before things get worse.
On the other hand, if inflation should befall us then economic actors struggling under heavy debts would do well to hold on to the debt and, eventually, even increase the load (as governments are doing). In this event, even people that own nothing would be well advised to take out a loan and buy assets.
In the immortal words of Inspector Harry Callaghan: “Well? Do you feel lucky punk!?”
Just a few words about hyperinflation.
Hyperinflation is a political event more than a monetary or economic event. Hyperinflation is only partly related to inflation but does not result from it. Hyperinflation results from the loss of confidence in a government. That is; when in a floating exchange rate monetary system as we have today in the West economic actors lose faith in a sovereign, said sovereign can no longer obtain funding. Being unable to sell sovereign debt to fund its own activity the sovereign must resort to printing money without corresponding creation of financial instruments held by third parties. Thus the national currency is thoroughly and aggressively debased resulting in hyperinflation. Argentina and Zimbabwe are but two of the more recent examples of hyperinflation.

Forms of “democracy” and the monetary system

February 14, 2011

There is a guest post on Zero Hedge about democracy and its contradictions and it is giving rise to some interesting thoughts.

I have already set forth in these pages my opinions and views on the nature of politics and have already stated that in the West it is evident that although the political process may have afforded a degree of control to the people at the outset, today the political process is thoroughly beholden to interest groups like unions and corporations. My opinion is that in a political context characterized by democratic principles, this is a guaranteed outcome.

But politics is not and cannot be discussed in isolation. Politics is not something that can exist in the absence of the need for power over people and things. Thus politics comes about to control those aspects of life that pertain to the acquisition and wielding of power.

In a primitive society, power could be the control of a territory or of the women of child bearing age. Control could come about simply by killing or keeping others away from one’s acquired territory or women.

In more developed societies, control comes about through the acquisition and control of that which is used to acquire territory and women.

Enter money.

The concept of money is right up there in terms of utility with the invention of the wheel and the discovery of fire. Money is an ingenious construct and it is the one thing that is most responsible for the acceleration in social and economic development. Money is flexible, infinitely divisible and supremely portable. Money allows human interaction to take place at several levels simultaneously. There is no reasonable substitute for money in a developed society. None.

As the ultimate medium of exchange, money frames all other human constructs. All bar none. All human constructs and action evolve within the confines of the monetary system. Ergo, money is the ultimate driver of human development. There is nothing beyond money.

I place economy among the first and most important virtues, and public debt as the greatest of dangers … We must make our choice between economy and liberty, or profusion and servitude. (Thomas Jefferson)”

Hailing from the old world where feudalism and the private interest of the elite were prevalent, Thomas Jefferson along with a very restricted band of other politicians understood  the unequivocal and awesome power of money. But the power of money Jefferson refers to is not in how much you can spend of it in order to buy favors. The power of money resides in the ability of the monetary authority to enslave the population by gradually devaluing the currency.

It is subtle but it is clever and it is lethal. To understand the power of money it helps to stop thinking of it as the bits of paper and coins you carry around in your pocket.

It matters not what is used as “money”.  Money is only a vehicle; it is a medium of exchange.  Throughout the ages things like salt, stones or shells have been used as money. In prison, cigarettes may function as money. What matters is not the form it takes. What matters is how it is handled.

In our presumed open societies based on democratic principles, our politicians have allowed a certain degree of popular participation in the political process. However, democracy must inherently lead to the concentration of power as each individual understands that their wish can become reality only if enough people vote for it. Hence individuals see an interest in banding together in groups to exercise power trough numbers. Corporations and unions are a typical example of the concentration of votes that comes about in a democratic environment. But corporations and unions work for their own self preservation and the perpetuation of their own power base which must necessarily work against the interests of society at large.

But the real threat to liberty is not what happens in the political arena.

The real threat to liberty is how the monetary system is managed.

Notice here that although society can play a partial role in the political process, it can most certainly not play a role in managing the monetary system. In the West today the monetary system is managed unilaterally and arbitrarily behind closed doors by an elite that has the appearance of independence from government.

By deliberately imposing debt based fiat money (DBFM) upon society, the monetary elite draws an invisible boundary around it. This boundary is subtle but it is lethal.

DBFM is predicated on the perpetual expansion of inflation. Ergo, DBFM is predicated on the perpetual expansion of debt. But inflation is a dynamic that conforms to the law of diminishing marginal utility so that ever greater quantities of debt are required in order to obtain the same result. As you keep doing that over several decades, the purchasing power of the currency gradually wanes.

And that’s how enslavement happens.

At the outset, DBFM doesn’t feel any different than any other kind of money. That’s because at the outset, the intrinsic value of the currency is at par with the intrinsic value that people exchange it for when buying goods and services. But as inflation gradually erodes the purchasing power of the currency, economic actors find they need ever more currency for the same good or service. This is the reason that at the outset of this iteration of DBFM families could get by on one salary. But as inflation progressively erodes the purchasing power of the currency, economic actors must not only deplete their savings but they must also make use of debt. Initially debt may only be used for a little extra luxury. But as the inflationary dynamic progresses, debt becomes necessary to make ends meet.

As society finds it progressively more difficult to make a living, interest groups gradually garner votes by promising social safety nets. Things like social security or social health care or subsidies for example. As inflation progresses, society becomes ever more dependent on social spending and on debt till at one point people find themselves dependent on the state and on the hook to the monetary authorities.

At that point, the trap has slammed shut.

That’s the “clunck!” you heard in 2007.

There is only one way to get out of this jam. The only way to re-acquire our freedom is to shun the banks. Withdraw any savings you may have from any of the major banks. This is not a painless decision. Withdrawing your savings and or closing your accounts with one bank may entail losing lines of credit that must be closed too. By impacting the capital ratios and income straems of banks, we, the little people, can bend the banks. The other trick that can bring the monetary authorities to heel very quickly is by collapsing the velocity of money. The way to do this is to stop spending on things that are not necessities. If you really want to push the boat out, you can also buy yourself one coin and one ingot of gold and silver each. If every single person in the West did that, the attention of the monetary authorities would be secured immediately.

Of course it can be argued that my proposed solution may be worse than the disease. Most of you would prefer to hold on to the status quo and see how the chips fall in the hope that hardship may not be necessary…

But look around… look at how things have progressed particularly in the past three years…. look at how precarious your pension already is and although you may not want to admit it, somewhere deep inside you know you won’t get the pension you were promised. Look at what happened to our political process. Look at your life – stuck in a job you may not like but unable to make a move because you have those payments to make every month. Look at the friends that have already fallen by the way side. Look at how despite being caught in scandal upon scandal, a small elite of politicians and bankers are still making out like bandits and none have been prosecuted. Look at what is happening to the price of food.Finally, look at the sheer amount of money bankers are paying themselves not two years after having been rescued by public funds… we are talking here of hundreds upon hundreds of Billions (nine zeros) that our politicians are still today shoveling towards the banks all the while paying lip service to the electorate as to how to curb bank bonuses…

How to curb bank bonuses??

If our governments had not given public money to the banks, bonuses would really not be an issue today.

Am I ranting?

Locations of visitors to this page

From the horse’s mouth

February 4, 2011

Significant excerpt emphasis added:

Quoting the economist Herbert Stein in saying that “if something cannot go on forever, it will stop,” Bernanke said that the federal government must stabilize its budget.

The question, he said, “is whether these adjustments will take place through a . . . careful and deliberative process that weighs priorities and gives people adequate time to adjust to changes in government programs or tax policies, or whether needed fiscal adjustments will be a rapid and painful response to a looming or actual fiscal crisis.”

The above is confirmation that fiscal revenue is indeed declining thus evidencing an underlying deflationary bias. The above also means that the authorities are aware of the potential outcome of their monetary policy. Bernanke’s astounding comment shows that he is familiar with Austrian economics and understands the mechanics of what is happening. Compare his comment above to the following:

There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved. — Ludwig von Mises”

Since it appears that Bernanke does understand the dynamics involved, then the legitimate question that comes to mind is why persevere in a course of action that is clearly and glaringly politically expedient thus corrupt and detrimental to the well being of the nation and, by virtue of the US$ being the global reserve currency in a floating exchange rate environment, detrimental to the stability of other nations too.

Even more absurd is how Bernanke is willing to take credit for some things but not for other things that are intimately related. It is disingenuous of Berrnanke to deflect even partial responsibility for the rise in prices of commodities given that he is taking credit for the increase in value in the financial market for example. But more to the point, Bernanke is trying to make lemonade with the lemons he has unwittingly been left with. Bernanke is obviously counting on people’s short attention span. Namely, the original stated intent of QE was to keep interest rates artificially low by artificially propping up the bond market. What has happened instead is that despite the hundreds of Billions spent on QE the bond market has sold off regardless and interest rates took off effectively increasing the cost of new loans for companies and individuals.

What a crock of shit.

Can you see the concentration of profits?

January 29, 2011

This is the direct and inevitable result of a debt based fiat monetary system. When the inflationary tide withdraws, profit concentrates in the financial industry till it concentrates in the entities one step removed from the creator of the currency (Goldman Sachs is also in the enviable position of being both: a member of the entity that creates the money as well as a Primary Dealer which is the entity one step removed from the creator of the currency).

… and Bob’s your uncle…


What you can do

January 16, 2011

If you like many today, feel the Western democratic political process has failed you. If you, like many others, feel you have been taken advantage of by your leaders. If you, like many others, feel you are enslaved by an economic system that exploits you and gives nothing back. If you, like many others, feel there must be an alternative.

Here is what you can do and it won’t cost you any more than US$50. Not only that but it is also legal and safe. No need to take to the streets and risk being shot by an increasingly detached, tetchy and arrogant government.

Read on.

If you follow this blog you know I contend the monetary system is upstream of all human dynamics. Thus our entire socio/economic construct inscribes itself within our monetary system. Similarly, you will also know that the choice and management of the monetary system falls outside of the democratic process. Ergo, not only do politicians impose the system upon society but they also retain the right to manage it by decree.

So much for capitalism or, indeed, for our “open” societies based on democratic principles.

Western politicians have imposed a debt based fiat monetary system upon our societies. In the USA it started in 1913 and then from 1971 it gradually spread to all other countries.

The problem is that debt based fiat money is predicated on inflation. But inflation is a dynamic that conforms to the law of diminishing marginal utility so that greater degrees of inflation are progressively required in order to obtain the same result. In this case the “result” we seek is GDP expansion. So that in  order to keep GDP on a positive trajectory in a debt based fiat monetary system, government must necessarily induce progressively greater degrees of inflation in the economy.

But since inflation conforms to the law of diminishing marginal utility, it follows that the effect of inflation on GDP expansion must inherently be limited mathematically.

As the effect of inflation gradually wanes as it is mathematically true it will, government must necessarily intervene in the economy directly and at progressively greater and deeper degrees till government becomes the largest actor in the economy. This dynamic is accompanied by increasingly more severe and pervasive political crisis that is necessarily always accompanied by expedient politics, aberrant economic regulation and increasing degrees of corruption. As this dynamic evolves, social unrest becomes more pervasive and increasingly violent until it morphs into organized social unrest i.e. revolution.

History is replete with examples of what happens when a sovereign currency is debased.

The clearest indication that our current monetary system is pushing the mathematical limits is the endemic and pervasive corruption that permeates Western governments and institutions. It is clear today that the civic and political mechanisms that have made the West the envy of developing societies around the world have lost their intended function. Western governing elites no longer represent the aspirations and the hopes of their people and are instead beholden to select banks, corporations and unions in an attempt at maintaining the spending power of their office and that of their cronies in an attempt at perpetuating their own personal self interest.

I suppose that one of the clearest and most glaring examples of the incestuous and self serving nature of Western governments is given to us by none other than current US President Barak Hussein Obama whom, despite his pledge of change that carried him to the White House, just nominated another bank executive to the position of White House Staff thus not only reinforcing but also confirming and shouting it out loud from the roof tops that it is the banks that today pull the strings of puppet politicians.

But enough ranting.

Democratic politics is no longer a viable option for the common people. So, other than a violent uprising a la Tunisia, what can everyday folks do?

The easiest, most effective and devastating way to affect the political dynamic today LEGALLY is to exploit the weakness of the monetary system.

I say “legal” because it is still legal to suggest what I am about to suggest. However, beware! In Holland for example, a law is being debated that would criminalize the mere act of suggesting something similar to what I am about to suggest.


Debt based fiat money is predicated on the constant expansion of inflation. Inflation can only be expanded if the credit markets can be expanded.

You want to bring down currently sitting politicians and institutions?

Then you can prevent the expansion of the credit markets.

The easiest way to do that is to start accumulating gold and silver ingots or coins. We are not talking large sums here. If every person on earth acquired one silver ingot/coin and one gold ingot/coin that would suffice to bring the whole house of cards down. We are talking of an investment of US$50 per person at the most. Fifty Dollars!!!

If every single citizen in the West were to purchase one ingot or coin in silver and/or gold, that would deal a very serious blow to the major global banks. Take down the banks and you’ve paralyzed the political process.

If you really wanted to push the boat out there are other things you could do. Once again. These are so far all absolutely legal ways to put a very quick stop to the entire farce that is our political process.

Withdraw all your savings from the major global banks. Open accounts in smaller banks or cooperatives or just hold on to the cash. By withdrawing your savings you force banks !

to curtail their leveraged exposure.


These are very simple but lethally effective ways to put a stop to our governments and their shenanigans. But like everything in life, each action has an equal reaction.

Taking down the banks and paralyzing the political process is easy. In fact it is so easy most people cannot believe it is possible. But it is.

The downside of taking down the banks is that we’ll create dislocations in a myriad sectors of the economy and life in general. Things like public transport or trash collection might be terminated for example. Fuel deliveries might be disrupted. Road and bridge maintenance could be adversely affected. Pension funds might blow up.

Any of the above is possible and more.

However, there is a rationale for taking bitter medicine now rather than letting things plod along as they are.

By letting things plod along, not only are our social services and social safety nets already compromised but there is a more than reasonable certainty that our “leaders” are going to plunge us into a world war.

Essentially, as the monetary system is hitting the buffers and politics have become incestuous and corrupt, social expenditure must be curtailed. Curtailing social expenditure at the same time that the governing elite is caught neck deep in corruption will lead to social unrest and eventually to revolution.

But I guarantee that our “leaders” will not let revolution happen in the “developed civilized” West. Before social unrest morphs into revolution, our leaders will have packaged a nice war somewhere to fight an evil empire that ostensibly threatens our way of life.

The choice today is: bring down the political system legally and lets take the consequences of the subsequent dislocation that is sure to follow … or … plod along as we are doing today and let our “leaders” send our children to the slaughter along with countless and nameless children of parents in faraway lands.

A bon entendeur…